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