Video Editor: Vivek Gupta
Banke Bihari Enterprises, is a fake company that managed to loot over Rs 1.45 crore of Goods and Services Tax or GST within a span of just six months. And to commit a fraud at this scale, all the company’s owner had to do, was get a GST registration number online which he managed in just 72 hours without any sarkari verification.
The company, its fraud, its loot was noticed by the GST authorities only after it cancelled its GST registration and disappeared. Meaning, it was too late.
When GST officers investigated the scam, this is what they found - Banke Bihari Enterprises looted lakhs of rupees using fake invoices.
The first evidence of this GST fraud came from the firm’s financial transactions. The company claimed to have sold goods worth Rs 9,60,82,031 crore (Nine Crore Sixty Lakh Eighty Two Thousand Thirty One) in its GST returns or GSTR, much more than the value of goods it purchased, which was only Rs 2,68,895 lakh (Two lakh Sixty Eight Thousand Eight Hundred and Ninety Five). But this is just not possible.
The second evidence was that Banke Bihari Enterprises had no office! When GST officers visited the company’s registered office address in Kundli in Haryana, there was no office there!
The third evidence was that Banke Bihari Enterprises never purchased or sold goods to any company - what it did sell was fake invoices to multiple companies.
And what’s important – Today, in India, there isn’t just one firm like Banke Bihari Enterprises but in fact, thousands of such fake firms. Between July 2017 and January 2020, the Central government alone has lost over 35,000 crore due to GST tax evasion.
So, lets find out how the fake GST invoicing racket operates? And that too, right under the nose of GST authorities?
How Fake Invoicing Racket Operates
In its GST return filed to the authorities, Banke Bihari Enterprises mentioned selling electronic goods to a Firm ‘B’ located in Kundli, worth Rs 2,23,26,433 (Two crore Twenty-Three Lakh Twenty-Six Thousand Four Hundred and Thirty-Three).
And also mentioned a sum total tax of Rs 34,05,575 (Thirty-Four Lakh Five Thousand Five Hundred and Seventy-Five) paid to the government for selling goods to Firm B.
Since there is no actual movement of goods between Banke Bihari and Firm B, its claim of paying tax to the government is also bogus.
And yet, though Banke Bihari has not paid a single rupee as GST to the government, Firm B gets the benefit of Input tax credit of Rs 34,05,575 (Thirty-Four Lakh Five Thousand Five Hundred and Seventy-Five).
How? Just by showing fake invoices in its GST return.
Which in other words means that Firm B with the help of fake invoices given by Banke Bihari escaped from paying tax on electronic goods worth over Rs 2 crore because while filing its GSTR, Firm B claimed that it had already paid GST to Banke Bihari Enterprises on the goods that it purchased.
In just one fake transaction, the government lost over Rs 34 lakh of GST collection which can only be recovered after a long drawn legal process, if at all.
Banke Bihari Enterprises made 11 such transactions with different firms resulting in over Rs 1.45 crore of tax evasion.
Fake Firms Can Be Set Up By Pressing Few Buttons
Now let’s come to how these fake firms are set up -
According to a GST officer, generally, a single person, whom we can call the mastermind, establishes multiple fake firms.
What ‘Mastermind’ does is - gets hold of Person ‘A’. often someone in need of money. Mastermind pays Person A Rs 15-20 thousand a month.. and uses Person A’s PAN no and bank account details to get a GST registration number. The scam lasts 6 months to a year, and these Masterminds never use their personal details while creating and operating these fake firms.
Loopholes In GST System
What are the major loopholes in GST system that this scam exploits?
First, almost no physical verification.
A GST registration number is automatically issued within 3 working days after details like PAN number, bank account number, company office address etc are uploaded online by the applicant. But as we just saw, these details can be bought to create fake firms. Yet, GST officials confirmed to The Quint that physical verification of details filed by applicants almost never happens.
Second, the PAN numbers of known fake firms are not blacklisted. For instance, the PAN number used by Banke Bihari Enterprises was not blacklisted or blocked. So, the owner of that PAN number remains free to create another fake firm and evade more GST.
Third, GST officers also told us that in this whole racked of faking invoices, the masterminds of fake firms normally escape. It’s the dummy person whose PAN numbers and bank details were misused, who gets caught.
Fourth, and most importantly, GST authorities do not conduct backend verification of tax credits. Before releasing tax credit to any company, GST authorities should check back in the transaction chain whether the company has actually paid the GST. But this is not happening.
On 2 March 2020, the Minister of State for Finance, Anurag Thakur said in the Lok Sabha, that Central GST authorities detected GST evasion of Rs 70,206 crore between 1 July 2017, the day GST was launched, and January 2020. Of this, just Rs 34,591 Crores were recovered. That is, a loss of over 35,000 crore in 2 and a half years!
But please note, this figure does not include GST evasion across India’s states. That figure also runs into thousands of crores according to a senior officer in the GST Intelligence department.
The Finance Minster of Punjab Manpreet Singh Badal while speaking to The Quint blamed poor implementation of GST and said that the “overall GST evasion number would be much higher” than what the government has said in the Parliament if cases caught by the Centre and State are put together. He also added that, “the Government needs to fix the loopholes and once it is done, GST evasion will be much less”.
The question is:
Is government working on fixing these glaring loopholes in the GST system? If yes, then by when? If not, then be prepared for more firms like Banke Bihari Enterprises to scam and loot the government again and again.
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