The GST law takes a stringent view of fraudulent Input Tax Credit (ITC) claims. A recent Mumbai sessions court decision rejecting the anticipatory bail plea of accountant Ashutosh Pandey underlines an important point: in GST fraud cases, liability may extend beyond company directors to employees who were involved in, or were negligent in preventing, the wrongdoing. The argument that “I was only an employee” may not be enough to escape legal action.
Section 132(1) of the Central Goods and Services Tax (CGST) Act, 2017, treats several activities as serious offences, including:
Fake invoices: Issuing invoices without any actual supply of goods or services and using them to claim ITC.
Fraudulent ITC claims: Fraudulently claiming ITC, whether or not fake invoices are used.
Falsification of records: Manipulating financial records or creating false documents with the intention of evading tax.
The punishment under the GST law varies depending on the amount of tax involved:
₹1 crore to ₹2 crore: Imprisonment of up to one year, along with a fine.
₹2 crore to ₹5 crore: Imprisonment of up to three years, along with a fine.
Above ₹5 crore: Imprisonment of up to five years, along with a fine.
Where the amount involved exceeds ₹5 crore, the offence is cognisable and non-bailable, making the possibility of arrest particularly serious. In certain cases involving amounts above ₹2 crore, Section 69 also empowers the GST authorities to order an arrest, subject to the conditions prescribed under the law.
In Ashutosh Pandey’s case, the alleged fraud involves ₹20.30 crore.
Section 137 is particularly relevant when a company commits an offence. Directors, managers, accountants, clerks and other officers who were responsible for the conduct of the company’s business can also be held liable if the offence was committed with their consent or connivance, or was attributable to their neglect.
Resigning from the company does not automatically end the legal liability. If a person was involved in the company’s affairs when the alleged offence took place, subsequent resignation does not by itself prevent prosecution.
The provisions relating to arrest under Section 69 make such cases even more serious. Where the statutory conditions are met, GST authorities can arrest a person suspected of committing an offence involving an amount above the prescribed threshold.
GST credentials and OTPs matter: If someone uses your GST credentials or an OTP sent to your phone to make a fraudulent filing, you could still come under scrutiny. Employees must therefore protect their GST login credentials, digital signatures and OTPs.
“The boss told me to do it” is no defence: Employees are not legally required to follow unlawful instructions. Assisting in fraudulent transactions can expose an employee to prosecution.
Large frauds can lead to arrest: Where the amount involved crosses the statutory threshold, the offence can have serious consequences, including arrest and restrictions on bail.
Bank transactions can create a trail: Allowing bank accounts to be used for circular trading, fake transactions or fraudulent e-way bills can make an employee or officer part of the investigation.
Resignation does not erase past conduct: Leaving the company after the alleged offence does not automatically protect an employee from prosecution for actions taken while employed.
For employees
Do not act on questionable instructions without creating a written record.
If asked to prepare suspicious invoices or documents, raise the concern with HR or a senior officer through email.
Never share your digital signature certificate, GST login credentials or OTP with others.
Keep documentary evidence of instructions received and work performed.
For business owners
Provide employees with proper training on GST compliance and their legal responsibilities.
Strengthen internal audit and compliance systems.
Regularly reconcile purchase records with GSTR-2A/2B and the purchase register.
Monitor GST filings, invoices, e-way bills and bank transactions for inconsistencies.
Ignorance of GST law is not necessarily a defence when an employee or officer becomes involved in fraudulent activity. Where there is any doubt, businesses and employees should seek professional advice from a chartered accountant or tax lawyer before proceeding.
(The author is an advocate at the Kerala High Court and a consultant on business laws, including GST. He is the author of the book ‘GST Niyamangal Malayalathil.' Phone: 98462 27555, 98950 69926.)