Probe launched into firms seeking fraudulent input tax credit refund

The Hindu By Sharath S. Srivatsa JUNE 22, 2018 00:00 IST

Around 150 companies made faulty or fraudulent entries during transition from Value Added Tax regime

A massive faulty or fraudulent input tax credit demand for refund running to Rs. 2,300 crore after the Goods and Services Tax (GST) regime came into force on July 1 last year has been detected in Karnataka and an investigation has been launched.

The huge demand by companies seeking input tax credit — in many cases non-admissible — was detected during a test verification of credit demand of about Rs. 10,000 crore made by about 1,400 companies in Karnataka under the “transitional provisions” made under GST. The input tax credit is inbuilt in the system to prevent double taxation.

The verification by the Central Excise and Customs here was launched from December last year after officials found “extremely large” volumes of credit demand that was termed “unprecedented”. During verification, officials found that around 150 companies made faulty or fraudulent entries during the transition from the Value Added Tax regime to the GST regime.

“We were surprised that companies had made errors,” said an official in the Central Board of Indirect Taxes and Customs. In the biggest known error committed so far in GST regime in the State, a well known multinational company in the information technology sector made a claim for refund of Rs. 1,730 crore instead of Rs. 173 crore and received the credit from the government. In another case, a telecom sector company received about Rs. 237 crore instead of about Rs. 23.7 crore.

In both cases, an official aware of the development said the decimal points changed leading to huge payouts. He said: “However, companies did not report back to the department about the abnormal amount they received. Only when confronted, many agreed to refund the credit. They merely cited clerical error while uploading data on the website.”

The official said that the claims are part of statutory details one needs to make diligently, and clerical error cannot be cited as a reason. “This also shows how much companies are also complying with the system,” the official said.

With nearly one lakh companies coming under the administration of the central agency for tax monitoring, the office of the Central Excise and Customs will take up verification of companies in a phased manner. “Risk assessment will be made and those with large claims will be taken up on priority. The claims under transitional provisions of all companies will be taken up in stages.”

Rs. 1,800 crore recovered

So far, about Rs. 1,800 crore credit input has been recovered, and some more companies have agreed to return the excess credit received. “There was a technical glitch in the system in returning the credit, which has been ironed out now.” The official also said that while many companies have agreed to return the excess credit, some companies are contesting it.

Following this, the department has launched an investigation against all companies that have taken credit on inaccurate or fraudulent means. “The department will pursue whatever is liable to be recovered as interest and the guilty will be penalised under GST laws. The Central board has been informed and it is monitoring the progress of recovery,” and official said.

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