Money laundering Act to curb GST frauds

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The Central Economic Intelligence Bureau (CEIB) is of the view that use of the stringent Prevention of Money Laundering Act could be considered to curb and deter fraudulent input credit tax, claimed by companies generating fake invoices of Goods and Services Tax. A proposal was recently floated by the CEIB, which has said that in the previous financial year, till December 2018, input tax credit was fraudulently availed by creating fake GST invoices to the tune of Rs 4,000 crore.

This is just a small fraction of the actual tax evasion and money laundering using shell companies. Invoices generated without actual supply of goods to the tune of Rs 24,000 crore has been detected last year by the Directorate General of GST Intelligence. The CEIB study says fraudulent claims of input tax credit at the state level could be larger. Invoices are generated without actual movement of goods and suppliers down the line claim input tax credit based on such fake invoices. Money earned through these fake transactions is actually black money and laundered by entities creating web of shell companies.

Through the CEIB, the nodal agency for economic intelligence, the government monitors economic crimes across the country investigated by several revenue intelligence agencies. Intelligence agencies are required to regularly share and update progress of their cases and probe details with the CEIB. The fraudulent claim of input tax credit by suppliers based on fake GST invoices is contravention of Section 16 of the GST Act, which the agency has proposed to be made a predicate offence so that the ED or any other agency can book such entities under the PMLA and attach their properties and those of their associates.

TOI had reported earlier that the CEIB has approached the finance ministry seeking orders from the revenue department to all other revenue intelligence agencies to share real-time data and investigation updates on their cases to ensure that a coordinated action is taken against offenders and tax evaders. The generation of fake invoices and involvement of shell companies in taking bank loans have come to light in several cases investigated by the agencies.

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