How frauds make use of fake GST invoices

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Central Board of Indirect Taxes

In the last one month, the Directorate General of Goods and Services Tax Intelligence (DGGSTI) across the country has arrested over 100 people and booked 3,479 entities in 1,161 cases for illegally availing or passing on input tax credit (ITC) by using fake GST invoices, and causing loss to the exchequer. Tax officials said the use of fake invoices to wrongfully avail ITC credit has been gradually increasing and has become a concern for the government, especially at a time when revenue collection is depressed.

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How did fraudsters cheat the government?

In a number of cases booked by the tax authority, fraudsters have been found to have floated multiple dummy firms, obtained GST registrations, issued fake GST invoices of goods and services without actual supply of services, and passed on ineligible ITC accrued from the bogus invoices to clients for a commission, who subsequently used it to make GST payments, causing losses to the government. For instance, on December 9, the Vadodara tax unit arrested an individual for operating 206 dummy companies in 10 states that illegally passed on ITC of Rs 154 crore to clients by issuing fake invoices of Rs 1,101 crore.

In some other cases, the tax department has found that promoters of certain companies have routed fake invoices through a series of shell companies and transferred input tax credit from one company to another in circular transactions to increase the turnover of the company. This helped them not only evade GST but also avail higher bank loans and credit facilities due to increased turnover. A case in point is a trading company in Mumbai that has been booked for an ITC fraud of Rs 220 crore. The probe agency has found that the firm did circular transactions with 22 related companies to inflate its turnover.

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