Shell firms, circular trading: Fake GST invoice frauds continue despite curbs

Despite tighter enforcement and analytics-driven scrutiny, fake invoices and input tax credit (ITC) frauds under the Goods and Services Tax (GST) regime continue to surface on a large scale.

The GST authorities detected tax evasion of about Rs 7.08 lakh crore between FY21 and FY25, including fake ITC claims of roughly Rs 1.79 lakh crore, Minister of State for Finance Pankaj Chaudhary told the Lok Sabha in August 2025. During this period, 91,370 cases of GST evasion were detected, while taxes recovered through voluntary deposits stood at over Rs 1.29 lakh crore.

In FY25 alone, CGST officers detected GST evasion of more than Rs 2.23 lakh crore. Of the 30,056 cases identified during the year, over half related to ITC fraud, involving evasion of Rs 58,772 crore.

In the previous fiscal year, GST evasion of Rs 2.30 lakh crore was detected, including ITC fraud of Rs 36,374 crore.

How fake GST invoice scams typically work

Most GST invoice frauds follow a familiar pattern. Fraudsters create shell or bogus firms to issue invoices, without any actual supply of goods or services. Beneficiary companies then use these invoices to claim input tax credit and reduce their tax liability. 

In many cases, operators show circular trading to inflate turnover and generate e-way bills without real movement of goods. They route funds through multiple bank accounts and withdraw the money quickly to break audit trails.

Scale of evasion flagged by tax authorities

Earlier years show a similar trend. In FY23, tax authorities detected GST evasion of Rs 1.32 lakh crore, including Rs 24,140 crore of fake ITC claims. In FY22 and FY21, evasion stood at Rs 73,238 crore and Rs 49,384 crore, respectively.

The MoS Finance had informed that the government and the GST Network have implemented several measures to curb evasion, including e-invoicing, GST analytics, system-flagged mismatch alerts, risk-based scrutiny of returns and audit selection using multiple parameters.

"These measures are helpful in safeguarding the revenue and nabbing the evaders," Chaudhary said in a written reply in the Lower House.

Yet enforcement agencies continue to uncover organised fake invoicing networks.

In November 2025, officers under the Chennai North Commissionerate busted a large interstate fake GST invoicing racket involving fraudulent availment and passing on of ITC without any movement of goods. A key individual operating an unregistered tax consultancy firm, AS Associates, in Chennai was arrested.

According to officials, the network floated more than 95 bogus entities across Tamil Nadu and Karnataka using stolen or misused identity credentials. Preliminary investigations into 12 entities under the Chennai North jurisdiction revealed fake ITC of Rs 50.85 crore. Probes into the remaining 83 entities across other jurisdictions are ongoing, with total evasion suspected to exceed Rs 350 crore.

The racket was detected using digital footprint analytics, including IP address correlation of GST return filings. Searches led to the seizure of 196 SIM card covers, SIM cards, 42 cheque books, 41 basic mobile phones and multiple company rubber stamps.

In another case this January, GST investigators in Ahmedabad unearthed two tax fraud rackets involving evasion of Rs 262 crore. In one case, fake ITC claims alone amounted to Rs 252.66 crore, linked to a taxable value of about Rs 1,403.66 crore.

DGGI officials conducted searches across Ahmedabad, Jamnagar and Mumbai, recovering digital devices and records from firms found to be fictitious or non-operational. These entities, largely private limited companies with dummy directors, showed bogus turnovers running into hundreds of crores within months.

"These firms were used to issue fake invoices without the supply of underlying goods or services," an official statement said, adding that recipient firms used the bogus invoices to inflate turnover and offset GST liabilities using fake ITC. Funds were routed through RTGS transactions before being returned in cash through hawala channels after deducting commissions.

Fake GST summons scams add another layer of fraud

Alongside invoice-based evasion, authorities have also flagged a separate scam in which fraudsters impersonate tax officials to dupe taxpayers.

In January 2025, the Ministry of Finance warned that individuals with fraudulent intent were issuing fake GST summons to taxpayers - whether or not they were under investigation by the Directorate General of GST Intelligence.

According to the ministry, these fake summons closely resemble genuine documents, as fraudsters use the CBIC logo and quote Document Identification Numbers (DINs). However, the DINs used in such communications are fake and meant to make the notices appear authentic.

The ministry clarified that taxpayers can verify the authenticity of any CBIC communication, including summons, through the 'VERIFY CBIC-DIN' facility on the CBIC website.