First GST fraud- 2 directors of steel trading firms held for Rs 7.2 crore evasion

MUMBAI: In the first case of misuse of the goods and services tax (GST), two directors of two companies dealing in steel trading have been arrested for fraudulently availing input tax credit of Rs 7.2 crore. Officials said this has been done to inflate the turnover and thus defraud the exchequer and banks by opening Letter of Credit on fake purchase transactions.

There was no supply or receipt of goods but only invoices were moved, officials said. The arrested have been identified as Sanjiv Meha, director of Shah Brothers Ispat Pvt Ltd, Parel, and Vinaykumar Arya, director of VN Industries, Darukhana. Investigation showed that the said companies did not receive the goods for which they availed the input tax credit. Shah Brothers availed input credit of Rs 5.2 crore and inflated its turnover to Rs 600 crore. The second company claimed credit of Rs 2 crore.

Input tax credit is the tax that a businessman pays on a purchase and which can be used to offset the tax liability when s/he makes a sale. Letter of Credit is a letter issued by a bank to another bank especially in a different country to serve as a guarantee for payments made to a specified person under certain conditions. financial instrument is similar to the Letter of Undertaking that was misused by diamantaires Nirav Modi and Mehul Choksi.

  

This is the first arrest in the country for misuse of GST, implemented last year, said K N Raghavan, commissioner CGST. The directors have been arrested under the provisions of CGST Act. Arya will be offered conditional bail as the amount involved is less than Rs 5 crore and Mehta will be produced in the court on Thursday. Arya will be released if he pays up the duty liability of a little above Rs 2 crore. “He has not paid up so he is in the police lock-up,” an official said. CGST Act attracts a maximum punishment of five years.

Source::: The Times of India, dated 01/03/2018.