Anisha Kumari | Jan 30, 2025 |
DGGI Uncovers Multi-Crore Stock Market and GST Fraud in Bengaluru and Mumbai
The Directorate General of GST Intelligence (DGGI), Bengaluru Zonal Unit, has uncovered a large-scale financial fraud involving a stock market scam of approximately Rs. 3,200 crore and a GST scam amounting to Rs. 665 crore. The fraudulent activities have been ongoing for the past eight years across Bengaluru and Mumbai, leading to significant losses for both the central and state governments.
Following an extensive seven-month investigation, the authorities have arrested two masterminds while the prime accused is still absconding. The raids covered over 30 locations in Bengaluru and Mumbai, uncovering 15 suspicious companies with no actual business activities.
Investigators found that nine out of the 15 fraudulent companies were listed on the Bombay Stock Exchange (BSE), with lakhs of investors unknowingly purchasing their shares. The exact financial impact on the public is yet to be determined and will require further assessment by the Securities and Exchange Board of India (SEBI).
The companies were falsely presenting that they were providing IT services, support services, management consultancy, and advertising services. Although they were generating a large volume of inward e-bills, these companies did not raise a single outward bill. Further investigation revealed that their physical offices were accommodating employees who had no real connection with the alleged businesses and were receiving minimal salaries.
Additionally, some of these companies in Bengaluru acquired receipts for fast-moving consumer goods (FMCG) such as biscuits, chocolates, and other items, further complicating the trail of fraudulent transactions. The GST returns of all these firms were filed from a single IP address, exposing a centralized operation controlled by one mastermind. This manipulation allowed the companies to exploit input tax credit mechanisms, causing a GST revenue loss of Rs. 665 crore to the government.
Besides tax fraud, the companies operated in stock manipulation by circular trading the artificial raising of their respective turnover by trades between them. The companies have used this tool to obtain much higher bank credit and, indeed, to drastically inflate their price levels. Before the stock had reached its heights, the promoters sold, and the weak public investors get battered.
The fraudulent scheme reveals a lack of regulation, especially the absence of regular GST audits by SEBI, which would have busted these companies long ago. Authorities are said to be tracking the key mastermind, and more actions are expected to come forth with the progression of the investigations.
As financial scams begin to become more sophisticated, the regulatory bodies may have to adopt tougher regulating mechanisms to avoid similar scams in the future.
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