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Rs 1,200 Crore Fake GST Invoice Scam Busted: GST Dept unearths Rs. 200 Cr Fraud in Bengaluru, 3 Arrested: How is it possible in Digital world?

November 19, 2018

Rs 1,200Crore Fake GST Invoice Scam Busted: GST Dept unearths Rs. 200 CrFraud in Bengaluru, 3 Arrested: How is it possible in Digital world?

Iron and steel – evasion prone commodities: As for as Iron and Steel manufacture and the products thereof, there has been evasion since early 1940s. Even during the 2000, when, they were brought under Componded levy scheme as “evasion prone commodities,” manufacturers and traders could collude with each other and evaded thousands of crores of duty. About“deferred payment,” initially, no time limit was mentioned and thus, many manufactured, cleared without payment of duty under the guise of “deferred payment,” and disappeared! Ironically, at that time, there were loopholes created by the higher officers at the Board level, they could evade technically with the Rules created for the furnace and rolling mills. The builders also colluded with them, as they received goods, used up in the buildings and the cash paid converted into other transactions.  Scrap imports, high sea sales, substitution with local scrap, fake invoices, dealer invoices and such other modus operandi were used where the departments and allied organizations could do little,as most of the evaders escaped with the lack of evidences and loopholes in the Act and Rules.

MNCs, money flow and corruption: As the MNCshave concentrated in and around Bangalore and they have not been worried aboutfinances, skyscrapers, five-star hotels and infrastructure have been developedquickly from 2005 and they have been changed considerably. Thus, the governmentofficials, builders, contractors, building material manufacturers-suppliers,and all other connected persons and agencies played a crucial role in theinfrastructure developments, but also in all sorts of tax evasions. As the MNCsalways claim that they do not give bribes or commissions in any form to anyofficial or facilitator, the connected persons adapted and adopted variousmethods to pump the money, reaching them, so that the work has been going onsmoothly.

Cheap labour coming from North-Eastern India, etc: Bangalore,Hosur, Mysore and other places have been hubs for the MNCs involved in IT industries, electronics, automobiles, chemicals and pharmaceuticals etc., themobility of men and materials have been considerable and huge profits earned. Cheap labour has been / is being brought from north-Eastern India and from Bangladesh. The illegal infiltrators and the so-called migrants, even coming from Myanmar pose great challenge to locals in many aspects. They create new identities, voter cards, Adhar cards, PAN cards etc. Thus, the connected other businesses – Hotels, resorts, pubs etc., also thrived. As goods and services of all sorts are required, where, money is not an issue, every thing has been going on smoothly, as all have been taken care of. However, unfortunately,certain anti-national, terrorist and economic offences criminals joined and spoiled the commercial activities.

34 fake GST registrations – proves the inefficient programming: A scam involving fake GST bills worth Rs 1,200crore has come to light in Bengaluru[1]. The preventive wing of the south commissionerate of the GST busted the racket after two month long investigations[2].The fraudulent companies were engaged in trading of fake tax invoices for availing input tax credit[3]. This has been there, even before the introduction of GST. The accused were engaged in trading of iron and steel scrap through various companies[4].The kingpins of the scam have been identified as Suhail, Basha and Hafeezur. Significantly, in this industry, most of them  have been belonging to one particular group. Suhailand Basha floated 20 fake companies and registered them under the GST by giving fake names and addresses. While Basha had obtained 14 GST registrations in the names of his relatives and others, Suhail had obtained six[5]. They floated fake companies by giving made-up addresses, which made the investigation difficult[6]. Much relaxed provisions of the GST Act and rules, resulted in such manipulations. However, it has to be noted that each must have had 20 plus 14 fake PAN and Aadhar cards also. That implies either they [PAN and Aadhar] and the figuring persons in the cards have been either fake, fictitious or dead. Therefore, the government documents, in this regard have not been fool-proof and the criminals can exploit.

One computer producing fake GST invoices for thefake companies: All companies, however, in reality operated out of a single office and the bill were generated from a single computer[7]. This has been going on even in the case of Service tax, where just to enjoy the Rs20 lakhs limit, they used to float dozens of companies. The modus operandi involved floating fake companies, issuing fake GST invoices and generating e-way bills with fake vehicle registration details without actually supplying goods[8].The companies were created with an intent to fraudulently pass on input tax credit through these fake invoices. “A search was conducted on 12th of November, 2019. We recovered some incriminating documents from 25 locations and have nabbed three persons who we believe to be the key persons involved in generating these fake invoices,” said G Narayanswamy, IRS Commissioner of Central Tax, Bengaluru South. The accused have reportedly generated and issued tax invoices having turnover of about Rs 1,200 crore having a GST liability of Rs 200 crore. Their confessions have revealed that at least 18 iron and steel producers have availed these bills to claim input credit. Further investigations are underway. 

Proceedings initiated: Meanwhile the three accused have been produced in front of the Economic Offenses Magistrate, Koramangala, arrested under the provisions of the GST law and have been remanded under 14-day judicial custody[9].The GST officials have, till now, detected an evasion of Rs 200 crore of GST in the city, and recovered Rs 140 crore so far[10].The team of GST officials included Tej Kumar, deputy commissioner, Akshatha Shrinivas, assistant commissioner and led by G Narayanaswamy, commissioner, Bangalore South detected the fraud. Incidentally, when the officers work hard and book cases like this, when the cases go to court, most of the revenue cases are lost due to many inherent reasons. Non-cooperation of the evaders in furnishing documents, request interference of vested interests, collusion of some officers, consultants and others, delaying adjudication processes at different levels, improper presentation or lack of evidences and so on. Thus, in spite of the works of honest officers, cases are lost. Therefore, the involved should have some ethics, conscience and patriotism, so that the Indian society could be saved.

© Vedaprakash

16-11-2018.

UPDATED: NOVEMBER 14, 2018 23:35 IST


[1] CNN-News18, Rs 1,200 Crore Fake GST InvoiceScam Busted in Karnataka,Stacy Pereira | , Updated:November 15, 2018, 6:39 PM IST

[2] https://www.news18.com/news/india/rs-1200-crore-fake-gst-invoice-scam-busted-in-karnataka-1940385.html

[3] TaxScan, GST Dept unearths Rs. 200 Cr Fraud in Bengaluru, 3 Arrested, November 15, 2018 7:48 am| By : Tax Scan Team.

[4] http://www.taxscan.in/gst-rs-200-fraud-bengaluru-arrested/30672/

[5] The Hindu, GST fraud: Of 20 fake companies and one computer that generated fake bills, BENGALURU , NOVEMBER 14, 2018 23:35 IST, UPDATED: NOVEMBER 14, 2018 23:35 IST.

[6] https://www.thehindu.com/news/national/karnataka/gst-fraud-of-20-fake-companies-and-one-computer/article25499392.ece

[7] Financial Express, GST Bengaluru division busts fake invoice racket, By: FE Bureau | Published: November 16, 2018 2:45 AM

[8] https://www.financialexpress.com/economy/gst-bengaluru-division-busts-fake-invoice-racket/1383319/

[9] Deccan Herald, Rs 1,200 Crore GST frsud Busted in Benhaluru, Furquan Moharkan, DH News Service, Bengaluru, NOV 14 2018, 21:29PM IST, UPDATED: NOV 15 2018, 07:25AM IST

[10] https://www.deccanherald.com/business/multi-crore-gst-fraud-busted-702991.html

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GST – upadate: the dual control percentages decided, draft laws to be approved and classification codified on the next meeting to be held on February.18, 2017!

January 17, 2017

GST – update: the dual control percentages decided, draft laws to be approved and classification codified on the next meeting to be held on February.18,  2017!

gst-16-01-2017-pti-graphics-the-telegraph

More than Rs.1.5 crores divided into 90% and 10% and the 10% into 50-50 between States and Centre: The Centre and the states managed to hammer out a broad consensus over the contentious issue of division of administrative control over tax assessees at the ninth meeting of GST Council Monday (16-01-2017) though it will be at the cost of a three-month delay in the rollout of the proposed indirect tax regime[1]. Finance Minister Arun Jaitley said 90 per cent of tax assessees below the annual turnover threshold of Rs 1.5 crore will be under the control of states and the remaining 10 per cent will be under the Centre’s jurisdiction[2]. For a turnover of Rs 1.5 crore and higher, there will be equal division of assessees between the states and the Centre[3]. Calling it a significant headway, Jaitley said[4], “The states would do 50 per cent of assessees above Rs 1.5 crore turnover and 90 per cent of less than Rs 1.5 crore turnover. The Centre would get to assess 50 per cent of above Rs 1.5 crore turnover and 10 per cent of less than Rs 1.5 crore turnover.” 90% of all assessees with a turnover of Rs. 1,5 crore or less will be sesses for scrutiny and audit by the state authorities, for the remaining 10% by the centre[5]. However, if there is a dispute between states over the place of supply, the Centre will have the power to administer those assessees. In all situations, the Centre will retain the power to collect this tax[6].

gst-4West Bengal and Kerala opposing, and Tamilnadu supporting the ratio: Some ministers, including West Bengal Finance Minister Amit Mitra, are learnt to have objected to the 90:10 ratio of division between the states and the Centre, instead seeking exclusive control over all tax assessees below the annual turnover threshold of Rs 1.5 crore[7].  It had argued that states did not have experience in dealing with service tax and states led by Bengal saw it as intrusion into their domain[8]. Mitra later told reporters this agreement pertained to services only. Mitra said 13 pending issues were raised by him — such as the definition of agriculture and definition of deemed exports — were being referred to the law ministry, which will revert by the first week of February, 2017. Left with little choice after holding out for nearly three hours, West Bengal finance minister Amit Mitra submitted a dissent note. The agreement hammered out was based on a proposal by Tamilnadu[9]. “As far as the dual control is concerned, the Centre has come, finally, very close to the position that the empowered committee had taken, where under Rs 1.5 crore, all goods, all deemed goods, and the decision taken on which I had to put a dissent, that 90 per cent of all goods and services will be with the states. Only 10 per cent of services are with the Centre, on which I had to dissent because I wanted 100 per cent. So we have come very close to 100 per cent but unless it is 100 per cent, I was constrained to dissent, because I wanted that extra 10 per cent,” Mitra told reporters after the meeting[10]. Kerala Finance Minister Thomas Isaac, who left the Council meeting early, said that there was no decision and an agreement was being worked upon. “The discussions are still going on. There is no agreement as to how the taxes will be administered… territorial waters, taxation powers will be delegated to the states… some compromise will be worked out. Below Rs 1.5 crore could be under the administrative control of states. Centre would have certain limited amount of audit functions that could be one possible compromise. Discussions are going on,” he told reporters. On the dissent by Mitra, Jaitley said it was confined to the extent of the 90:10 division between states and the Centre, and on other issues, he was in agreement with all other GST Council members[11]. Amit Mitra termed 90 per cent of the assessees being with states as a victory to protect small traders[12]. As per the agreement reached earlier, businesses earning upto `20 lakh in a year will be exempt from GST.  For the North-eastern states this limit will be Rs 10 lakh[13].

nautical-taxNautical Taxes – GST on the economic activities at the coasts and on the seas: The Council also resolved a logjam over the right to tax economic activities within 12 nautical miles from India’s coasts. The Centre also gave the right to tax economic activities within 12 nautical miles to coastal states, even as it will be the territory of the Union. At present, these states have the right to tax these activities[14]. The government is constitutionally mandated as per the Constitution (One Hundred and First Amendment) Act, 2016, passed by Parliament last year, to roll out the indirect tax regime by September 16 this year, 2017. On the issue of taxation powers in offshore areas, which was raised by states in the previous GST Council meeting, Jaitley said states will have taxation powers up to 12 nautical miles in offshore areas. Since the GST will miss the April 1 deadline, the indirect tax receipts estimates in the upcoming Budget for 2017-18 will include a combination of excise and service tax for three months and GST for the next nine months, a senior government official said.

gst-16-01-2017-business-standard-graphicsDefinition of “territory” has to be decided specifically: The definition of ‘territory’ in the Goods and Services Tax (GST) Model Law proposes to push the “physical boundaries” of India that could create aberrations for transactions on the high seas, according to a leading trade group. The territory of ‘India,’ for the purpose of the levy and collection of the Integrated Goods and Services Tax (IGST) proposed to be collected by the Centre on all inter-State supplies of goods and services and to be roughly equal to Central GST plus State GST, is proposed to be 200 nautical miles, FIEO Director General and CEO Ajay Sahai told the Empowered Committee of State Finance Ministers. This compares with the 12 nautical miles plus specified structures up to 200 nautical miles as specified in the Customs Act. The difference can create aberrations, Sahai told the meeting chaired by West Bengal Finance Minister Amit Mitra. For example, sales on the high seas between 12 and 200 nautical miles could get taxed twice to the IGST— once as a supply and later at the time of import, Mr. Sahai said. The model law also lacks clarity on the taxation of supplies terminating and originating in territorial waters and in the continental shelf and the exclusive economic zone beyond 12 nautical miles, according to FIEO.

gst-16-01-2017-the-hindu-graphicsThe draft laws are to be approved on February 18, 2017: The changes would be incorporated in the draft legislations relating to Integrated GST (IGST), state GST (SGST) and Central GST (CGST), following which they would be shared with the Council at its next meeting on February 18, 2017. Citing that the whole process will take time till March, Jaitley said that July 1 will be a “more realistic date” to roll out GST. “…once they are free from making the drafts, the officials who are lending technical support will start working out the fitment of rates in various slabs. This exercise will, in all probability, take us into the month of March. The ministers and Council then assessed the realistic date by when the three important things pending — final draft legislation and rules, secondly, approval of these by the legislative bodies and fitment of rates can take place. I requested the ministers to give their opinion about the realistic dates and there was a broad view that July 1 appears to be more realistic,” Jaitley said. He said since it is a transactional tax, it can be introduced any time. The Council members felt that industry and trade should be given some adequate notice and once the rates are decided, the systems of GSTN will have to be modified suitably, he said.

gstDiscussion about “classification,” penalty etc: Also, the penal arrest provisions, which were part of the draft law, have been diluted. Officials said default in payment of taxes amounting up to Rs 2 crore will be a bailable offence. The arrest powers will be invoked only in cases of criminal offences like forgery and tax not deposited in government coffers. Tax experts said that the consensus on cross empowerment and a delayed rollout date has ended uncertainty and will give enough preparation time to the industry. “Resolution of contentious issues such as dual control in today’s meeting signifies the most decisive step that we have seen on the GST front in the past three months. The announcement that GST rollout would be from July 1 instead of April 1 is welcome as it ends the anxiety of the industry to have a firm rollout date in place,” M S Mani, Senior Director, Indirect Tax, Deloitte Haskins & Sells LLP said. Harishanker Subramaniam, National Leader — Indirect Tax, EY India, said, “It’s indeed a very positive development and takes the GST journey forward. What remains now are the rates for various goods and services which I am sure will be decided in March 2017.” A bureaucrats’ panel is working on “classification”— a comprehensive, if not exhaustive, list specifying the tax rate that each good and service will attract[15]. “The officials will start working out on the fitment of the rates on the various slabs,” Jaitley said[16]. “This exercise will take us well into the month of March. The broad view was that July 1 appears to be more realistic (date for rolling out GST). Since it is a transactional tax, it can be introduced at any time of the year,” he said. GST is expected to transform India into a single market, boost revenues through better compliance and a simpler procedure[17]. The power to levy and collect Integrated-GST, a tax on inter-state movement of goods and services, will lie with the Centre but by special provisions in law, states will also be cross-empowered[18].

© Vedaprakash

17-01-2017

gst-3

[1] Indian Express, Headway on dual control, GST likely in July: Arun Jaitley, Written by Aanchal Magazine | New Delhi | Updated: January 17, 2017 4:25 am

[2] http://indianexpress.com/article/business/economy/headway-on-dual-control-gst-likely-in-july-arun-jaitley-4477739/

[3] The Hindu, GST stalemate resolved, rollout deferred to July 1, NEW DELHI: JANUARY 17, 2017 00:00 IST; UPDATED: JANUARY 17, 2017 04:20 IST.

[4] http://www.thehindu.com/todays-paper/GST-stalemate-resolved-rollout-deferred-to-July-1/article17047888.ece

[5] Economics Times, GST: Centre, States reach consensus dual control, roll out likely from July 1, 2017, ET Bureau, Updated: January 16, 2017, 11.54 IST

[6] Business Standard, GST set for July 1 roll-out, dual control hurdle over, Dilasha Seth & Indivjal Dhasmana, New Delhi January 17, 2017 Last Updated at 01:47 IST.

[7] India Today, Arun Jaitley breaks 3-month-long deadlock, GST rollout on July 1, Mail Today Bureau | Posted by Sonalee Borgohain; New Delhi, January 17, 2017 | UPDATED 07:04 IST

[8] http://indiatoday.intoday.in/story/arun-jaitley-finance-minister-gst-deadlock-taxpayers/1/859095.html

[9]http://economictimes.indiatimes.com/news/economy/policy/april-1-deadline-for-gst-ruled-out-4-options-now-for-arun-jaitley-in-budget-2017/articleshow/56598850.cms

[10] The Times of India, West Bengal cornered as Centre, states clinch GST deal, TNN | Updated: Jan 17, 2017, 06.23 AM IST

[11] http://timesofindia.indiatimes.com/business/india-business/wb-cornered-as-centre-states-clinch-gst-deal/articleshow/56608333.cms

[12] Deecan Chronicle, GST to roll out on July 1, says Arun Jaitley, Published Jan 17, 2017, 12:50 am IST; Updated Jan 17, 2017, 6:35 am IST.

[13] http://www.deccanchronicle.com/business/in-other-news/170117/gst-council-to-meet-on-february-18.html

[14] http://www.business-standard.com/article/specials/centre-states-break-impasse-over-gst-rollout-likely-from-july-1-117011601080_1.html

[15] The Telegraph, GST eyes July date as impasse ends, Tuesday , January 17 , 2017

[16] https://www.telegraphindia.com/1170117/jsp/business/story_130788.jsp – .WH2AYtJ95dg

[17] livemint.com, Stage set for GST rollout on 1 JulyRemya Nair, Last Modified: Tue, Jan 17 2017. 02 31 AM IST.

[18] http://www.livemint.com/Politics/7KHC3cniR8mjzof3fcydSK/GST-rollout-deferred-to-1-July-Arun-Jaitley.html