Abstract

The Goods and Services Tax (GST) was implemented in India in July 2017 as a comprehensive tax system aimed at abolishing cascading taxes, simplifying compliance, and improving transparency throughout the economy. However, a major issue facing GST is the rise of counterfeit invoices, where businesses create false invoices without any actual supply of goods or services. These deceptive practices are primarily intended to illegally obtain or transfer Input Tax Credit (ITC), leading to significant revenue losses for the government. The extent and intricacy of these frauds have revealed serious weaknesses in the existing legal and regulatory framework. This paper seeks to analyse the operational processes behind fraudulent GST invoicing, identify the shortcomings within the legal and enforcement systems, and offer practical policy and technological solutions to address this escalating issue. Additionally, the research examines judicial decisions and assesses the importance of inter-agency collaboration and the use of emerging technologies, such as artificial intelligence, in preventing and reducing such tax evasion methods. The introduction of the Goods and Services Tax (GST) in India was celebrated as a transformative reform aimed at optimizing the country’s indirect tax structure, facilitating business operations, and expanding the tax base. Nevertheless, the rise of fraudulent GST invoices—tax documents created without any genuine transfer of goods or services—has surfaced as a significant obstacle to achieving the goals of the GST system. These counterfeit invoices are mainly utilized to unlawfully claim or transfer Input Tax Credit (ITC), resulting in substantial revenue losses for the government and disrupting fair market practices. This study examines the inherent structural vulnerabilities within India's Goods and Services Tax (GST) framework that facilitate the proliferation of fraudulent activities. It identifies deficiencies in real-time verification, data analytics, and legal enforcement mechanisms. The analysis includes a review of recent judicial decisions, administrative practices, and enforcement results, providing a comprehensive critique of the existing legal structure. Furthermore, it suggests a series of effective, technology-driven legislative measures to mitigate these fraudulent activities, such as the adoption of real-time invoice reconciliation, AI-enhanced monitoring systems, and improved coordination among various agencies. The research underscores the pressing necessity for focused reforms to safeguard fiscal integrity and maintain the transparency that the GST system aims to deliver.

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