Tax Updates: July 2025

Saturday, July 5, 2025

Uttar Pradesh Becomes India’s #1 State in GST Registrations — Noida Leads Within UP

🏛️ Historic Milestone for Uttar Pradesh

In a major achievement, Uttar Pradesh (UP) has become the leading state in India in terms of the total number of active GST (Goods and Services Tax) registrations, according to the Central Board of Indirect Taxes and Customs (CBIC).

This milestone highlights the growing formalization of UP's economy, robust tax infrastructure, and the state’s digital governance efforts.

📊 Key Figures & Highlights

UP has surpassed all other states including traditionally dominant ones like Maharashtra, Tamil Nadu, and Gujarat.
The state has recorded over 27.5 lakh (2.75 million) active GST registrations.
UP now contributes a significant share of India's total indirect tax base.

📍 Noida: The Crown Jewel of GST Compliance in UP

Among all 75 districts in UP:

Gautam Buddh Nagar (Noida) ranks #1 in the state in terms of active GST registrations.
Noida has become a model city for tax compliance due to:

High density of industries and IT firms
Large number of startups and MSMEs
Presence of e-commerce and logistics hubs

Followed by: Ghaziabad, Lucknow, Kanpur, and Varanasi in terms of registration numbers.

🚀 Reasons Behind Uttar Pradesh’s Exceptional Performance

1. Digital Transformation and e-Governance

The GST portal has made it easy to register, file returns, and pay taxes online.
UP has invested in taxpayer facilitation centres, e-filing support, and mobile-based alerts.

2. Government Campaigns and Awareness Drives

Regular outreach programmes by the GST Department educated traders, shopkeepers, and small manufacturers about the benefits of registering under GST.
Workshops held in rural and semi-urban areas increased penetration in Tier 2 and Tier 3 towns.

3. Stringent Enforcement & Anti-Fraud Measures

Simultaneously, investigations were launched to detect bogus GST registrations, shell companies, and fraudulent ITC (Input Tax Credit) claims.
District-wise teams conducted field inspections, verification drives, and physical site checks.

4. Increased Business Formalization

The rise in GST registrations aligns with:

Growth in Udyam-registered MSMEs
Start-up activity across urban centres like Noida and Lucknow
Mandatory GST requirement for vendors supplying to big retailers, Amazon/Flipkart, and the government

🔍 Vigilance Against Fake Firms

Officials have warned that a spike in registrations also brings risk:

In high-density districts like Noida, Ghaziabad, and Agra, many firms were flagged for possible fraudulent GST activities, especially involving bogus ITC claims.
Actions taken include:

Suspending and cancelling GSTINs with unverifiable addresses
Blacklisting dealers under section 29 of the CGST Act
Cross-matching invoice data with e-way bills and bank records

💬 What Officials Are Saying

A senior GST officer (quoted anonymously) stated:

"Uttar Pradesh’s leadership in GST registrations is a testament to its growing digital adoption and business ecosystem. We aim to balance growth with rigorous compliance."

They also emphasized that this trend not only reflects formalization but also builds a strong tax base to fund state infrastructure and services.

🔄 How This Impacts the Economy

Impact Area	Positive Effect
Tax Revenue	Higher and more predictable GST collections
MSME Growth	Easier access to credit, tenders, and B2B trade
Compliance Culture	Stronger habit of tax filing and digital billing
Data Transparency	Better insight into regional and sectoral trends

📌 Conclusion

UP's rise to the top of the national GST registration chart is a significant administrative and economic achievement. Noida, as the leader within the state, reflects how urban-industrial ecosystems can foster tax compliance when combined with digital tools and regulatory pressure.

This trend could serve as a blueprint for other states, especially those aiming to formalize their unorganized sectors and expand their revenue base.

Major GST Relief Likely: Government May Lower Tax on Essential Household Items

🏛️ What Is Happening?

The Indian government is actively reviewing the GST (Goods and Services Tax) structure and is likely to reduce the tax rate on several essential household items, aiming to bring economic relief to middle-class families and stimulate consumption.

📉 Current GST Structure & Proposed Changes

India’s GST system currently operates across four major slabs:

5% (essentials)
12% (standard household use)
18% (general standard rate)
28% (luxury/sin goods)

🎯 Proposed Move:

The government is considering eliminating or merging the 12% slab.
Many products currently taxed at 12% may be shifted to 5%, making them more affordable.

🧺 Common Items That May Become Cheaper

The following daily-use items—mostly consumed by middle- and lower-income households—are under review for GST reduction:

Item	Current GST	Proposed GST
Toothpaste	12%	5%
Toothbrushes	12%	5%
Utensils (e.g. steel)	12%	5%
Shoes (below ₹1000)	12%	5%
Readymade Clothes	12%	5%
Household consumables	12%	5%

👉 Result: Cheaper household goods → Higher savings for families → Potential boost in retail demand

💬 Why Is This Happening Now?

Middle-class pressure and demand for relief due to rising inflation.
The government wants to simplify the GST regime to make compliance easier and taxation fairer.
Also seen as part of a preparation for fiscal consolidation and consumer-friendly economic messaging, possibly ahead of state elections or broader economic reforms.

🧠 Policy & Technical Implications

Moving items from 12% to 5% will impact government revenues but could be offset by:

Increased volume of sales
Improved GST compliance
Wider tax base from consumption-led growth

This may also reduce classification disputes—where businesses argue about which rate applies to a particular good.

🧾 GST Council's Role

The GST Council, chaired by the Union Finance Minister and comprising state ministers, will:

Review tax structure
Approve any rate changes
Ensure states' consent (important since GST revenue is shared)

Next Council meeting is expected soon, where this agenda could be tabled.

📊 Expected Benefits

Stakeholder	Benefit
Consumers	Lower prices on essentials, better affordability
FMCG companies	Boost in volume-driven demand
Retailers	Higher footfall and turnover
Small industries	Improved cost competitiveness for basic manufactured goods
Government	Simplified GST slabs; better perception among citizens

⚠️ Potential Risks / Considerations

Revenue loss from lower GST rate may affect fiscal projections.
Must ensure states are compensated fairly if collections drop.
Need for strict monitoring so companies pass on benefits to customers (i.e., don’t keep profit margins higher).

📌 Conclusion

This potential rate reduction is not just a tax tweak—it’s a strategic move aimed at economic relief, tax simplification, and consumer satisfaction. If approved, it would mark one of the most consumer-friendly changes in GST history since its rollout in 2017.

Fruit Drinks, GST Loopholes, and the Mango Pulp Controversy

📉 What’s the Issue?

Several beverage manufacturers in India are reportedly reducing the actual fruit content—specifically mango pulp—in their packaged drinks. Earlier, these drinks contained about 20% mango pulp, but now many contain just 10%–11%.

🎯 Why Are Companies Doing This?

The answer lies in India’s Goods and Services Tax (GST) structure:

Drinks with ≤10% fruit pulp: Attract 12% GST (seen as “flavored beverages”).
Drinks with >10% fruit pulp: Attract a much higher 28% GST + 12% compensation cess (classified under “fruit juices with substantial fruit content”).

So, companies are allegedly tweaking their recipes to reduce fruit content just below the 10% threshold, helping them pay less tax and keep prices competitive.

📜 DMK MP Kanimozhi Raises Alarm

📩 Letter to the Finance Ministry

DMK Member of Parliament Kanimozhi Karunanidhi wrote directly to the Union Finance Minister, expressing concern that:

This tax-driven dilution of pulp content is unethical.
It harms mango farmers, who depend on beverage companies for large-scale procurement.
Consumers are misled, as they assume they're drinking healthier, pulp-rich juices.
She urged for investigations and policy corrections to protect both producers and consumers.

📉 Impact on Mango Farmers

Farmers report a drastic drop in bulk orders from beverage companies.
Since pulp-rich mango varieties like Totapuri, Alphonso, and Dasheri were in demand for fruit-based drinks, the shift affects these crop sales.
Farmers have no alternative market to absorb the sudden reduction in demand.

👥 Expert Opinions

Tax and food industry experts point out:

Companies are not breaking the law, but exploiting a loophole.
The GST rule unintentionally incentivizes lower fruit content—a policy contradiction.
A clarification or amendment in GST categorization is needed to prevent such misuse.

🧾 Consumer Rights Violation

Consumers are buying drinks that appear to be real fruit juice, but are more like sugar-flavored beverages.
These drinks still use images and branding that suggest high fruit content.
Nutritionists warn that these low-pulp drinks are less healthy and mostly sugar and additives.

🏛️ Possible Government Action

The Finance Ministry is expected to review the GST slab structure.
Policy makers may consider redefining what qualifies as a “fruit-based beverage”.
Labels and product packaging might also require stricter disclosure norms on fruit pulp percentage.

📌 Bottom Line

To reduce taxes, many beverage brands are sacrificing product quality by lowering real fruit pulp content—affecting farmers, consumers, and food integrity. With political intervention now underway, the issue could lead to regulatory tightening or a revised GST policy to encourage healthier, transparent practices.

No refund on ITR AY 2025-26 until Income Tax Department completes investigation on your…

Despite over 75 lakh income tax returns being filed and more than 71 lakh verified so far this year, the Income Tax Department is withholding refunds on new ITRs. Officials say no refund will be issued until taxpayers’ past returns and pending assessments are thoroughly reviewed—a move aimed at curbing fake refund claims.

The income tax returns (ITR) filing for AY 2025-26 started at the end of May this year, and so far, more than 75 lakh returns have been filed. Of these, about 71.1 lakh returns have been e-verified, according to the details shared by the I-T department on its official website. Earlier, the number of ITRs processed used to be updated regularly on the website, but now that data is no longer visible. Here’s a screengrab of the webpage where the section is now showing blank. The number of ITRs processed used to appear just below the number of ITRs verified.

Your ITR processing and tax refunds may take time this year – know why

Tax experts are of the view that the Income Tax Department will issue refunds only after it fully examines the assessment reports and old tax returns of the past years.

This year, the income tax return filing too started quite late at the end of May, almost with a month’s delay. And now ITR processing and refunds are said to be taking time.

Refunds will be given only after reviewing the old returns

According to tax professionals, when the reports surfaced in April that this year the refunds might take some extra time and not be given immediately, many people would not have taken it seriously, but now that lakhs of people have filed their ITR and most of them are awaiting refunds, questions are being raised.

This time, the tax department wants to ensure that the taxpayers did not commit any kind of fraud in the previous years, and that is why all the old ITRs and assessment orders are being reviewed again, according to them.

This step is part of the department’s new strategy so that fake refund claims can be stopped. Tax officials have also been instructed that if scrutiny of any taxpayer is pending in the previous years or the assessment has not been closed, then new refunds should be stopped.

Tax experts believe that this time, the delay in refund may cause problems to those honest taxpayers who file ITR on time every year and do not have any pending cases against them.

A senior tax consultant says, “The IT department should create a transparent and clarifying system, so that taxpayers can know why their refund is stuck and in how many days processing can be expected. At present, there is confusion due to lack of any communication.”

What is the update so far?

-The process of filing ITR started at the end of May 2025

-So far more than 75 lakh ITRs have been filed

-More than 71.1 lakh returns have been e-verified

-The data of the number of ITRs processed on the department’s website has been removed

-The tax department will issue refunds only after checking the tax records of old years.

What should taxpayers do?

Experts advise that taxpayers do not need to panic. If you have filed your ITR properly and filled all the details correctly, then you will get the refund, albeit late.

The taxpayers keep checking the processing status. Apart from this, if any assessment notice was received in the previous years, then check its status as well.

The Income Tax Department last month extended the deadline to file the income tax return for AY 2025-26 to September 15, 2025. The earlier deadline was July 31, giving taxpayers in the non-audit category 46 days of additional time to fulfil their ITR filing obligations.

Daily wagers duped into aiding Rs 157-cr GST scam in Ludhiana

An accountant in Ludhiana devised an elaborate scheme to fraudulently claim input tax credit (ITC) worth crores from the government. But no crime is perfect and after three years of illicit gains, law enforcement agencies finally caught up with his crime, though the mastermind, Sarabjit Singh, remains absconding.

Sarabjit created 20 fake firms in the names of unemployed youth, conducted fraudulent transactions worth Rs 866.67 crore through these entities and fraudulently claimed input tax credit of Rs 157.22 crore using bogus bills.

Singh and his accomplices lured nearly 20 daily wage labourers and unemployed youth and promised them Rs 800 per day in exchange for access to their bank accounts.

Since these men were poor, earning up to just Rs 500 a day, they agreed and shared their bank account and Aadhaar details with the accused. These accounts were then used to register the bogus firms, obtain GST numbers and open associated bank accounts. The firms existed only on paper, with no physical premises or genuine commercial activity.

A senior taxation officer said, “Between 2023 and now, fraudulent transactions worth Rs 866 crore were recorded. The accused claimed input tax credit of Rs 157.22 crore, Rs 45.12 crore in 2023-24 (on bogus transactions worth Rs 249 crore), Rs 104.08 crore in 2024-25 (transactions worth Rs 569.54 crore), and Rs 8.01 crore in the first two months of this fiscal (transactions worth Rs 47.25 crore).”

The State Intelligence and Preventive Unit (SIPU) uncovered the fraud, leading to an FIR in Ludhiana. While Sarabjit Singh remains at large, his two accomplices have reportedly been arrested. Finance Minister Harpal Cheema stated, “We have seized critical evidence, including unsigned cheque books, stamped NEFT forms, fake invoice books and Rs 40 lakh in cash. Investigations are ongoing, focusing on ITC claims, e-way bills and identifying beneficiary firms.” He said SIPU was being strengthened to prevent future frauds.

In a related case, the Department of Taxation uncovered a GST fraud involving Maa Durga Roadlines, a transporter accused of generating bogus e-way bills and facilitating unaccounted goods movement worth Rs 168 crore. Cheema said the e-way bills were created using credentials of Ludhiana-based firms, falsely showing goods movement from Delhi to Ludhiana, although no vehicles actually entered Punjab. The firm engaged in fake transactions involving high-value commodities like copper, tobacco and iron and steel scrap, fraudulently claiming ITC of Rs 30.66 crore.

Source : https://www.tribuneindia.com/news/punjab/daily-wagers-duped-into-aiding-rs-157-cr-gst-scam-in-ludhiana/

Thursday, July 3, 2025

Handling of Inadvertently Rejected records on IMS

Question 1: How can a recipient avail ITC of wrongly rejected Invoices/ Debit notes/ECO-Documents in IMS as corresponding GSTR-3B of same tax period was also filed by recipient?

Answer: In such cases recipient can request to the corresponding supplier to report the same record (without any change) in same return period’s GSTR-1A or respective amendment table of subsequent GSTR-1/IFF. Thus, recipient can avail the ITC basis on amended record by accepting such record on IMS and recomputing GSTR-2B on IMS. Here the recipient will get ITC of complete amended value as original record was rejected by the recipient.

However, recipient will be able to take ITC for the again furnished document by the supplier, as stated above, only in the GSTR-2B of the concerned tax-period.

Question 2: If any original record is rejected by the recipient and supplier furnishes the same record in GSTR-1A of same tax period or in the amendment table of GSTR-1/IFF of subsequent period, till the specified time limit, then what impact it will have on supplier’s liability?

Answer: In case supplier had furnished an original record in GSTR-1/IFF but the same record was rejected wrongly by the recipient in IMS. In such cases supplier on noticing the same in the supplier’s view of IMS dashboard or on request of recipient, may furnish the same record again (without any change) in GSTR-1A of same tax period or in the amendment table of GSTR-1/IFF in any subsequent period, till the specified time limit, then the liability of supplier will not increase. As amendment table take delta value only. Thus, in present case of same values, differential liability increase will be zero.

Question 3: As a recipient taxpayer, how to reverse ITC of wrongly rejected Credit note in IMS as the corresponding GSTR-3B has already been filed?

Answer: In such cases recipient can request the concerned supplier to furnish the same Credit note (CN) without any change in the same return period’s GSTR-1A or in amendment table of subsequent period’s GSTR-1/IFF. Now recipient can reverse the availed ITC based on the amended CN by accepting the CN on IMS. Hence, the recipient’s ITC will get reduced with complete amended value, as soon as the recipient recomputes GSTR-2B on IMS. The reduced value is same as that of the value of original CN as in this case the complete original CN was rejected by the recipient.

Question 4: If any original Credit note was rejected by the recipient and supplier furnishes the same credit note in GSTR-1A of same tax period or in the amendment table of GSTR-1/IFF of any future tax-period, till the specified time limit, then what impact it will have on supplier’s liability?

Answer: At first instant the supplier’s liability will be added back in the open GSTR-3B return, because of original credit note rejection by the recipient. However, as the supplier furnishes the same credit note in GSTR-1A of same tax period or in amendment table of GSTR-1/IFF in any subsequent period, supplier’s liability for this amendment will get reduced again corresponding to the value of amended CN (which in this case is same as original). Thus, net effect on liability of supplier will be only once.

Thanking You,
Team GSTN

Source : https://www.gst.gov.in/newsandupdates/read/613

Mangoes, Misinterpretations & the Law: Gujarat HC serves a tangy verdict on GST!

The Gujarat High Court recently delivered a significant verdict regarding the Goods and Services Tax (GST) applicable to mango pulp. This decision brings much-needed clarity for businesses in the food processing industry, particularly those dealing with mango-derived products.

Here's a breakdown of the key aspects of the case and the court's ruling:

The Dispute:

A supplier, Harshad Mango Products , argued that mango pulp should be taxed at a 5% GST rate, claiming it was derived from sliced and dried mangoes which attract the concessional 5% rate.
The tax department, however, asserted that mango pulp falls under the category of "mangoes other than sliced and dried" and is subject to a 12% GST rate, citing relevant notifications and a clarification circular.

The Gujarat High Court's Verdict (Harshad Mango Products Pvt. Ltd vs Union Of India on 23 April, 2025):

The High Court upheld the department's position, ruling that mango pulp is taxable at 12% GST.
The court clarified that mango pulp is neither fresh mango (which is GST exempt) nor sliced and dried mangoes.
It emphasized that the 12% rate has been in effect since the introduction of GST in July 2017, and the relevant notifications and circulars merely served as clarifications, not retrospective amendments.
The court also rejected the revenue officials' contention that mango pulp should attract an 18% GST under the residual entry for items not specifically categorized.

Key Legal Observations:

The court referred to its previous decision in Vimal Agro Products Pvt. Ltd. v. Union of India on 24 April, 2024, where a similar issue regarding mango pulp GST was addressed.
It noted that the Harmonized System of Nomenclature (HSN) Chapter 08.04, which covers edible fruits and nuts, only refers to fresh or dried mangoes, not pulp.
Entry 30A of Schedule I, which offers a 5% rate, specifically applies only to sliced and dried mangoes.
The court confirmed that Circular 179/11/2022 and Notification 6/2022 were clarificatory in nature, reinforcing the existing 12% GST rate on mango pulp.

Implications for Businesses:

Companies involved in the production and sale of mango pulp need to ensure they have been consistently applying the 12% GST rate since July 2017.
Businesses that applied lower rates may face back tax assessments and potential penalties.
This ruling emphasizes the importance of correctly classifying products and understanding the applicable GST rates to avoid disputes with tax authorities.

In essence, the Gujarat High Court's "tangy verdict" affirms that mango pulp falls under the 12% GST category, putting an end to past interpretations and providing a clear framework for tax compliance in the mango processing industry.

GST Dispute Hits Dabur’s Hajmola: Ayurvedic Medicine or Candy?

The Directorate General of GST Intelligence (DGGI) has issued a show-cause notice on Hajmola, a popular product of Dabur known for its digestive properties, for the issue of classification. The problem is whether the same must be deemed as a normal candy or an Ayurvedic preparation.

After the investigation, the Show Cause Notices (SCN) have been issued. The company had received a summons earlier. Before the investigation, they made specific submissions. The problem is that if this is a normal candy or an Ayurvedic preparation.

There is an 18% GST for normal candy and a 12% on Ayurvedic preparations. The company does not respond to new developments till the time of proceeding to the press.

An identical issue was introduced in the pre-GST regime when the Supreme Court in 2002 had dismissed an appeal of the Commissioner of Central Excise, Chandigarh, against a ruling by the erstwhile CEGAT (Central Customs, Excise & Gold Appellate Tribunal, now known as the Customs Excise and Service Tax Appellate Tribunal or CESTAT), which CEGAT repeated that Hajmola Tablets are Ayurvedic medicines.

In another ruling by the Allahabad High Court in 2016, when Uttar Pradesh’s Commercial Tax Department appealed against a ruling via a tribunal which ruled that ‘Chyawanpras,’ ‘Hajmola’ and ‘Hajmola Candy’ are medicines for tax.

The Department contested the ruling by asking: “Whether, on the facts and circumstances of the case, the tribunal was legally justified in holding ‘Chyawanprash,’, ‘Hajmola’ and ‘Hajmola Candy’ to be medicines even though they are not sold in the medical shops but rather in general stores?”

The court observed the tribunal’s statement, which expressed that Dabur India has manufactured all three products for many years under a license granted to it by the licensing officer of Ayurvedic and Unani Services under the Drug and Cosmetics Act, 1940.

The tribunal ruled that for any product manufactured under a license for a drug, the nature of the product would be that of a medicine.

The court, the matter of Lal Dant Manjan, which is manufactured based on a license issued under the Drugs and Cosmetics Act and would be treated as a medicine or drug.

“The place of sale of any product is not a relevant criteriona for determining its nature as to whether it is a drug/medicine or an item of general use;, rather, the relevant criteriona is the license under which such a product is being manufactured, and if the license is for the purposes of manufacturing a drug or medicine under the relevant statute, the product would essentially be a drug/medicine,” it expressed while dismissing the appeal by the tax department.

After doughnuts, Hajmola candy is the latest case of misclassification. DGGI imposes Rs 100 crore tax notice on Mumbai-based MOD for allegedly misclassifying its doughnut.

A 5% GST rate on doughnuts, the chain has been charged, asserting they are entitled to restaurant services rather than the 18% tax applicable on bakery items. The notice has been stayed, but the case is pending in the Bombay HC.

SBI Cards gets GST show cause notice for ₹81.93 crore over input tax credit claims

Leading pure-play credit card issuer SBI Cards and Payment Services Ltd on Tuesday (July 1) said it has received a show cause notice from the Additional Commissioner (East 1), CGST Gurugram, proposing to disallow input tax credit (ITC) amounting to ₹81.93 crore.

The notice, issued on June 30, 2025, covers the assessment period from FY 2018-19 to 2020-21 and was shared with exchanges on July 1.

As per the show cause notice, the proposed disallowance includes ₹81.45 crore due to mismatches between GSTR-2A and GSTR-3B filings and ₹47.53 lakh related to supplies from vendors whose GST registrations were cancelled retrospectively or who failed to file GSTR-3B.

The total demand is being considered under Section 74(1) of the Central Goods and Services Tax Act, 2017, read with corresponding provisions of the SGST and IGST Acts.

The company has been asked to show cause within 30 days of the notice as to why the ineligible ITC should not be recovered along with interest under Section 50 of the CGST Act and a penalty equivalent to the ITC claimed.

The total ITC under dispute comprises ₹63.55 crore under IGST, ₹8.89 crore under CGST, and ₹8.99 crore under SGST. SBI Cards maintains that it has availed credit in compliance with GST law and is confident that the demand will be dropped. The company believes it has a strong case on merits and expects a favourable outcome.

Shares of SBI Cards and Payment Services Ltd ended at ₹932.35, down by ₹18.55, or 1.95%, on the BSE.

GST Fraud in Madhya Pradesh: ₹130 Cr Fake ITC Scam Exposed

The Madhya Pradesh Economic Offences Wing (EOW) has recently unearthed a massive ₹130 crore GST fraud involving fake Input Tax Credit (ITC). The case highlights the growing misuse of GST registration systems for availing illegal tax credits through shell companies and bogus invoices.

Let’s break this down to understand how such scams work, what legal provisions apply, and how taxpayers and consultants can safeguard themselves.

What is Fake Input Tax Credit (ITC)?

Fake ITC refers to claiming tax credit on invoices for which no actual supply of goods or services took place. It is one of the most common GST fraud methods.

Key characteristics of fake ITC fraud:

Use of non-existent or paper-only firms
No movement of goods/services
Bogus GST invoices
ITC passed on without tax payment to the government

Madhya Pradesh Case: How the ₹130 Cr Scam Was Run

According to the EOW investigation:

A group of individuals created over 50 fake GST-registered firms
These shell companies issued bogus invoices to each other and to genuine firms
Fake ITC worth ₹130 crore was claimed and passed on
The scam was run across multiple states using forged documents

Legal action:

FIR filed under IPC and CGST Act, 2017
Arrests are likely under Sections 132(1)(b), (c), and (f) of the CGST Act
Properties and bank accounts are being frozen

GST Law on Fake ITC: What Does Section 132 Say?

Under the Central Goods and Services Tax (CGST) Act, 2017, Section 132 deals with offences and penalties for GST frauds, including fake ITC.

Key penalties:

Offence	Amount Involved	Punishment
Fake ITC without supply	> ₹5 Cr	Jail up to 5 years + fine
Repetition of offence	Any amount	Non-bailable offence
Fake invoices	> ₹2 Cr	Cognizable and non-bailable

Also, the GSTR-3B and GSTR-1 filings are now more strictly scrutinised with data analytics and AI tools by GSTN to catch such anomalies.

Red Flags That Signal Fake ITC Risk

To stay compliant, look out for these signs in your vendor ecosystem:

Suppliers without e-way bill or delivery proof
Vendors not filing GSTR-3B or GSTR-1 regularly
Large purchases from new/unverified GSTINs
Tax mismatch in GSTR-2B vs. GSTR-3B

🔍 Tip: Use the GST portal to verify vendor return filing status and GSTIN authenticity.

How to Report or Avoid GST Frauds

If you’re a taxpayer or consultant:

Conduct due diligence before onboarding vendors
Reconcile GSTR-2B with GSTR-3B monthly
Avoid availing ITC if supplier has defaulted in tax payment
Use tools or consultants to check ITC validity

To report fraud:

Visit the official GST grievance redressal portal:
🔗 https://selfservice.gstsystem.in/

Legal Consequences for Involved Persons

Fraudsters may face:

Arrest without warrant
Seizure of property and bank accounts
Reversal of entire ITC with interest (Sec 73/74)
Prosecution under IPC for forgery, cheating, criminal conspiracy

Even buyers who knowingly receive fake invoices can be penalised under Section 122 of the CGST Act.

Protecting Your Business from Fake ITC Issues

✅ Register vendors with known credentials
✅ Use e-invoicing and proper documentation
✅ Reconcile GST returns monthly
✅ Keep proofs of goods received and tax paid
✅ Avoid dealing in cash-heavy sectors with no traceability

Conclusion

The ₹130 crore GST fraud in Madhya Pradesh is a reminder of how serious fake ITC scams have become. We advises all taxpayers and consultants to follow due diligence, ensure return reconciliation, and avoid shortcuts.

Wednesday, July 2, 2025

15 Dangerous GST Violations You Might Be Making in GST Returns Filing! check now

Even well-intentioned taxpayers face GST penalties due to complex rules and overlooked compliances. Here are 15 major GST return violations—many of which are not visible at surface level but can cause notices, ITC reversal, interest, or even audit.

1. ❌ Wrong Filing in GSTR-1 Auto-Populates Incorrect GSTR-3B

Once you file GSTR-1 wrongly, it auto-fills 3B, and with portal restrictions increasing, manual corrections may not be allowed. Avoid mismatch in output tax and outward supplies.

2. ⚠️ Non-Reversal of ITC under Rule 37A – Supplier Didn’t Pay Tax

Rule 37A mandates reversal of ITC if the supplier doesn’t deposit GST in their GSTR-3B by the 30th November of the next financial year. Recipient must track compliance of vendors or risk reversal and interest!

3. 📉 No Reconciliation with GSTR-2B

2B is the final document for eligible ITC—not 2A. Ignoring reconciliation will lead to over-claimed ITC, which the system or officers can catch, leading to reversal with penalty.

4. 💸 Purchase from Cancelled GSTINs

Claiming ITC on purchases from suppliers whose GSTIN is cancelled is invalid. This is easy to overlook unless vendor status is regularly checked on the portal.

5. 🔐 Non-Compliance with Rule 86B

If monthly turnover exceeds ₹50 lakh, 1% of GST must be paid in cash. Ignoring this can lead to system restrictions or filing blockage.

6. 📆 Failure to Pay Vendors Within 180 Days

Under Section 16(2), if payment isn’t made within 180 days, ITC must be reversed with interest, and can only be reclaimed after actual payment. This is a red flag in assessments.

7. 🧮 ITC Reversal for Exempt Supplies Not Done (Rule 42/43)

If you deal in both taxable and exempt goods/services, a proportionate reversal under Rule 42 (inputs/services) & 43 (capital goods) is mandatory, but frequently skipped.

8. 🪙 Miscellaneous Incomes Not Reported

Scrap, commission, penalties, forex gains — all such miscellaneous incomes are taxable. They must be disclosed in outward supplies or else mismatches will occur with ITR.

9. 🔍 No GST Paid on Advance Received

For certain goods and all services, GST is applicable on advance receipt. If not declared properly, mismatches between books and GSTR-1/3B arise.

10. 🧾 RCM Liability Ignored on Common Expenses

Expenses like freight (GTA), advocate fees, rent from unregistered persons, director remuneration may attract RCM. Not discharging this liability = non-compliance + ITC ineligibility.

11. 🧯 Incorrect Valuation of Related Party Transactions

Even if no consideration is involved, GST valuation rules apply to transactions with sister companies, branches, or directors. Use open market value or Rule 28 provisions.

12. 🧷 Late GSTR-1 Filing – No Late Fee, But Notice Still Possible

Many think they’re safe if no late fee shows on portal, but officers can issue notice under Section 46 or 122, demanding penalty for late filing.

13. 🧾 Capital Goods Supplied but ITC Not Reversed as per Rule 40(2)

When capital goods or plant & machinery are sold, transferred, or disposed of, the remaining Input Tax Credit must be reversed.

As per Rule 40(2) of CGST Rules, ITC is reduced by 5% per quarter (or part) from the date of invoice till the date of disposal. If not reversed or taxed correctly, this attracts GST audit objections and recovery with interest.

Example: If a machine purchased in Jan 2023 is sold in June 2025 (i.e., 10 quarters later), 50% of ITC (5% × 10) must be reduced from the originally claimed ITC, and only the balance can be retained or taxed on the transaction value—whichever is higher.

14. 📊 Wrong HSN/SAC Code Reporting

Incorrect HSN/SAC leads to rate mismatch, especially now with auto-mapping of e-invoices & e-way bills. Mandatory HSN disclosure applies to most taxpayers.

15. 🧾 Incorrect Reporting in Table 4 of GSTR-3B

Misplacing RCM ITC, import ITC or credit notes in wrong heads can lead to mismatches in GSTR-9 and audit flags.