NAGPUR: The Directorate General of GST Intelligence (DGSTI), which recently made a number of arrests in cases of fake invoices, has also found that the prime objective of the persons arrested was not to evade tax but to fudge balance sheets and secure higher loans. In most cases, GST liability arising out of the alleged fake transactions was also discharged, said sources.
The sleuths have come across cases of circular transactions through a maze of companies spread across the country. The fake invoices generated as 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. 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.
For example: X, an originating firm, invoices for goods worth Rs100 crore. It also pays Rs10 crore GST element arising out of the deal. The goods are never supplied anywhere, and 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, and also pays tax due on value addition. This goes on.
The chain spread throughout India, including Nagpur, 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 on accumulated ITC, when the chain ends. IGST is charged on inter-state transactions, in which refund can be claimed on surplus 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 shows higher turnover, which helps the firms secure loans for higher amounts than that they are entitled to. The value of the fake goods also get multiplied in the chain,” said a source.
“Those in the chain don’t mind paying the taxes since the objective is not to evade taxes but secure loans. However, such loans are prone to turn into bad debts for the banks. Once the case is confirmed beyond doubt, the banks are also being warned,” a source in DGSTI said.
A couple of arrests were made in such cases at Nagpur too. It has been found that the shell companies from where the deals originated are in centres like Ahmedabad, Surat and Mumbai. Even as the deals originated from shell companies, the chain passes through firms that are also into genuine business, said a source.
Source- Times of India.