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June 15, 2020

Pan Masala manufacturers arrested for Rs 225 crore GST evasion

by facelesscompliance in GST

Pan Masala manufacturers arrested for Rs 225 crore GST evasion

For the past 2-3 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, pan masala manufacturers in Indore 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 April 1 asked all states to prohibit the use and spitting of smokeless tobacco in public places to prevent the spread of coronavirus.

However certain pan masala manufacturers in Madhya Pradesh couldn’t care less and subjected to illegal means for supply of their products.

  • 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 on Thursday and Friday.
  • 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 are 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.

There has been a recent similar case of GST tax evasion which was called Operation ‘Kark’

  • The operation was named ‘Kark’, considering the high Goods and Services Tax (Kar in Hindi) loss and the reported adverse effects of consuming illicit tobacco not subject to food and safety standards leading to high prevalence of oral cancer (Kark) in India.
  • Three independent groups were found to be involved in large scale manufacture, undeclared supply and illicit sale of pan masala/ tobacco without payment of GST have been covered by the enforcement agencies.
  • The DGGI detected an annual GST evasion of Rs 18.77 crore and made seizure of illicit goods and cash worth Rs 2.92 crore.
  • This also led to the arrest of one Pakistani national residing in Indore.

This detection and evidence collected by DGGI 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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