5300 Cr GST Scam? ( Uncovering the GST scam and understanding the offences and penalty)

A sophisticated network of criminals operating in the Delhi-Noida-Lucknow belt has been uncovered in a massive Rs 5,300-crore Goods and Services Tax (GST) fraud. Their intricate scheme, which involved stolen identities, frequent mobile number changes, luxury cars, and fake documents, went undetected for over six months.

Let’s delve into unraveling this fraud while simultaneously examining the implications, offences and penalties outlined in the GST Act. Understanding the severity of these offenses and the corresponding repercussions, which include fines, penalties and potential imprisonment, is essential for enforcing compliance and deterring similar fraudulent activities in the future.

Uncovering the complex scam

The fraudsters employed a sophisticated and daring strategy. From the comfort of high-end luxury cars like Maseratis and BMWs, they swiftly crossed state borders during the day, adopting false identities to check into upscale hotels at night. Their constant change of mobile numbers and strategic utilization of digital services posed significant hurdles to tracking their movements.

The Noida police’s relentless pursuit of a sophisticated tax evasion syndicate has unfolded across multiple layers, revealing a web of deceit orchestrated by individuals adept at identity theft, document forgery, and manipulation of GST regulations to siphon off illicit gains. This intricate scheme, which involved the creation of fake GST registrations and the subsequent fabrication of invoices to claim fraudulent input tax credit (ITC), has been a focal point of investigations by various law enforcement agencies.

The recent series of arrests, including notable figures such as Sanjay Dhingra, Ajay Sharma, and Sanjay Jindal, offer a glimpse into the extent of the fraudulent activities perpetrated by these individuals. Their alleged involvement in the systematic exploitation of legal loopholes underscores the gravity of the situation and the urgent need for stringent enforcement measures.

A staggering 6,200 GSTINs underwent verification, with 40 percent being cancelled or suspended due to widespread fraudulent activities. These activities involved the use of fake IDs, fictitious addresses, and fabricated bills to illegitimately claim input tax credit (ITC). Recent arrests by the Noida police unveiled a three-tier tax evasion scheme: fake GST registrations through identity theft, fake billing, and fraudulent procurement of ITC using counterfeit bills. This breakthrough highlights the pervasive nature of the fraud and the importance of collaborative efforts between law enforcement agencies and regulatory authorities in combating financial crimes.

The suspects utilized several evasion techniques, such as frequently changing mobile numbers, some registered under employees’ names. Law enforcement tracked these numbers, analyzing activation patterns and detecting suspicious behavior, like phones being used solely for OTP reception. Additionally, IP tracing helped locate their modems via cooperation with ISPs. They also monitored luxury vehicle movements via FASTag, noting daytime travel on the Delhi-Noida-Lucknow route and evening hotel check-ins using fake identities. Despite the challenges, recent arrests have targeted individuals involved in all three tiers of the forgery and cheating case, leaving only a few suspects at large.

Last year, the DGGI booked three businessmen for wrongful ITC availment. Yoyo Traders transferred fake ITC worth Rs 7.8 crore to AKS Traders, then to GoodHealth Industries. Nine supplier firms had non-existent principal places of business, with Rs 68.15 crore in fake ITC involved. Five vehicle owners denied providing their vehicles for goods transportation.

Sanjay Dhingra was arrested for Rs 68.15 crore fake ITC from nine fake firms. Sanjay Jindal and Ajay Sharma were arrested for Rs 282.82 crore fake ITC through 85 fake entities. GST authorities attached 32 bank accounts and blocked Rs 9.61 crore in fake firm ITC ledger, cancelling 19 active firms.

Officials note low recovery rate due to fake ITC mixing with genuine business. About 30% of total tax credit is suspected fake, hindering recovery. Rs 5,224.18 crore fraudulent ITC detected in Noida case, only Rs 240.09 crore blocked so far.

Utilizing cutting-edge technology and sophisticated data analytics, law enforcement agencies have painstakingly pieced together crucial evidence to track down these elusive perpetrators.

The collaborative efforts of agencies like the Directorate General of GST Intelligence (DGGI) and the Financial Intelligence Unit (FIU) have been instrumental in unraveling the intricate layers of this nefarious operation. Their coordinated approach has not only facilitated the apprehension of key suspects but has also shed light on the systemic vulnerabilities within the GST framework that are susceptible to exploitation by unscrupulous actors.

Despite significant progress in apprehending those involved, challenges remain in recovering the ill-gotten gains and dismantling the entire network of fraudulent activities. The complex nature of the scheme, coupled with its widespread reach and sophisticated execution, underscores the need for sustained vigilance and concerted efforts by all stakeholders involved.

In the wake of these developments, it has become increasingly evident that combating financial crimes of this nature requires a multi-pronged approach, encompassing proactive detection, robust enforcement mechanisms, and continuous adaptation to emerging threats. Only through collaborative efforts and unwavering determination can authorities hope to stem the tide of illicit activities and safeguard the integrity of the financial system.

That being highlighted, let us understand the provision covering Fraud under GST, along with other penalties and provisions.

21 Offences Under GST Law that Attract Legal Proceedings 

• Issuance of improper invoice against supplies goods or services.
• Affecting issuance of an invoice by not supplying the agreed upon goods and service
• Using third-party GSTIN to file bogus returns.
• Furnishing wrong or misleading information during GST Registration.
• Intentionally filing false returns with misleading/wrong information.
• Non-cooperation in assessment proceedings by willfully giving wrong or false information during.
• Failure to submit GST with the Government that was deducted by him, within a given quarter starting from the date of such deduction.
• A taxpayer is liable to pay TDS deducted in contravention of provisions of GST within three months from the date of such deduction. This false deducted TDS has to be submitted within the prescribed time or else it would be taken as an of offence.
• Use of Fraudulent means to claim and obtain a refund of CGST or SGST.
• Claiming Input Tax Credit without the actual receipt of goods or services.
• Understating sales during a given Financial Quarter to evade tax.
• Interstate and intrastate transfer of goods without properly documented bills.
• Supply of goods confiscated under the law.
• Destroying or tampering with goods confiscated by the government.
• Intentionally escaped the mandatory GST registration
• Refrains from collecting eligible TCS wherever applicable or collects lesser than the prescribed amount.
• Does not deduct applicable TDS or deducts TDS much less than the prescribed amount.
• Improper distribution of credit or distribution against the provisions of law being an Input Service Distributor.
• Benefits of Input Tax Credit are not distributed properly. Luring government officials into tax evading schemes as well as creating a hindrance for tax officers.
• Abstaining from detailed maintenance of records as mandated by the GST law.
• Intentionally destroying any evidence leading to his/her conviction.

Offences under GST by Companies, LLPs, HUFs and others

For any offence committed by a company, both the officer in charge (such as director, manager, secretary) as well as the company will be held liable. For LLPs, HUFs, trust, the partner/Karta/managing trustee will be held liable. Read our article on liability to pay unpaid GST dues in certain cases.

Penalties under GST

 What does penalty mean?

The word “penalty” is not specifically defined in GST and so it takes the meaning from various judicial pronouncements and principles of jurisprudence. A penalty is a punishment imposed by law for committing an offence or failing to do something that was the duty of a party to do. A penalty can be both corporal or pecuniary, civil or criminal. Both corporal (jail) and pecuniary (monetary) penalties are applicable under GST.

Common Offences Under GST And Their Penalties

Type of offence	Amount of penalty
·        Penalty for delay in filing GSTR	The late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. The maximum is Rs. 5,000. There is no late fee on IGST.
·        Penalty for not filing GSTR	Penalty 10% of the tax due or Rs. 10,000 – whichever is higher
·        Penalty for committing a fraud	Penalty 100% of the tax due or Rs. 10,000 – whichever is higher (High-value fraud cases also have jail term)
·        Penalty for helping a person to commit fraud	Penalty extending up to Rs. 25,000
·        Penalty for opting for composition scheme even though he is not eligible	Demand & recovery provisions of sections 73 & 74 will apply. (i) Fraud case- Penalty 100% of the tax due or Rs. 10,000 – whichever is higher (ii) Non-fraud casePenalty 10% of the tax due or Rs. 10,000 – whichever is higher
·        Penalty for wrongfully charging GST rate— charging a higher rate	Penalty 100% of the tax due or Rs. 10,000    -whichever is higher (if the additional GST collected is not submitted with the govt)
·        Penalty for not issuing an invoice	Penalty 100% of the tax due or Rs. 10,000 – whichever is higher
·        Penalty for not registering under GST	Penalty 100% of the tax due or Rs. 10,000 – whichever is higher
·        Penalty for incorrect invoicing	A penalty of Rs. 25,000

Situations where there is no penalty (but interest may apply)

Type of offence	Action
·        Penalty for incorrect type of GST charged (IGST instead of CGST/SGST)	No penalty. Pay the correct GST and get a refund of the wrong type of GST paid earlier
·        Penalty for incorrect filing of GST return	No penalty. But interest @18% on shortfall amount
·        Penalty for delay in payment of invoice.	ITC will be reversed if not paid within 6 months. No penalty as such
·        Penalty for wrongfully charging GST rate— charging a lower rate	Interest @18% applicable on the shortfall

What are the penalties under GST?

If any of the offences are committed then a penalty will have to be paid under GST. The principles on which these penalties are based are also mentioned by law.

Penalty in cases of fraud

The GST law imposes 100 % penalty on intentional frauds found guilty of being party to activities like tax evasions, short deductions etc. Financial punishment equivalent to the total amount of tax evaded or short deductions, subject to a minimum of Rs. 10,000/.

What is the penalty for helping someone to commit fraud under GST?

Not only the taxable person but any person who does the following will have to pay a penalty extending up to Rs. 25,000

• Helps any person to commit fraud under GST
• Acquires/receives any goods/services with full knowledge that it is in violation of GST rules
• Fails to appear before the tax authority on receiving a summons
• Fails to issue an invoice according to GST rules
• Fails to account/vouch any invoice appearing in the books
• Are there any jail punishments?

Yes, GST has corporal punishments (jail) for high-value fraud cases as follows-

Tax amount involved	100-200 lakhs	200-500 lakhs	Above 500 lakhs
Jail term	Up to 1 year	Upto 3 years	Upto 5 year
Fine	In all three cases

These punishments are applicable along with monetary penalty. For more details please read our article on the prosecution.

Penalty for Other Cases (no intention of fraud or tax evasion) 

• Taxpayers/business-owners who were not a party to any fraudulent scheme and the tax evasion is unintentional are subjected to 10% penalty, subject to a minimum of Rs. 10,000/-.

General Penalty

Any offence under GST for which penalty is not specifically mentioned will be liable to a penalty extending Rs. 25,000.

Minor Breaches under GST

• Minor breaches (where tax amount is less than Rs.5000) or errors are easily rectifiable and clearly made without any motive of fraud.
• There will not be substantial penalties for minor breaches
• The tax authority may issue a warning in such cases.

This will be beneficial to businesses, especially SMEs, who may make genuine mistakes especially in the first few months of GST implementation. Being penalized for genuine errors will be a hard blow to the SMEs who do not have as many resources as the larger organizations to adapt to GST.

General Rules Regarding Penalty

These rules of penalty are generally the same in all laws whether tax laws or contract law or any other law.

• Every taxable person, on whom the penalty is imposed, will be served with a show-cause notice first and will have a reasonable opportunity of being heard.
• The tax authority will give an explanation regarding the reason for the penalty and the nature of the offence
• When any person voluntarily discloses a breach of law, the tax authority may use this fact to reduce the penalty.

Offences Accountable for Non-Registered Person:

The GST radar equally takes into account the non-taxable people also. A person who is non-taxable under GST norms but is privy to fraudulent practices or is part of any, some or all of the below-mentioned offensive practices:

• Willingly goes against GST norms and in the process acquires goods or services.
• Fails to issue genuine invoice against the services/goods used by him.
• Fails to validate/testify the transactions part of his account books.
• Failure to appear before the relevant authorities when summoned by them.

Penalties Accountable for Non-Registered Person:

Under GST norms, even non-registered people under GST who are the partner to above practices attract a penalty of Rs. 25,000/. In addition to this fixed amount, other penalty provisions for any kind of tax evasion / fraud detected by the tax authority include:

• Intentional Evasion of Tax Liability to the amount of 50 lakhs: A jail term for 1 year in addition to the payment of Tax Liabilities.
• Pending Tax Liability for the amount of 50 lakhs to 100 lakhs: A three years jail term coupled with appropriate financial punishment.
• Evading tax liabilities worth 1 crore and more attracts financial punishment in the form of penalties coupled with a five-year jail term.

Specific Procedure and Protocols for Tax Authorities:

• A show cause notice must be issued against the taxable person. The Notice must provide sufficient time for a revert back from the taxable person under the radar.
• It is the onus of the Tax Authority as well as the investigation body to justify the imposition of such penalty as well as the nature of the offence committed.
• The GST has provisions that empower Tax Authorities to reduce penalties, willful whistleblowers. In a scenario where a taxable person intentionally discloses an offence committed by him, it is within the powers of the respective authority to reduce the amount of penalty to be imposed.

Prosecution Under GST

Any deliberate intentions of fraud found in the following actions/activities of a person will attract criminal proceedings against them:

• Using fraudulent means to claim a refund of CGST/SGST.
• Fake documents submitted for filing online returns.
• An issue of dummy invoices without any supply of goods or services against them.
• Being a participant in any fraud scheme that misleads tax authorities.
• Any discrepancies discovered during Inspection, Search/Seizure under GST.

Based on the above findings If The Joint Commissioner CGST/SGST has enough proof that a registered person under GST has deliberately made attempts (successful or unsuccessful) to evade GST or has claimed excessive Input Tax Credit, then he can issue a notice as well as order GST officer to find the whereabouts of the concerned tax evader.

In addition to the above, the Joint Commissioner can order a search cum seizure probe across all registered properties/locations of the taxable person who may be supposedly concealing goods or some important documents

Appeals in Goods and Services Tax

GST provisions deal with tax evaders with an iron hand. This, however, does not mean that a person charged with fraudulent means of tax evasion cannot appeal against orders passed by the adjudicating officer. First Appellate Authority, is the first in the four appeal structure of the GST law. The adjudicating officer or the designated person entitled with the responsibility to pass a decision or an order under the GST Act section 107 is the first in line representative of the First Appellate Authority. The person charged under GST can further appeal to the next in line to The Appellate Authority i.e. The Appellate Tribunal under GSTs Act section 109,110 followed by a High Court appeal under GST Act section 111-116. The last resort for a charged tax evader is to claim innocence under GST Act 111-116 is the Apex Court or the Supreme Court, the highest court in the land.

Any unintentional attempt to avoid paying or short deducting taxes will attract the vigilant eyes of the authorities. Under GST the right to appeal can be invoked against the deposition of a fixed amount of money. SMEs can be the most affected by this as it could cause a huge dent in the working capital.

Important Steps Involved While Making Appeals Under GST Law:

The accused must make his appeal in the prescribed form as well as deposit the required fees beforehand.

The appropriate fee is determined as follows:

• The fee comprises of the full amount of tax, interest, fine, fee and penalty plus a sum of 10% on the disputed amount
• An officer or the GST Commissioner can make an appeal free of any fees or cost.

Conclusion: The implementation of GST undoubtedly adds to the compliance burden, yet it is not a drawback but rather a boon for the nation’s progress. The primary aim of GST is to eradicate longstanding obstacles that have hindered the growth of the nation. The pervasive economic disparity between the affluent and the underprivileged has widened globally. Proper implementation of GST holds the promise of creating an environment conducive to significant revenue generation for the government. This revenue influx can accelerate infrastructure development and the establishment of high-quality public services such as educational institutions and healthcare facilities.

Both new and seasoned taxpayers should bear in mind that the GST Act does not show leniency, even towards first-time offenders. It is imperative for taxpayers to remain vigilant and well-informed about their tax obligations. Additionally, they must steer clear of Ponzi schemes that tempt individuals into tax evasion practices. Such antiquated methods are no longer viable in the era of GST compliance. There is a fitting Hindi proverb that encapsulates the essence of GST compliance: “Savdhani Hati, Durghatna Ghati”