Shell firms under scanner of tax authorities over fake ITC claims

A special drive starting May 16 to weed out bogus GST invoices

Thousands of entities and their beneficiaries that allegedly created multiple shell firms to represent fake transactions without any underlying goods and services for availing of input tax credit (ITC) are under the scanner of tax authorities. Goods and services tax (GST) officials have prepared a detailed list in this regard and will target such entities during a two-month-long special drive starting May 16.

Some of these entities showed a jump in their annual turnover in FY21, FY22, and FY23, raising suspicion, a senior official privy to the development said, adding that the matter required a thorough examination.

The special drive by the Central Board of Indirect Taxes and Customs (CBIC) is aimed at weeding out fake ITC claims by using forged GST registration. The exercise will be conducted by all central and state tax administrations and will continue till July 15. The list of suspected entities has been prepared based on the CBIC’s data analytics, along with information and data from intelligence agencies and the income-tax department, the official said. 

Suspicious GSTINs are being shared with the tax administration concerned for initiating a verification drive and taking necessary action subsequently.

The systems analysed various risk parameters, including corporate tax returns filed by businesses with the I-T department and GST registration data, to identify businesses and traders and even masterminds who are expected to take GST registration but have not done so, the official explained.

Cracking the whip

• Tax authorities have identified thousands of entities involved in fraudulent activities to evade GST
• List prepared based on CBIC’s data analytics, and information and data from intelligence agencies
• Special drive to focus on nabbing shell firms, their end-beneficiaries

Currently, there are 13.9 million taxpayers registered under the Goods and Services Tax (GST) regime.

The National Coordination Meeting of the State and Central GST officers on April 24 discussed the issue of unscrupulous elements misusing the identity of other persons to obtain fake/bogus registration under GST.

If, after detailed verification, it is found that the taxpayer is non-existent and fictitious, then the tax officer may immediately initiate action for suspension and cancellation of the registration. Those who are end-beneficiaries, their assets could be seized as part of the recovery process under the CGST Act.

The department’s aim is to curb fake billers from the GST ecosystem and to safeguard government revenue, the official said.

The government on November 9, 2020, launched a similar nationwide special drive against unscrupulous entities for availing of and passing on ITC. Fraud of about Rs 60,000 crore was detected then and 700 plus people were arrested. Over 22,000 fake GST registration were used to avail of benefits.

This menace of fake registrations and issuance of bogus invoices for passing fake ITC has become a serious problem, wherein fraudulent people engage in dubious and complex transactions, causing revenue loss to the government, the GST Policy wing of the CBIC had said while announcing the special drive last month.