A very unethical, unruly and obnoxious practice damaging the economy of the state as well as the welfare oriented state has been causing a kind of menace as well as disturbance, in the administration of fiscal laws. No doubt, the Tax Men and Courts never encouraged such practice and on the converse, such practice was of course handled with all deterrence. A few might be benefitted temporarily to the disadvantages of the genuine or the bonafide tax payers, nevertheless is always a temporary relief at the cost of higher punishment.

Let us examine the meaning of the word, “Bogus”. According to the Oxford 20th century dictionary as well as the interpretation placed by the judiciary many a time, any kind or every type of fake, spurious and in genuine document is called “Bogus”. To say, otherwise, a bogus or spurious document is considered to have never existed, but built up to derive undue, illegal, and illegitimate benefit or profit to the detriment of the state revenue on one hand and the society at large on the other.

To-day the time is passing through witnessing bogus transactions not only in taxation matters, but also in other fields involving money as well as encroachment of the properties, when it is a universally known fact even to the naked eye of every person, why the practice grows with its’ stripes spreading over different parts of the country, is the society or government with all stringent and deterrent laws, helpless without any teeth? Is it a cause for continuation of this immoral practice the black sheep in every field responsible.

The root cause for this menace is the higher dose of taxation in our country in various names. As the strongest view formed by the public in general and trading community in particular that out of every hard earned rupee more than 95% goes to the state in various forms of taxation. From the balance 5 paise, the business community has to meet the establishment expenditure, interest on borrowals, other rates and payments and finally the cost of living. Therefore, the intention to benefit out of bogus transaction is evasion.

Under direct taxation many a tax payer used to create certain vouchers, debit notes to inflate the business expenditure to have it deducted from taxable income, so that the net tax payable gets reduced. Coming to the next gray area is indirect tax laws. Where it was single point levy on sale or purchase of goods leading to exemption in respect of all subsequent transaction of sale or purchase, people used to create or obtain bogus bills from persons admittedly registered under the provisions of law, so as to show that the transactions are of secondary nature falling outside the purview of first sale. What is a first sale or a sale in the state of goods affected for the first time. What is first time? First time sale is on account of production of goods manufactured in the state intended for sale and secondly, sale of goods in the state first time, after importing such goods into the state either from other states or from the country or places outside the country. Second and subsequent transactions of sale or purchase from out of purchase of goods affected within the state are called secondary sales, which are exempted from tax. Where the sale is single point levy on first sale. After advent of VAT laws, the single point levy system has been dispended with or discarded. On the contrary, sale of goods at every point is liable to tax, of course, with the benefit of allowing input tax credit, resulting in net liability payable on value addition basis. The means at the first point of sale in the state on account of the above mentioned two eventualities, has to be visited with total tax liability and the tax charged on the same value and collected from the subsequent buyer is allowed as input tax credit for being offset from the tax payable by subsequent dealer in the series. There shall be no difficulty to appreciate that every indirect tax levy percolates down the line to mean it is a consumer based tax, the avowed object of VAT regime in contradistinction to General Sale Tax law was to remove cascading affect of tax namely tax on tax. The itching hands did not stop and the bogus transactions regime having strong roots also spread to the VAT regime, where after to the GST regime. This is to certain extent dependent on the complicity of tax administration for various reasons. On the basis of the spurious invoices without here being actual payment of tax on such transaction, the subsequent sellers in seriatim claiming input tax credit to the extent of the tax mentioned in the bill. Thus, there is a dual loss to the state exchequer with simultaneous benefit to the person issuing the bogus bill and person produces such bill. Lot of litigation with no end, ultimately forced the legislature to bring in certain changes in the tax laws holding that “unless the preceding seller actually pays the amount in terms of the tax invoice issued by the seller, the subsequent dealer shall not be entitled to the benefit of input tax credit requesting him to pay the total tax on the sale value at his hands”. Does it change the contaminated atmosphere? The answer is No. Still there are inspite of mechanized administration of tax laws, there is no fool proof mechanism to find out whether the tax collected by the earlier dealer has been actually paid or not. The distortions and the loose ends in the mechanism failed to achieve the object that was intended to.

Not with-standing the fact, bills were raised without there being handling of goods and without payment of tax, such bills are accounted for, in the books of account and subjected to scrutiny and entering into the fancy shop of trading, profit & loss account statements, balance sheets and other related schedules. This contributes a large difference between the transactions reported to the Income-tax department and not reported to the Sales Tax or Commercial Tax Departments, which is creating for an impelling necessity for exchange of the information in between which concept has been christened by me as a mutual co-operation or assistance. Of course, the very object and purpose is to nab the erring persons for collection of tax as also interest at the appropriate rate and penalty.

The actual and suffocative task to prove the transaction as bogus is really a burdensome for the revision. Simultaneously, to wriggle out to of the problem, equal amount of burden to prove the transaction as genuine rests on the tax payer, in which process, the principles of general law would be pressed into service.

In most of the bogus transaction cases, upon assessment of the income of the business entity only such transactions came to light of the day. The cause for identification of the bogus transaction is the report of the intelligence or investigations wing in respect of certain loan transactions, LTCG and other bogus claims. On receipt of the information, the assessments completed are sought to be reopened and the process of issuance of notices would start in response to such notices, the concerned tax payer has to discharge his part of burden. With evidence to reiterate the claim of the concession or exemption of tax. The evidence to be adduced may be direct or indirect. Proper investigation to the bogus transactions under the provision of Income -Tax Act, 1961would end with the consequences namely disallowance of entire expenditure claimed by bogus bills u/s. 37, disallowance of the payments made by bearer or crossed cheques, addition of profit to enhance the tax liability and finally addition u/s.68 or 69C of the Act involving unexplained credits. Therefore, the burden to prove the specified transactions are genuine and true heavily lies on the person claiming such benefit. Whereas the assessee by satisfactory evidence discharges his burden, naturally then the burden shits to the revenue to prove he transactions are bogus. As already stated in most cases the transactions of bogus nature are reported from other departments especially dealing with indirect taxes.

Wherever it is found necessary needful enquiry is required to be conducted.

In regard to the nature of evidence to be produced by the claimant, where the revenue alleged that only accommodation bills were issued to support the purchases made in gray market. In respect of the purchases one has to establish handling of goods had taken place by production of Way Bills, Delivery Challans, Lorry Receipts, Excise Gate Pass etc., The possession of a bill will not automatically support the claim. Even if, the consideration is paid through bank either by bearer cheque or crossed cheque. Therefore, it must be understood that payment routed through bank is no proof for supporting the character of the bill. In other words, issue of bills without movement of goods is nothing but bill trading. Therefore, having tasted a very bitter experience and suffered huge revenue loss, the legislatures plugged the loopholes by suitable amendments to the existing laws. In the GST regime S.16 is the appropriate provision providing mechanism for dealing with the bogus claim. One of the pre-requisite condition is that person claiming the benefit of input tax credit shall have to place evidence of actual payment of tax by the person supplying the goods on charge of tax. Therefore, mere possession of tax invoice or receipt of goods per-se do not, if so facto extend the ITC benefit. That apart there is another provision to the effect that the recipient of goods fails to pay the bill amount within a period of 3 months to the supplier, recipient is denied the ITC benefit, even though there is invoice and goods.

Now, let us see the stipulation of the above mentioned stringent condition that would prejudice the recipient of goods even after payment of tax and consideration to the supplier. There is no mechanism under the provisions of the Act enabling the recipient of goods to have any authenticated proof of payment of tax to the government by the supplier. Even the auto drafte GSTR 2A return is also not a pool proof document. Any omission on the part of the supplier resulting in mismatch is adverse to the recipient. The real practical difficulty is the recipient of goods cannot have accessibility to the acts, actions and deeds on the part of the supplier in regard to accounting the transactions with full value or lesser value. Even in the case of registered persons issuing bills charging and collecting the tax, the tax administrators evince little interest for cross check as a result of which the recipient of goods being denied input tax credit to the extent of tax collected from him, is once again asked to pay the tax and interest and penalty. The grievance of tax payers is such provision is a colourable piece of legislation as it encourages tax avoidance and evasion, but punishes the genuine and bonafide tax payers which would infringe articles 14, 19(1) (g) as also 21 and finally 300A of Constitution of India . The other serious question, not seriously considered by the judiciary is whether the state is helpless to catch hold of in genuine or incongruous dealers. The net result is the economical or financial strain and stress on the trading community as, but for the indifferent attitude on the part of the administration the requirement of working capital investment would unreasonably jack up. A kind of desperation and despair would loom large amongst the business people as, for the fraud committed by the suppliers, the recipient is not only once again demanded the tax amount, but interest and 100% penalty. The unpleasant and undesirable situation could be corrected to a maximum extent, if the revenue authorities do undertake the exercise of regular verification of the returns together with entries in the books of account alongside the tax invoices. Incidence of bogus claims of ITC in huge volume have witnessed arrest of the fraudulent dealers. However, arrest is no answer for loss of revenue and it cannot be a substitute for the prejudiced cause to the recipient of the goods. Ultimately, evasion of tax at the hands of bogus bills, arrest of the persons involved would only extend a helping hand to retain the tax amount collected from the recipient of goods. In most of the cases, where individuals and partnership are involved in bogus bill trading registrations are cancelled, no assets would be available to proceed against and ultimately would result in undue enrichment of bogus bills traders at the cost of the society. In respect of corporate sector, avoidance has become ease with the introduction of Insolvency and Bankruptcy Code 2016, where the corporate sector would file corporate resolution partitions before the National Company Law Tribunal adding the government of direct and indirect tax departments and the other corporate creditors viz., banks and financial institutions. If resolution plan envisages the possibility of revival of the company, rehabilitation program would be announced or else assets would be auctioned and all the parties including government departments would have to satisfy with whatever available proceeds are received for a proportionate ratio, say 0.10% 00.5% like that. Then what would be the fate of the recipient of goods as far as his input tax credit claim is concerned? It is a million dollar questions, whether the state having settled for 0.05% of the proceeds to satisfy ‘its’ dues would allow 100% ITC benefits to the recipient of goods, who paid the tax to the corporate debtor. Of course, this question has to be resolved in a court of law and presently it is the subject matter of one case in the High Court of Andhra Pradesh. However, several High Courts read down similar provisions in state VAT Acts and recently Kolkatta High Court explained the provision.

I hope that whatever little knowledge coupled with experience is in my armour, I have tried to place it to grasp the cream for the benefit of the professional fraternity and the revenue authorities of the state and of Couse, a mind boggling question for the higher adjudicating authorities.

//Jai India//