GST evasion racket in Madhya Pradesh: Transferring credits and showing supply on single number to evade taxes

According to GST officials, the accused accumulated input tax credit (ITC) on fake GST numbers and then systematically transferred it across multiple bogus accounts. Ultimately, the supply was shown under a single GST number in the chain to commit tax fraud, while the government received no revenue.

The investigation, which began in the first week of September, covered nine districts including Bhopal, Indore, Gwalior, Chhatarpur, and Sehore. A key target was a tax consultant in Bhopal and Singrauli who facilitated fraudulent ITC claims.

So far, the investigation has revealed:

·         Rs 53 crore of tax evasion within Madhya Pradesh.

·         Rs 62 crore when including associated transactions from Uttar Pradesh.

·         Links to bogus firms in Delhi and other UP cities.

Authorities are preparing to file FIRs, and statements from involved individuals have already been recorded. This is expected to be one of the largest GST evasion cases ever reported in the state.

GST firms exposed

The joint raids by GST officers across Madhya Pradesh districts—including Singrauli, Indore, Bhopal, Sehore, Gwalior, and Chhatarpur—revealed interstate connections among fake GST firms. The investigation indicated that supplies were recorded as interstate transactions without actual movement of goods or payment of taxes, suggesting the involvement of a major criminal network.

Officials further disclosed that these bogus GST numbers were sold to real traders who needed ITC for compliance. For a 3–5% commission, these traders could claim ITC without paying any tax, effectively defrauding the government.

How the fraud operated

Sources reveal that the racket relied heavily on circular trading. Traders registered five or more fake firms under the names of acquaintances or employees, which had no real business activity. These firms were used to show paper transactions and generate ITC, which was then misused to evade taxes.

·         Mobile SIMs were registered using the details of unsuspecting laborers or individuals.

·         GST registration was obtained using these individuals’ PAN cards, often with minimal or no consent.

·         Fake rental agreements were created using electricity bills to show premises for GST registration.

·         One GST registration was often linked to multiple persons to multiply ITC.

Officials explained that every registered trader is required to file GST returns by the 10th of each month, beginning with GSTR-1 for supplies, followed by GSTR-3B for tax liability. Using the bogus GST numbers, the traders did not deposit actual tax, creating an illusion of legal compliance.

The EOW and GST department are continuing their probe to map the full scale of the racket. Officers warned that more names and firms may surface as the investigation progresses, potentially revealing one of the largest tax evasion syndicates in the region.