How a CA student gamed the system to commit Rs 50 crore GST fraud

A third-year CA student from Ahmedabad registered around 115 firms in three states to fraudulently pass on Input Tax Credits worth over Rs 50 crore before he was arrested by the tax authorities. Tax officers used sophisticated data analytics to detect the fraud and eventually tracked down his physical location through the IP addresses used by him and arrested him on Tuesday, ETV Bharat has learnt.

New Delhi: A third-year CA student from Ahmedabad registered around 115 firms in three states to fraudulently pass on Input Tax Credits worth over Rs 50 crore before he was arrested by the tax authorities. Tax officers used sophisticated data analytics to detect the fraud and eventually tracked down his physical location through the IP addresses used by him and arrested him on Tuesday, ETV Bharat has learnt.

The accused Prince Kumar Khatri, a third-year CA student who also became a partner in a Chartered Accountancy firm, registered 115 bogus firms in Gujarat, Maharashtra and Rajasthan by using just a few mobile numbers and email Ids. It eventually exposed his modus operandi to the officials of the Directorate General of GST Intelligence (DGGI) who continue to monitor the system in a non-intrusive way to curb such frauds under the GST system.

“A court today rejected Khatri’s bail plea,” a source told ETV Bharat.

“The Directorate General of GST Intelligence (DGGI) is keeping a non-intrusive but a close watch through rigorous data-mining and data analytics on such dubious and unscrupulous elements who in the garb of professionals take up illegal availment of ITC and evade GST,” said a source in the ministry of finance.

According to people familiar with the matter, Khatri, a third-year CA student was the main person involved in registration of fake firms and filing of GST returns of these bogus firms, passing ineligible input tax credit for GST payment.

According to official sources, nearly 55 of these suspicious firms were registered in Vadodara and Ahmedabad alone using just a few mobile numbers and email IDs.

“Analysis of these firms showed that the cash credit ratio of tax payment was very less. Data analysis showed that for the period for which these firms were active, the ITC availed and ITC utilized for filing GSTR 3B were almost the same,” said one official.

“These firms might be issuing fake invoices to the recipients without actual supply of any goods/services who in turn are availing Input Tax Credit (ITC) on the basis of these fake invoices,” the officer added.

Tax officers track IP address, mobile used for getting OTP

In a sophisticated operation, the tax officers tracked down the IP address of those computers which were used in registration of bogus firms for fraudulently claiming input tax credit (ITC). The officials also tracked down the IP address of those machines, which were used in filing monthly GST return and also tracked the mobile numbers used for receiving one time password (OTP) that were used in authentication of GST related work.

With the help of internet service providers, tax officials were able to locate the actual location of these computers and their premises which were used in registration of fake firms, filing of GST returns, among other things.

According to Sources, these firms issued invoices mainly in relation to manpower supply, asset management and consultancy services.

Three states, 115 bogus firms

The mastermind of this entire racket, Prince Kumar Khatri, has spread its operations in three states, Gujarat, Maharashtra and Rajasthan, with Gujarat emerging as its main area of operation.

Out of total 115 fake firms, 96 units have been located in Gujarat region. Forty-nine units are located under Ahmedabad North Commissionerate, 27 units under Vadodara-II Commissionerate, 12 units under Gandhinagar Commissionerate, 5 units under Ahmedabad South Commissionerate, 2 units under Vadodara-I Commissionerate and 1 unit under Bhavnagar Commissionerate.

He also spread his operations in Maharashtra as 15 of the fake firms registered by him were located in Bhiwandi Commissionerate and one was located under Thane Rural Commissionerate, taking the total number of bogus units in the state to 16.

Khatri also registered three of his fake units in Rajasthan under the Jodhpur Commissionerate.

Data analytics used to curb tax frauds

Official sources said that rigorous use of data mining and data analytics helped them in detecting and curbing the tax fraud for fraudulently claiming input tax credit system in-built in the GST system, which is aimed at avoiding the cascading of taxes.

“Now the use of Aadhaar in GST registration will bring better control over such unscrupulous professionals who try to create bogus firms for GST evasion by fraudulent availment and passing on of ITC,” a top source told ETV Bharat.

“Such elements are also, very often vocal on social media against various apt measures taken by the government on GST to curb bad practices,” added the officer.

The official said the law is being made more stringent to have better control on such malpractices.

“The government is considering putting such dubious firms under risk category like in case of export firms, and can block their refunds, besides other appropriate legal actions, if found involved in malpractices,” the official added.

(Article by Krishnanand Tripathi)