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:
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.
Amount Involved
| 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.
Penal Provisions
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 pcs.ekta@gmail.com
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.
Author Bio
Such frauds are pretty common in this country particularly in Kolkata where Businessmen generate false Purchase orders,invoices,dressed up profit and loss account in order to get Bank Finance for Working capital/project in connivance with bank official. In this case bogus PO/ invoice generated in order to get ITC . This is known in colloquial language as JAMA KARCHI and PUDIA GUMAO business model
In my opinion punishment is low an\d government should impose more fine and longer jail term at least 10 years so that in future these con men get a lesson
Dear Author,
This is not an article but a simple news report. Please don’t write such type of reports in an professional website.
Article is very superficial. Starting is good but there is no case description, study and ABSOLUTELY NO CONCLUSION.
On GSTN portal since GSTR2 is still not available, a person can avial ITC in 3B without matching invoices filled by his vendor in vendor;s GSTR1. Taking advantage of it , it looks that these people would have forged invoices (not really issued by their vendors) and availed fictious credit.
Question how it is concluded that these invoices are fictious invoices as time is available to link invoices till September of 2018 for ITC claimed in 2017-18 and facility of linking is till now not available on GSTN.
Please dont allow cs to post on GST matter.
If a purchase have tax bill showing gst amount .He may take credit of this invoice.
What is fraud in this matter ,if saler not deposit payable tax then he is only responsible ,either goods supplied or not .He is liable to pay tax of his issued bill .
The supply of goods is another civil or criminal mater .
What actually happened in this case .
Underlying element of the above fraud is – not ensuring timely linkage or reconciliation with the end transactions and underlying documents for movement of goods. If an LC is opened in such transactions (majority of cases), the onus falls on the pitiable bankers also, who will have to scratch their heads as to the penal laws attracted to them. Even if such a LC is opened with 100% margin ! In such a scenario, it is difficult for a sincere junior level officer to work as a banker given his salary structure.
Article did not serve the purpose
Well written answer Ms. Maheshwari, keep doing it.
why not other two director arrested in case of private limited company.
U HAVE NOT EXPLAINED IN DETAIL ABOUT CASE ,WHAT HE HAD DONE BY CREATING FAKE PURCHASES ,WHETHER LETTER OF CREDIT HAS BEEN USED WHAT HAPPEND ,WHY LETTER OF CREDIT CAME IN THIS SCENARIO.
I do not think this is correct.
From what I can see on the portal, you can get ITC in your account only after the supplier actually pays the amount and it is credited into the account of the government and the supplier enters your GST No into his returns.
So the ITC will not reflect in the purchaser’s account.
What probably happened was that the people issued GST invoices without actually paying the GST. And then the subsequent purchaser entered the supply invoices into his returns and then when he found no ITC the fraud could have been unearthed – either on his complaint or some internal trigger within the GST software.