Seller falls victim to fraud, but tax still applies on all goods supplied

Ahmedabad, Apr 17, 2025

There seems to be no reprieve from tax even if a trader falls prey to fraudsters. The Gujarat GST Authority for Advance Ruling (AAR) has determined that goods supplied in fraudulent transactions are subject to taxation. It emphasised that GST applies to supply rather than sale, even when sellers fall victim to fraud and fail to receive payment.

A Rajkot-based submersible pump manufacturer, Acube Engitech Company, sought clarification from the Gujarat GST AAR after being deceived by an Assam-based group. In 2023, the company delivered 5,660 pumps valued at Rs 14.51 crore to Matak Autonomous Council, later discovering the order was based on falsified documents in the name of the Council.

Despite filing a police complaint, the company was concerned about GST obligations and requested an advance ruling regarding whether goods supplied under fraudulent circumstances qualify as a supply under section 21 of the Integrated Goods & Services Tax Act.

The authority's order noted that the company made supplies according to section 20 of the IGST Act, read with section 12 of the CGST Act. "Under the GST Act, 2017, the levy is on supply of goods and services or both, except taxes on supply of alcoholic liquor for human consumption in terms of Article 366 (12A) of the Constitution of India," the authority stated in the order. It was also clarified that the word used is "supply and not sale".

The ruling confirmed the physical delivery of goods and dismissed the company's contention that fraudulent orders do not constitute supply. "An element of fraud may vitiate a contract, but how it would enable the applicant to move out of the ambit of the term ‘supply' as defined under section 7 of the Act," the authority said.

[The Times of India]