Updated: December 23, 2020 7:37:17 am
The tax authorities have indicted several scammers for using false GST invoices. (Photo / Bloomberg File)
In the last month, the General Directorate of Fiscal Intelligence of Goods and Services (DGGSTI) of the entire country arrested more than 100 people and registered 3,479 entities in 1,161 cases for making illegal use or transfer of the tax credit for inputs (ITC) by using fake GST invoices. , and causing losses to the treasury. Tax officials said the use of false invoices to misuse ITC credit has gradually increased and has become a concern for the government, especially at a time when revenue collection is depressed.
How did the scammers deceive the government?
In a series of cases registered by the tax authority, it has been discovered that the scammers have filed several fictitious companies, obtained GST records, issued false GST invoices for goods and services without actual supply of services and transmitted accumulated ineligible ITC of the invoices false to customers for a commission, who subsequently used it to make GST payments, causing losses to the government. For example, on December 9, the Vadodara tax unit arrested an individual for operating 206 shell companies in 10 states that illegally passed the ITC of Rs 154 crore to customers by issuing false invoices of Rs 1,101 crore.
In some other cases, the tax department has discovered that the promoters of certain companies have sent false invoices through a series of shell companies and have transferred the entry tax credit from one company to another in circular transactions to increase the turnover of the company. This helped them not only to evade the GST, but also to obtain higher bank loans and credit facilities due to increased turnover. An example is a trading company in Mumbai that has been hired for an ITC fraud of Rs 220 million. The investigative agency found that the firm conducted circular transactions with 22 related companies to inflate its turnover.
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What Motivates Fraudsters to Use Fake Invoices?
Fake invoices are used because it not only helps to evade GST on taxable production supplies by misusing ITC and converting excess ITC to cash, but it also helps to inflate business volume using these invoices, registering fake purchases to evade income tax, diversion of funds and money laundering. According to official data, in 2018-19 GST central authorities recorded 1,602 bogus ITC cases involving an amount of Rs 11,251 crore and arrested 154 people. Between April and November 2019, the authorities registered more than 6,000 cases of this type.
What is the reason for a sudden increase in such cases?
According to tax officials, one of the main reasons for the increase in companies resorting to ITC fraudulently is the lack of due diligence during GST registration. The registration process was made easy and uncomplicated by the government, so that companies could easily join the system. However, this meant that several shell companies also obtained GST registration in the absence of scrutiny or physical verification of the companies’ registered address. Aside from this, officials said, the lack of data sharing between enforcement agencies and banks has also led to an increase in fraud cases. “The existing GST system must be more robust to detect this type of fraud,” said one official.
Will the tax department be able to recover the money from the scammers?
Tax officials who spoke on condition of anonymity said that in these cases recovery of the money is unlikely, as the money has already been diverted and the companies involved in the fraud are only on paper with very little or no assets.
How does the government plan to stop these cases?
The government plans to toughen the GST registration process and legal measures to deal with the increasing cases of false billing. Last month, the legal committee of the GST Council met to discuss the tightening of the GST registration process and to work out other legal measures, including the necessary legal amendments required in the GST Law. Apart from this, the General Directorate for Risk Analysis and Management, the data wing of GST, has identified and issued a list of 9,757 companies that have issued or used fake ITC across the country between July 2017 and March 2020.
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