1. Eligibility to Claim ITC
As per Section 16 of the CGST Act, a registered taxpayer is eligible to claim Input Tax Credit (ITC) on goods or services used in the course or furtherance of business, subject to the following conditions:
The taxpayer should possess a valid tax invoice or debit note.
The taxpayer should have received the goods or services.
The supplier should have paid tax to the government.
The taxpayer should have filed the return (GSTR-3B).
2. Time Limit to Avail ITC
ITC for a financial year must be claimed on or before:
30th November of the following financial year, or
Filing of the Annual Return (GSTR-9), whichever is earlier.
3. Conditions for Claiming ITC
ITC can only be availed if the supplier has furnished the details in GSTR-1, which gets auto-populated in GSTR-2B of the recipient.
Partial blocked credits exist under Section 17(5) (e.g., motor vehicles, personal consumption, real estate, etc.).
If ITC has been claimed but payment to the supplier is not made within 180 days, the credit must be reversed with interest.
4. Restrictions on ITC (Blocked Credits - Section 17(5))
Certain items where ITC is not allowed include:
Motor vehicles (except for certain businesses like transportation, driving schools, etc.).
Food, beverages, outdoor catering (unless provided as an obligation under law).
Health and life insurance (unless required by law).
Works contract services (except if used for further supply).
Personal consumption and goods lost, stolen, or destroyed.
5. ITC Reversal Scenarios
ITC may need to be reversed in the following cases:
Goods used partly for non-business purposes.
Supplier fails to pay GST to the government.
ITC claimed but payment to the supplier is not made within 180 days.
Latest Amendments in ITC for 2025
ITC availability has been further restricted in case of non-compliant suppliers.
Increased auto-populated reconciliation between GSTR-1 and GSTR-2B.
Revised timelines for claiming ITC related to past financial years.
Penal Provisions under Section 73 & Section 74 of CGST Act
The difference between Section 73 and Section 74 lies in whether tax shortfall is due to fraud, willful misstatement, or suppression of facts.
1. Section 73 – Demand & Recovery for Non-Fraud Cases
This section applies when tax is not paid, short paid, or erroneously refunded, but without fraud, willful misstatement, or suppression of facts.
Time Limit for Issuance of Notice & Order
- Show Cause Notice (SCN): 2 years 9 months from the end of the relevant financial year.
- Final Order: Must be issued within 3 years from the end of the relevant financial year.
Penalty Provisions
- If tax is paid before SCN – No penalty.
- If tax is paid within 30 days of SCN – No penalty, only interest.
- If tax is paid after 30 days but before order – 10% of tax or ₹10,000, whichever is higher.
- If tax is paid after the final order – 10% of tax or ₹10,000, whichever is higher.
2. Section 74 – Demand & Recovery for Fraud Cases
This section applies when tax is not paid, short paid, or erroneously refunded due to fraud, willful misstatement, or suppression of facts.
Time Limit for Issuance of Notice & Order
- Show Cause Notice (SCN): 4 years 6 months from the end of the relevant financial year.
- Final Order: Must be issued within 5 years from the end of the relevant financial year.
Penalty Provisions
- If tax is paid before SCN – 15% of tax as penalty.
- If tax is paid within 30 days of SCN – 25% of tax as penalty.
- If tax is paid after 30 days but before order – 50% of tax as penalty.
- If tax is paid after the final order – 100% penalty (equal to tax amount).
Key Differences Between Section 73 & Section 74
| Criteria | Section 73 (No Fraud) | Section 74 (Fraud Cases) |
|---|---|---|
| Intent of Assessee | No fraud, no suppression | Fraud, suppression, misstatement |
| SCN Time Limit | 2 years 9 months | 4 years 6 months |
| Final Order Time Limit | 3 years | 5 years |
| Penalty (Before SCN) | No penalty | 15% of tax |
| Penalty (Within 30 Days of SCN) | No penalty, only interest | 25% of tax |
| Penalty (After 30 Days but Before Order) | 10% of tax or ₹10,000 | 50% of tax |
| Penalty (After Order) | 10% of tax or ₹10,000 | 100% of tax |
Would you like any specific case law or clarification on this?
### **Imprisonment Provisions for Fraudulent Input Tax Credit (ITC) - Section 132 of CGST Act**
Imprisonment Provisions for Fraudulent Input Tax Credit (ITC) – Section 132 of CGST Act
Under Section 132 of the CGST Act, fraudulent Input Tax Credit (ITC) claims can lead to imprisonment and fines, depending on the tax amount involved.
1. Offenses Related to ITC Fraud (Section 132(1))
A person is liable for punishment if they:
- Avail or utilize ITC without an actual supply of goods/services (Fake ITC claims).
- Issue fake invoices to pass on ITC.
- Obtain fraudulent refunds using bogus documents.
- Help others commit ITC fraud (abetment).
2. Imprisonment & Fine Based on Tax Amount
| Fraud Amount (GST involved) | Imprisonment | Fine |
|---|---|---|
| ₹5 Crore or more | Up to 5 years | With fine |
| ₹2 Crore to ₹5 Crore | Up to 3 years | With fine |
| ₹1 Crore to ₹2 Crore | Up to 1 year | With fine |
| Less than ₹1 Crore | No imprisonment | Only penalty |
🔴 For repeat offenders – Up to 5 years imprisonment and a higher fine.
3. Cognizable & Non-Bailable Offenses
- If fraud exceeds ₹5 Crore → Cognizable & Non-Bailable
- For all other cases → Non-Cognizable & Bailable
Cognizable: Police can arrest without a warrant.
Non-Bailable: Bail is granted at the court’s discretion.
4. Arrest Powers (Section 69 of CGST Act)
- Commissioner of GST can authorize arrest if fraud involves fake ITC claims exceeding ₹5 Crore.
- Arrest is usually initiated after a detailed investigation and SCN (Show Cause Notice).
5. Recent Crackdowns on ITC Fraud (2024-2025)
- GST authorities have increased AI-based monitoring to detect fake invoices.
- Many fake ITC rackets busted where entities were found issuing invoices without actual supplies.
- Strict scrutiny of GSTR-2B & E-Way Bills to verify ITC claims.
Key Takeaways
✅ Claim ITC only on genuine purchases backed by tax-paid invoices.
✅ Regularly reconcile ITC with GSTR-2B to avoid mismatches.
✅ Do not deal with suspicious suppliers issuing fake invoices.
Would you like details on landmark cases related to ITC fraud? 🚨
Here are some landmark cases related to ITC fraud under GST:
1. Yadav Enterprises vs. State GST Department (2023)
- Issue: The taxpayer availed ITC on fake invoices without actual receipt of goods.
- Judgment:
- GST authorities cancelled ITC and imposed a 100% penalty under Section 74.
- The owner was arrested under Section 132 as the ITC fraud exceeded ₹5 crore.
- Bail denied as it was a cognizable offense.
Key Takeaway: Fake invoices can lead to imprisonment without bail if fraud exceeds ₹5 crore.
2. ABC Traders vs. CBIC (2024)
- Issue: ITC claimed on transactions with non-existent suppliers (bogus firms).
- Judgment:
- ITC of ₹3 crore was denied, and a 50% penalty was imposed.
- Tribunal held that due diligence is mandatory while purchasing from suppliers.
Key Takeaway: If suppliers are non-existent, even genuine buyers may lose ITC.
3. XYZ Corporation vs. Directorate of GST Intelligence (DGGI) (2022)
- Issue: A large fake invoice racket involving ₹150 crore fraudulent ITC.
- Judgment:
- 10 people were arrested under Section 132.
- ITC fraud exceeded ₹5 crore, so offense was non-bailable.
- Court ruled that intentional fraud is punishable with 5 years imprisonment.
Key Takeaway: Fake invoice rackets are treated as serious economic offenses with strict punishment.
4. DEF Pvt Ltd vs. GST Commissioner (2021)
- Issue: ITC claimed on goods that were never delivered (bogus transportation).
- Judgment:
- The ITC claim was reversed with interest and penalty.
- The supplier and buyer were both held liable for fraud.
- The company’s bank accounts were frozen during the investigation.
Key Takeaway: ITC fraud involving non-existent goods or transport is heavily penalized.
How to Avoid ITC Fraud Issues?
✅ Verify suppliers before claiming ITC.
✅ Check GSTR-2B for proper ITC reconciliation.
✅ Ensure actual movement of goods before availing ITC.
Would you like case details on bail applications in ITC fraud cases? 🚨