Frequently changing phone numbers, using high-end luxury cars, including Maseratis and BMWs to zip through state borders during the day, and then checking into upmarket hotels with fake identities in the evenings — that was part of the modus operandi of the alleged kingpins behind an elaborate three-tier tax evasion plot who operated in the Delhi-Noida-Lucknow belt without being detected by authorities for well over six months.
The plot finally unravelled on account of some rather innocuous applications: FASTag text messages generated on crossing toll booths and one-time passwords (OTPs) from food delivery apps like Zomato and Swiggy. These trackers were used by law-enforcement officers to triangulate the locations of the suspected players behind what has now turned out to be one of the biggest evasion rackets unearthed under the Goods and Services Tax (GST) regime.
The unwinding of the plot started around 12 months ago, when a Noida-based individual reported a case of identity theft and fake GST registrations in his name, following which the local police started investigating in May 2023.
Number of cases since June 2023
The case is now billed as one of the biggest hauls under GST, with 41 arrests so far and the detection of around 2,660 fraudulently registered firms, fake input tax credit (ITC) worth Rs 5,300 crore generated using some 15,300 crore bills.
“The Noida police caught a racket for misusing identification documents and creating fake firms and GSTINs (GST identification numbers) and shared the data with the Directorate General of GST Intelligence (DGGI).The data was then shared with the Financial Intelligence Unit (FIU) to find out other GSTINs linked to these risky mobile numbers, Aadhaar and PAN. Around 13,000-14,000 GSTINs were then found to be linked. There was some double counting also, and after an internal analysis, it was found that there were around 8,000 independent, identifiable and risky GSTINs. This verification work has been on for the last 8-9 months,” a senior official told The Indian Express.
Over 6,200 GSTINs have been verified of which 40 per cent have been cancelled or suspended, he said. In most of these cases, there are fake IDs, no real supply of goods or services, the use of a fake address with bills and invoices created to avail of fake ITC, which is a refund paid by the government for tax already paid on the value added along the production/ services chain.
Fresh arrests by the Noida police earlier this month have helped authorities piece together the last layer of the three-tier tax evasion: the first was related to fake GST registrations with identity theft and forged documents; the second layer involved fake billing; and the third layer was linked to securing fraudulent input tax credit using fake bills under GST.
The Noida police had initially arrested over 18 people last year for having PAN data of over 6 lakh people and creating fake GST registrations. None of the arrested has got bail so far as national security implications have been linked to the misuse of identification documents.
The latest arrests by the police were of Sanjay Dhingra, promoter of Rajouri Garden-based dairy manufacturer GoodHealth Industries along with his wife and son last week. Dhingra is alleged to have used fake bills over the last 4-5 years. Earlier in March this year, Noida police arrested Haryana-based businessmen Ajay Sharma and Sanjay Jindal for allegedly availing of fake ITC using forged documents. They were booked under IPC sections 420 (cheating), 467, 468 and 471 (all related to forgery), 120 B (criminal conspiracy).
The businessmen on the run would keep changing their mobile numbers, keeping then switched off most of the time switching them on only to receive OTPs from delivery apps. This helped police track them down.
Before the police, DGGI authorities had also arrested these businessmen last year. But after a 60-day detention, they had got bail under the GST law. As they changed their locations frequently, it became important for police to use tech and data analytics.
“They would keep changing mobile numbers, some of which were taken in the name of their employees. We analysed data like which mobile numbers used to get switched on after five-six hours in a location we suspected them to be. Sometimes they would switch on their mobile phones only to get OTPs and we would then know that it is a suspected number. If we came to know of their IP address, the modem was located by contacting the internet service providers,” Shakti Mohan Avasthy, Deputy Commissioner of Police (Crime), Noida told The Indian Express.
FASTag was also tapped to track the high-end luxury cars used by these businessmen on the Delhi-Noida-Lucknow route during the day – they would check in into well-known hotels with fake identities by the evening, Avasthy said.
“This has been one of the most difficult arrests in the case. With this, we have now arrested persons involved in all three layers of the forgery and cheating case. Very few are left to be arrested now,” he said.
Last year, the DGGI had separately booked these three businessmen for wrongful availment of ITC. After Noida police shared details of the fake firms, DGGI did its internal analysis of the outward supplies and credit availed based on the returns filed by the fake companies. It found that a firm named Yoyo Traders passed on fake ITC worth Rs 7.8 crore to AKS Traders, which then passed on the entire tax credit worth Rs 7.8 crore to GoodHealth Industries.
The DGGI also found that the principal place of business of nine supplier firms was non-existent with the ITC involved in the invoices issued by these firms to be Rs 68.15 crore.
Wrongful availment of input tax credit through fake claims has emerged as one of the biggest causes of concern for GST authorities amid continuing action against fraud, evasion and registration of bogus entities under the indirect tax regime.
Statements of owners of five vehicles, mentioned in 643 e-way bills for having been used for transportation of the goods, were recorded wherein they denied having provided their vehicles.
Subsequently, Dhingra was arrested on June 8, 2023 by GST authorities under Section 132(1)(c) of CGST (Central GST) Act, 2017 for availment of fake ITC to the tune of Rs 68.15 Cr from 9 fake firms.
Separately, Jindal and Sharma were arrested by DGGI in July 2023, for charges of passing fake ITC worth Rs 282.82 crore by a network of 85 fake entities, created and controlled by them. As many as 32 bank accounts were attached by GST authorities and Rs 9.61 crore was blocked in the ITC ledger of their fake firms, officials said. Also, 19 active firms out of 85 fake entities were cancelled.
While data analysis has helped authorities reach the kingpins of this fraud, officials admit that the recovery rate is low. “Many businesses are mixing fake ITC with their genuine business… like 30% of the total tax credit they avail would be fake through a network of linked companies. By the time we reach the last layer, the credit gets distributed among that network and thus, the recovery rate is poor,” the official cited above said.
This is reflected in the official data. In the follow-up to the Noida case, Rs 5,224.18 crore of fraudulent ITC was detected of which only Rs 240.09 crore has been blocked so far.
