Fake GST Number: How to identify, verify & avoid any fraud?

Table of contents:

1. Introduction
2. What is Fake GST Number?
3. How Fake GST Number are Created?
4. Reasons For Using Fake GST Number
5. Common Signs of a Fake GST Number
6. Methods to verify GST Number
7. Legal Implications and Penalties for Using Fake GST Number
8. Preventive Measures Against GST Fraud
9. How to Report Fake GST Numbers
10. Conclusion

Under GST, a unique GST Identification Number (GSTIN) is provided to the businesses for verification and invoicing purposes. However, fake GST numbers have become very common. A Fake GST Number is an invalid or counterfeit GSTIN used to evade taxes, generate fraudulent invoices, and manipulate input tax credits (ITC). These deceptive numbers pose financial risks to businesses, mislead customers, and cause significant revenue loss for the government.

This article explains how businesses bring up and create the fake GST numbers, why and how they used it, and leads to a legal implication. The businesses should take the preventive measures to avoid any GST fraud.

What is a Fake GST Number?

A Fake GST Number is technically a fraud or counterfeit or void GST Identification Number that does not correspond to a lawfully registered business under the Goods and Services Tax system. It is in use by any person or entities to avoid a tax, fabricate a wrong invoice, or manipulate the credit of Input Tax fraudulently.

You can navigate our dedicated article on GSTIN number to check how does it look like and what is an authenticated GSTIN Number – GST Number – Meaning, format, how to apply, GSTIN search and more

How Fake GST numbers are created?

Some fraudster keep an intent to create bogus GST numbers by manipulating or fabricating GSTINs. They do all this in order to hoodwink the authorities and avoid taxes. These numbers appear legitimate but are not registered in the GST system. Below are few common and identified (by GST officials) ways to create:

#1 – Modifying a Genuine GST Number

They create a fake one by modifying an existing GSTIN by changing one or more digits. As the GST numbers follow a particular 15-digit pattern, slight changes make them look authentic initially.

#2 – Using Expired, Revoked, or Cancelled GSTINs

Some businesses have their GST registration cancelled for not complying or even due to voluntary closure, yet they use old GSTINs to issue invoices. Miscreants also misuse such numbers to avoid tax liability.

#3 – Generating Random GSTINs in the Correct Format

A GSTIN follows a pattern and fraudsters generate random numbers of the same pattern but never register with the GST database. They then use them on invoices to create fictitious ITC claims or to avoid paying tax.

#4 – Creating Shell Companies with Fake GST Registration

Fraudsters get a GSTIN and create imaginary businesses with fake documents, such as PAN cards, Aadhaar cards, and business addresses; they generate bogus invoices using these shell companies and manipulate tax credits.

#5 – Using Stolen GSTINs from Other Businesses

Others steal the actual GST numbers of registered businesses and issue their names in respect of fake invoices. The business may not even know that their GSTIN is being misused until they receive a notice from tax authorities.

#6 Fake GST Numbers for E-commerce or Online Scams

Sometimes, fraudulent sellers in e-commerce websites provide fake GST numbers to customers and charge GST from them, not remitting it to the government.

Reasons for Using Fake GST Numbers

Fraudsters and most unethical business officials use fake GST numbers for several financial frauds, with the main intention being to evade taxes, manipulate transactions, and commit financial fraud. Some of the most prominent reasons why such fake GST numbers are generated and misused are as follows:

1. Tax Evasion – Frauds use false GST numbers to avoid paying taxes, which adds to their ill-gotten margins. By not paying taxes, they run a business without following all the due processes, which is a setback for the government revenue.
   
2. Fraudulent ITC Claims using fake invoices: To falsely reduce the tax liabilities, thereby showing revenue leakage in the government revenue account and to show unfair advantage in competition.
3. Black Money conversion using fake GST number by issue of fake invoice for converting the black money to legitimate transactions with money laundering as well as other financial fraud.
   
4. Running Unregistered Businesses – some firms rely on fake GST numbers to give themselves the appearance of legitimacy but operate unregistered. Therefore, they escape tax liability at the same time as cheating customers and suppliers.
   
5. GST Audits and Regulatory Scrutiny Evasion – Fraudsters issue fake GSTINs to prevent government scrutiny. This allows them to carry out illicit business and remain in a ‘hands-clean’ state, not filing their returns or getting caught for evasion.
   
6. Selling goods or service without paying GST  – The businesses making use of the fake GST numbers collect GST from their customers but never pay to the government the amount collected as GST. This will involve some types of financial fraud and the consumers will be uncompromisingly involved in tax evasions.
   
7. Hiding business identity and doing illegal trade – The criminal makes his way by using a forged GST number for his unlawful activities, like smuggling, selling pirated goods, and avoiding import/export duties, which is very difficult for the authorities to track fraudulent transactions.

Common Signs of a Fake GST Number

1. Incorrect Format or Structure
2. Untraceable on the GST Portal
3. Mismatch Between Business Details and GSTIN
4. No GST Return Filings
5. Invoices Lacking GST Compliance
6. Businesses Hesitant to Provide GSTIN
7. Use of Canceled or Expired GST Numbers

Note: To ensure compliance and prevent fraud, businesses should always verify GST numbers before engaging in financial transactions and report any suspicious cases to the tax authorities.

Methods to Verify GST Numbers

#1: Using the Official GST Portal
The best way to verify is to visit official GST portal and check the GST number under “Search Taxpayer” section. Make sure you put GST number in the search box and hit “Search.”

#2: Checking the GSTIN Structure
A valid GSTIN has a specific format:

• The first two characters describe the state code.
• The following ten characters describe the PAN of the business.
• The 13th digit is based on the number of registrations done under the same PAN.
• The 14th digit is always ‘Z’.
• The 15th digit is a checksum character used for validation.

If any part of this structure is incorrect, the GST number is likely fake.

#3: Verifying GSTIN Through Third-Party Tools
There are various third-party GST verification software and mobile applications that enable speedy verification of GST numbers. The tools access data in the GST database to check on business names, the status of registration, and return filing. They, however, should be cross-checked with the official GST portal.

#4: Confirming Business Details with Invoices and PAN Records
If a business provides a GST number, then the name and PAN details should match on their official invoices. Mismatched details indicate possible fraud, and further verification is needed.

#5: Cross-Checking GST Returns and Compliance
The registered businesses need to file their GST returns regularly. Checking the return filing history of a GSTIN can indicate whether the business is active and compliant. A business with no return filings or irregular submissions may be using a fake or inactive GST number.

#6: Contacting GST Helpline or Tax Authorities
If there’s still a doubt regarding the authenticity of any GST number, an individual can raise a query to the GST helpdesk or local tax authority for verification. The GST helpline at 1800-103-4786 can also be contacted to authenticate the GSTIN.

Must read: How to verify GST number online with easy steps?

Legal Implications and Penalties for Using Fake GST Numbers

The GST Act, 2017 declares it a crime to use a fictitious GST number. Thus, a wrong number might cause severe financial, legal, and business losses. Some of the penalties for illegal use of GSTINs, such as tax evasion, fake invoicing, or ITC, include large fines, imprisonment, cancellation of trade licenses, and asset seizure.

Here is a list of the consequences below:

Violation of GST Laws (Section 122 & 132 of GST Act, 2017)

• Issuing false invoices, tax evasions, or misusing GST numbers is liable to be prosecuted
• Monetary penalty, prosecution, and criminal charges are subject to the proportion of the committed fraud.

Monetary Penalties for Using Fake GST Numbers

• A penalty of ₹10,000 or the tax evaded, whichever is higher is applicable.
• In case there is Input Tax Credit (ITC) claims, a 100% penalty will be applied.
• In case of the evaded amount exceeds ₹5 crore, more fines and criminal charges will be applied.

Criminal Charges and Imprisonment

Tax authorities may initiate criminal proceedings for large-scale fraud, leading to non-bailable arrest warrants and extended legal scrutiny.

Business License Cancellation and Blacklisting

• Authorities can cancel or suspend the GST registration of businesses involved in fake GST fraud.
• Blacklisted businesses face restrictions in trade, loss of vendor trust, and financial transaction bans.

Freezing of Bank Accounts and Asset Seizure

• The GST department can freeze bank accounts linked to fraudulent GST numbers.
• Businesses found guilty of tax evasion may have assets, properties, and financial holdings seized to recover unpaid taxes.

GST Audits and Investigations

• Businesses flagged for using fake GST numbers undergo detailed audits and financial scrutiny.
• Investigations may involve demand notices, reassessment of past tax filings, and compliance penalties.

Reputation Damage and Business Disruptions

• It impacts the brand reputation, causing loss of business, govt. restriction and legal complications
• It can halt the business operation due to non-flow of funds.

Preventive Measures Against GST Fraud

1. Make sure, you verify GST details on every transactions
2. Make sure, you run Internal GST audits regularly
3. Make sure, you check Invoice details for accuracy
4. Train your employees on GST compliance
5. Use any automated GST verification application
6. Audit vendor reputation before onboarding
7. Keep vigilance and report fake GST no. or any Fraudulent Activities

Following these advises will keep your business safeguard from financial irregularities and legal risks.

Reporting the fake GST Numbers

Fraudulent use of fake GST numbers affects government revenue, disrupts business operations, and leads to tax evasion. Reporting such cases helps authorities take legal action and prevent further fraud. Below is a step-by-step process to report fake GST numbers:

Gather Evidence of GST Fraud

Before filing a complaint, collect all necessary details related to the fraudulent GST number, including:

• The fake GSTIN in question.
• Business name and address (if available).
• Copies of invoices, bills, or transaction details.
• Screenshots of GST portal verification results showing the number is invalid.

Verify the GST Number on the Official GST Portal

Visit the official GST portal (www.gst.gov.in) and search for the GSTIN under “Search Taxpayer”. If the GST number does not exist or is inactive, it may be fake.

Report via the GST Helpline

Call the GST Helpline (1800-103-4786) and provide details of the suspected fraud. The support team will guide you on the necessary steps to file a formal complaint.

File a Complaint on the GST Grievance Portal

• Go to the GST grievance redressal portal (selfservice.gstsystem.in).
• Click on “Report Issue” and select “Fake GST Number/Fraudulent Activity” as the issue category.
• Fill in the required details, attach supporting documents, and submit the complaint.

Contact Local GST Authorities

Visit the nearest State GST or Central GST office and submit a written complaint with all supporting documents. Officials will investigate the case and take necessary legal action against the fraudulent entity.

Report to Anti-Evasion or Tax Intelligence Units

For large-scale GST fraud cases, you can escalate the complaint to:

• The Directorate General of GST Intelligence (DGGI).
• The Central Board of Indirect Taxes and Customs (CBIC).

These agencies handle cases related to tax evasion, fake invoices, and financial frauds.

Stay Updated on the Complaint Status

After filing a report, keep track of updates via:

• The GST grievance portal (for online complaints).
• Direct follow-ups with local tax offices.
• GST helpline assistance for complaint status updates.

Conclusion

Misusing a fake GST number is such a serious crime against the society leading to evasion of taxes and false transactions by individuals and firms which may incur lawsuits. GST fraudsters, or fake GSTINs users exploit the scenario by evading tax, printing forged invoices and exploiting ITC thus causing large scale financial loss both to the government and other businessmen. To prevent GST fraud, businesses should check GST numbers, conduct periodical audits, verify invoice details, and employ automated GST compliance tools. The risk can further be reduced by educating employees about tax compliance and avoiding dealings with suspicious vendors.

If you suspect a fake GST number, you should immediately report it to tax authorities through the GST helpline, grievance portal, or local GST offices. Proactive reporting will help identify and penalize fraudsters, and prevent them from using the tax system further. Ensuring GST compliancy is a legal necessity but also one of the long-term steps toward building a transparent and fair business environment. Businesses in vigilance will avoid financial penalties, legal troubles, and reputational damage but will also be contributing to a fraud-free tax system.

Disclaimer: This information is for educational purposes only. For accurate and up-to-date GST verification, visit the official GST portal at www.gst.gov.in.

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