The recovery rate in Goods and Services Tax (GST) cases pertaining to input tax credit (ITC) fraud has gone up significantly in FY24, with the Directorate General of GST Intelligence(DGGI) recovering more than 12 percent of the dues against 2-3 percent in the previous years, government sources aware of the development told Moneycontrol .

Even commoners are falling trapped by fraudsters, said a GST compliance expert.

The DGGI has detected GST frauds to the tune of Rs 21,089 crore during FY24. Of this, Rs 2,577 crore have already been recovered, they said. The new set of recovery data is expected to be made public soon.

This improvement in recovery rate comes as the DGGI has started to adopt a proactive strategy to detect ITC cases in the early stages. The department is also following many new means, like artificial intelligence and data tools, and is actively sharing data with other regulators to ensure early detection of ITC frauds.

“Some of the previous ITC cases that were probed were 4-5 years old. The recovery rates in those cases are almost nil. This is because the culprits alienate the ill-gotten gains, making it difficult to recover the fraud amount,” said a government official.

“So far, 113 people who are alleged to be the masterminds of such frauds have been arrested, but clawing back the fraud money is a challenge. Hence, in the last few months, the department has been focusing on early detection of such frauds,” he said.

How ordinary citizens are trapped

The modus operandi involves creation of fake invoices to avail GST benefit and this practice is rampant in sectors like manufacturing and real estate. Several detected cases involve complex schemes through which entities get double benefits. Raw goods needed by manufacturers are provided without paper trail or paying duty . Then a fake invoice is provided for the same goods, so that manufacturers can avail input tax credit.

“Goods that shouldn’t have been moved without paying duties are being moved and are being married to fake invoices generated. This way, the goods provider is able to move the goods out without paying duties while the manufacturer is able to avail input tax credit,” said the official.  “There are racketeers across the country who are creating fake invoices ,” he said.

In some cases, even commoners are falling prey to these frauds, said a GST compliance expert. Fraudsters collect Know Your Customer (KYC) documents from gullible people by promising loans or other benefits. Then, without the knowledge of the individual, shell entities are created using the KYC and these entities produce fake GST receipts.