GST: How companies are gaming the system

GST: How companies are gaming the system

MUMBAI: A non-descriptive textile trading company registered in Mumbai with an annual turnover of Rs 1 crore or less has become very active.

The company started selling out-of-state products in different categories and could do business of more than Rs 50 crore by the end of the year.

Indirect tax officials suspect that this is one of many fictitious companies used to avoid GST.

Taxpayers control the waves of activity in older companies and the formation of some companies fear that these are created specifically for the TPS game, officials and tax advisors said.

“Many inactive companies have become active and are trading various product categories that they have never occupied.

In many cases, these companies appear to be deliberately included in important areas of activity, “said a tax manager based in Mumbai on ET.

Many companies, especially those with a turnover of 50 million rupees between Rs and Rs 200 million rupees, set up specialized companies to take advantage of GST.

These Shell companies were used to take credit in a transaction from one state to another and accumulate an entry credit, only to be closed one year later before the arrival of the tax inspection.

There are indications that these companies use. Just like in the case of an artificial jewelry maker, a trick that could be replicated by many is running, says a senior tax expert with a law firm.

“The company first sell out of the state through a holding company and claimed 18% GST with the government.

Proponents expect they would stop paying the GST after a couple of transactions, “said a familiar person. Others plan to build the system by repairing products with fairness.

“If a Mumbai company sends goods at a high GST rate say 28% of a company in Delhi, but the invoice shows that they carry food grains, which are 5%.

The buyer in New Delhi will never show merchandise sales and never pay the GST, “said a tax expert.
“These ghost companies, after the GST credit transfer can be again inactive and not be captured if the evasion by company is around Rs 5 crore,” said one person in the know.

Experts point out that, in many cases, tax officials come on fraud, but it will take at least a year or more. At that time, companies have closed their stores and no one is at the registered office.

“The government can possibly capture all those who use ghost companies to build credit and make money.

The only way to make this effective is to monitor in real time and across multiple channels, “said MS Mani, partner of Deloitte Haskins and Sells.

A senior tax official said some tax experts help business people to set up such businesses and the department can follow first.

At a recent conference in Mumbai, several industry experts, including Kerala Finance Minister Isaac Thomas warned that in commercial (B2B) operations, some people might be able to replicate the system.

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