Lucknow: Uttar Pradesh’s scrap sector has emerged as a new hotspot for tax evasion. Recent investigations reveal that tax dodging in this sector is three times higher than in the pan masala industry. According to central agencies, fraudulent activities in iron, copper, and general scrap trading have led to nearly ₹20,000 crore in evaded taxes, while the pan masala and tobacco industry saw evasion of only about ₹6,000 crore. Similar patterns have been observed at the state level.
Officials believe that by keeping a focus on the pan masala sector, scrap-laden trucks were allowed to move freely on highways, facilitating large-scale tax fraud. Investigations indicate that organized syndicates exploited regulatory loopholes extensively.
15% Increase in Cases Recorded
Data from the Directorate General of GST Intelligence (DGGI) shows that in FY 2023-24, 1,976 cases were registered in the scrap sector, accounting for approximately ₹16,806 crore in evaded taxes. In comparison, 212 cases were reported in the pan masala and tobacco sector, totaling ₹5,794 crore in tax evasion. By FY 2025-26, both sectors saw an approximate 15% increase in cases, with preliminary findings suggesting the involvement of major steel companies in the state’s scrap networks.
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Major Scrap Mafia Syndicate Exposed
Ongoing actions against GST evasion have uncovered a large organized network in the scrap sector. Recently, STF operations in Ghaziabad detected ₹100 crore in GST fraud. Similarly, Noida police arrested traders operating fake companies, collectively involved in multi-crore fraud. Investigations reveal that around 2,600 bogus firms were active in this network. A ₹500 crore fake invoice racket centered in Meerut and Ghaziabad was also dismantled.
How the Scam Operates
Tax evasion mainly occurs through fake invoicing and circular trading. PAN and ID details of migrant workers and ordinary citizens are misused to create paper firms that conduct transactions only on paper without actual movement of goods.
Traders purchase scrap from small vendors in cash and inflate Input Tax Credit (ITC) using fake invoices. The same scrap invoices are circulated multiple times among companies to create a paper turnover. This process enables crores of rupees in fake tax credits or refunds without any real commercial activity.
Experts say such practices highlight gaps in GST monitoring and enforcement mechanisms, raising serious questions about system integrity. Authorities are now emphasizing stricter verification, digital audits, and real-time monitoring to prevent large-scale fraud in sectors like scrap trading.
Statewide and Cross-Sector Impact
Officials warn that the network is deeply entrenched, spanning multiple cities and involving both small and large-scale traders. The STF’s swift actions aim not only to bring culprits to justice but also to alert businesses and taxpayers to remain vigilant against fraudulent practices.
State and central agencies are coordinating to trace these evasion networks and prevent similar fraud in other commodity sectors. The UP case clearly demonstrates that while high-profile industries like pan masala attract scrutiny, less-visible sectors like scrap trading can become havens for organized financial misconduct.
Experts and authorities emphasize the need for enhanced surveillance, digital audits, and stronger enforcement frameworks to curb such activities.
