₹400-cr tax fraud unearthed at Kandla
MODUS OPERANDI Value of goods inflated to claim input tax credit
NEW DELHI: The Directorate General of Goods and Services Tax Intelligence (DGGI), Ahmedabad, has unearthed input tax credit (ITC) fraud of over ₹400 crore by some units at the Kandla Special Economic Zone (SEZ) wherein companies inflated the value of goods by as much as 4,000% to falsely claim ITC.
“The modus operandi detected indicates huge overvaluation to the extent of 3000-4000% of the market value of goods exported to the SEZ and claiming input tax credit refund fraudulently,” additional director general Vivek Prasad said. Input tax is paid by a business on the purchase of goods and services that go into its own products or services, and claimed as a credit to lower its tax liability when it makes a sale.
DGGI, Ahmedabad Zone, conducted searches in three units located at the SEZ and the premises of some exporters in the National Capital Region after receiving “specific intelligence” that some units located in the Kandla SEZ in Gandhidham, in connivance with 25 Ncr-based exporters, had “conspired” to defraud the exchequer, he said. The products selected by the entities for carrying out the fraud were found to be so-called sin goods such as manufactured tobacco and related products, which are subject to tax at the rate of 93% and 188%, including cess, Prasad said.
“Due to high incidence of taxes on such goods the scope to claim refunds of ITC against refunds is manifold more than the goods which are subject to tax at lower rate of 28% or 18%,” he said.
According to Prasad, the racketeers had sought to derive the maximum illegal gain out of fraudulent transactions. “It is noteworthy to mention that tobacco products are mostly business-to-consumer (B2C) supply items and it is relatively easier to obtain from the market GST paid invoices without corresponding goods, as the goods often get sold in the market without corresponding bills,” he said.
DGGI found that low-grade products such as “scented zarda, kimam (tobacco extract) and filter khaini” were being manufactured “clandestinely” without payment of tax by some Noidabased units or procured from the local market at the rate of ₹150-350 per kg and being exported to the Sez-based units at the rate of ₹5,000-9,000 per kg. Subsequently, refund of accumulated ITC, sourced fraudulently, in excess of
INPUT TAX IS PAID BY A BUSINESS ON THE PURCHASE OF GOODS AND SERVICES, AND CLAIMED AS A CREDIT TO LOWER ITS TAX LIABILITY WHEN IT MAKES A SALE
₹500 crore has been claimed by the exporters from the jurisdictional GST authorities, he said. “Due to the proactive steps taken by the DGGI, refund claims of ITC in excess of ₹300 crore in the process of getting disbursed by the jurisdictional authorities, has been withheld from going into the hands of scamsters,” Prasad said.
“In addition, the surplus ITC of more than ₹100 crore still lying in the credit ledger of such exporters has also been prevented from getting siphoned off as refunds claims,” he added.
The agency has been able to identify more than 25 such suppliers located in Assam, Delhi, Madhya Pradesh and Uttar Pradesh who have issued fake invoices of over ~1,000 crore to Ncr-based exporters. These suppliers are either non-existent or are being indirectly controlled by the exporters themselves.
To give a semblance of legitimacy to the sham transactions, low value goods manufactured in Noida or procured have been dispatched to SEZ units under the cover of invoices. “Thus, while the ITC has been obtained fraudulently from one source, the low value goods have been procured from another source and both the streams have converged at the end of exporters who have made highly overvalued supplies to the SEZ units f or i l l egal gains through ITC refund route,” he said. The illegitimate export incentives availed by the SEZ units will be investigated by the customs authorities, he said.