GST Fraud: Thousands of Fake Companies Involved in Rs 10,179 Crore Tax Scam

In a major crackdown on tax fraud, the Indian government has uncovered 10,700 fake companies involved in a Goods and Services Tax (GST) evasion scheme amounting to Rs 10,179 crore. The Central Board of Indirect Taxes and Customs (CBIC) is spearheading the effort to track down fraudulent GST registrations and prevent misuse of the tax system.

Aadhaar Verification to Strengthen GST System

The CBIC is tightening controls on GST registrations by expanding the use of Aadhaar authentication across several states. Aadhaar verification is already in place in 12 states, and by October 4, four more states will adopt this system, bringing the total to 20. States like Madhya Pradesh, Rajasthan, Assam, Tamil Nadu, Uttar Pradesh, and Haryana will all implement Aadhaar authentication to enhance the integrity of the GST registration process.

Shashank Priya, a member of CBIC, highlighted that Aadhaar verification will help reduce the number of fake registrations. At a recent event hosted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Priya mentioned that authorities are also developing a risk-based approach to monitor new taxpayers. In the future, the number of bills that certain taxpayers can issue in a month might be restricted depending on their risk profile.

Nationwide Crackdown to Continue Until October 15

The government’s second nationwide campaign against fake GST registrations started on August 16 and will continue until October 15. So far, authorities have identified 67,970 suspicious GST Identification Numbers (GSTINs). Among these, 59 percent, or 39,965 GSTINs, have been physically verified as of September 22. Alarmingly, 27 percent of the verified units were found to be non-existent, a similar figure to the results from the previous campaign.

The ongoing efforts have uncovered Rs 10,179 crore worth of tax evasion, and input tax credit (ITC) amounting to Rs 2,994 crore has been blocked. As part of this drive, Rs 28 crore has been recovered. Priya further stated that CBIC’s first campaign, which took place between May 16 and July 15 this year, found 21,791 fake units. The total suspected tax evasion in that campaign reached Rs 24,010 crore.

1.12 Lakh Show Cause Notices Issued

In the last financial year, tax authorities issued over 1.12 lakh show cause notices due to mismatched data within the GST system. The discrepancy between GST returns has become a major issue, which authorities are working to resolve through technological upgrades and more stringent checks.

Fraud Prevention with New Input Tax Credit System

The misuse of input tax credit (ITC) has been a major driver of GST fraud. To address this, the Goods and Services Tax Network (GSTN) will launch a new Invoice Management System (IMS) from October 1, 2024. This platform will allow taxpayers to verify records and invoices issued by suppliers to ensure that they are claiming the correct ITC.

Additionally, IMS will provide taxpayers the ability to make real-time corrections to their invoices, preventing future mismatches and fraud. This system will be a key tool for authorities in ensuring that only valid ITC claims are processed, reducing the possibility of tax evasion.