Circular No. 171/03/2022-GST: Made Easy Guide to Fake Invoicing and Its Implications In response to the rising issue of fake invoices, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 171/03/2022-GST to regulate Input Tax Credit What is invoice fraud? Invoice fraud is a type of phishing where aggressors impersonate legitimate suppliers or vendors to trick administrations into paying fake invoices. These fake invoices often appear authentic, using stolen or fake information such as business logos, invoice formats, or email addresses.
Key invoice fraud statistics Normally, organizations receive invoice scams every month.
Approximately 71% of organizations reported actuality as victims of payment fraud, with invoice fraud as a significant contributor.
Around 44.8% of all fraudulent expenses are due to invoice and mandate scams.
Nearly 30% of companies testified to an uptick in payment fraud in recent years, with digital payment systems and phishing attacks gradually used to facilitate fraudulent invoices.
How do fake invoice scams work? Invoice scams usually come in the method of service provider impersonations.
Attackers often make believe they are a service provider because a lot of people use them.
The malicious actor might hide their domain overdue spoofing, and if everything looks as it should, typing out your Office365 credentials might not seem too injurious.
Invoice phishing cannot be avoided by merely not making payments to dubious bank account numbers when told to.
Legitimate seeming messages often lead near legitimate services, such as PayPal and QuickBooks...
However, the sum is not focused on the actual provider.
Real invoice fraud cases Toyota Boshoku Corporation (2019) Toyota Boshoku Corporation, a secondary of Toyota Group, fell victim to an invoice fraud attack when charlatans impersonated a business partner and tricked the company into forwarding a large payment to a fraudulent bank account. Losses totaled approximately $37 million.
Scoular Company (2022) Scoular Company, a leading farming marketing company, experienced an attack in which charlatans used spear-phishing emails to compromise an employee's email account.
They then sent fake invoices to the financial records payable department, requesting payment to fraudulent bank accounts.
The company lost around $17 million before the scam was detected. This incident demonstrates the necessity of multi-factor confirmation and rigorous email sanctuary measures.
Pathe Netherlands (2021) Pathé Netherlands, a secondary of the French cinema chain, was successfully scammed by fraudsters imitating senior executives from the parent company. Using email spoofing, the fraudsters sent fake invoices besides urgent payment requests to the money department. The scheme resulted in a harm of €19 million (around $22 million).
Suggested Read: GST Payment Under Wrong Head: How to Correct It
Common types of invoice fraud to look out for Business email compromise (BEC) This is when email accounts of genuine suppliers are hacked or spoofed.
These accounts can then be used to send fraudulent invoices or payment requirements to the accounts payable department.
The email addresses used are usually very similar to legitimate ones, making them difficult to detect.
Modification of real invoices In this type of fraud, cybercriminals stop legitimate invoices, usually via email.
They'll then modify the payment details, such as bank account numbers, before promoting the altered invoices to the target company.
Overpayment scams Attackers might send an invoice that appears to cheat for goods or services.
When the target business pays the inflated invoice, the fraudster contacts the business, requesting that there was a mistake and requesting reimbursement for the overpaid amount.
The refund is then directed to a deceitful account while the original payment has now been processed.
Service renewal scams These scams involve sending fake demands for service renewals, such as subscriptions, care contracts, or software licenses.
The charlatans rely on the fact that businesses often have multiple subscriptions and might not study every renewal invoice closely.
They hope that the company will pay the invoice without verifying its authenticity.
Refund and rebate scams
Some fake invoices come through a refund or rebate offer, enticing the target to provide bank minutiae for the supposed refund.
Once the charlatans have the bank details, they can use them for unauthorized extractions or further scams.
Circular 171 on demand and penalty provisions towards fake invoices
Quantum of tax or ITC availed or utilized Punishment In case the ITC availed or utilised by the taxpayer with the help of fake invoices exceeds Rs.5 Crore For such fraudulent activity the taxpayer can face imprisonment up to 5 years and with a fine. In case the ITC availed or utilised by the taxpayer with the help of fake invoices exceeds Rs.2 Cr but doesn’t exceed Rs.5 Cr. For such fraudulent activity, the taxpayer can face imprisonment for up to 3 years and a fine. In case the ITC availed or utilised by the taxpayer with the help of fake invoices exceeds Rs.1 Cr but doesn’t exceed Rs.5 Cr. For such fraudulent activity, the taxpayer can face imprisonment for up to 3 years and a fine. Commits or raises the commission of any of the offences mentioned above. For such fraudulent activity, the taxpayer can face imprisonment for up to 6 months or a fine or both.
Conclusion As the GST system
Suggested Read: Fake Invoices under GST : Demand and Penalty Provisions – Circular 171
FAQs What is Fake Invoicing? Fake invoicing refers to the practice of generating fraudulent invoices without an actual supply of goods or services to claim Input Tax Credit (ITC) illegally.
How does Fake Invoicing Work? Fraudsters create invoices to:
Claim ITC without real business transactions.
Evade taxes and inflate profits.
Create shell companies to circulate fraudulent invoices.
What is Input Tax Credit (ITC) Fraud? ITC fraud occurs when businesses claim tax credit using fake invoices, reducing their tax liability illegally.
What are the Legal Consequences of Fake Invoicing? Penalty up to 100% of the tax amount.
Interest on the falsely claimed ITC.
Prosecution leading to imprisonment (up to 5 years in severe cases).
How Does the Government Detect Fake Invoices? GST Data Analytics & AI: Advanced algorithms track suspicious transactions.
E-Way Bill and GST Return Matching: Discrepancies trigger investigations.
Surprise Audits & Raids: Officials verify business transactions.
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