Gujarat tax sleuths bust Rs 750-mn GST racket, second in three months

According to the Vadodara-I CGST commissionerate, an industrialist based out of Kapadwanj was arrested for faking GST invoices in order to avail input tax credit illegally

After the Rs 10 billion goods and services tax (GST) scam unearthed by the Gujarat government’s tax department a couple of months ago, the Central GST commissionerate of Vadodara has now busted a Rs 750-million fake invoice racket.

According to the Vadodara-I CGST commissionerate, an industrialist based out of Kapadwanj, about 90 kms from Vadodara, was arrested for faking GST invoices in order to avail input tax credit illegally.

The industrialist has been sent to judicial custody till March 1, 2019, by the additional chief judicial magistrate, Kapadwanj.

Based on specific intelligence and data-based analysis, officers from the preventive wing of the CGST commissionerate conducted raids recently at multiple locations. The searches resulted in the recovery of incriminating documents regarding fake companies involved in bogus transactions without any actual supply of goods.

The Kapadwanj-based industrialist’s modus operandi, according to the CGST commissionerate, had been to create and run fraudulent companies engaged in trading of iron and steel. While there was no actual supply of goods, tax invoices were generated in the name of these companies in order to avail input tax credit under GST.

“Based on records and documents seized during the searches and the confessional statement of the Kapadwanj-based industrialist, involvement of various persons, including professionals with the intent to fraudulently inflate a company’s turnover by merely issuing fake GST invoices to the tune of Rs 750 million, was noticed. About Rs 140 million worth of fake GST credit was passed on by the company run by the Kapadwanj-based industrialist to certain Ahmedabad-based firms,” CGST commissionerate of Vadodara stated in a release. 

Further, on the back of fake invoices worth roughly Rs 700 million received through courier and other means, the fraudulent company also availed more than Rs 120 million fake input tax credit, resulting in huge loss to the government’s exchequer. 

Both the state and central GST offices in Gujarat have been conducting searches across geographies on the basis of tipoffs as well as tax and e-way bill data analysis.

“We have been conducting rigorous searches across the state for such rackets. These are based on tipoffs as well as data analysis. For instance, we are constantly scrutinising the e-way bill data,” Ajay Kumar, special commissioner, state commercial tax department of Gujarat told Business Standard.

Earlier, in October, the state GST officials had unearthed a similar Rs 10 billion GST bill scam to the Kapadwanj-based industrialist. Apparently, the enforcement branch of the state goods and services tax (SGST) department unearthed a bogus billing scam for edible and non-edible oil to the tune of Rs 10 billion. 

The scam was unearthed after over 100 raids were conducted on commercial establishments across Deesa, Gondal and Unjha from June to September 2018. 

The modus operandi in both the cases have been similar. In the latter, the modus operandi had been to issue purchase bills in the name of unregistered oil dealers to claim input tax credit benefit illegally, even though rice bran oil was actually purchased at a premium from other states like Andhra Pradesh and Telangana but sold without a bill in Maharashtra and Gujarat.

The Gujarat state GST department had learnt that fake invoices to the tune of Rs 10 billion were generated by the culprits in a bid to evade taxes and take the benefit of input tax credit. Tax benefit worth Rs 580 million has been illegally claimed by several fraudsters. 

“The six persons only recently received bail after 60 days of judicial custody,” Kumar told Business Standard.

Meanwhile, according to CGST commissionerate in Vadodara, the quantum of tax evasion is likely to go up based on the ongoing investigations. “The possibility of the existence of several other fake firms involved in issuing fake invoices without the movement of goods cannot be ruled out,” the commissionerate stated.
 

Modus Operandi
 

• Create fake unregistered companies in varied locations
• Generate fake purchase bills from these companies
• Generate fake GST invoices based on these bills to claim input tax credit
• Inflate company turnover based GST invoices

Busted scam

• Central GST Commissionerate busts Rs 750 million scam
• Industrialist issued Rs 750 million worth of fake GST invoices
• Fake GST credit worth Rs 140 million passed on to other companies
• Availed over Rs 120 million fake input tax credit on the basis of fake Rs 700 million worth GST invoices
• industrialist sent to judicial custody till March 1, 2019