Summary of this article
• Noida man arrested by cyber police for GST fraud
• He generated fake invoices amounting to Rs 10 crore and claimed Rs 1.8 crore in input tax credit (ITC)
• Investigation is ongoing to nab the accomplice involved in fraud
The Goods and Services Tax (GST) mechanism works on input tax credit (ITC), where the tax already paid on raw goods is deducted from the tax collected on finished goods and paid to the government. The taxpayer needs to upload the invoices to the system to claim the ITC benefit, but this is where businesses show fake invoices to claim tax credit (ITC). In such an incident, the police arrested a former employee of a Noida-based private company who was engaged in generating fake bills/invoices of around Rs 10 crore and claimed an ITC of Rs 1.8 crore (18 per cent).
Reportedly, the accused lived in Greater Noida before being arrested. He worked in the accounts section of the company and was responsible for handling GST filing and tax returns. The police have seized eight SIM cards, GST-related documents from him, along with his mobile phone, laptop, car, and rent agreement. The police have lodged an FIR, produced him in court, and then he was sent to jail. His accomplice is yet to be detained.
While the government announced Goods and Services Tax (GST) reforms this week by reducing GST slabs from four to mainly two rates (5 per cent and 18 per cent), questions about input tax credit (ITC) on different products and services, such as insurance, remain. Experts are concerned about the blockage of input GST credit for insurance companies, which is pushing up their costs.
Let us understand how ITC works.
What Is Input Tax Credit?
Under the GST system, ITC is the system that claims the tax credit that has already been paid in the process of preparing the finished goods. For example, tax is paid on the purchase of raw materials. This is the system where businesses do not need to pay tax on tax.
For example, a manufacturer buys raw material for Rs 10,000 and pays 18 per cent GST on it, which comes out to be Rs 1,800.
The raw material is processed to turn it into finished goods. Assume that the value added to the goods is Rs 5,000. So, the selling price of the finished goods will be Rs 15,000 (Rs 10,000 + Rs 5,000). On this, the GST at 18 per cent will be Rs 2,700 (Rs 15,000*18 per cent).
However, as the manufacturer has already paid Rs 1,800 tax on the raw material, the new GST payable will be Rs 900 (Rs 2,700 – Rs 1,800), instead of the full Rs 2,700.
If a manufacturer or a business claims higher ITC based on fake invoices, it results in a loss of revenue to the government.
In the above case, the police have registered an FIR against the accused under the provisions of the Bharatiya Nyaya Sanhita and the Information Technology Act.
