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Thread on why GST Invoice scam is related to vanishing companies and falling GST Returns.
1. Fake company gives fake invoice to real company with ₹1000 ITC.
2. Real company claims Input Credit. Gives back ₹100 as commission.
(Layer 1 of the scam)
1. Fake company gives fake invoice to real company with ₹1000 ITC.
2. Real company claims Input Credit. Gives back ₹100 as commission.
(Layer 1 of the scam)
Now, how will Fake Company 1 and Fake Company 2, will pay ITC of 1000? Simple answer: They invent one more layer of fake companies beneath them, with the same model of ITC and commission income, which will get us this.
(Now we are on the Layer 2 of the scam).
(Now we are on the Layer 2 of the scam).
Wouldn't the govt. now be able to get the tax of 2000 from 4 different fake companies (500 ITC X 4)? Good question.
But notice that instead of tracking one/two, they now have to track 4 different companies and do invoice level tracking [which does not exist].
(Now Layer 3)
But notice that instead of tracking one/two, they now have to track 4 different companies and do invoice level tracking [which does not exist].
(Now Layer 3)
We can go on like this for ever, but the loop has to end. And that ends with the "Vanishing Trick", where fake companies stop filing their GSTR-3B and GSTR-1 and just disappear. And when they do, compliance rate will fall like this.
This is why I called "Not doing invoice level matching" as the original sin. No amount of raids can cure that.
Computer system designers must think from attacker's POV. If they don't, this is what happens.
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Computer system designers must think from attacker's POV. If they don't, this is what happens.
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