GST fraud: Fake bills used to claim input tax credit worth Rs 450 crore

The GST-Intelligence Unit has unearthed a racket which used fake bills to claim input tax credit worth Rs 450 crore, the Financial Express reported today.

The government has started issuing summons to those traders or business houses that produced counterfeit bills to claim tax credits.

In one such notice, the intelligence unit has asked the traders to provide evidence of transactions – sale/purchase – truthfully and produce the documents and record for the examination. The authority has estimated the value of the fictitious purchases at Rs 2,500 crore and the undue gain out of this around Rs 450 crore at an average GST rate of 18 per cent, the report said.

According to the report, traders buy fake bills which enable them to claim input tax credit on the supply which never happened. Input tax credit is an option in the GST which allows the taxpayers to claim credit for the taxes paid on purchase.

This is not the first case of GST fraud using fake sale/purchase invoices. Ever since the new taxation system came into force, numerous cases of fake input tax credit has been reported.

This year in February, the Haryana Excise and Taxation Department lodged a police case against a Gurugram-based firm for acquiring fraudulently an input tax credit of Rs 50.34 crore.

In March, the Punjab Excise and Taxation Department booked 134 persons from 70 firms for their alleged involvement in Rs 100 crore fake invoice scam.

In a separate case, the CGST-Mumbai Commissionerate arrested two directors of a private company for fraudulently availing input tax credit of Rs 7.2 crore.

In May, the GST Intelligence arrested two persons in Kolkata for the tax evasion of more than Rs 40 crore.

Last week, the GST Department arrested two persons – Amit Upadhyay and Asad Anwar Sayed – in Mumbai for allegedly defrauding the exchequer of Rs 127 crore by issuing fake GST invoices and not paying the service tax. According to a report in the Hindu, the GST Intelligence Unit is estimating this fraud to go over Rs 300 crore. If that happens, it will be one of the biggest evasion cases in GST history.

On Monday, the Directorate General of Goods and Services Tax intelligence or DGGI arrested three persons in Rajasthan for tax evasion of Rs 58 crore.
Providing the details of the case, Additional Director General, DGGI Jaipur, Rajendra Kumar said: “The accused generated bogus invoices through companies that existed on papers for availing input tax credit. The goods were not issued by the firms”.

In all these case, modus operandi is almost same. First, fake invoices were issued for sale and purchase that never happened on ground. Misuse of input tax credit is a serious concern for tax authorities as it seems to have created a hole in the system that the enforcement agencies are struggling to fix.
To deal with rising input credit frauds, the GST Council has adopted invoice matching mechanism which is expected to be rolled out on July 1. According to the Finance Minister Arun Jaitley, the invoice matching mechanism will curb the possible tax evasion on account of fake invoice frauds.

Last year in September, the Central Board of Excise and Customs asked its officials to verify all transitional credit claims for more than Rs 1 crore. The move came after it received transitional credit claims worth Rs 65,000 crore.