Fake GST Registrations Exposed: Rules, Punishments, and Court Clarifications on Input Tax Credit Disputes
Government cracks down on forged PAN-Aadhaar GST registrations linked to ₹3,000 crore tax evasion
Courts clarify ITC claims must be genuine; fraudulent credits remain the biggest GST dispute area
By Our Legal Reporter
New Delhi: December 16, 2025:
The Goods and Services Tax (GST) regime, introduced in 2017, was meant to simplify India’s indirect tax system. However, recent investigations have revealed 489 fake GST registrations created using forged PAN and Aadhaar cards, leading to tax evasion worth ₹3,000 crore. This has reignited debate on GST violations, punishments, and judicial clarifications, especially around input tax credit (ITC), which remains the most contested issue in courts.
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What Constitutes GST Violations?
Under the Central Goods and Services Tax (CGST) Act, 2017, violations include:
- Fake GST registration: Obtaining registration using forged documents.
- Fraudulent ITC claims: Claiming credit without actual supply of goods/services.
- Issuing fake invoices: Generating invoices without genuine transactions.
- Non-payment of tax: Collecting GST but failing to deposit it with the government.
- Suppression of turnover: Underreporting sales to evade tax.
- Obstruction of officers: Preventing tax authorities from carrying out inspections.
Rules and Punishments for GST Violations
The law prescribes strict penalties:
- Section 122 (CGST Act):
- Penalty up to ₹10,000 or the tax evaded, whichever is higher.
- Covers offences like false invoices, fake ITC, and non-payment of tax.
- Section 132 (CGST Act):
- Imprisonment up to 5 years for serious offences (tax evasion above ₹5 crore).
- Offences include issuing fake invoices and fraudulently availing ITC.
- Cancellation of GST registration:
- Fake or fraudulent registrations can be cancelled by authorities.
- Rule 142 (CGST Rules):
- Governs procedure for issuing notices and determining penalties.
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Courts have also directed FIRs against fake GST registrants, treating such acts as criminal offences under IPC sections related to forgery and cheating.
Courts’ Key Clarifications on GST Input Tax Credit (ITC)
ITC disputes form the largest category of GST litigation. Courts have repeatedly clarified:
- ITC only on genuine transactions:
- Delhi High Court ruled that taxpayers must ensure their identity is not misused for fake registrations.
- Fraudulent ITC claims linked to fake invoices are not permissible.
- Burden of proof on taxpayer:
- Taxpayers must prove that goods/services were supplied.
- No ITC on fake invoices:
- Courts have upheld penalties where ITC was claimed without genuine supply.
- Responsibility of buyers:
- Even if sellers commit fraud, buyers must verify authenticity before claiming ITC.
These clarifications have made ITC disputes the most litigated issue in GST, with thousands of cases pending across High Courts and the Supreme Court.
Government Crackdown on Fake Registrations
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- The GST Network (GSTN) has introduced AI-based tools to detect suspicious registrations.
- Bulk registration checks are being conducted to weed out fake GSTINs.
- Authorities are linking GST data with PAN and Aadhaar databases to prevent misuse.
- High Courts have directed criminal prosecution in cases of forged documents.
Wider Implications
- For Businesses:
- Genuine taxpayers must ensure compliance and avoid dealing with fake entities.
- ITC claims must be backed by proper documentation.
- For Government:
- Strengthens tax enforcement and prevents revenue leakage.
- Builds credibility in GST regime.
- For Courts:
- Clarifies grey areas in ITC disputes.
- Ensures fraudulent practices are penalized.
Conclusion
The exposure of 489 fake GST registrations linked to ₹3,000 crore tax evasion highlights the scale of fraud in India’s GST system. With strict rules under the CGST Act and clear judicial clarifications, the message is clear: fake registrations, fraudulent ITC claims, and false invoices will attract heavy penalties, cancellation, and even imprisonment.
For businesses, the safest path is compliance—ensuring that ITC claims are genuine, suppliers are verified, and transactions are transparent.
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