
In Hyderabad Rural and Madhapur divisions, the commercial tax department has uncovered a scheme involving fake invoices to fraudulently claim GST refunds amounting to approximately 70 crore rupees. Two businessmen have been arrested in connection with this scam, while seven tax officials are currently under investigation for their alleged involvement. The officials and the fake businessmen reportedly took advantage of a provision on the GST portal that allows companies to claim the difference in GST credits between the amount paid for raw materials and the amount earned from selling finished products. Fake invoices for the sale of talcum powder and e-bikes were used to make these refund claims.
The State GST Act, specifically Section 53, was exploited to facilitate this fraudulent activity. This section allows for the reimbursement of excess tax paid under twelve different categories. The refund process requires the submission of specific documents for each category, which must be verified through the common GST network (GSTN) portal. However, some officials allegedly disregarded around 100 objections raised by the Comptroller and Auditor General (CAG) in August 2021 regarding similar refunds in the state.
In February 2022, the former commissioner of commercial taxes issued a circular instructing field officers to adhere to procedures and verify data through the GSTN portal. Circular No. 125/44 issued by the Central Board of Indirect Taxes and Customs (CBIC) was also referenced. Another circular was issued in March 2023, directing joint commissioners in the field to conduct internal audits of previously made refunds.
One of the fake e-bike manufacturers claimed to have paid 18% GST on purchased spare parts and received a 13% refund for the bikes sold, both on paper. The five percent difference in GST was claimed and paid by officials who failed to verify the details. Similarly, another trader claimed a refund by stating that they had paid 28% GST on cement (the raw material) and only 18% GST on their finished goods, talcum powder. The selection of these particular products was apparently based on the ten percent differential in GST, which they claimed as a refund.
To avoid detection and continue the illegal process, an official reportedly changed the address of the front company to their new place of posting. The scheme came to light when a trader, who had been asked to repay the fraudulently obtained refunds, informed a senior official after being released on bail. Despite being mandatory, internal audits of refunds have allegedly not been conducted. Commissioner T.K. Sridevi has ordered a probe into the entire incident.