I-T dept busts network of money changers in GST ITC scam

The Income Tax Department has unearthed a network of 232 fake money changing companies and detected tax evasion amounting ₹1,000 crore through fraudulently generated Input Tax Credit under Goods and Services Tax (GST) regime.

Giving details of the fraud mechanism, Chairman of Central Board of Indirect Taxes and Customs (CBIC), Sanjay Kumar Agarwal said that the incident came into light when the Meerut CGST Commissionerate busted syndicate of firms fraudulently claiming ITC. ‘’Interestingly, the investigation revealed that ‘Full Fledged Money Changer Companies (FFMCs)’ were used for parking/routing of funds generated through fraudulently passed on ITC without any real recipient of the foreign currency,” he said.

Further he said that the accounts used for the routing of money have been provisionally attached. “Three persons have been arrested for their role in the entire fake billing racket,” he said.

Fake invoice means no real supply of goods or services but simply invoice issuance, which is used fraudulently to avail input tax credit (ITC). Unscrupulous elements misuse the identity of other persons to obtain fake/ bogus registration under GST to defraud the Government.

Such fake/non-genuine registrations are used to fraudulently pass on input tax credits to unscrupulous recipients by issuing invoices without any underlying supply of goods or services or both .Fake registrations and issuance of bogus invoices for passing off fake ITC have become a serious problem, as fraudulent people engage in dubious and complex transactions, causing revenue loss to the Government.

Last month a scam was unearthed in Uttar Pradesh too with fraudsters using hand pumps for claiming fake refunds using Inverted Duty Structure (IDS) under GST mechanism. Taxes on inputs can be deducted from tax on final product and net is deposited with the government. However, this is not possible under IDS, where inputs attract tax at higher rates while it is lower for final product. So, under IDS, taxpayer gets refund. Very few goods under GST fall into IDS category and hand pump is one of them.

Lucknow Zonal Unit of Directorate General of GST Intelligence (DGGI) booked a case after officers gathered that three Agra based taxpayers were availing fake Input Tax Credit (ITC) on the raw material allegedly for manufacturing hand pumps. The fake ITC on raw materials (attracting GST at 18 per cent) was further used to issue fake invoices of hand pumps (attracting GST at five per cent) to non existent entities without any actual manufacturer and supply. A total of 15.27 crore of evasion detected, out of which Rs 5.21 crore was deposited voluntarily by the accussed.

These are just few examples of using fake firms for evasion. Earlier, Finance Ministry reported that over 29,000 fake firms were identified and over 44,000 crores of GST tax evasion detected in a nationwide drive between May and December of 2023. It was planned that details of such identified suspicious GSTINs, jurisdiction-wise, would be shared with the concerned State/Central Tax administration to initiate a verification drive and conduct necessary action. If, after detailed verification, it is found that the taxpayer is non-existent and fictitious, action will be initiated for suspension and cancellation of the taxpayer’s registration.

Further, the matter may be examined for blocking the ITC in the Electronic Credit Ledger. Efforts will also be taken to identify the recipients to whom such non-existing taxpayers have passed the input tax credit and to identify the mastermind and act.



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