In a major blow to fraudulent GST practices, the State Goods and Services Tax (SGST) department has unearthed a large network of 425 fake firms in Kanpur involved in ₹369 crore worth of input tax credit (ITC) and tax evasion during the financial year 2025–26. Authorities have cancelled the registrations of 309 firms, suspended 36 others, and initiated action against the remaining entities.
Investigations revealed that most of these firms existed only on paper, posing as scrap, iron and steel traders. There was no actual movement of goods, and fake invoices were circulated solely to claim and pass on fraudulent ITC, causing significant losses to government revenue.
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SIT formed; four arrested so far
Given the scale of the fraud, a Special Investigation Team (SIT) has been constituted to trace the financial trail through bank accounts, mobile numbers and registration documents. So far, four individuals have been arrested, and FIRs have been filed against eight firms. Complaints have also been lodged in 24 additional cases, with more FIRs expected soon.
Data analytics, physical verification and scrutiny of registration records showed that several firms had no business activity at their declared addresses, no transport documentation and no stock records, confirming that transactions were purely fictitious.
Fake purchase–sale cycle to siphon ITC
Officials uncovered a systematic pattern of bogus purchase and sale entries. In one case, a firm showed ₹56.27 crore in purchases from companies in Delhi and Bihar, but there was no corresponding entry in GSTR-2A. The same firm reported ₹155.89 crore in outward supplies in GSTR-3B, thereby availing fraudulent ITC.
Several other firms reported large sales without any actual procurement of goods. Authorities said the network operated through document-based ITC generation and circular trading, allowing credits to be passed through multiple entities.
Use of reputed address and forged notary seal
A fake firm named “Kumar Enterprises” was registered using the residential address of a reputed chartered accountant in Swaroop Nagar. A physical inspection found no commercial activity at the location. Electricity bills, rent agreements and signatures were found to be suspicious, and a misused notary seal was also detected, which the concerned advocate later confirmed.
The firm’s listed mobile number was switched off, and the registration documents were found to be fabricated. A separate FIR has been lodged against the operator.
Similar fraud detected last year
In FY 2024–25, the department had cancelled 36 firm registrations after detecting ₹72 crore in ITC irregularities. Officials said the current operation is far more extensive and aims to identify the kingpins behind the multi-layered network.
425 cases referred to central authorities
All 425 detected cases have been forwarded to central jurisdictional officers for further action, as several transactions appear to be linked to firms in other states, indicating a wider inter-state racket.
Strong message for GST compliance
Officials said the crackdown would enhance transparency in the GST system and safeguard revenue. The SIT, in coordination with local police, is analysing the financial trail and expects more arrests in the coming weeks.
The Kanpur bust underscores the need for tighter scrutiny of GST registrations and invoice-based transactions. Authorities have made it clear that those involved will face strict legal action and recovery proceedings to compensate for the revenue loss.
About the author – Ayesha Aayat is a law student and contributor covering cybercrime, online frauds, and digital safety concerns. Her writing aims to raise awareness about evolving cyber threats and legal responses.
