The Mumbai zonal unit of directorate general of GST (goods and service tax) intelligence (DGGI) has busted an input tax credit (ITC) refund fraud case and arrested the promoter of seven companies which fraudulently availed the ITC of Rs 118 crore as refund against exports from the government without any underlying economic activity.
The Mumbai zonal unit of GST intelligence, which is the investigation wing of GST, has arrested Pune-based Santosh Doshi, who was controlling and operating the seven companies, namely Amal Overseas Pvt Ltd, C-Kluster Expotrade Pvt Ltd, Ekon Crystal merchants Pvt Ltd, Meticulous Overseas Pvt Ltd., Ninad Overseas Pvt Ltd, Parees Overseas Pvt Ltd and White Opal Expotrade Pvt Ltd.
The accused set up an intricate web using various layers of transactions beginning from manufacturers to traders in between, ultimately involving the exporters to facilitate the realisation of accumulated ITC.
"The modus operandi involved in this financial fraud was that several dummy units were created in the states of Jharkhand and West Bengal on the basis of forged documents. They passed on the said bogus ITC to several shell trading firms acting as intermediary entities situated in the State of Chhattisgarh," the finance ministry said in a statement.
"Further, several units were created as exporting fronts at Pune and Mumbai in the state of Maharashtra to whom the units situated in the State of Chhattisgarh supplied fictitious goods purported to be exported. The exporting units were created merely for the purpose of availing refund in a fraudulent manner," the finance ministry added.
The ministry further stated that in order “to nab the mastermind behind the whole channel of financial fraud, DGGI, Mumbai launched an operation, by searching concerned CHAs, CAs, CSs, key persons and freight forwarders and several statements were recorded.”
It was revealed during operation that Doshi, who is also the MD of Masumi Overseas Pvt Ltd was the promoter and operator of the seven exporting firms.
Doshi was arrested on 17th August and has been remanded to judicial custody. He is a habitual offender and was also arrested by Mumbai Customs in 2016, the ministry said, adding that further probe in the matter is in progress.
Creating fake invoices to show tax payments on raw materials and claiming tax refunds on exports is a rampant tax fraud that the authorities have been systematically busting with use of data analytics. GST being a technology intensive tax on value addition at every stage in the supply chain, suspicious transactions raise red flags in the system which the authorities take up for further probe.
An official statement from DGGI said on Saturday said that several shell firms were created in Jharkhand and West Bengal on the basis of forged documents. They passed on bogus input tax credit to several shell trading firms acting as intermediary entities in Chhattisgarh. Several units were created as exporting fronts in Pune and Mumbai to which the units in Chhattisgarh supplied fictitious goods purported to be exported. The exporting units were created merely for the purpose of availing of tax refunds in a fraudulent manner. The authorities interviewed several persons in the industry including professionals and freight forwarders before arresting the operator.
The government has been on a drive against tax frauds since last November.
In financial year (FY)2020-21, Rs 434.93 crore worth ITC refund fraud by exporters was detected, while in FY2019-20 it was Rs 799.78 crore.
Earlier this month, in a written reply to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said 7,268 cases of ITC fraud involving Rs 31,233 crore were detected by the Central GST officers in 2020-21.
Chaudhary said though the interface for the taxpayers is on digital and software, tax evaders commit fraud even on electronic platforms by way of mis-representation of facts like furnishing of fake credentials at the time of registration; by indulging in raising fake invoice to avail undue ITC.
In April-June period of 2021-22 financial year, 818 such fraud cases were booked involving Rs 4,002 crore.