Grand Spectacular Theft via GST

Fraudsters create false invoices to establish trading and sales trails

It is possibly the largest GST scam. A set of scamsters collected refunds worth more than `1,800 crore from the GST authorities across multiple jurisdictions. What is crucial is that they gamed the entire supply chain, from product purchases, sales through various firms, e-way transport bills, to final shipments via exports. Similar past cases, yet again worth Rs 1,000-2,000 crore, prove that the fraudsters manage to capture the GST system, as it exists. Such examples highlight “systemic abuse of the ITC (input tax credit) mechanism through fake billings, and fictitious exports” or sales. Hence, the expanse of the scams is deeper, and almost-impossible to detect.

Let us begin with the abuse of the policy. Since GST is paid at several levels during the movement of the goods, there is a mechanism to claim refunds of the taxes paid on the inputs, or at the earlier stages. In some cases, this is not allowed, especially after GST 2.0, since the tax rate is either zero or minimal (five per cent). Exports definitely, invariably, and implicitly involve such refunds. Dubbed as ITC, the system was abused from the beginning, and nudged the policy-makers to regularly plug loopholes, and tax agencies to systematically investigate them.

Now comes the selection of the product, which needs to be put into play. Most criminals choose items that attract low taxes. Although the refunds are smaller, possibly a few hundred crores of rupees, detection is difficult since no one cares about low-ticket products. In the Rs 1,800-crore scam, the mastermind, who allegedly fled to Dubai, picked out tobacco-based products, which attract the highest GST. These included tobacco, smoking mixtures, and other ingredients that are part of the chewing culture. The amount of the ITC-based refunds was huge in value and percentage.

Being smart, this criminal gang pursued two strategies. First, it did not establish either genuine or fake manufacturing or production facilities, which are easy to detect. Instead, in one of the modus operandi, the procurement of the goods was merely on paper, or fake. In effect, there were no goods, and these fake products moved through an elaborate paper trail. In the other surreptitious route, the goods were purchased locally at nominal and extremely cheap prices, mostly without invoices, whose prices were inflated, and which were shown as high-value tobacco-based products. These included “low-value tobacco, inferior smoking mixtures,” and other ingredients (kimam and jarda). Hence, it followed a two-fold illegal process, both to claim ITC refunds.

However, there were dozens of intermediary firms, which sold the ‘paper’ goods, and genuine but cheap and waste materials, shown as high-priced ones from one entity to another in a hierarchical chain. Borrowed KYC documents were used to register the firms legally. But they were shelf companies that were “non-functional,” lacked “infrastructure and manpower,” and did not conduct “genuine business activity at the declared premises (registered offices).” Thus, these firms too operated merely on paper, and their names were used to create invoices to sell the ‘paper’ or low-value but real goods to each other.

The owners and directors of these ‘dummy’ firms, i.e., legally existing but non-operational, were real, but ‘benami’ in many senses. Such persons merely lent their names to the criminal outfit, which used the names to create credibility and genuineness. The owners and directors were paid fixed monthly payments, only in cash. They were mere paper stamps, or benami signatories. “All the operational activities, including GST registrations, banking operations, filing of returns, and submission of the refund claims,” apart from the generation of the invoices was handled by the gang, and its main, and now escaped, mastermind.

In some cases, the fake purchase invoices, largely for the non-existent ‘paper’ products, were circulated through the dummy and benami intermediaries, which established a “layered chain of transactions.” The goods passed from one entity to another, and resulted in an “artificial trail of trading activity.” This GST and trading chain enabled the gang to introduce the illegal, and ineligible, GST and, hence, ITC, into the system. Since GST was paid at several levels, at least on paper, a huge value of ITC could be claimed. In other cases, where genuine but low-value goods existed, these were sold in the same manner as high-value goods, which attracted huge GST, to help claim higher ITC.

Of course, there was another part of the GST system that needed to be cracked, and something which is seriously tracked by the tax agencies. Indeed, this is one of the most prominent ways to pinpoint abuses, misuses, evasions, and tax avoidance. This is the presence of e-way bills for transport and logistics. Investigations revealed that such bills were generated through the use of “doubtful or repeated vehicle numbers, and fabricated transport documents.” They supported the movement of goods indicated by the false purchase invoices. Now, the technical part of the system was almost complete.

What was left was a financial trail, the smell of the money passing through the various intermediary entities. Despite the high-value transactions that were shown on the invoices for tobacco-based products, there were surprisingly minimal payments in the respective bank accounts, or merely a circular movement of the funds among these entities. The firms did not show payments to suppliers, or expenditure on logistics, offices, and administration. This was possibly the weak link in the scam chain. If the GST trail was robust, no one would check the finances. At least, this is possibly what the criminal mastermind thought.

Finally, there were entities that were projected or registered as exporters, which mostly operated from the Kandla Special Economic Zone in Gujarat, renowned as Asia’s first and once India’s largest export processing zone. After the layered trading trail, the goods reached the firms, which sold the existing low-value goods, or non-existent ones, to overseas buyers at highly-exaggerated prices. In both cases, the export documents were illegal. The first mis-declared the products as high-value tobacco products, and the second generated documents for the fake products. Thus, the gang was able to show high export turnovers in high-value products.

Multiple firms within this scam shared “common contact numbers, Internet IP addresses, accounting personnel,” physical addresses, and other elements. This proved the mastermind, or the gang, operated through centralised controls. One of the gang members was booked by Sebi in March 2026 for inflating the valuation of a listed firm through bogus billings, fake turnovers, and GST fraud. The escapee mastermind was accused of other frauds, which include getting credit facilities via forged documents. For example, he ripped off at least Rs 11 crore as credit from Yes Bank by showing inflated export turnover.