After the big bank ‘PNB scam’, another scam came into picture on March 1, 2018 in Mumbai, but this time this fraud is under Goods & Services Tax (GST). In this write-up, the author explains the actual case in a layman language along with the intention behind this fraud.
Gist of the scam
It is the first fraud under GST wherein 2 Directors of the private firms were arrested for availing Input Tax Credit (ITC) in a fraudulent manner by opening fake letter of credit.
Let’s understand this case in detail:
What actually happened??
Issuance of fake invoices– There were no actual movement of goods. Sale, purchase were taking place on paper only. Fake invoices were issued and the 2 Directors who were involved, availed the ITC.
|Understanding Concept of ITC through illustration:
Suppose a manufacturer-
Tax payable on output (on Final product) is INR 350
Tax already paid on input is INR 100
A manufacture can claim tax Input Credit of INR 100 (tax payable on output-tax already paid on input i.e. 350-100) and only INR 250 needs to be paid.
Meaning of Letter of credit:
Just like LOU, LOC is another financial instrument wherein a letter issued by a bank to another bank especially in a different country to serve as a guarantee for payments made to a specified person under certain conditions.
Background of the persons Involved
1. Sanjiv Pravin Mehta– Director of Shah Brothers Ispat Pvt. Ltd., a company that deals in steel and operates from Trust House on Dr E Borges Road, Parel East.
2. Vinaykumar D Arya– Director of VN Industries, a company that operates from Darukhana, Mazgaon, Byculla.
|Name of Person||Amount of wrongly availed ITC||Type of offence|
|Sanjiv Pravin Mehta||Rs. 5.20 crore||Non-Bailable|
|Vinaykumar D Arya||Rs. 2.03 crore||Bailable|
Intention behind such fraud
Likewise, Nirav Modi & Mehul Choksi did in P n B scam, the mala fide intentions behind this scam is to defraud the exchequer and banks by opening Letter of Credits (LCs) on fake purchases.
As per Section 132 of CGST Act, 2017:
|The amount of ITC wrongly availed||Punishment|
|Rs. 2 – 5 crore||Imprisonment upto 3 years & Fine|
|Above Rs. 5 crore||Imprisonment upto 5 years & Fine|
As per CGST Act, 2017 and the press release dated March 1, 2018, Officers of CGST Mumbai have arrested two businessmen for creating fictitious invoices and availing ineligible credit. Among the two accused, Vinaykumar D Arya, availed ineligible credit of Rs 2.03 crore by submitting the fake invoices, but as per CGST Act, 2017 his offence is under Rs 5 crore, has been granted bail. Whereas, in case of Sanjiv Pravin Mehta, evasion of duty is above Rs 5 crore, so will be produced before the magistrate.
Please Note Article is based on information available on Public Domain.
Author: C S Ekta Maheshwari is the Author of this article and is a Practicing Company Secretary. The Author can be reached For further assistance/query, specimen of forms etc. at firstname.lastname@example.org
Disclaimer: The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.