Shell firms under scanner of tax authorities over fake ITC claims

Thousands of entities and their beneficiaries that allegedly created multiple shell firms to represent fake transactions without any underlying goods and services for availing of input tax credit (ITC) are under the scanner of tax authorities. Goods and services tax (GST) officials have prepared a detailed list in this regard and will target such entities during a two month-long special drive starting May 16.

Some of these entities showed a jump in their annual turnover in FY21, FY22, and FY23, raising suspicion, a senior official privy to the development said, adding that the matter required a thorough examination.

The special drive by the Central Board of Indirect Taxes and Customs (CBIC) is aimed at weeding out fake ITC claims by using forged GST registration. The exercise will be conducted by all central and state tax administrations and will continue till July 15. The list of suspected entities has been prepared based on the CBIC’s data analytics, along with information and data from intelligence agencies and the income-tax department, the official said.

Suspicious GSTINs are being shared with the tax administration concerned for initiating a verification drive and taking necessary action subsequently.

The systems analysed various risk parameters, including corporate tax returns filed by businesses with the I-T department and GST registration data, to identify businesses and traders and even masterminds who are expected to take GST registration but have not done so, the official explained.

Currently, there are 13.9 million taxpayers registered under the Goods and Services Tax (GST) regime. The National Coordination Meeting of the State and Central GST officers on April 24 discussed the issue of unscrupulous elements misusing the identity of other persons to obtain fake/bogus registration under GST.

If, after detailed verification, it is found that the taxpayer is non-existent and fictitious, then the tax officer may immediately initiate action for suspension and cancellation of the registration. Those who are end-beneficiaries, their assets could be seized as part of the recovery process under the CGST Act.