In fact, GST evasion detection by tax officers almost doubled year-on-year to over Rs 1.01 lakh crore in the 2022-23 fiscal. During the last fiscal, a recovery of Rs 21,000 crore was made by the officers of the Directorate General of GST Intelligence (DGGI).

GST authorities had arrested 1,402 persons for evading taxes in the last five-and-a-half years till February 2023.

Several  forged/ morphed/ fake soft copies of documents like rent agreements, electricity bills, aadhar card, driving licence, PAN card, etc. were detected in the laptops recovered from a secret office, which were used to create and operate their fake entities.

It is but obvious that with the rise of GST Revenue collection year by year,  taxpayers are finding more e ways to escape the chain of taxes and hoard the benefit as much as possible.  

 (i) short payment of tax by undervaluing taxable goods and services

(iii) wrong availment / non-reversal of input tax credit

(v) tax collected but not paid to Govt. exchequer,

 (vii) fraudulent availement of input tax credit on the basis of invoices from fake firms

“Input tax credit means one can avail credit of tax already paid by the person or business behind him in the supply chain so that there is no double taxation. The investigating agencies who caught these fake firms say that these fake firms integrated themselves in the chain and were passing on the credit first to different other fake firms and then ultimately to one actual business firm after many layers, which seems synonymous to concept of placement, layering and integration as in money laundering,” explains Radhe Krishnan, IRS officer working as Assistant Commissioner GST &CX Audit. 

A registered supplier raises a tax invoice showing the outward supply of goods/services to a registered recipient while in reality, no supply of the goods/services takes place. The implication of this transaction is that the supplier raises his GST liability and files the tax invoice in his GSTR-1. The same gets reflected in GSTR-2A/ GSTR-2B of the registered recipient, who then claims the input tax credit on the same. This way, the recipient gets the benefit of a fake invoice.  

The supplier does not file his GSTR-3B. 

This way the supplier evades from actual payment of tax and the recipient claims the input tax credit. The input tax credit so claimed by the recipient is then distributed between both the parties involved in a predetermined ratio. 

To put a constraint on such practice, GST Council has introduced Rule 37A based on Section 16(2)(c) of the CGST Act, 2017. As per Rule 37A, a buyer will have to reverse the ITC claims on taxes not deposited by their supplier by November 30 immediately following the year in which this ITC was claimed via the GSTR-3B form, explained Jain.

“To identify such suppliers / tax evaders, the GST Authorities issues  various Show Cause Notices time and again asking for the reasons for the discrepancies between GSTR-1 and GSTR-3B. Though the Authorities have been able to unearth some of the fraud cases in the recent times, but many still manage to escape,” said Jain

“We have seen even genuine businesses receiving notices from GST authorities where their vendor has utilised or availed fraudulent input. For businesses, it is important to transact with genuine vendors after due verification of their records and to maintain proper records of their transactions with  vendors,” said Jain.