New Delhi: Directorate General of GST Intelligence (DGGI) has detected input tax credit (ITC) scams ₹1,825 crore and arrested the individual behind it from the New Delhi airport on Sunday, the finance ministry said in a statement on Monday.
The person who ran the scam was returning from Dubai when he was apprehended by DGGI officials. The person was wanted in numerous other economic crimes and did not respond to nearly two dozen subpoenas issued by the DGGI and never joined the investigation, the statement said.
Investigations revealed that a “well-structured arrangement” was used to fraudulently claim ITC and then monetize it through refund claims for zero-rated supplies, i.e. exports.
Such syndicates use fake invoices to claim tax raw materials that are subsequently returned. Unused tax credits are returned to exporters and domestic businesses that cannot fully adjust the taxes paid on raw materials against their output tax liability.
The Ministry of Finance said that the arrested individual controlled an entire network of fictitious companies, employees and close associates.
The entities were created using borrowed know-your-customer (KYC) documents and were found to be non-functional or lacking infrastructure, manpower and genuine business activities in the declared premises, the ministry said.
“The dummy owners/directors were only lenders and were compensated with fixed monthly cash payments. All operational activities including GST registration, generation of invoices, banking operations, filing of returns and filing of refunds were handled centrally by the builders,” the ministry said.
The fraud was committed by issuing false purchase invoices without actually taking delivery of the goods. High value tobacco products were listed on invoices to generate substantial ITC. These invoices were sent through several intermediary firms forming a layered chain of transactions, the statement said.
The ITC thus generated was passed from one entity to another through paper transactions, thereby creating an artificial trail of business activity, he said. This layering allowed the builders to introduce ineligible ITCs into the system GST chains and subsequently accumulate them in selected entities that have been projected as exporters.
Low-value tobacco, inferior smoking blends and other tobacco products were procured locally at nominal prices, often without invoices, and subsequently mis-declared as high-value products. Such inflated turnover was used for refund claims, the ministry said.
