The revenue department has unearthed as many as 931 fraudulent GST refund cases through data analytics, which has forced it to scrutinise all the past refund claims for inverted duty structure that are already settled, along with the pending ones.
In the current year itself, refunds of over Rs 28,000 crore have been filed by over 27,000 taxpayers on account of an inverted duty structure, a senior tax official said.
He said a fraud unearthed in Delhi showed that the culprits had a network of over 500 entities - comprising fake billers, intermediary dealers, distributors and bogus manufacturers of slippers - for getting fake ITC credits due to the inverted duty structure on the product.
"The bogus manufacturers created in Uttarakhand were making supplies to other fictitious entities and retailers in Gujarat, Maharashtra and Tamil Nadu. The raw materials for the slippers, known as EVA compound, are chargeable to 18% duty whereas chappals are chargeable to a GST of 5%," he said.
Inverted duty structure means the final product attracts a lower GST rate while inputs are taxed at higher rates. This typically leads to an accumulation of input tax credit (ITC) in a taxpayers' ledger, which is claimed as refunds. However, officials say this refund route has been exploited by unscrupolous elements.
The scrutiny would focus on taxpayers who have purchased from 'fly-by-night operators and shell firms', the official said. The progress will be tracked by revenue secretary Ajay Bhushan Pandey on a weekly basis.
Frauds on account of inverted duties make up for a fraction of the total ITC frauds (mainly fake invoices and circular trading), which are pegged at about Rs 1 lakh crore annually, according to tax officials.
Since the GST was implemented in July 2017, GST field formations have registered 6,641 cases involving 7,164 entities until November last year and have so far recovered around `1,057 crore from them. "The maximum numbers of such cases for ITC frauds have been registered in the Kolkata zone, followed by Delhi, Jaipur and Punchkula (Haryana)," another tax official said.
In one such case, a garment firm with exports of over Rs 50 crore had claimed refunds of Rs 3.90 crore while its total GST payment in cash was just Rs 1,650. In another case, the tax paid was just Rs 51,201, while the exporter had claimed a refund of Rs 9.59 crore.
Further, in another important case of an IGST fraud in Surat, the department found that 19 firms fraudulently had claimed ITC to the tune of Rs 55 crore, having produced fake invoices of Rs 679 crore.
"In this case, during the search at the premises of two kingpin firms, it was revealed that 17 other firms were registered with the GST by misusing the identity/documents of daily wagers and casual workers," he said.
Customers told to link current A/c with GSTIN
Commercial banks have started asking their business customers to link their current accounts with GST identification numbers. While a formal order is yet to be passed, the central and state tax officials, in their meeting last week, agreed to consult the RBI and the NPCI on modalities to track bank accounts and transactions of certain taxpayers, especially those red-flagged by the system.