Mumbai: Several companies, including builders, are turning to dubious consultants to generate unaccounted cash by creating fake bills that provide input tax credit against payment of Goods and Services Tax (GST). These entities have now come under the scanner of the Central GST (CGST) department and income tax authorities for malpractices. A few corporate houses have even paid penalties when faced with scrutiny on fictitious transactions. 

In the past few months, CGST officials have arrested 67 suspects, mainly book-entry operators who call themselves “tax consultants”, in the Mumbai zone after detecting Rs 7,400 crore worth tax evasion involving fake or inflated invoices. Authorities have used customised software to detect such fraudulent transactions.

These consultants, who control shell companies, enable layered transactions for businesses houses. They collect cheque payments in the name of the companies they run against fake bills. A part of the money is used to pay 18% GST on the total worth of the fictitious goods and services mentioned in their bills. By paying GST, the consultant is able to generate input tax credit (ITC) of an equivalent amount. The consultant passes the generated ITC along with the balance sum from the cheque back to the business house in cash after deducting their commission. The “consultants” charge between 3-5% as commission for their services. 

“Most of the time representatives of corporate houses claim that they need cash for their business activities but they are unable to explain the purpose of the payment,” said a senior GST officer. He cited the instance of a well known engineering company that would generate Rs 100 crore worth unaccounted cash every month through fictitious transactions until the practice was exposed last year.

Sources said they have come across instances where corporates themselves commit the fraud by creating shell companies to do fictitious transactions. In other instances, they generate unaccounted cash through over-invoicing. In such cases, they pay vendors more than the actual worth of the goods and services with a prior understanding. The vendor inflates bills and generates ITC after paying GST on it. The excess amount is then returned in cash along with the generated tax credit.