VISHAKHAPATNAM: Behind a web of routine bank transfers and seemingly legitimate tax filings, investigators say, lay a carefully engineered system designed to move money in circles—creating paper compliance while draining public revenue
A Network Built on Paper Transactions
When officers of the Directorate General of GST Intelligence (DGGI) in Visakhapatnam began tracing an unusual pattern of input tax credit claims earlier this year, what emerged was not a single fraudulent firm but an entire architecture of shell entities. These firms, investigators allege, existed largely on paper, issuing and receiving invoices that reflected no actual movement of goods or services.
According to officials, the network relied on “invoice-only” GST registrations—entities created solely to generate tax invoices without underlying supply. The invoices purported to document works contracts, manpower services, and construction material transactions. In reality, investigators say, there were no sites, no labor forces, and no deliveries—only entries in ledgers designed to justify tax credits.
Financial analysis revealed that the routing of funds followed a deliberate logic. Money moved from beneficiary firms to dummy entities through formal banking channels, giving transactions a veneer of legitimacy. From there, the funds were layered across accounts before being withdrawn in cash and delivered through intermediaries.
How Input Tax Credit Became a Commodity
At the center of the scheme, investigators say, was the monetization of input tax credit (ITC) itself. Under India’s GST framework, ITC allows businesses to offset taxes paid on inputs against their output tax liability—a mechanism intended to prevent cascading taxation. In this case, officials allege, the mechanism was transformed into a tradable commodity.
The dummy entities issued invoices, enabling recipient firms to claim ITC. In return, the invoice value was paid through banks, after which the operators allegedly retained a commission of roughly three percent. The remaining funds were routed through layered transfers, eventually withdrawn in cash.
So far, investigators have quantified fraudulent ITC availed at ₹27.07 crore, with ₹15.30 crore passed on to beneficiary firms. The difference, officials say, reflects commissions, operational costs, and funds dissipated through cash withdrawals—figures that continue to evolve as additional accounts are scrutinized.
The Man Alleged to Be in Control
Authorities have arrested Mallikarjuna Manoj Kumar, whom they describe as the controller and operator of the network. According to the DGGI, statements recorded during the investigation indicate that the transactions were carried out under his direction.
Officials say he acknowledged that the registered entities had no real business operations and were created solely for the purpose of passing on ITC. Associates, investigators add, were tasked with managing bank accounts, moving funds, and coordinating cash withdrawals—functions essential to keeping the system operational while maintaining distance from end beneficiaries.
The investigation suggests a structure that minimized exposure: front entities to issue invoices, intermediaries to handle funds, and beneficiary firms to claim credits, each layer designed to appear independent while remaining interconnected. For now, investigators continue to map the network, identify beneficiary firms, and quantify the full revenue impact.
