GST intelligence unearths ₹1,800 crore tax credit fraud

New Delhi: Directorate General of GST Intelligence (DGGI) has unearthed input tax credit (ITC) fraud of ₹1,825 crore and has arrested an individual behind it, from the New Delhi airport on Sunday, the finance ministry said in a statement on Monday.

The individual, who was running the fraud, was returning from Dubai when DGGI officials held him. The person, the statement said, was wanted in many other economic offences and had not responded to nearly two dozen summons issued by DGGI and had never joined investigations, the statement said.

Investigations showed that a “well-structured arrangement” was used to fraudulently claim ITC and subsequently encash it through refund claims on zero-rated supplies, that is, exports.

Such syndicates use fake invoices to claim tax on raw materials, which are then refunded. Exporters and domestic businesses that cannot fully adjust the taxes paid on raw materials against their output tax liability are issued refunds for the unused tax credits.

Finance ministry said the arrested individual controlled an entire network of dummy firms, employees and close associates.

The entities were created using borrowed ‘know your customer’ (KYC) documents and found to be non-functional or lacking infrastructure, manpower and genuine business activity at the declared premises, the ministry said.

“The dummy proprietors/directors were merely name lenders and were compensated with fixed monthly cash payments. All operational activities including GST registration, invoice generation, banking operations, filing of returns and submission of refund claims were handled centrally by the masterminds,” said the ministry.

Fraud was committed by arranging fake purchase invoices without actual receipt of goods. High-value tobacco products were shown in invoices to create substantial ITC. These invoices were circulated through multiple intermediary firms forming a layered chain of transactions, the statement said.

The ITC so generated was passed from one entity to another through paper transactions, thereby creating an artificial trail of trading activity, it said. This layering enabled the masterminds to introduce ineligible ITC into the GST chain and subsequently accumulate the same in selected entities which were projected as exporters.

Low-value tobacco, inferior smoking mixtures and other tobacco products were procured locally at nominal prices, often without invoices and were subsequently mis-declared as high-value products. Such inflated turnover was used for refund claims, the ministry stated.