The Madhya Pradesh Economic
Offences Wing (EOW) has recently unearthed a massive ₹130
crore GST fraud involving fake Input Tax Credit (ITC). The
case highlights the growing misuse of GST registration systems for availing
illegal tax credits through shell companies and bogus invoices.
Let’s break this down to
understand how such scams work, what legal provisions apply, and how taxpayers
and consultants can safeguard themselves.
What is Fake Input Tax Credit
(ITC)?
Fake ITC refers to claiming tax
credit on invoices for which no actual supply of goods or services took
place. It is one of the most common GST fraud methods.
Key characteristics of fake
ITC fraud:
- Use of non-existent or paper-only firms
- No movement of goods/services
- Bogus GST invoices
- ITC passed on without tax payment to the government
Madhya Pradesh Case: How the
₹130 Cr Scam Was Run
According to the EOW
investigation:
- A group of individuals created over 50 fake
GST-registered firms
- These shell companies issued bogus invoices to
each other and to genuine firms
- Fake ITC worth ₹130 crore was claimed and passed on
- The scam was run across multiple states
using forged documents
Legal action:
- FIR filed under IPC and CGST Act, 2017
- Arrests are likely under Sections 132(1)(b),
(c), and (f) of the CGST Act
- Properties and bank accounts are being frozen
GST Law on Fake ITC: What Does
Section 132 Say?
Under the Central Goods
and Services Tax (CGST) Act, 2017, Section 132 deals with offences and
penalties for GST frauds, including fake ITC.
Key penalties:
|
Offence |
Amount Involved |
Punishment |
|
Fake ITC without supply |
> ₹5 Cr |
Jail up to 5 years + fine |
|
Repetition of offence |
Any amount |
Non-bailable offence |
|
Fake invoices |
> ₹2 Cr |
Cognizable and non-bailable |
Also, the GSTR-3B and
GSTR-1 filings are now more strictly scrutinised with data
analytics and AI tools by GSTN to catch such anomalies.
Red Flags That Signal Fake ITC
Risk
To stay compliant, look out for
these signs in your vendor ecosystem:
- Suppliers without e-way bill or delivery
proof
- Vendors not filing GSTR-3B or GSTR-1 regularly
- Large purchases from new/unverified GSTINs
- Tax mismatch in GSTR-2B vs. GSTR-3B
🔍 Tip: Use
the GST portal to verify vendor return filing status and GSTIN authenticity.
How to Report or Avoid GST
Frauds
If you’re a taxpayer or
consultant:
- Conduct due diligence before onboarding vendors
- Reconcile GSTR-2B with GSTR-3B monthly
- Avoid availing ITC if supplier has defaulted in tax
payment
- Use tools or consultants to check ITC validity
To report fraud:
- Visit the official GST grievance redressal portal:
🔗 https://selfservice.gstsystem.in/
Legal Consequences for
Involved Persons
Fraudsters may face:
- Arrest without warrant
- Seizure of property and bank accounts
- Reversal of entire ITC with interest (Sec 73/74)
- Prosecution under IPC for forgery, cheating,
criminal conspiracy
Even buyers who
knowingly receive fake invoices can be penalised under Section 122 of
the CGST Act.
Protecting Your Business from
Fake ITC Issues
✅ Register vendors with known
credentials
✅
Use e-invoicing and proper documentation
✅
Reconcile GST returns monthly
✅
Keep proofs of goods received and tax paid
✅
Avoid dealing in cash-heavy sectors with no traceability
Conclusion
The ₹130 crore GST fraud in
Madhya Pradesh is a reminder of how serious fake ITC scams have
become. We advises all taxpayers and consultants to follow due diligence,
ensure return reconciliation, and avoid shortcuts.
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