GST officials detect Rs 105-cr tax evasion by Indore-based cigarette maker

DGGI had conducted searches at the firm's premises that revealed that a secret exit had been set up on the rear side through which unaccounted raw materials were brought and finished goods cleared

GST intelligence officials have detected tax evasion of Rs 105 crore by a cigarette manufacturing firm in Indore in the last one year, according to an official statement issued on Monday.

The officials of the Directorate General of GST Intelligence (DGGI) here had conducted searches at the firm's premises last week that revealed that a secret exit had been set up on the rear side of the factory through which unaccounted raw materials were brought in and finished goods cleared, it said explaining the modus operandi.

It was also found that the generator sets used for operating machines were manipulated to suppress production, the probe agency said.

"Investigations conducted by the DGGI has unearthed a major tax/ duty/ cess evasion estimated to be about Rs 105 crore only for the period since April, 2019 till May, 2020," said the statement issued by the Additional Director General, DGGI Bhopal.

Similar evasion is suspected to have been resorted to by the unit during remainder of GST and erstwhile central excise periods also, it said.

Hence the total revenue evasion, which would be clear only after completion of investigation, is suspected to be multiple times higher, the DGGI said.

The financial investigations into the dealings of the mastermind, who was recently arrested by the DGGI in another case, has indicated that he had opened a media house in which he declared his circulation of newspaper copies at 1.2-1.5 lakh per day while actually circulation was only 4,000-6,000 per day, it said.

Thus, the mastermind of this fraud laundered huge amounts of illicit wealth (in cash) earned from illicit pan masala/ cigarettes business by declaring fraudulent sale of newspapers and also booked fictitious advertising incomes, the statement said.

The DGGI said that, from the interrogation of the factory supervisor, accountant and other staff, it is estimated that less than five per cent of the production was accounted for since last many years.

"Even for the accounted production, the major buyers (of these five per cent sale) have been found to be fictitious," it said.

On June 19, the DGGI officials were also successful in locating one of the clandestine and unregistered godown used by the tax evaders to conceal the packing material containing specific brands of cigarettes such as K10 and A 10, the statement said.

Investigations have revealed that the seized packing material is sufficient to pack 5000 cartons (each carton containing 12,000 cigarettes) with estimated printed MRP of Rs 27 crore, it said.

However, it is suspected that there may be a large number of other such clandestine and undeclared godowns in and around Indore which DGGI officials are attempting to locate, the statement said.

The supplier of these two brands of packing materials has confirmed the unaccounted supply of about 1,500 cartons per month, it added.

As part of 'Operation Kark', the DGGI Bhopal officials had conducted searches in the premises of over a number of pan masala/ tobacco dealers and distributors from June 9 to 12th, leading to huge seizures of clandestinely stocked non-GST paid pan masala/tobacco and detection of estimated Goods and Services Tax (GST) evasion of Rs 400 crore.

The operation has been named 'Kark' -- considering the high Goods and Services Tax (Kar in Hindi) loss and the reported adverse effects of consuming illicit tobacco not subject to food and safety standards leading to high prevalence of oral cancer (Kark) in India.

One of the masterminds and financial beneficiaries in this case was arrested from Mumbai on June 15. Further investigations revealed that he was involved in manufacture and supply of cigarettes from a unit in Indore.

Data analysis by the DGGI officials indicated that this unit had paid a GST of only Rs 2.09 crore and Rs 1.46 crore in last two financial years, respectively.

Based on further analysis and information collected, searches were conducted at five premises connected with this unit last week, the statement said.

The tax evasion syndicate in this case involves directors of the company, transporters, supporting manufacturers and raw material suppliers. Number of these persons are presently absconding and have not joined DGGI investigations, it said.