Probe unearths MNC’s financial fraud, VAT evasion

A probe  by the Chennai city police into a financial fraud has blown the lid off a major tax evasion racket indulged in by a private firm, which may run into crores of rupees.

Published: 18th March 2019 06:58 AM  |   Last Updated: 18th March 2019 07:00 AM   |  A+A-

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Image used for representational purpose only. (File photo | Reuters)

By Express News Service

CHENNAI: A probe by the Chennai city police into a financial fraud has blown the lid off a major tax evasion racket indulged in by a private firm, which may run into crores of rupees. The fraud involves senior executives of ‘Philips India Limited - Personal Health,’ one of whom was made a scapegoat has turned approver and implicated the company.

The fraud involves the MNC enticing a few traders in Chennai to invest money in promoting sales of Philips healthcare products on the promise of making them distributors. This was done to help the existing distributors tide over their financial crunch and lift stocks that were stuck in their warehouses.

As per a notarised affidavit submitted by Philips India Ltd’s former area sales manager Gaurav Tripathi (arrested and remanded) before Chennai city police, he, with the knowledge of the firm’s top brass, had given commitment to the investors that they would be appointed distributors after due diligence.

But even before going through the formalities of appointing them as distributors, Tripathi, based on instructions from the top brass, made the prospective distributors invest huge sums in buying dead stocks including Avent childcare products (with very limited shelf-life) from existing distributors on cash-and-carry basis at market rates. In turn, the prospective distributors were asked to supply the products to existing dealers on 30 days’ credit. The exercise started a year ago. 

While payment came from the dealers on time for the initial couple of months, it got delayed in due course. Just one prospective distributor cheated in the deal alone has pumped in close to Rs 9 crore. This was partly as investment in deadstock with limited shelf life and balance in the form of credit extended to the dealers. 

Interestingly, all these transactions were carried out on the basis of oral promises given by the company representative. As things went out of control and coming to know of the fraud played on them, the investors approached police.

The investigation revealed quite a few startling things. One, the firm, through its representative, committed a financial fraud on the investors by giving false promises. Two, the distributor firm which dumped the goods on the those enticed to invest and the dealer firm were owned by the same partners, which the MNC was fully aware of. Three, Philips brought the investor in-between to fund both distributor and dealer. 
The police unearthed the truth that the company, for many years, had been pushing existing distributors to give additional discounts to the dealers to increase sales. This discount was compensated by the firm by supplying huge quantities of Philips healthcare products to distributors free of charge (FOC). The company was raising invoices for FOC supply at zero value. While it is a usual industry practice, what was unusual in the whole exercise was that the company was not paying the mandatory VAT at 14.5 per cent for the FOC products based on their MRP.

The police probe shows that the MRP of the FOC products supplied by Philips to just one distributor in Chennai works out to Rs 2.7 crore and the corresponding VAT evasion works out to about Rs 39 lakh. The probe showed that the company has carried out such transactions, evading VAT, across many states in India.

During the probe, the firm had, in a written submission to police, said, “Philips does not entertain any claim or order from distributors to supply goods in FOC”.
The police, apart from initiating criminal proceedings against the firm for financial fraud, is taking up the VAT violation issue with government department concerned.


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