GST Fraud: Commissioner Reveals New Tactics and Biometric Technology to Catch Masterminds

Since the implementation of the Goods and Services Tax (GST) in 2017, a sophisticated scam has thrived, leveraging systemic flaws to drain thousands of crores from the exchequer each year. Despite the arrests of hundreds of fraudsters, the masterminds behind the schemes remain unknown, according to law enforcement sources.

The GST scam takes advantage of the complications of enforcement across numerous states, regions, and languages. Fraudsters create fake firms, issue fake invoices, and misuse input tax credits to illegally claim large refunds. These bogus businesses frequently shut down and disappear within months, making it difficult for investigators to hunt down the true culprits.

“In Karnataka alone, we shut down over 1,000 fake companies each year, only to see new ones emerge. If we don’t catch them within six months, they vanish and the trail goes cold,” said a senior official.

The issue arises in discovering the masterminds, who frequently operate in separate countries, making enforcement a logistical nightmare.

Despite these hurdles, C. Shikha, Karnataka’s Commercial Tax Commissioner, indicated that the government is increasing up its efforts. New investigative approaches, including the use of biometric technologies, are being used in a nationwide campaign to more effectively target fraudsters. Karnataka’s most recent operation, launched on August 16, 2024, found 1,193 phantom entities, blocked Rs.300 crore in fake claims, and recovered Rs.14 crore thus far.

These efforts followed similar large-scale operations in 2022 and 2023, which revealed fake claims totalling hundreds of crores. While the tax authority has made progress against this swindle, the struggle is far from done. Fraudsters continue to stay ahead by using fake IDs and quickly dissolving their operations. To stop this continued drain on government revenue, officials have urged for stronger rules and increased state-level collaboration.

As the campaign continues, the government expects that novel enforcement strategies and stronger penalties will serve to reduce the number of fake entities operating under the GST framework.