GST frauds to be under PMLA (Prevention of Money Laundering Act)

By | June 15, 2019
(Last Updated On: June 15, 2019)

Government likely to bring GST frauds under PMLA

The government is likely to bring cases of Goods and Services Tax (GST) frauds under the stringent Prevention of Money
Laundering Act by making it a predicate offence punishable with rigorous imprisonment and fine.

The proposal to bring GST violations under the ambit of Prevention of Money Laundering Act (PMLA) is likely to be discussed at the next GST Council meeting scheduled on June 21,2019 sources said.

The revenue department under finance ministry had earlier this year received a proposal from the Central Economic Intelligence Bureau (CEIB) that had proposed to treat such violations as serious economic offences and bring them under the purview of the PMLA.

Invoices generated without actual supply of goods to the tune of Rs 24,000 crore have been detected last year by the
Directorate General of GST Intelligence, which has the mandate to look only into the central GST evasion, a senior Revenue
department official said. The evasion at the state level is estimated to be much higher.

An analysis carried out by the CEIB had found that in the previous financial year, till December 2018, input tax credit was
fraudulently availed to the tune of Rs 4,000 crore by creating fake GST invoices. “This is just a small fraction of the actual tax
evasion and money laundering using shell companies,” sources said.

The fraudulent claim of input tax credit by suppliers based on fake GST invoices is contravention of Section 16 of the GST Act,
which is 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.

A separate note prepared by the Directorate General of GST Intelligence (DGGI) for the Revenue department recently said that
till April 2019 it has detected over Rs 8,000 crore of GST evasion. Among others, a case has been booked by the DGGI’s
Pune zonal office against the Indian Oil Corporation, Mumbai for evading central excise duty to the tune of Rs 4,000 crore on
sale of ethanol blended oil.

The DGGI has also booked a case against the Haryana Vidyut Prasaran Nigam Ltd, Panchkula for service tax evasion of Rs 760
crore and Hindustan Petroleum Corporation Ltd for central excise evasion of Rs 346 crore, among other cases.

The investigative agency said, up to April it has detected total GST evasion of Rs 8,095 crore, of which the evasion towards
central excise is estimated to be Rs 4,946 crore, service tax of Rs 2,771 crore and Rs 378 crore in GST.

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

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