MD Abhishek Singh, his brother Harshvardhan Singh and CFO Paresh Thakkar were arrested after a raid on May 23.
Vadodara-based Manpasand Beverages Ltd (MBL) was already the centre of a controversy after Deloitte resigned as its auditor in May 2018. Things went even further south earlier this month when its top brass was arrested for the recent goods and services tax (GST) fraud of Rs 40 crore.
The company was set up in 1998 by Dhirendra Singh, its current chairman and managing director. In the following years, the company focused on rural markets and tier-2 and tier-3 cities to grow its presence, as opposed to its rivals who made metros their target.
In 2018, the company's distribution was at its peak with 6 lakh outlets across India, as well as three plants in Vadodara, Varanasi and Sri City. The beverage company had plans to set up its fourth plant. But, the recent unearthing of the tax scam by the Central GST Commissionerate Vadodara showed that the company had used this network to operate through fake units.
Sources told Business Standard that MBL had allegedly created sales and purchases of its products across over 30 fake units.
"Usually the cases one comes across show companies running real units, but acquiring fake invoices here and there to claim input tax credit (ITC). But in case of MBL, it has been found that the company set up several fake units and across the country at that. Real purchase and sale transactions were then shown with values inflating with each transaction in order to claim a cumulatively large sum of input tax credit," a source said.
The company allegedly showed inter-unit transactions worth over Rs 300 crore wherein ITC would come up to Rs 40 crore. Government sources said that these transactions were found to have taken place in 2018-19.
Legal experts who are tracking this case said this circular trading happened when one of its real units transacted with a fake unit. More such transactions can be tracked in the company, where the value of the transaction was increased each time. And, eventually, it culminated as a purchase transaction by a real unit.
"The real unit which shows purchase in the end can now claim tax credit on the inflated value at each stage. Mostly, it is even difficult for auditors to find out such a long trail of 30 fake units because there are no RoC (Registrar of Companies) records. Also, there is no law in the country that prohibits such kinds of circular trading. Only CGST intelligence can smell it when they follow the trail on their system and find that these are similar or even same transactions shown again and again," an anonymous independent corporate law expert told the paper.
Most of the senior management of the company have resigned, but they have maintained that they did not have any information about these transactions. Vishal Sood, Bharat Vyas, Chirag Doshi, Milind Babar and Dhruv Agarwal, five of the six directors of the company, have resigned.The company's Managing Director Abhishek Singh, his brother Harshvardhan Singh and the Chief Financial Officer Paresh Thakkar were arrested after a raid on May 23.