The tax department on Wednesday said that it is going after companies and scrutinising transactions between various companies within different states.

The tax department said that there are many companies that are using fake invoices for interstate transactions to avail input tax credit under the Goods and Services Tax (GST) framework.

Under GST framework companies have to register with every state and the state GST authorities would collect the tax. “It seems that the GST authorities are scrutinizing possible GST avoidance by taxpayers at a microscopic level, credit to the use of technology available to the government officers in the form of online reconciliation tools, information from the GSTN network, etc. This bust of interstate fake invoice racket is an example of prevention of revenue leakage, which the government intended with the introduction of GST and GSTN (GST network),” said Abhishek Jain, Tax Partner, EY.

In the last few weeks the tax department has investigated several instances across India and found that many companies were indulging in circular trading and taking fake input tax credit. Input tax credit is a mechanism under the GST framework where part of the tax paid could be set off against future tax liabilities. Many companies are manipulating this system through circular trading or by merely showing the movement of goods from one company in one state to another. When they do this repeatedly, input tax credit is accumulated.

The tax department said that they have busted a similar racket on Wednesday. Fake transactions valued around Rs 131 crore were being carried out by some companies to circumvent the taxes of Rs 26 crore. One company based in Maharashtra and two based in Karnataka had developed and were using online tools to avail fake credits, the tax department said.

Team – Intellex Strategic Consulting Private Limited, ,