Answer

1. F

   Facts

   Circular trading is when firms issue invoices to each other without real goods moving, to inflate turnover or pass on credit. The law treats invoices without supply and credit taken on them as offences. A genuine buyer stays clear by buying only real goods with traceable movement.

2. P

   Provisions and law

   • Sec 122(1), CGST Act 2017Penalty for issuing invoices without supply and for taking or using ITC without actual receipt of goods or services
   • Sec 132, CGST Act 2017Fake invoicing and fraudulent ITC are offences punishable with imprisonment based on the amount involved
   • Sec 155, CGST Act 2017The burden of proving eligibility for ITC lies on the person claiming it
3. A

   Analysis

   Departments detect these chains through GSTR-1, 3B and 2B data analytics, e-way bill patterns and bank trails. Penalties under Sec 122 apply to issuing invoices without supply and to taking credit on them, and Sec 132 provides imprisonment based on amount. A buyer is at risk when he takes credit on paper purchases. Example protection: refuse bills without e-way bills, refuse to route payments back, and record goods receipt.

4. C

   Conclusion

   1. 1Buy only against actual delivery of goods or services
   2. 2Insist on e-way bills and transport proof for goods
   3. 3Never accept requests to return payments or pay third parties
   4. 4Record goods receipt and stock entries
   5. 5Report suspicious offers to your CA before buying

General guidance from TaxSavvy’s library of money processes. Laws change; your Savvy confirms the answer on your exact case before anything is filed.