Rs.700 crore fake GST billing scam in Ludhiana, Know how this scam was done

The Directorate General of GST Intelligence (DGGI) has arrested two key individuals behind a massive fake billing GST fraud exceeding ₹700 crores. The accused, Manish and his brother Amit, residents of Gurmukh Singh Colony, Mandi Gobindgarh, were allegedly running a sophisticated scheme using fraudulent identities to create fictitious firms. These bogus firms were used to generate fake invoices and claim input tax credit (ITC), causing over ₹100 crore in tax losses to the government.

Officials revealed that the brothers operated a complex network of dummy companies, passing the fraudulently obtained ITC to intermediary firms. The stolen funds were funneled into seven APMC accounts, from which the duo made cash withdrawals totaling more than ₹717 crores, mainly from a single bank branch.

During raids at their residences and offices, DGGI seized substantial evidence, including 11 mobile phones, seven pen drives, two laptops, 56 cheque books tied to multiple bank accounts, 27 identity documents, seven stamps, and 46 ATM cards registered to various individuals. The brothers confessed to their involvement in the scam and were arrested on October 9. They are currently in judicial custody as the investigation unfolds.

How Fraud was done?

The fake billing GST fraud involving Manish and Amit was a sophisticated scheme designed to exploit the Goods and Services Tax (GST) system by generating fraudulent claims for Input Tax Credit (ITC). Here’s how the fraud was carried out:

1. Creation of Fake Firms: The masterminds, Manish and Amit, created numerous fictitious or “dummy” companies. These companies existed only on paper and were established using fraudulent or stolen identities. The purpose of these firms was to engage in fraudulent transactions and inflate the volume of business activities on paper.
2. Fake Invoices: The fictitious firms were used to generate fake invoices for non-existent goods or services. These invoices falsely showed business transactions between the dummy companies, although no actual exchange of goods or services took place.
3. Claiming Input Tax Credit (ITC): The dummy firms, through these fake invoices, claimed Input Tax Credit (ITC) on the GST paid on the non-existent goods or services. ITC allows businesses to reduce the taxes they owe by the amount of GST they paid on inputs (goods or services purchased for business purposes). In this fraud, the ITC was claimed on fake transactions, essentially fabricating tax credits that were not legitimate.
4. Passing on ITC to Intermediary Firms: Once the dummy firms generated the fraudulent ITC, they passed this fake credit to intermediary companies. These intermediaries could then offset the ITC against their actual tax liabilities, reducing the amount of GST they needed to pay. This gave them an unfair financial advantage.
5. Withdrawal of Funds: The fraudulently obtained funds (generated through the sale of fake ITC credits) were funneled into multiple APMC (Agricultural Produce Market Committee) accounts. From these accounts, the brothers withdrew large sums of cash, totaling more than ₹717 crores, mainly from a single bank branch. This was done to avoid direct detection and create a complex money trail.
6. Use of Multiple Bank Accounts and Cheque Books: During the investigation, authorities found 56 cheque books, 46 ATM cards, and other financial instruments linked to numerous bank accounts. These accounts were likely used to spread out the illicit transactions and obscure the trail of money from law enforcement agencies.
7. Use of Identity Fraud: The entire operation was based on identity fraud, where the brothers used fake or stolen identities to establish the dummy firms. This added another layer of complexity and made it harder for authorities to trace the fraud to the real individuals behind the operation.

The fraud resulted in over ₹100 crores in tax losses to the government by exploiting the GST system and creating a vast network of fictitious companies and transactions. The accused were eventually arrested after an investigation by the Directorate General of GST Intelligence (DGGI), which uncovered substantial evidence, including mobile phones, laptops, and identity documents linking them to the crime.