2 years of GST: Scams that challenged its robust framework

Goods and Service Tax – GST was introduced on 1^st July, 2017 with an aim to overcome all the loopholes of the earlier indirect tax regime and more importantly to increase the transparency in the system. GST is just going to complete its two years and inspite of it being a new law, with more strengthen rules, various scams challenging the robust framework of GST has been reported.

Scams like issuing fake GST invoices, without actual supply of goods, for availment of fraudulent input tax credit and also scams like creating fake companies and obtaining fake GST registration with an aim to pass on input tax credit has mainly come to light.

Out of the various GST scams, some of the recent one which challenged the robust framework of GST is being summarized here under –

Hyderabad – INR 224 Crore Scam – Reported in March, 2019

The company is engaged in trading of the iron and steel product.

Main allegation –

There were a group of 8 companies which were engaged in generating fake GST invoice without actual supply of goods. Fake GST invoice was generated with an aim to pass on the input tax credit to other the taxpayers within the same group.

Amount involved –

Fake invoice generated by the companies totaled up to INR 1,289 Crore and input tax credit fraudulently transferred amounted to INR 224 Crore.

Action taken –

Main accused in the matter is arrested and around INR 19.75 Crore recovered.

Gujarat – INR 40 Crore Scam – Reported in May, 2019

The company named Manpasand Beverages Limited was engaged in manufacturing of beverages having three plants at Vadodara, Varanasi and Sri city of Gujarat.

Main allegation –

The company set up around 30 fake companies / units (located in various parts of India) which were used for committing tax evasion. The company allegedly reflected inter-unit transactions wherein the inter-unit purchase and sale transactions were reflected inflating the value in order to claim a large sum of an input tax credit.

The company purportedly showed inter-units transactions amounting to INR 300 Crore involving input tax credit fraud of INR 40 Crore.

Amount involved –

Fraudulent availment of an input tax credit of INR 40 crore.

Action taken –

Managing Director of the company along with two other accused are already arrested.

Bengaluru – INR 200 Crore scam – November, 2018

The accused were engaged in trading of the iron and steel scrap. 

Main allegation –

The accused formed around 20 fake companies and registered the said fake 20 companies under GST using fake documents. The accused created the fake companies with the intention to fraudulently pass on the input tax credit.

The accused from such 20 fake companies generated fake GST invoices and also generated fake e-way bill mentioning fake vehicle registration number without actual supplying of goods. As per the investigation around 18 companies engaged in iron and steel manufacturing have availed this fake invoice for claiming the input tax credit.

Amount involved –

Accused generated fake tax invoices of INR 1200 Crore involving GST liability of INR 200 Crore.

Action taken –

Accused are arrested and around INR 140 Crore has been recovered.

Gujarat Scam – INR 177.64 Crore – January, 2019

Main allegation –

The accused created 66 fake companies and obtained GST registration, log-in and password, bank account and online passwords in the name of this 66 fake companies. The accused issued fake GST invoice from these fake companies with an intention to claim the input tax credit.

The accused issued in total fake GST invoice amounting to INR 1,210 Crore involving fraudulent input tax credit of INR 177.64 Crore.

Amount involved –

A fraudulent input tax credit of INR 177.64 Crore.

Action taken –

The accused in arrested.

(Republished with amendments)