The government is looking into a proposal from the Central Economic Intelligence Bureau (CEIB) to bring fraudulent input credit tax, claimed by companies generating fake invoices of Goods and Services Tax, under the stringent Prevention of Money Laundering Act (PMLA) by making it a predicate offence punishable with rigorous imprisonment.

A proposal was recently floated by the CEIB which has said that in the previous financial year, till December 2018, input tax credit was fraudulently availed by creating fake GST invoices to the tune of Rs 4,000 crore.

This is just a small fraction of the actual tax evasion and money laundering using shell companies. Invoices generated without actual supply of goods to the tune of Rs 24,000 crore has been detected last year by the Directorate General of GST Intelligence, which has the mandate to look only into the central GST evasion.

The CEIB study says fraudulent claims of input tax credit at the state level could be larger. Invoices are generated without actual movement of goods and suppliers down the line claim input tax credit based on such fake invoices. Money earned through these fake transactions are actually black money and laundered by entities creating web of shell companies which have no real business activity.

Through the CEIB, the nodal agency for economic intelligence, the government monitors economic crimes across the country investigated by several revenue intelligence agencies such as the Directorate of Revenue Intelligence (DRI), Enforcement Directorate (ED), Directorate General of GST Intelligence, Income Tax, CBI and others.

Intelligence agencies are required to regularly share and update progress of their cases and probe details with the CEIB which further collates these data and provide inputs to other agencies for a coordinated action on fraudsters.

The fraudulent claim of input tax credit by suppliers based on fake GST invoices is contravention of Section 16 of the GST Act, which the agency has proposed to be made a predicate offence so that the ED or any other agency can book such entities under the PMLA and attach their properties and those of their associates.

Significantly, the CEIB has also linked many big banking frauds where thousands of crores of loans have turned bad with entities engaged in fake input tax credit using shell companies. Since these shell companies are merely paper entities with no real business activity or assets, banks find it difficult to recover losses.

TOI had reported earlier, that the CEIB has approached the finance ministry seeking orders from the revenue department to all other revenue intelligence agencies to share real time data and investigation updates on their cases to ensure that a coordinated action is taken against serial offenders and tax evaders. #casansaar (Source - IANS, Times of India)