The State Tax Department has uncovered a GST fraud amounting to approximately ₹10.5 crore carried out through bogus firms. Three separate cases have been registered at Izzatnagar police station in connection with the matter. Officials stated that the firms involved used circular trading and fraudulent Input Tax Credit (ITC) pass-on mechanisms, resulting in significant revenue loss to the government.
According to the department’s investigation, the firms collaborated with suspicious entities based in Delhi and other states. By using only GSTR-1 returns and the e-way bill system, they showed paper transactions without any actual movement of goods. During physical verification, officials found that the firms did not exist at the registered addresses, indicating that the entire operation was conducted only on paper.
Authorities said that fake purchase and sale transactions were created to claim ITC benefits, which were then passed on to other firms. This artificially reduced tax liability and caused a loss of crores of rupees to the exchequer. The department suspects that the fraud was executed through a network of interconnected shell entities.
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Case Filed Against Jageshwar Traders
One of the reports was filed by Deputy Commissioner of State Tax, Dharmendra Singh Sachan, against M/s Jageshwar Traders. The firm was registered on March 10, 2023, for trading in rice, flour, and pulses and was shown as operating from a Small Vihar address. The proprietor, identified as Aman, is a resident of Biharipur.
During the investigation, it was found that the firm generated fake invoices worth crores of rupees and wrongfully availed ITC amounting to ₹3,06,52,298. When the departmental team conducted a field inspection at the registered address, no business activity was found. There was no warehouse, no stock, and no operational setup at the location.
Officials stated that Jageshwar Traders allegedly showed transactions with several other suspicious and bogus firms. Large-scale purchases and sales were recorded on paper, but no actual movement of goods was detected during verification.
Misuse of ITC Through Circular Trading
Preliminary findings suggest that circular trading was used to repeatedly show the same goods being bought and sold among related firms. This enabled fraudulent claims of ITC and helped reduce tax liabilities. The use of the e-way bill system and GSTR-1 filings created an appearance of legitimate transactions, even though no real trade had occurred.
The State Tax Department has begun analyzing bank accounts, GST registrations, and filed returns associated with the firms. Links with entities in other states are also being examined. Officials believe that more firms may be involved in the broader network.
Based on the complaints registered at Izzatnagar police station, further legal action is underway. The department has indicated that additional individuals and firms found connected to the fraud will also face action as the investigation progresses.
About the author – Rehan Khan is a law student and legal journalist with a keen interest in cybercrime, digital fraud, and emerging technology laws. He writes on the intersection of law, cybersecurity, and online safety, focusing on developments that impact individuals and institutions in India.
