Karnataka busts Rs 1,464-crore interstate fake invoicing racket

Bengaluru: Karnataka's Commercial Taxes Department has busted a Rs 1,464-crore fake invoicing racket operating across south India, officials said on Sunday. 

The racket, unearthed by the Enforcement Wing (South Zone), generated fraudulent inward and outward supply transactions amounting to Rs 1,464 crore using forged and fabricated documents, the department said, adding the transactions were related to commodities such as cement, iron, steel and other building materials.

It resulted in the wrongful availing and passing on of Input Tax Credit (ITC) of approximately Rs 355 crore without any corresponding movement of goods, the department added. 

"Based on human intelligence gathering and continuous surveillance of tax filings and financial trails, coordinated search and seizure operations were conducted simultaneously in Bengaluru, Chennai, Vellore and Pernampattu. During these operations, officers seized 24 mobile phones, 51 SIM cards, two pen drives, multiple bank statements and several rubber stamps of different business entities," the department said. 

"During the operation, two brothers from Tamil Nadu, Irbaz Ahmed and Nafiz Ahmed, who had floated several fake firms such as Trion Traders, Wonder Traders, Royal Traders and Galaxy Enterprises, were apprehended from Pernampattu. In addition, Eddala Pratap and Revati, who had created shell entities, including Power Steel and Cement, PR Construction, SV Traders and SRS Cement Steel Traders, were arrested in Bengaluru. The Special Court for Economic Offences, Bengaluru, has remanded all four accused to judicial custody for a period of 14 days," the department stated. 

The operation was carried out following actionable leads developed through human intelligence and round-the-clock surveillance. The investigation revealed that multiple GST registrations had been fraudulently obtained using forged documents, including stamp papers sourced from online platforms, fabricated rental agreements, forged signatures of landlords and tenants, false tax-paid receipts and forged notarial attestations, the department noted. 

"These registrations were used to create layers of shell entities for issuing and circulating fake invoices while presenting an appearance of legitimate commercial activity. After availing of and passing on substantial amounts of ITC, the entities involved voluntarily cancelled their GST registrations in an apparent attempt to obscure audit trails and evade further scrutiny. This points to an emerging modus operandi wherein cancellation of registration itself is being misused as a tool to camouflage large-scale tax fraud. The Enforcement Wing (South Zone) is examining appropriate systemic safeguards to address this evolving risk," the department explained. 

It added: "The detection was enabled through advanced GST system analytics. The Enforcement Wing South Zone’s in-house developed Non-Genuine Taxpayer (NGTP) module, together with IP address trails from the GST back office, identified abnormal invoicing patterns and circular ITC flows across multiple entities. These analytical insights led to focused and coordinated enforcement action across several locations."