Exclusive: 1.25 lakh entities, including government agencies, under probe in new drive against fake GST ITC

The government is using data analytics and multiple parameters to identify fake firms.

A fresh set of 1.25 lakh entities, including government agencies, are currently under probe by the Goods and Services Tax (GST) authorities in the drive to curb fake input tax credit (ITC). These are entities found to have taken supplies from bogus entities identified in the initial two-month drive held by the Central Board of Indirect Taxes and Customs (CBIC) earlier, a senior government official said.

“The drive against fake ITC is continuing till August 14 as of now. After the initial two-month drive held by CBIC it was found that the identified non-existent companies supplied fake bills to some companies. If some companies have taken supplies from the bogus entities, it may mean the supplies never took place. This way 1.25 lakh more companies were identified, who took these supplies, which are under probe,” the official told Moneycontrol.

If the supply has not happened, then it becomes a disciplinary case, hence the extension of the drive, he added.

For example, a bogus entity based in Delhi is supposed to have supplied five companies based in Madhya Pradesh, Bihar, Chhattisgarh, etc. So, all five companies are now being probed by the states’ tax administrations.

In the two-month drive held earlier by the CBIC, from May 14-July 14, a total of 60,000 entities were verified, out of which 20,800 were found to be bogus.

“The first layer of verification included 60,000 entities. This — the 1.25 lakh companies — is the second layer of the probe. The 1.25 lakh companies are distributed across India. Some of them may be non-existent and fake. But many are not fake, many of them are government agencies and reputed companies,” the official said.

Data analytics to identify wrongdoers

The government is using data analytics and multiple parameters to identify fake firms. 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 official said the ongoing drive may be extended beyond August 14 as the probe into the 1.25 lakh companies will take time.

After analysing the outcome and data points of these drives, the CBIC will suggest policy measures to tighten the GST system further to prevent tax evasion. For example, the fake entities may belong to specific sectors, may be concentrated in some zones, or may use common ways of generating fake bills, which can be red-flagged.

“Delhi is one big centre where fake entities were found. Curbing fake ITC will be one big GST reform going ahead. The government will look at tightening and more system reforms in the next GST Council meeting,” he said.

Sectors and locations

The fake entities so far have been mostly found in sectors such as metal scrap, packaging, plastic waste, paper waste, agricultural inputs, manpower supply services and advertising. The fake locations of these entities were registered in areas such as Delhi, Haryana, Rajasthan, Gujarat, Noida in Uttar Pradesh, Kolkata, Assam, Telangana, Tamil Nadu and Maharashtra.

In a bid to weed out bogus entities registered under GST and plug fake ITC claims, the government is working towards making geotagging of addresses of all companies mandatory while biometric authentication will be compulsory for the ones detected as risky.

Even in cases where Aadhaar is authenticated, based on risk analysis, an applicant can be marked for physical verification. Pilots for biometrics are running in Gujarat, which will now be extended to Puducherry and Andhra Pradesh. Based on the risk analysis, applicants may be directed to biometric Aadhaar authentication centres.