THE OPERATION OF FRAUDULENT INPUT TAX CREDIT (ITC) IN INDIA BY FRAUDUSTERS

 THE OPERATION OF FRAUDULENT INPUT

 TAX CREDIT (ITC) IN INDIA BY

 FRAUDUSTERS

Fraudulent ITC refers to the illegal practice of availing tax credits under the Goods and Services Tax (GST) framework without actual supply of goods or services. This undermines revenue collection and creates unfair competition.

 

COMMON METHODS OF ITC FRAUD

Bogus Invoices:	Claiming ITC on fake or inflated invoices without actual movement of goods.
Non-existent Suppliers:	Using shell companies or firms with cancelled GST registrations to generate invoices.
Circular Trading:	Creating artificial transactions among related parties to inflate turnover and claim ITC.
No Receipt of Goods:	Availing ITC without physically receiving goods or services, only on paper transactions.

 

RECENT CASES

₹2,150 crore scam:	DGGI busted a massive fake ITC-export refund fraud, arresting masterminds across India. A separate ₹17 crore fraud was unearthed in Andaman & Nicobar
₹6.53 crore fraud:	A company director was arrested in Delhi for availing ITC on bogus invoices worth ₹36.28 crore, with suppliers found to be fake or non-functional .
Nationwide crackdown:	Between August–October 2024, authorities identified 17,818 fake firms involved in ITC frauds worth ₹35,132 crore, saving ₹6,484 crore through ITC blocking and recoveries
FY26 surge:	GST officers detected fraudulent ITC claims of ₹15,851 crore in April–June 2025, showing a sharp rise despite fewer fake firms .

 

LEGAL FRAMEWORK & ENFORCEMENT

•     Fraudulent ITC claims violate the CGST Act, 2017.

•     Offenders can face:

•     Arrest under Section 69 of the CGST Act.

•     Cancellation of GST registration.

•     Attachment of properties for recovery.

•     Prosecution with imprisonment and fines.

•     Courts have clarified that genuine ITC cannot be denied if transactions are bona fide, even if suppliers fail to pay GST .

KEY TAKEAWAYS

 Vendor due diligence, GST registration status checks, and actual goods movement documentation are now critical — not optional.

Because in GST law, “Documentation without substance = Litigation (and possibly prosecution).”

 

R V SECKAR , FCS, LLB 79047 19295

KEY MCA PENALTY AREAS (2025-2026 TRENDS):

  KEY MCA PENALTY AREAS (2025-2026 TRENDS):

MCA IMPOSING SIGNIFICANT PENALTIES FOR NON COMPLIANCES UNDER COMPANIES ACT,2013

The Ministry of Corporate Affairs (MCA) imposes significant penalties—ranging from ₹1 lakh to over ₹7 lakh—on companies and their directors for compliance lapses under the Companies Act, 2013. Frequent penalties stem from failures in filing annual returns (MGT-7/AOC-4), maintaining registered offices (INC-22), or appointing key personnel.

KEY MCA PENALTY AREAS (2025-2026 TRENDS):

 

STATISTICS ON NON-COMPLIANCE

·      1250 Cases have been filed for non-compliance during 25-26 and fines collected around Rs 75 Crores.

·      TOP VIOLATIONS

·      Reporting Issues – 45%

·      Audit Lapses         -30%

·      Regulatory non-compliances -25%

FINANCIALS MISTATEMENTS

·      Fraud Losses Rs 120 Crores

DIRECTOR DISQUALIFICATIONS

·      Disqualifications   320

·      Banned Directors    95

REASONS FOR DISQUALIFICATIONS

·      Fraud                            40%

·      Negligence                   30%

·      Conflict of Interest     25%

 

CONSEQUENCES OF NON-COMPLIANCE:

PERSONAL LIABILITY:

Penalties are often imposed on both the company and every officer in default (directors).

INCREASED SCRUTINY:

Repeated failure to respond to notices leads to ex-parte orders and higher penalties. 

 Failure to file forms can restrict a company's ability to borrow money, raise funds, or operate legally.

APPEAL TO REGIONAL DIRECTOR

Companies have 90 days to pay penalties or can file appeals to the Regional Director (RD) within 60 days of receiving an order.

RISKS & CONSEQUENCES

•     Monetary fines can strain finances.

•     Directors may face personal liability.

•     Persistent non-compliance can lead to prosecution or disqualification of directors.

•     Reputation damage and restrictions on future operations.

PREVENTIVE ACTION:

Timely filing of annual returns, financial statements, and board reports is critical to avoid penalties.

R V SECKAR FCS,LLB 79047 19295

COMPETITION COMMISSION SLAPS RS 27 CR FINE ON COMPUTER CHIP MAKER INTEL CORP FOR UNFAIR BUSINESS PRACTICES

 COMPETITION COMMISSION  SLAPS RS 27 CR FINE ON COMPUTER CHIP MAKER INTEL CORP FOR UNFAIR BUSINESS PRACTICES

The Competition Commission of India (CCI) has fined Intel Corporation ₹27.38 crore for abuse of dominant position in the market for boxed microprocessors used in desktops.

WHAT HAPPENED?

•     WARRANTY RESTRICTION:

In 2016, Intel introduced an India-specific warranty policy that limited warranty coverage only to products purchased from authorized Indian distributors.

•     DISCRIMINATION:

This policy was different from Intel’s global warranty practices in countries like China and Australia, where consumers had broader coverage.

•     LEGAL FINDING:

CCI ruled that this amounted to anti-competitive conduct under Section 4 of the Competition Act, as it unfairly disadvantaged Indian consumers.

•     PENALTY:

Intel must pay ₹27.38 crore, reinforcing that global corporations must align their policies with Indian competition law.

The penalty has been imposed on the company for abusing its dominant position in the market for Boxed Micro Processors (BMPs) for desktops in India.

WHY IT MATTERS

•     For Consumers: Indian buyers of Intel chips may now expect fairer warranty terms, closer to global standards.

•     For Competitors: Other chipmakers like AMD could benefit if Intel’s policies are seen as restrictive, potentially shifting consumer trust.

LEARNING LESSONS

This case highlights how consumer protection and competition law are becoming more assertive in India’s fast-growing tech sector.

EARLIER CASE LAWS BY CCI FOR MARKEK ABUSE

 

KEY TAKEAWAYS

•     PATTERN:

Most cases involve abuse of dominant position in markets where companies hold significant control (tech, real estate, energy, automotive).

•     IMPACT:

Penalties are often accompanied by directions to change policies or agreements to restore fair competition.

R V SECKAR, FCS, LLB 79047 19295

NO RBI REGISTRATION REQUIREMENTS FOR SMALL NBFC--RBI MPC UPDATE (FEB 6, 2026):

 NO RBI REGISTRATION REQUIREMENTS FOR SMALL NBFC--RBI MPC UPDATE (FEB 6, 2026):

WHAT IS NEW ?

During the RBI Monetary Policy Committee (MPC) meeting on February 6, 2026, the Reserve Bank of India announced regulatory relief for smaller non-banking financial companies (NBFCs):

• ·      NBFCs that do not have access to public funds
• ·      No customer interface
• ·      And have total assets not exceeding ₹1,000 crore

This measure is part of a broader effort to ease compliance burdens and promote ease of doing business for smaller, low-risk NBFCs under a scale-based regulatory framework.

Small NBFCs are proposed to be exempted from the mandatory registration requirement with the RBI.

WHY THIS CONCERNS ?

UNDER THE PRESENT REGIME

Before this announcement, RBI registration (a Certificate of Registration or CoR) was mandatory for all entities meeting the NBFC definition under the RBI Act irrespective of scale. This included those without significant public fundraising or customer lending.

PERIODIC REPORTING IS MANDATORY UNDER CURRENT REGIME

The registration requirement typically triggers ongoing regulatory obligations, such as 

• periodic reporting, 
• governance, 
• prudential compliance, and
•  supervisory oversight.                                     Because of this, many small firms — including family offices and pooled investor vehicles — found it expensive or operationally cumbersome.

WHAT THE PROPOSED EXEMPTION AIMS TO?

• ·      Reduce compliance cost and administrative load for genuinely small, non-public NBFCs
• ·      Encourage market entry and financial innovation among smaller players
• ·      Segment regulation by risk, aligning supervisory intensity with systemic significance

WHAT Conditions HAVE TO BE MET FOR EXEMPTION?

It’s not a blanket deregulation of all small NBFCs. The exemption specifically applies to NBFCs that meet all the following three criteria:

• ·      No access to public funds
• ·      No customer interface (directly)
• ·      Asset size ≤ ₹1,000 crore

WHAT IS CUSTOMER INTERFACE?

Para 6(4) of under the RBI (NBFCs – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 (“RBI Master Directions”) defines customer interface as  “interaction between the NBFC and its customers while carrying on its business” In essence, customer interface exists where an NBFC directly deals with customers in the course of its business, such as sourcing borrowers, communicating loan terms, collecting repayments, or addressing grievances. The concept focuses on direct dealing/direct public engagement between the NBFC and its customers in the conduct of its business. Entities engaged in capital market transactions such as trading in shares, investments etc are not seen as having customer interface.

That means NBFCs that do take public funds (deposits, public money) or have direct customers (e.g., NBFC-MFIs, NBFC lenders with branch networks) are not exempt from registration.

• ·      Easing of regulatory processes (e.g., easier branch expansion for some NBFCs).

Thus, the registration exemption reform is complementary to broader goals: balancing regulatory oversight with facilitation of smaller non-bank credit intermediation.

The above draft proposals will be implemented once RBI issues further guidelines on the above.

 

R V SECKAR, FCS, LLB 79047 19295

RECENT CHANGE IN BUYBACK TAXATION-HIGHER TAXATION OF SHARE BUYBACKS FROM “DIVIDEND INCOME” TO “CAPITAL GAINS.”

RECENT CHANGE IN BUYBACK TAXATION-HIGHER  TAXATION OF SHARE BUYBACKS FROM “DIVIDEND INCOME” TO “CAPITAL GAINS.”

WHAT IS NEW ?

In Union Budget 2026, India has shifted the taxation of share buybacks from “dividend income” to “capital gains.” For promoters, this means a higher levy: corporate promoters face an effective tax rate of 22%, while non-corporate promoters (individuals, trusts, etc.) face 30%. This change aims to curb tax arbitrage and protect minority shareholders.

KEY CHANGES IN BUYBACK TAXATION (BUDGET 2026)

OLD REGIME (PRE-2026):

•     Buyback proceeds were treated as dividend income.

•     Companies paid a buyback distribution tax (BBT), while shareholders were exempt.

•     Promoters often used buybacks to avoid higher dividend taxation.

NEW REGIME (2026 ONWARDS):

•     All shareholders: Buyback proceeds are taxed as capital gains.

•     Promoters: Additional levy introduced to discourage tax arbitrage.

•     Corporate promoters (domestic companies): Effective tax rate 22%.

•     Non-corporate promoters (individuals, HUFs, trusts, foreign entities): Effective tax rate 30%.

IMPLICATIONS FOR PROMOTERS

•     HIGHER TAX BURDEN:

Promoters now directly bear capital gains tax, unlike the earlier system where companies absorbed the buyback tax.

•     REDUCED ARBITRAGE:

 The government aims to close loopholes where promoters preferred buybacks over dividends to minimize tax.

•     STRATEGIC SHIFT:

Promoters may reconsider capital allocation strategies, balancing dividends vs. buybacks.

•     MINORITY SHAREHOLDER PROTECTION:

 Ensures fairer treatment, aligning buyback proceeds with capital gains taxation.

SPECIAL DIVIDEND BY PROCTOR & GAMBLE

Proctor & Gamble announced a special dividend of Rs 25 out of total dividend of Rs 195 mainly to avoid share buyback and pay higher taxes.

HOW WILL IT HELP THE CORPORATES ?

·      It is not part of the regular dividend policy

·      It should not be annualised or extrapolated

·      It helps return cash without committing to higher future payouts

KEY TAKEAWAY

Promoters in India now face direct capital gains taxation on buybacks, with 22% for corporates and 30% for non-corporates, marking a decisive policy shift to discourage tax arbitrage and protect minority investors

R V SECKAR FCS, LLB 79047 19295

LATEST CASE LAWS ON SEBI LODR VIOLATIONS

 LATEST CASE LAWS ON SEBI LODR VIOLATIONS

INCREASED THRESHOLDS FOR HIGH VALUE DEBT LISTED ENTITIES (HVDLES).

The most recent notable case law on SEBI’s Listing Obligations and Disclosure Requirements (LODR) violations involves enforcement actions in 2025–26, where SEBI’s Special Court and regulatory amendments tightened compliance norms, particularly for High Value Debt Listed Entities (HVDLEs).

Threshold for HVDLEs raised from ₹1,000 crore to ₹5,000 crore of outstanding non-convertible debt.

·      Entities below the revised threshold are exempt from HVDLE-specific obligations.

•     Aim: To reduce compliance burden for mid-sized issuers while strengthening governance for large debt-listed entities

DISCLOSURE LAPSES BY ONWARD TECHNOLOGIES LTD

Companies such as Onward Technologies faced scrutiny for disclosure lapses under Regulation 30, and SEBI amended the LODR framework in January 2026 to raise thresholds and streamline governance.

·      Faced proceedings linked to disclosure lapses under Regulation 30 of SEBI LODR.

•     A U.S. Circuit Court judgment (April 2025) was disclosed to Indian exchanges, highlighting cross-border compliance implications.

SEBI SPECIAL COURT ORDERS (2024–25):

•     Cases against plantation companies (e.g., Sagar Green Gold Plantation Group Pvt. Ltd., Bon Plantations & Exports Ltd.) for violations including misstatements and non-compliance with disclosure norms.

•     Reinforced SEBI’s stance that failure to comply with LODR obligations can attract criminal liability.

COMPARISION OF KEY CASES

Case/Entity	Year	Violation Type	Outcome/Action
Onward Technologies Ltd	2025	Disclosure lapses under Reg. 30	Exchange disclosure, regulatory scrutiny
Sagar Green Gold Plantation Group	2025	Misstatements, non-compliance	SEBI Special Court judgment
Bon Plantations & Exports Ltd	2024	Disclosure failures	Conviction by Principal Sessions Judge
P.G. Fortune Agritech Ltd. (Nov 2024)	2024	Misstatements and failure to comply with LODR disclosure obligations	Criminal conviction of company executives
M’Belle International Pvt. Ltd.	(Jul 2025)	Non-compliance with LODR norms and misstatements.	Criminal sanctions against promoters/directors.

IMPLICATIONS FOR LISTED COMPANIES

STRICTER ENFORCEMENT	Courts and SEBI are increasingly holding directors and officers accountable.
DISCLOSURE SENSITIVITY	Even foreign judgments (like Onward Technologies’ U.S. case) must be disclosed under LODR.
Compliance Burden Shift	Mid-sized issuers benefit from reduced obligations, but large debt-listed entities face enhanced governance scrutiny.
Risk of Criminal Liability	Non-compliance can lead to prosecution in SEBI Special Courts.

 

DISCLOSURE OF PENALTIES (2023 AMENDMENT)

CHANGE:

SEBI mandated disclosure of all penalties levied on listed companies (even minor ones).

                                        IMPACT:

Penalties became “deemed material events” under Schedule III of LODR.

                                  COMPLIANCE LESSON:

Companies must disclose even small fines to exchanges, reinforcing transparency.

 

KEY TAKEAWAYS FOR LISTED COMPANIES

CRIMINAL LIABILITY:

Courts are convicting directors for disclosure failures, not just imposing fines.

TRANSPARENCY MANDATE:

Even small penalties must be disclosed to exchanges.

MATERIAL EVENTS:

Regulation 30 disclosures are non-negotiable.

GOVERNANCE PRESSURE:

 Large debt-listed entities face enhanced compliance under 2026 amendments.

LEGACY CASES:

SEBI continues to prosecute old violations, showing long-term accountability.

R V SECKAR , FCS, LLB 79047 19295