GST Fraud in Madhya Pradesh: ₹130 Cr Fake ITC Scam Exposed
The Madhya Pradesh Economic Offences Wing (EOW) has recently unearthed a massive ₹130 crore GST fraud involving fake Input Tax Credit (ITC). The case highlights the growing misuse of GST registration systems for availing illegal tax credits through shell companies and bogus invoices.
Let’s break this down to understand how such scams work, what legal provisions apply, and how taxpayers and consultants can safeguard themselves.
What is Fake Input Tax Credit (ITC)?
Fake ITC refers to claiming tax credit on invoices for which no actual supply of goods or services took place. It is one of the most common GST fraud methods.
Key characteristics of fake ITC fraud:
- Use of non-existent or paper-only firms
- No movement of goods/services
- Bogus GST invoices
- ITC passed on without tax payment to the government
Madhya Pradesh Case: How the ₹130 Cr Scam Was Run
According to the EOW investigation:
- A group of individuals created over 50 fake GST-registered firms
- These shell companies issued bogus invoices to each other and to genuine firms
- Fake ITC worth ₹130 crore was claimed and passed on
- The scam was run across multiple states using forged documents
Legal action:
- FIR filed under IPC and CGST Act, 2017
- Arrests are likely under Sections 132(1)(b), (c), and (f) of the CGST Act
- Properties and bank accounts are being frozen
🔗 Read CGST Section 132 on gst.gov.in
GST Law on Fake ITC: What Does Section 132 Say?
Under the Central Goods and Services Tax (CGST) Act, 2017, Section 132 deals with offences and penalties for GST frauds, including fake ITC.
Key penalties:
| Offence | Amount Involved | Punishment |
|---|---|---|
| Fake ITC without supply | > ₹5 Cr | Jail up to 5 years + fine |
| Repetition of offence | Any amount | Non-bailable offence |
| Fake invoices | > ₹2 Cr | Cognizable and non-bailable |
Also, the GSTR-3B and GSTR-1 filings are now more strictly scrutinised with data analytics and AI tools by GSTN to catch such anomalies.
Expert View: ITC Claiming Needs Real Vigilance
“Small businesses must ensure ITC is claimed only on verified purchases from genuine suppliers. Avoid short-term savings that lead to long-term legal risk.”
— Suresh Jain, CA & GST Consultant
Red Flags That Signal Fake ITC Risk
To stay compliant, look out for these signs in your vendor ecosystem:
- Suppliers without e-way bill or delivery proof
- Vendors not filing GSTR-3B or GSTR-1 regularly
- Large purchases from new/unverified GSTINs
- Tax mismatch in GSTR-2B vs. GSTR-3B
🔍 Tip: Use the GST portal to verify vendor return filing status and GSTIN authenticity.
How to Report or Avoid GST Frauds
If you’re a taxpayer or consultant:
- Conduct due diligence before onboarding vendors
- Reconcile GSTR-2B with GSTR-3B monthly
- Avoid availing ITC if supplier has defaulted in tax payment
- Use tools or consultants to check ITC validity
To report fraud:
- Visit the official GST grievance redressal portal:
🔗 https://selfservice.gstsystem.in/
Legal Consequences for Involved Persons
Fraudsters may face:
- Arrest without warrant
- Seizure of property and bank accounts
- Reversal of entire ITC with interest (Sec 73/74)
- Prosecution under IPC for forgery, cheating, criminal conspiracy
Even buyers who knowingly receive fake invoices can be penalised under Section 122 of the CGST Act.
Protecting Your Business from Fake ITC Issues
✅ Register vendors with known credentials
✅ Use e-invoicing and proper documentation
✅ Reconcile GST returns monthly
✅ Keep proofs of goods received and tax paid
✅ Avoid dealing in cash-heavy sectors with no traceability
Conclusion
The ₹130 crore GST fraud in Madhya Pradesh is a reminder of how serious fake ITC scams have become. Efiletax advises all taxpayers and consultants to follow due diligence, ensure return reconciliation, and avoid shortcuts.
🛡️ Need help with safe GST filing and vendor verification?
👉 Get professional support from Efiletax
Summary
Madhya Pradesh EOW unearthed a ₹130 crore GST fraud using fake ITC and bogus invoices. Know how such scams work, penalties under CGST Act, and steps to stay compliant. Efiletax explains the legal and practical risks of dealing with unverified vendors.
FAQ
Q1. Is fake ITC a non-bailable offence under GST?
Yes, if the amount involved exceeds ₹5 crore, it becomes non-bailable under Section 132 of CGST Act.
Q2. What happens if a buyer unknowingly claims ITC on a fake invoice?
Even if done unknowingly, the buyer may have to reverse the ITC with interest and face penalties under Section 122.
Q3. How can I verify if my vendor is genuine?
Use the GST portal to check filing status, GSTIN verification, and match GSTR-2B data regularly.