1 in 3 companies in CBIC follow-on probe is fake, mirroring trend in earlier probe: Official

ITC allows GST taxpayers to claim credit for taxes paid on inputs used in the production of goods or services.

The Central Board of Indirect Taxes and Customs (CBIC) has found that as many as one-third of the entities it has looked at so far in a follow-on probe are bogus. The CBIC is looking into 1.22 lakh companies that are on the government’s radar for utilisation of fake input tax credit (ITC) under the Goods and Services Tax (GST). The ratio of fake entities during an earlier drive on 77,200 entities was similar, a senior government official said.

“Until September 30, 15,000 entities had been verified in the ongoing follow-on drive out of a total of 1.22 lakh companies. As many as 5,000 fake entities were found in the drive. The ratio is similar to the one in the earlier special drive, with almost one-third of the entities bogus,” the official told Moneycontrol.

As of September 30, a total of Rs 4,620 in fake ITC claims had been detected, Rs 86 crore had been recovered, and Rs 1,193 crore blocked.

Earlier this fiscal year, the CBIC had carried out a special drive on 77,200 entities to plug fake ITC, in which there was a similar trend of one-third of the entities being bogus. During the drive, 22,000 entities were found to be bogus or non-existent.

The non-existent entities identified in the special drive had passed on fake ITC to the 1.22 lakh companies on the radar in the follow-on drive. All of these companies will face scrutiny and notices will be sent to them as they accepted fake ITC from bogus entities.

ITC allows GST taxpayers to claim credit for taxes paid on inputs used in the production of goods or services. Fake invoicing means invoices are issued even when there is no real supply of goods or services. These invoices are then used to avail ITC, which causes a revenue loss to the government.

“The returns of 1.22 lakh entities will be scrutinised. The ones that have been filing returns regularly and whose physical verification has been done will be confirmed as existent entities. But all the 1.22 lakh will face notices because they accepted ITC from non-existent entities. Judicial procedure will be followed and they will be given a chance to respond. The bogus entities’ GST registration will be cancelled,” the official said.

Since the follow-on drive is being carried out jointly with the states, the CBIC has sent an advisory to them to verify the entities flagged as risky.

The entities under scrutiny were flagged by the Goods and Services Tax Network (GSTN) as risky taxpayers based on its risk-analysis parameters. GSTN is a non-profit, non-government organisation that manages the IT backbone of the interface between GST payers and the government. GSTN makes GST implementation, regulation, and administration easier and more efficient by utilising cutting-edge information technology and infrastructure.

The special drives and learnings from them have helped GSTN refine its risk analytics. For example, one of the learnings has been that a common email is not a good indicator of an entity being non-existent as in many cases a chartered accountant handles the finances of more than one entity, the official clarified.