Scammers in Uttar Pradesh used hand pumps to claim fake GST refunds

GST refunds

A scam has been unearthed in Uttar Pradesh with fraudsters using hand pumps for claiming fake GST refunds using Inverted Duty Structure (IDS) under GST mechanism.

Taxes on inputs can be deducted from tax on final product and net is deposited with the government. However, this is not possible under IDS, where inputs attract tax at higher rates while it is lower for final product. So, under IDS, taxpayer gets refund. Very few goods under GST fall into IDS category and hand pump is one of them.

According to Sanjay Kumar Agarwal, Chairman of Central Board of Indirect Taxes & Custom (CBIC), Lucknow Zonal Unit of Directorate General of GST Intelligence (DGGI) booked a case after officers gathered that three Agra based taxpayers were availing fake Input Tax Credit (ITC) on the raw material allegedly for manufacturing hand pumps. “The fake ITC on raw materials (attracting GST at 18 per cent) was further used to issue fake invoices of hand pumps (attracting GST at five per cent) to non existent entities without any actual manufacturer and supply,” he said in a communication to all the officers and staff of CBIC.

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Further, he said that adopting this modus, the taxpayers were obtaining fraudulent refunds under IDS with evasion amounting to ₹15.27 crore so far. “The mastermind of the whole operation, who has been placed under judicial custody, accepted the fraud committed and voluntary deposited ₹5.21 crore,” Agrawal said without disclosing the identity of accused.

This is just one example of using fake firms for evasion. Earlier, Finance Ministry reported that over 29,000 fake firms were identified and over 44000 crores of GST tax evasion detected in a nationwide drive between May and December of 2023.  All Central and State tax administrations launched a special All-India Drive on May 16, 2023, to detect suspicious/fake GSTINs, conduct requisite verification, and take further remedial action to weed out fake billers from the GST ecosystem and safeguard government revenue. Based on detailed data analytics and risk parameters, GSTN identified fraudulent GSTINs for State and Central Tax authorities in the drive.

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It was planned that details of such identified suspicious GSTINs, jurisdiction-wise, would be shared with the concerned State/Central Tax administration to initiate a verification drive and conduct necessary action. If, after detailed verification, it is found that the taxpayer is non-existent and fictitious, action will be initiated for suspension and cancellation of the taxpayer’s registration. Further, the matter may be examined for blocking the ITC in the Electronic Credit Ledger. Efforts will also be taken to identify the recipients to whom such non-existing taxpayers have passed the input tax credit and to identify the mastermind and act.

Fake invoice means no real supply of goods or services but simply invoice issuance, which is used fraudulently to avail input tax credit (ITC). Unscrupulous elements misuse the identity of other persons to obtain fake/ bogus registration under GST to defraud the Government. Such fake/non-genuine registrations are used to fraudulently pass on input tax credits to unscrupulous recipients by issuing invoices without any underlying supply of goods or services or both .Fake registrations and issuance of bogus invoices for passing off fake ITC have become a serious problem, as fraudulent people engage in dubious and complex transactions, causing revenue loss to the Government.

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