Invoice without Supply

Defending Against Allegations of Issuing Invoices Without Underlying Supply

Allegations of issuing invoices without actual supply of goods or services-commonly referred to as "fake invoices"-are treated seriously under GST and other tax laws. However, there are established legal and procedural defenses available to those accused. Here’s how to structure a defense:

1. Demand Specific Allegations and Evidence

• Authorities must provide a clear show cause notice (SCN) detailing the specific allegations and the evidence relied upon. Vague or generic notices can be challenged as violating principles of natural justice, as established by the Supreme Court in several judgments.

• Request all relied-upon documents and the opportunity to cross-examine any witnesses whose statements form the basis of the allegations.

2. Prove the Genuineness of Transactions

• Present comprehensive documentation to demonstrate that the transactions were bona fide. This includes:

  • Valid purchase orders

  • Transport and delivery records (e.g., e-way bills, lorry receipts)

  • Proof of payment (bank statements, payment advices)

  • Goods receipt notes or service completion certificates

  • Correspondence with the counterparty

• If the movement of goods or provision of services can be established, it directly counters the allegation of non-supply.

3. Burden of Proof

• The initial burden of proof lies with the department to establish that there was no actual supply and that the invoices are fake. Mere suspicion or the fact that the supplier is under investigation is not sufficient-there must be cogent evidence of non-supply.

• Courts have held that unless it is established that the recipient has not received the goods or paid for them, denial of input tax credit (ITC) or penal action is not justified.

4. Procedural Safeguards

• Insist on adherence to due process:

  • Right to be heard before any adverse action is taken

  • Right to challenge the validity of the SCN if it lacks clarity or evidence

  • Right to cross-examine persons whose statements are used against you3

5. Defenses Based on Lack of Intent or Mistake

• If there was no fraudulent intent, and the transaction was entered into in good faith, this can be a valid defense. For criminal liability, intent (mens rea) must be established by the prosecution.

• Mistaken identity or clerical errors, if proven, can also be a defense.

6. Judicial Precedents

• Refer to relevant case law where courts have quashed proceedings or demands based on insufficient evidence, procedural lapses, or violation of natural justice.