₹4.2 Crore GST Fraud in Gujarat What Happened and What You Should Know
Two individuals in Gujarat were recently arrested for fraudulently claiming fake Input Tax Credit (ITC) worth ₹4.2 crore by floating bogus firms. The case is a clear reminder of the ongoing misuse of GST structures and the CBIC’s tightening scrutiny.
How the ₹4.2 Cr GST Scam Was Pulled Off
- The accused created fake GST-registered firms to issue invoices without actual supply of goods.
- The firms had no real business operations, no physical premises, and no actual inward or outward supplies.
- Section 132(1)(b) & (c) – dealing with ITC fraud and issuing fake invoices
Why Is GST Fraud So Common?
Fraudsters exploit:
- Lack of physical verification at registration
- Loopholes in vendor onboarding systems
- Complex return filing structure confusing genuine taxpayers
Legal Provisions Involved
| Section | Provision | Penalty |
|---|---|---|
| 132(1)(b)/(c) | Availing or passing on fake ITC | Jail up to 5 years + fine |
| 122 | Penalty for fraudulent invoice issuance | ₹10,000 or tax evaded (whichever is higher) |
| 69 | Power to arrest without prior magistrate approval | Applies in fraud cases exceeding ₹5 crore |
Expert Insight: Preventive Tips for Businesses
CA Priya Mehta, Indirect Tax Consultant says:
“Most genuine taxpayers get trapped via vendors who deal in fake invoices. Always use the GSTN portal to validate vendor compliance—especially their GSTR-3B and GSTR-1 filings.”
Checklist to stay compliant:
- Verify GSTIN on https://www.gst.gov.in
- Match ITC with GSTR-2B regularly
- Avoid vendors without physical premises or KYC trail
- Conduct quarterly vendor audits
Government’s Crackdown on Fake ITC
CBIC and DGGI are aggressively using:
- Aadhaar authentication for GST registration
- AI-based risk flags via GSTN
- E-invoicing system to catch fake invoices
- PAN-Aadhaar linking for tracing networks
Read official CBIC updates on this here
Summary
The case highlights ongoing misuse of ITC rules and the urgent need for vendor due diligence under GST compliance norms.
Frequently Asked Questions (FAQs)
Q1. What is a fake ITC claim under GST?
When Input Tax Credit is claimed without actual receipt of goods/services, typically via fake invoices.
Q2. Can you be arrested for GST fraud in India?
Yes. Under Section 69 and 132 of the CGST Act, officers can arrest without a magistrate’s order in serious fraud cases.
Final Note
GST compliance isn’t just about return filing—it’s also about knowing who you deal with. One wrong vendor can land your business in serious legal trouble.