Issuance of invoices without actual supply for the purpose of availing or passing on Input Tax Credit (ITC) continues to remain a significant area of scrutiny under GST.
Statutory framework under the CGST Act, 2017
The statutory framework under the CGST Act, 2017 provides for:
- Penalty for issuing invoice without supply or wrongful ITC (Section 122)
- Prosecution in specified cases involving fraudulent ITC (Section 132)
- Denial of ITC where eligibility conditions are not fulfilled (Section 16)
- Cancellation, including retrospective cancellation of registration (Section 29)
The judicial position
Judicial forums have consistently emphasised that ITC entitlement is not determined merely by the existence of invoices. It must be supported by genuine supply, demonstrable movement of goods or services, and real commercial activity.
A recent illustration is the decision of the Madras High Court in Tvl. Sri Balajee Udyog vs. Assistant Commissioner (ST), Chennai, where retrospective cancellation of registration was upheld in the backdrop of findings relating to dual registration at the same premises and absence of substantive business operations.
Budget 2025 – Appellate discipline strengthened
Through amendments introduced by the Finance Act, 2025, the appellate framework has been clarified:
- Pre-deposit is now mandatory even in cases where the dispute pertains only to penalty and no tax demand is involved (amendment to Section 112)
- Accordingly, appeal against a penalty-only order cannot be filed unless the prescribed percentage of the penalty amount is deposited
This reflects a broader legislative effort to streamline appellate proceedings and reinforce structured litigation under GST.
Emerging enforcement pattern
Recent trends indicate deeper examination of:
- Physical and operational existence of business premises
- Movement and delivery documentation
- Financial trail consistency
- Registration structures and transaction flow
The evolving GST landscape reflects increasing emphasis on transaction substance, registration integrity, and disciplined appellate practice.