BENGALURU: They found a loophole in the Goods and Services Tax (GST) regime and exploited it to siphon off Rs 54 crore owed to the government. Now, tax officials are racking their brains to recover this amount, stolen based only on paper transactions by fraudsters, who even used Aadhaar cards belonging to deceased persons to register fake firms.
According to officials, these fake firms generated invoices to the tune of Rs. 1,200 crore, to claim input tax credits under GST, a key feature of the regime, which is completely online. Input credits help a company avoid double taxation, or ‘tax on tax’. When a company buys source material from another firm, it pays tax on the purchase. When this material is used for the final product, the company has to pay a tax once more on the sale. To avoid this, the input tax credit system was introduced.
Under this system, completely automated, the purchasing company can claim tax credit for the purchase made. The tax credit claim would be possible only if the firm it purchased the material from is also registered under GST as the amounts would be matched by the system. It is to bypass this check that businesses used the Aadhaar cards of deceased people to register firms in their name. These firms would then help the companies claim input tax credit, with no actual sale but records generated only on paper, or rather, only online.
“With little restriction, it was easier for people to register for GST and avail input credit. But this also meant that there was no mechanism for spot checks which would have happened if there was manual registration,” an I-T official posted in Bengaluru said.
The official, speaking to TNIE said, “By computerising the entire registration process, officials were no longer present for physical verification to check if the applicant exists or not- that’s when the fraudulent registrations and fake invoices started surfacing.” After the extent of the fraud came to light, officials are now trying to recover the money owed.
Incidentally, Monday marked two years since the GST system was introduced with the announcement that Karnataka remains one of the leading states for GST compliance.
Explaining the process used by the scamsters, Principal Commissioner of Central Tax, Bengaluru zone, DP Nagendra Kumar, said, “Most of the companies were registered in the names of people who worked for the accused but were unaware of the transactions. Names belonging to cooks, drivers, cleaners were used, along with their Aadhaar number and bank details.”
Transactions done under fraudulent names: Official
In other cases, where no person could be found, willingly or not, Kumar said that the Aadhar details of deceased people were also used. “The transactions would be done under fraudulent names, using their PAN and Voter ID cards, in conjunction with the Aadhar card.”
The issue came to light when measures to deal with such loopholes were introduced earlier last year. “In February 2018, the e-way bill system, a parallel portal for tracking consignments sold was established. It was through this that frauds came to light. The GST department is also using data analytics to flag misleading data for further inspection,” Kumar explained. The recent decision by the GST council, making it mandatory to link bank accounts to GST accounts, will help detect such frauds faster.