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February 13, 2021

ICAI initiates disciplinary action against 25 CAs for alleged involvement in GST fraud

by CA Shivam Jaiswal in GST

ICAI initiates disciplinary action against 25 CAs for alleged involvement in GST fraud

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, tax evaders have proved to be an exception to this rule, who no matter what the situation persists, find a way to evade tax. In December 2020 itself, the Directorate General of Goods and Services Tax Intelligence (DGGSTI) arrested over 100 people and booked 3,479 entities in 1,161 cases for illegally availing or passing on input tax credit (ITC) by using fake GST invoices, and causing loss to the exchequer.

Further investigations in these cases unravelled the network and multiple chains of fake invoices’ benefactors and, also, to ascertain the exact amount of tax evasion and usurpation by these fake entities and fraudsters. Use of fake invoices to wrongfully avail ITC credit has been gradually increasing and has become a concern for the government.

Recent Action taken by ICAI against CA in GST fraud

  • The Institute of Chartered Accountants of India (ICAI) is a statutory body established by an Act of Parliament, viz. The Chartered Accountants Act, 1949 for regulating the profession of Chartered Accountancy in the country.
  • The Institute, functions under the administrative control of the Ministry of Corporate Affairs, Government of India.
  • ICAI has now initiated disciplinary action against 25 CAs for allegedly involved in frauds related to GST.
  • A strong warning has been given to such individuals not to indulge in such activities.
  • Authorities were cracking down on fraudulent activities, including evasion, in relation to GST.
  • In some cases, names of Chartered Accountants also came up.
  • Against this backdrop, ICAI has initiated disciplinary action.
  • In connection with GST frauds, it needs to be first ascertained whether individuals concerned were Chartered Accountants.
  • In many cases, the Institute has filed FIRs.

Disciplinary action against CA’s arrested in invoice fraud in November 2020

The government had arrested 258 people, including eight chartered accountants (CAs) in its nationwide drive against fake GST fraud launched since mid-November to nab unscrupulous elements using fake invoices to fraudulently claim input tax credit.

They were operating multiple non-existent firms and fake entities to dupe the exchequer with fraudulent ITC utilisation in connivance with fraudsters and fly-by-night operators.

The CA Institute has initiated disciplinary proceedings against the eight chartered accountants who have been arrested in the nationwide drive against fake GST invoice frauds in the last two and half months since November 2020.

What happens when a CA is found guilty of professional misconduct?

According to Section 22 of the Chartered Accountants Act, 1949, the expression “professional misconduct” shall be deemed to include any act or omission specified in any of the Schedules, but nothing in this section shall be construed to limit or abridge in any way the power conferred or duty cast on the Council under section 21(1) to inquire into the conduct of any member of the Institute under any other circumstances.

If the Director is of the opinion that the accountant is guilty of an act that falls under the First Schedule – then the complaint is forwarded to Board of Discipline. The Board of Discipline will follow a summary disposal procedure. If the member is found guilty of misconduct, the member will be given an opportunity to be heard and the following steps can be taken:

If the Director is of the opinion that the accountant is guilty of an act that falls under the Second Schedule or both Schedules – the complaint is forwarded to the Disciplinary Committee. If the member is found guilty of misconduct, the member will be given an opportunity to be heard and the following steps can be taken:

The Disciplinary Committee of ICAI disposed more than 650 cases in last 2 years

In the last 2 financial years (2019-20 and 2020-21) ICAI disposed more than 650 cases through disciplinary mechanism wherein prime endeavour, in consonance with the amendments proposed, was to conclude case within 1 year as against the current period of 2 years. Of these 650 cases, as many as 400 were held guilty and punishments ranged from a ‘reprimand’ to ‘removal of names’. Hundreds of them have been removed from the register of members.

During FY 2019-20, the Disciplinary Committee concluded its enquiry in 300 cases, which included cases referred to it in previous years. ICAI also reported that during the current year 2020-2021, a new bench of the Disciplinary Committee has been constituted and thus with the four Benches of the Disciplinary Committee i.e., Bench I, Bench II, Bench III and Bench IV and the Board of Discipline, it is expected to have an expeditious disposal of cases under inquiry apart from the consideration of the Prima Facie Opinion formed by the Director (Discipline). In addition, the Disciplinary Committee under Section 21D headed by the President, ICAI has also been constituted to look into any residual old cases that are/may be referred back by the Council.

Enforcement agencies have used data analytics and artificial intelligence (AI) to process data exchanged among GST authorities, customs department and income-tax offices and pin-pointedly identify unscrupulous elements. It is through such systemic changes, that the department has now been able to take targeted actions against fraudsters and tax evaders. It is with these measures that the DGGI has not only been able to unearth the fake firms but also the final beneficiaries of ITC frauds. Going forward also, the endeavour of ICAI would be to conclude the case within one year.

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