Another GST scam busted; this time Rs 940 crore GST refund scam busted in the national capital; Aadhar card linking not enough to stop GST frauds

If it was not enough for the banks to report scams one after the other, this time yet another GST scam involving GST refund amounting to Rs. 940 crore has been busted by the Delhi Police’s Cyber Crime Unit ( CyPAD).

As many as 340 bogus companies are suspected of being involved in fake business transactions, and the Delhi Police have apprehended six persons, which also involves the mastermind of these counterfeit transactions.

In order to support the masterplan, the alleged perpetrators to generate the GST number would use fake or stolen PAN and Aadhar cards and register fake businesses on the GST portal. They also procured multiple SIM cards on fake documents. 

The details of the fake firms were sold to business entities or individuals who intern used these documents to show fake sale and purchase transactions through bogus GST returns to avoid tax and transfer tax liability or claim refunds.

All of the accused persons have worked as data entry operators in VAT and GST departments on a contract basis. Apparently, the group was aware and informed about the vulnerabilities of the taxation system of the existing GST slabs and how to claim a fake refund.

The accused had also opened bank accounts based on the fake ID’s including PAN numbers. 

Using these fake firms, bogus sale and purchase transactions were shown from one another by filing bogus GST returns and claiming a difference in the GST as a refund.

The police have also frozen a total of twenty-five bank accounts used for claiming GST returns. An amount of forty-five lakh found in these fraud accounts has also been frozen.

Aadhar Card linking could stop GST frauds.

The government had earlier in 2019, decided to make it mandatory to link Aadhaar and GSTN, and similar steps were also adopted by the Income Tax Authorities in 2017. 

The government then had been facing the challenge of tackling fake invoicing in the GST regime. In the 2019 Budget, Finance Minister Nirmala Sitharaman proposed interchangeability between Pan and Aadhaar.

Between 2018 – 19, GST evasion to the tune of INR 20,000 crore was detected. 

However, these were those cases that had been identified, as per Officials’ estimates, evasion through fake and under-invoicing were pegged at anywhere between one percent to five percent of collections.

The Modus Operandi 

One way to generate fake invoices is to set up bogus companies to which businesses would issue invoices for sales or by issuing invoices to companies within the group or known persons for sales. 

The issuance of invoices allows the fraudsters to claim the input tax credit. 

To give more teeth to their transactions – fake invoices, diaries, letterheads, checkbooks, rubber stamps of bogus firms, transporters consignment notes, and various electronic devices are used. 

Hence, to curb the menace and stop fake invoicing, the government decided to link the Aadhaar card. 

However, with the recent scam, it seems that the linking of the Aadhar card may not have worked entirely. 

• In August 2020 – A GST tax fraud of Rs 712 crore was busted by Odhisa tax officials.
• In October 2020 – A tax fraud worth Rs 50 crore was detected by the GST intelligence, which involved a student from Ahmedabad who would register fake firms. 
• Over 1,63,000 GST registrations were canceled in two months for return filing defaults.

What can be done to get frauds under control

Technically linking Aadhar card and GSTN would not have been able to control GST frauds under control. 

A tax evader can only be caught using an Aadhar when it is made an essential part of daily life.

Much like the social security number in the Western countries, which are an indispensable part of daily transactions. 

Unless Aadhar is not made compulsory for all government services like education, hotel stays, railways, subsidies, electricity supply, etc.; it would then make it impossible for an individual or groups to live under a radar without using the Aadhar Card.