Number of arrests has been made by the Directorate General of GST Intelligence (DGSTI) in the last few months on the grounds of issuance of fake invoices and claiming Fraudulent Input tax credit.
It has also found that the prime objective of the persons arrested was not to evade tax but to mislead the balance sheets in order to avail the higher loans. In most cases, GST liability arising out of the alleged fake transactions was also discharged.
The investigators have come across cases of circular transactions through a maze of companies spread across the country. The process of generating fake invoices of sales by the originating firm generally a shell company came back to it, in the form of fake purchases at the end of the cycle. The issue was discussed in a meeting of senior-level officers in the department over a week ago.
The process of generating fake invoices involves that the goods are never supplied anywhere, only invoices are raised. The receiving company continues the chain and issues invoices by selling the same fictitious goods to another entity after value addition. The second entity claims the ITC on tax paid at the time of purchase, also pays tax due on value addition and this process goes on.
The chain spread throughout India and finally ends at the originating company or its subsidiary. The same fictitious goods that were sold at the start of the chain are purchased back by the first company through fake invoices, and the entity also claims ITC or even refunds.
Since the transactions have cut across states, the first company also gets a chance to claim integrated GST (IGST), refund of accumulated ITC, when the chain ends. IGST is charged on inter-state transactions, in which refund can be claimed on surplus credit.
However, an internal circular has already been issued, directing field offices to flag off such cases to banks from where such firms have acquired loans or applied for credit.
The GST field offices have been also directed to report the amount of IGST refund claimed to the finance ministry on account of these revelations. “Recording sales in the books through fake invoices show higher turnover, which helps the firms to secure loans for higher amounts than that they are entitled to.
Also Read: DGGI (HQs) arrests Two Persons in cases of Fraudulent IGST Refund Claims: Delhi
