₹17 Crore GST Scam via Shell Firms in Prayagraj: A Wake-Up Call for Businesses
The shell firm tax fraud case in Prayagraj has shaken the GST ecosystem again. The Directorate General of GST Intelligence (DGGI) recently arrested two individuals for operating fake firms and issuing bogus invoices to fraudulently claim ₹17 crore in input tax credit (ITC) without actual supply of goods or services.
Let’s break this down for Indian taxpayers and consultants — and explain what went wrong, what laws apply, and how you can stay on the right side of compliance.
How Shell Firm Tax Frauds Work
Shell companies are entities without real business operations, often floated to:
- Generate fake invoices
- Show non-existent supplies
- Avail fraudulent ITC
- Disrupt GST credit chain
In this case, the accused created multiple fake firms, issued bogus invoices, and facilitated fake ITC claims for their clients. The scam not only caused revenue loss but also risks cascading compliance issues for unsuspecting recipients of such invoices.
Legal Basis: What GST Law Says
Here’s how GST law deals with such frauds:
| Provision | Applicability |
|---|---|
| Section 132, CGST Act | Covers offences like fake invoicing and fraudulent ITC claims |
| Rule 86A, CGST Rules | Allows blocking of credit if fraud is suspected |
| Section 69 | Enables arrest by the Commissioner based on evidence |
| Section 122 & 124 | Penalties up to ₹10,000 or tax amount involved, whichever is higher |
Also, the recent CBIC advisory directs GST officers to use data analytics to identify risky entities, including:
- Abnormal ITC-to-sales ratios
- Mismatches in GSTR-1 and GSTR-3B
- Common mobile or Aadhaar used in multiple registrations
DGGI Action: What Happened in the Prayagraj Case
According to official DGGI updates:
- Two individuals were arrested under Section 132 of the CGST Act
- Over ₹17 crore of fake ITC was passed on using non-existent business entities
- The accused also created fake e-way bills and bank accounts to support the fraud
- Investigations continue into more such linked fake entities
Source: Official press release from DGGI & CBIC
Expert Tip: Avoid Getting Caught in the Web
Even genuine businesses can get trapped if they deal with fraudulently registered vendors. Here’s how to protect yourself:
✅ Use GSTN’s Search Taxpayer feature to verify vendors
✅ Cross-check GSTR-2B for eligible ITC
✅ Ensure e-invoices and e-way bills are genuine
✅ Avoid vendors with too-good-to-be-true pricing — they might be paper traders
Key Takeaways for Small Businesses and Taxpayers
- Fake ITC is a criminal offence — not just a tax mistake
- Always conduct vendor due diligence before onboarding
- Don’t blindly rely on GSTR-2A/2B — match invoices with actual receipts
- Beware of consultancy offers that promise “100% refund or ITC” without scrutiny
- Hire professionals who understand real GST compliance, not loophole shortcuts
Related Read
👉 GST Registration Scam: What CBIC’s New Verification Rules Mean for You
Final Word: Stay Legit, Stay Safe
As GSTN and DGGI tighten their analytics and arrest powers, it’s crucial that small businesses don’t become accidental culprits.
Efiletax helps businesses detect red flags early — and file GST the right way.
📞 Talk to our experts today for a vendor compliance audit or monthly GST filing support.
FAQ: Shell Firm Tax Fraud in GST
Q1. What is a shell firm under GST?
A shell firm is a registered GST entity with no actual business, used mainly to generate fake invoices and claim or pass on fake ITC.
Q2. What is the punishment for fake invoicing?
Under Section 132 of CGST Act, it can lead to imprisonment up to 5 years and fine, depending on the amount involved.
Q3. How can I check if a supplier is genuine?
Use the GST portal’s “Search Taxpayer” tool, verify PAN, Aadhaar linkage, and review their GSTR-1 vs GSTR-3B filing patterns.
Summary
Two arrested in Prayagraj for ₹17 crore GST shell firm fraud. DGGI uncovers bogus invoicing and fake ITC scam. Learn how such frauds work, the legal provisions involved, and how businesses can avoid risky vendors and stay compliant under GST.