Fraud under GST

We have the first big fraud under GST. Fraud amount is around Rs. 7 crore.

Fraud is committed by 2 companies from Mumbai. Let's understand what this fraud is all about and how it is done.

First Big fraud under GST

Companies involved in this scam are:

1. Shah Brothers Ispat Private Limited, director Pravin Mehta
2. VN Industries Limited, director Vinaykumar D Arya

Fraud done by these companies is about availing wrong input credit by exchanging bogus purchase invoices.

This scam is done at large scale in whole country but under GST, it is first time something of this large scale is caught.

Under CGST Act 2017, if you commit a fraud with value more than 5 crore, it becomes a non bailable offense. In this case Shah Brothers has done fraud above Rs. 5 crore and director is not granted bail, director of VN Ispat got bail.

Amount involved in GST fraud

A total amount of Rs. 7 crore is involved in this fraud.

Shah Brothers Ispat Private Limited allegedly availed an ineligible credit of Rs 5.20 crore. VN Industries Ltd availed ineligible input credit of Rs. 2.03 crore.

How the fraud was done?

Both parties purchase goods only on papers and no actual supply of goods was involved. Suppliers have confirmed that they only gave purchase invoices and no supply of goods was made.

This was done to avail wrong input credit of GST and also to avail loan from banks but making bogus Letter of Credit (LOC).

“They were only exchanging invoices for the so-called sale and purchases. The transaction was happening only on paper, and no actual goods were being bought or sold,” said Manpreet Arora, additional commissioner of CGST Mumbai unit.

Here the interesting part is that though government will not suffer any tax loss, because supplier if does not pay tax to government, ITC cannot be availed. However it is still an offense under CGST Act.

This is the first such case we have seen.

However we know in real world this particular transaction takes place in each and every city.

Every day many professionals who play role of brokers, fix these bogus purchase and sells. It is happening in all cities.

You can check 90% tax professionals are involved in this commission agent business. No fraud can take place without tax consultants (Chartered Accountants), prime minister Narendra Modi was not wrong in quoting that no fraud can take place if auditors wish so.

We have seen NAFRA being constituted to regulate professionals such as CA, CS and CMA. This is time that these professionals think on their roles.

This is not to disrespect anybody but we know actual situation.

We know that almost all consultants are involved in helping their clients in trading bogus bills. We have to change our-self to regain lost glory.