The government has launched a major drive against Goods and Services Tax (GST) fraud and other defaults worth at least Rs 4,500 crore, and has arrested around two dozen fraudsters in just four days, including the son of a Maharashtra-based politician, promoters and chartered accountants, two officials with direct knowledge of the matter said on Sunday.
The Directorate General of GST Intelligence (DGGI) crackdown on unscrupulous elements engaged in fake invoices to fraudulently avail themselves of GST input tax credit took place after a high-level meeting at the department of revenue on November 7, the officials said requesting anonymity.
The simultaneous crackdown covered 28 cities: Delhi, Bengaluru, Mumbai, Ludhiana, Chennai, Nagpur, Kolkata, Gurugram, Jind, Ballabhgarh, Ahmedabad, Surat, Vadodara, Bhilai, Jodhpur, Hyderabad, Mathura, Raipur, Visakhapatnam, Jamshedpur, Patna, Imphal, Meerut, Guwahati, Pune, Siliguri, Bhopal and Bhubaneshwar.
In the past four days, 25 people have been arrested, including two kingpins and two professionals, and some 350 cases have been booked for issuing fake invoices against 1,180 entities for availing and passing on the input tax credit (ITC) through fake invoices, non-existent or fly-by-night firms and circular trading, one of the officials cited above, working in DGGI, said. DGGI functions under the Central Board of Indirect Taxes & Customs (CBIC), an arm of the department of revenue in the Union finance ministry.
Officials said while actual amount of fraud is still being ascertained,the amount could be in excess of Rs 4,500 crore.
Giving details of the major cases, the first official said that DGGI, Mumbai zone, has already arrested Sunil Gutte, son of a sitting MLA and sugar baron Ratnakar Gutte, along with his business associate Vijendra Ranka in a fake invoice scam worth Rs 520 crore. HT reported this on November 12. “His company, Sunil Hi-tech Engineers Ltd, was engaged in availing and utilizing ITC based on bogus invoices, issued without any supply or receipt of goods or services,” the official said.
The Mumbai zone has also booked another case against a company and its directors for passing on fake ITC amounting to Rs 209 crore without supplying iron and steel articles. “It has also been found that they ran the racket of fake invoices for not only evading GST, but in a massive bank loan fraud of more than 2,500 crore,” he said.
“Search and investigation are on to identify and apprehend the other persons who were involved in the racket and also the beneficiaries who have used the fake invoices to evade GST, income-tax, and do money laundering,” the second official said. Fake bills involved bogus transactions of iron, steel, copper rod and wire, scraps, plastic granules, readymade garments, gold, silver, construction services, agro products, milk products, mobile, manpower supply services, advertisements and animation services.
“The drive against the tax evaders and ITC fraudsters, which started November 9, is expected to further intensify in the days to come and many more arrests will be done. Cases would also be investigated against the beneficiaries by the Enforcement Directorate for money laundering,” the first official said.
Fake invoices are not only used for evading GST and income tax, but also for inflating expenses to siphon off money from companies by unscrupulous owners, transferring the money abroad through hawala and bogus or inflated imports and exports, the officials said.
“They are also used to obtain higher loans from banks, siphon the loan money, become NPA [non-performing assets] and then abuse IBC [Insolvency and Bankruptcy Code] process to move to NCLT [National Company Law Tribunal], and thereby defraud banks and other financial creditors,” the second official said.
Considering the menace of the fake invoices, hawala rackets and their damaging impact on the stability of the economy, it is also being examined whether, apart from taking action against the beneficiaries under GST laws, the Income Tax Act, and the Prevention of Money Laundering Act, issuers of fake invoices as well as beneficiaries of such invoices can be detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, they said.
The government is also tightening the procedure for new GST registration to check frauds, the second official said. “The businesses whose owners or promoters do not have commensurate income-tax payment records will require physical and financial verification before their companies can be given GST registration,” he said.