Cheating the Indian tax system

The increasing number of fraud cases of bogus bills being unearthed by Goods and Services Tax (GST) Department within 2 years of introduction of the tax reform regime in India, indicate that it could only be the tip of the iceberg.
Illustration: E. Zillner

What perhaps goes unnoticed under the ongoing practice of heavy bogus billing in metals scrap business in the country is that it inflicts a huge revenue losses to government exchequer. More importantly, it makes genuine businessmen in the industry liable to pay for no fault of their own and make them opt for import rather than local buying of scrap.

According to industry estimates, the Bogus Billing / Credit Scam found out till now is of around Rs 25000 crores all over India leading to loss of Rs 4500 crores in GST revenue.

Recycling industry experts say that the prevailing high rate of GST at 18% is tempting many of the large chunk of traders to generate bogus billing. Typically, scrap business follows the Pyramid Structure comprising collectors of scrap small traders, big traders and industries.

As the Collectors of Scrap being very small scale, they don’t come under the GST ambit. However, small traders who purchase from them become liable to pay GST on it under Reverse Charge Mechanism (RCM).

Generally, the supplier of goods or services is liable to pay GST. RCM in GST means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.
As per prevailing norms, GST on Metals Scrap is 18% as against earlier tax regime where it was only 5%. Due to high rate of GST, traders usually avoid paying GST on same and sells it either out of books or uses the fraud credit which they get from fraud people on very good discount.

As scrap passes minimum 4 to 5 hands before reaching industries, it is mixed up with fraud credit because of lucrative discount that is available from frauds.

Given the fact that metals scrap is a very high volume business, it become an easy target for fraudulent people to use it to serve their purpose.

The GST Department has found that the GST Credit of Goods such as dry fruits, cement, cigarate, and other consumer goods which is 100% revenue for Government had been again brought in to rotation by some fraudulent people.

In some cases it had been found that the fraudulent people operates many companies and at the primary stage they don’t pay GST and pass on credit to another company and it goes into the main business stream.

The fraudulent trader pass on the credit received by giving bogus bills of selling of metals scrap to some unethical businessman who brings it in the main stream
Sometimes it also happened that such fraudulent traders purchases metals scrap form unregistered dealer and sell it and uses the fraud credit received by them.

Whenever any such incidence is found out, the main culprits surrenders with the genuine business man (mainly industries) get caught in the bargain and suffers or its an loss to govt. exchequer.

Due to such frauds, the industries had started avoiding buying local scrap and are going for imports which will heavily impact domestic recycling industries and government initiatives like Swacch Bharat Abhiyan (National Cleanliness Mission).

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