India's Goods and Service Tax (GST) Commission is clamping down on firms raising fake GST invoices and claiming input tax credit (ITC) from the government.

Firms participating in these scams are using letters of credit (L/Cs) fraudulently obtained from banks to execute these trade-based financial crimes.

False tax reclaims

In just one of 150 GST scams unearthed in the past year, officials from the Hyderabad GST Commission found eight companies that were issuing fake invoices under the pretext of supplying steel bars and other products.

These companies would procure aluminium and copper scrap from unregistered suppliers on the open market. They would then generate fake invoices from other firms and claim back ITC based on these invoices.

Officials say that US$3.9 million of ITC was reclaimed in total while one firm, Aavya Enterprises, had alone falsely reclaimed nearly US$1 million.

Fake invoices and L/Cs

The firms were found passing around fake invoices amongst each other but in reality, five of these firms were operating from the same address. The officials found many of the directors, proprietors and partners of these firms to be the same.

The firms had also defrauded banks by claiming 'ineligible' credit facilities or L/Cs without submitting any collateral.

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