DGGI unearths input tax credit fraud of over Rs400 crore

“The modus operandi detected indicates huge overvaluation to the extent of 3,000-4,000 per cent of the market value of goods exported to the SEZ and claiming input tax credit refund fraudulently,” a report quoted additional director general Vivek Prasad as saying.

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. In what seems to be a meticulously planned conspiracy, 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 per cent and 188 per cent, including cess, according to the report.

“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 per cent or 18 per cent,” 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 also found that low-grade products such as “scented jarda, kimam (tobacco extract) and filter khaini” were being manufactured “clandestinely” without payment of tax by some Noida-based units or procured from the local market at the rate of Rs150-350 per kg and being exported to the SEZ-based units at the rate of Rs5,000-9,000 per kg.

Subsequently, refund of accumulated ITC, sourced fraudulently, in excess of Rs500 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 Rs300 crore in the process of getting disbursed by the jurisdictional authorities, have been withheld from going into the hands of scamsters,” Prasad said.

“In addition, the surplus ITC of more than Rs100 crore still lying in the credit ledger of such exporters has also been prevented from getting siphoned off by way of likely refunds claims,” he added.

The agency has been able to identify more than 25 such suppliers located in states like Assam, Bihar, Delhi, Haryana, Madhya Pradesh and Uttar Pradesh who have issued fake invoices of more than Rs1,000 crore to the-NCR based exporters without supply of goods to facilitate refunds. These suppliers are either non-existent or are being indirectly controlled by the exporters themselves, Prasad said.

To give a semblance of legitimacy to the otherwise sham transactions, low value goods manufactured in Noida or procured locally in Delhi have been dispatched to SEZ units under the cover of invoices.