Bengaluru: In a major crackdown on GST fraud, the Karnataka State Commercial Taxes Department has unearthed an alleged fake Input Tax Credit (ITC) network involving suspicious transactions worth nearly ₹2,384 crore.
Investigators claim the racket operated through shell companies, fake billing systems and paper-based business transactions designed to fraudulently claim tax benefits. Two key accused have been arrested in Bengaluru.
Scrap and E Waste Trade Used as Cover
The operation was carried out jointly by the Enforcement Wing (South Zone) of the State Commercial Taxes Department and the Service Analysis and Intelligence Wing. Officials said the network appeared to be highly organised and primarily operated under the guise of scrap trading, e-waste processing and Tungsten Carbide scrap transactions.
According to investigators, accused Saleemulla Baig, allegedly linked to SKS Traders, is suspected of availing fake ITC through 72 bogus supplier entities involving suspicious business transactions worth approximately ₹2,172 crore. Authorities estimate that fraudulent ITC claims amounting to nearly ₹382 crore were generated through these transactions.
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The second accused, Hassain Baig, associated with K.H. E-Waste Recycler in Nayandahalli, allegedly used 55 fake supplier firms to carry out suspicious transactions worth nearly ₹212 crore and claim fraudulent ITC of approximately ₹38 crore.
Officials stated that the investigation has so far identified a total of 127 bogus entities allegedly involved in suspicious transactions worth ₹2,384 crore and fake ITC claims amounting to nearly ₹420 crore. Authorities believe the network had been operating for an extended period using fabricated documentation, manipulated invoices and shell business structures.
Paper Firms and Inflated Turnover Raise Red Flags
Investigators found that several firms existed only on paper and lacked actual infrastructure such as warehouses, employees, transport records or genuine business operations. In many cases, companies showed an abnormal rise in turnover despite having little or no physical business activity.
One firm under scrutiny reportedly witnessed its declared turnover rise dramatically from nearly ₹50 crore to ₹945 crore within three financial years, despite lacking evidence of genuine commercial activity. Officials suspect that the surge was artificially created through fake invoices and circular paper transactions aimed at generating fraudulent tax credits.
Authorities also found that transactions involving Tungsten Carbide scrap alone accounted for suspicious turnover of around ₹217 crore and fake ITC claims of approximately ₹39 crore. Investigators believe high-value scrap trading was deliberately used because such sectors often involve complex supply chains and are more vulnerable to invoice manipulation.
According to sources, whenever authorities initiated enforcement action, including blocking ITC claims or issuing notices, the accused allegedly floated new shell firms under different identities to continue operations and avoid detection. This constant creation of fresh entities reportedly made it difficult for investigators to track transaction trails and establish the complete money flow.
Probe Expands Into Wider Financial Network
Financial crime experts say fake ITC fraud has emerged as one of the biggest challenges for tax authorities across India. Such networks typically use shell companies, fabricated purchase records and manipulated GST invoices to illegally claim tax credits without actual movement of goods or services.
Renowned cyber crime expert and former IPS officer Prof. Triveni Singh said economic offenders are increasingly using technology, digital billing systems and layered shell entities to operate tax frauds like organised financial crime networks, causing significant losses to government revenue.
The two accused have been arrested under provisions of the GST Act and are currently being questioned. Investigating agencies are now examining the wider network, including additional shell firms, financial handlers and possible beneficiaries linked to the alleged racket.
Officials indicated that further arrests, asset attachment proceedings and expanded financial scrutiny may follow as the investigation progresses.
