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October 22, 2020

CA student arrested in GST scam of Rs 50 crores

by facelesscompliance in GST, Income Tax

CA student arrested in GST scam of Rs 50 crores

For the past 6-7 months the COVID 19 pandemic has forced India into a lockdown. Most of the countries small businesses which relied on physical availability of customers have had the most hit.

Small business revenues have plunged everywhere. Nevertheless, tax evaders have proved to be an exception to this rule, who no matter what the situation persists, find a way to evade tax. The Goods and Service Tax (GST) officials arrested a 25-year-old student of chartered accountancy (CA) for committing fraud to the tune of Rs 50.24 crore through input tax credit (ITC) facility.

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.

According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

According to Section 132(1), Whoever commits any of the following offences, namely:

  • supplies any goods, services or both without issue of any invoice, with the intention to evade tax
  • issues any invoice or bill without supply of goods, services or both leading to wrongful availment/utilisation of ITC or refund of tax;
  • avails ITC using such invoice or bill referred to in clause (b)
  • collects any amount as tax but fails to pay the same to the Government beyond 3 months from the date on which such payment becomes due
  • evades tax, fraudulently avails ITC or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d)
  • falsifies/substitutes financial records or produces fake accounts/documents or furnishes any false information with an intention to evade payment of tax due
  • obstructs or prevents any officer in the discharge of his duties
  • acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation
  • receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions
  • tampers with or destroys any material evidence or documents
  • fails to supply any information which he is required to supply or supplies false information
  • attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section

shall be punishable as follows:-

Quantum of OffencePunishment
cases where the amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken exceeds Rs 500 lakhimprisonment for a term which may extend to 5 years and with fine
cases where the amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken exceeds Rs 200 lakh but does not exceed Rs 500 lakhimprisonment for a term which may extend to 3 years and with fine
case of any other offence where the amount of tax evaded or the amount of ITC wrongly availed or utilised or the amount of refund wrongly taken exceeds Rs 100 lakh but does not exceed Rs 200 lakhimprisonment for a term which may extend to 1 year and with fine
cases where he commits or abets the commission of an offence specified in clause (f) or clause (g) or clause (j)imprisonment for a term which may extend to 6 months or with fine or with both

What was the fraud committed by the CA student?

  • Prince Manish Kumar Khatri, a resident of Ahmedabad, who is 25 years of age was arrested by CGST – II Vadodara for committing an ITC fraud.
  • Information of his fraud was found during data analysis of suspicious taxpayers.
  • The 25-year-old CA student, had floated more than 115 fake firms for executing the fraud.
  • He made fake invoices to generate ITC which amounted to Rs 50.24 crore. The illegal and fake credit was eventually passed on in chains to other fake firms without any actual supply of goods and services.
  • He used identity cards of villagers from Dahod and Ahmedabad to create the fake firms. He had promised the villagers a monthly payment of cash.
  • He used to work for a firm and dealt with several companies and he admitted that he made a web of fake firms to benefit some existing and real companies.

A distinguishing mark of the Chartered Accountancy profession is its acceptance of the responsibility to act in the public interest. Therefore, a professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employer.

In acting in the public interest, a professional accountant should observe and comply with the ethical requirements of this Code. This should equally apply to a student pursuing the professional degree.

Having knowledge about the taxation industry does not provide a free pass to commit frauds. The Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) in the past has removed a Chartered Accountants from its register after finding him guilty in fraud cases. Students pursuing the said course should also be aware of the action that will be taken against them by not only the GST officials but also ICAI.

GST follows a system of levying tax at each stage of the value addition in the industry. By relying heavily on technology, GST mechanism has made it easier for the authorities to profile tax payers based on their compliance track record.

Fraudulent claiming of ITC has always been a complicated issue with officials trying to make sure fraudulent claims are not granted, while businesses claim that delays in ITC processing affects their liquidity. Claiming ITC fraudulently has sadly been a common practice of tax evasion in the industry.

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