The scam has brought into focus the lax Know Your Customer (KYC) norms that have been put in place by the Ministry of Corporate Affairs.
In May last year, the Sector 20 police station in Gautam Buddha Nagar, Noida, Uttar Pradesh, registered a first information report, in what appeared to be a simple case of forgery, on a complaint filed by a digital platform anchor. It was alleged in the complaint that the Goods and Sales Tax (GST) accounts of two companies were registered in Punjab and Maharashtra on the Permanent Account Number (PAN) of the said individual. The catch was that the individual was a salaried employee and was not running any company for which he would have to register the details of it against his PAN. More shockingly, both these companies, registered on the PAN, were also authenticated for the Aadhar verification of the complainant, despite no mobile number or email being linked with the Aadhar of the complainant.
One year later, it has emerged that this incident, which initially appeared to be a simple case of forgery, is in fact a massive scam worth Rs 15,000 crore—an amount that has been allegedly siphoned off from the Government of India.
As per the investigations carried out by Deputy Commissioner of Police (Crime), Shakti Mohan Avasthy under the guidance of Commissioner of Police, Gautam Buddha Nagar, Laxmi Singh, two Haryana-based businessmen floated thousands of bogus companies using documents of individuals who had nothing to do with them. Using these companies and identity documents, the two ran a racket of 40-45 people who were claiming input-tax credit. The scam had been in operation since at least 2018.
Under provisions of the GST Act, input tax credit can be used by a manufacturer to offset the GST liability that he has to pay on the supply of goods or services. For example, a mobile phone manufacturer who buys raw materials worth Rs 100,000 and pays a GST of Rs 18,000 (18%), can claim an input tax credit of Rs 18,000 from the government which will be refunded to him. The purpose of this provision offered by the government is to reduce the tax liability that a businessman is burdened with when he makes a sale. In simple words, businesses can reduce their tax liability by claiming credit to the extent of GST paid on purchases. The objective is to reduce the financial burden on the businessman and to promote ease of doing business for domestic businessmen. During the investigations—described by Avasthy as “significantly challenging” given the economic aspects related to it—the police found that at least 3,100 bogus firms were created through which fraudulent transactions of around Rs 15,000 crore were done.
The police had very scant information to start its investigation but decided to spend precious hours and resources on it as the officials believed that the initial FIR in the case was pointing to the proverbial tip of the iceberg.
According to Avasthy, who is a 2019 batch Indian Police Services (IPS) officer and an alumnus of Birla Institute of Technology (Mesra), the main accused, Sanjay Jindal, Ajay Sharma, Vikas Dabas and Kunal Mehta alias Goldy have been arrested along with 32 others in the case.
Jindal, as per the records of the Ministry of Corporate Affairs (MCA), is the director of a Sonipat, Haryana-based company A.S Brawny Metal & Alloys Private Limited, which was incorporated on 16 February 2021. It is operating from Plot no 20, HSIIDC Phase 1, Industrial Estate. One of the other accused, Sharma was the owner of M/S Crystal Industries.
Police officials said that their modus operandi was simple. They would create fake documents including Aadhaar card, PAN card, rent agreement and electricity bills, which were then used to create bogus firms and get them registered with the Government of India, alongwith GST numbers for these bogus firms.
Through these bogus firms that actually just existed on paper, the accused would seek refund through input tax credit, thereby causing loss worth crores to the Government of India.
The gang was also found to be selling these non-existent firms to other companies and individuals who would then use the same to get the GST rebate by way of input tax credit.
The entire scam has brought into focus the lax Know Your Customer (KYC) norms that have been put in place by the Ministry of Corporate Affairs, where companies are being registered on fake papers and the same companies are being used to defraud the government’s exchequer.
Some of these non-existent companies have shown import-export transactions from Thailand, Philippines, Taiwan, Vietnam and Singapore, suggesting that the scale of the scam was happening across different countries. This also indicates the need to increase the level of scrutiny of documents the Ministry follows, to bring it in line with other countries.
Avasthy told The Sunday Guardian that as of now 32 people have been arrested in the case and GST bills worth over Rs 15,000 crore have been recovered from them, indicating the massive scale of loss Government of India has likely suffered.
Due to the investigation by the Noida police, tax benefits worth Rs 4,000 crores that were going to be availed by the gang have now been frozen. The Noida police has already attached assets approximately worth around Rs 12 crore of gang members involved in the scam including their immovable properties at multiple locations in Delhi. More such attachment exercises are being carried out as the police continue to find the places where this scam money was invested.
On 21 February, four flats in housing societies in Delhi’s Rohini Sector 13 and Adarsh Nagar, each worth more than Rs 1.5 crore, were sealed. The properties, police said, belong to four suspects in the case—Arjit Goyal, Rohit Nagpal, Anchit Goyal and Pradeep Goyal—of the gang.
The seizure was done after, on 19 February, a court, on the request of Noida police, issued 21 warrants to attach properties of the seven accused in the case—Vikas Dabas, Kunal Mehta and Baldev alias Balli besides Anchit, Pradeep, Arjit and Rohit.
The accused, for now, are being tried under Sections 420, 467, 468, 471 and 120B of the Indian Penal Code (IPC).