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January 4, 2021

GST authority detects tax evasion worth Rs 831.72 crore

by CA Shivam Jaiswal in GST

GST authority detects tax evasion worth Rs 831.72 crore

For the past 8-9 months the COVID 19 pandemic had 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, some pan masala, guthka and tobacco products manufacturers in Delhi have proved to be an exception to this rule. However, this is not a situation of exceptional business strategies but a case of tax evasion.

India had banned the use of smokeless tobacco products and spitting in public places in view of COVID-19. The ministry had on 1st April, 2020 asked all states to prohibit the use and spitting of smokeless tobacco in public places to prevent the spread of coronavirus. However certain manufacturers in Delhi could not care less and subjected to illegal means for supply of their products.

What was found by the GST Authorities?

  • Central GST Delhi West Commissionerate has discovered evasion of GST by way of manufacture and clandestine supply of gutkha/pan masala/tobacco products without any registration and payment of duty.
  • On basis of the search at the premise of manufacture, it was found that illegal manufacturing of Gutkha/pan masala/tobacco product was going on.
  • It was evidenced by a godown, machines, raw materials and manufactured products at the premises.
  • Around 65 labourers were found working at the illegal factory.
  • The finished product of gutkha was being supplied to various states in India.

What was the value of the tax evaded?

  • The searches resulted in seizure of finished gutkha and raw materials such as chuna, sada kattha, tobacco leaves etc. valued at Rs. 4.14 crore approximately.
  • On the basis of evidence gathered, stocks seized and confessional statements recorded the total duty evasion was estimated to be approximately Rs. 831.72 crore.

Arrest made for tax evaded

  • The owner of the factory was arrested in the matter on the basis of his involvement in the manufacture and supply of goods without issue of any invoice with the intention to evade tax, as well as in transporting, removing, depositing, keeping, concealing, supplying, or purchasing any goods in violation of the provisions of Section 132(1)(a) and (h) of CGST Act, 2017.
  • These offences are cognizable and non-bailable under Section 132(5) being punishable under Section 132(1)(i) of the said Act.
  • The accused person has been arrested and produced before the Metropolitan Magistrate (MM), Patiala House Court and was sent to 14 days judicial custody by the MM.
  • Further investigation is under process to identify the key conspirator/s of the case and to recover the tax dues involved.
  • Delhi Zone has been making sustained efforts to check evasion of GST, leading to detection of Rs 4,327 crore in the current Financial Year and 15 persons have been arrested in these matters.

Similar Pan Masala tax evasion case in June 2020

  • Central GST intelligence officers discovered a tax evasion of Rs 225 crore after they busted illegal pan masala manufacturing units in Indore.
  • Goods were sold illicitly during the period July, 2019 till March, 2020.
  • Three persons were arrested for their involvement in the racket.
  • Raids were conducted at 16 suspected illicit and undeclared warehouses and residential locations in Indore and Ujjain. The officers, who conducted raids in Indore and Ujjain, which are the state’s worst coronavirus-affected areas, followed necessary social distancing protocol and wore gloves, masks and other protective equipment.
  • The organisers and masterminds made an unsuccessful attempt of disrupting the enforcement officials by engaging a mob of about 20-30 people during the search at one of the residential and later at a factory premises.
  • However, both these attempts to disrupt government function were effectively put off by the DGGI enforcement officers with timely and professional assistance by Madhya Pradesh Police, who were always the part of the search operations throughout.
  • The total duty implication in this fraud is estimated to be around Rs 400 crore
  • The DGGI investigations indicated that the masterminds of this fraud had set-up 8 companies in the real estate, hospitality and media sectors to launder illicit wealth generated from these businesses.
  • The accused persons were believed to have used more than 70 cargo trucks for arranging this GST fraud for the last many years.
  • The cargo trucks were found to be bearing display of ‘On Press Duty’ for ferrying the illicit consignments of pan masala/tobacco and their raw materials within Madhya Pradesh and to neighbouring states, while the drivers were found to be carrying identity cards of a local Indore newspaper.
  • To avoid detection, the masterminds and organizers of this fraud floated partnership/ proprietorship/HUF firms engaged in manufacturing and trading of pan masala and tobacco owned on paper by three dummy persons. These three dummy persons had actively colluded and knowingly participated in the GST fraud.
  • Search operation were also conducted in Jabalpur and Bhopal in addition to Indore and Ujjain, where, unaccounted finished goods (branded pan masala and tobacco) and primary raw material such as betel nuts, raw tobacco, essence and packing material, was seized in large quantities from undeclared premises.
  • Certain masterminds of the fraud and financial beneficiaries have not joined the investigations but have been summoned by the central GST intelligence department for tendering statements under the provisions of Central GST Act, 2017.
  • The market information suggests that these banned goods were being sold and consumed in some places within Madhya Pradesh and Maharashtra during the lockdown period, at 4-5 times their usual market rates.

This detection and evidence collected by GST Officials indicates that some dishonest manufacturers, dealers may have, unfortunately, taken undue benefit of the current Pandemic lockdown situation for their selfish personal gains.

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