Introduction
The Delhi GST enforcement wing has detected a ₹60.59 crore fake Input Tax Credit fraud involving fictitious firms and circular transactions — with one person arrested. This case is not just a news item. It is a textbook on how fake ITC frauds are structured in India — and a warning for businesses that unknowingly do business with such entities.
Understanding how these frauds work protects your business from becoming an unwitting participant.
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How The Fraud Worked — The Typical Structure
The Delhi case follows a well-documented pattern across Indian GST fraud cases:
Step 1: Shell company creation Multiple companies are incorporated — often using stolen or fake PANs and Aadhaar numbers — and obtain GST registrations. These are called "ghost firms." They have GST numbers, file GSTR-1 (showing outward supplies), but never actually supply any goods or services.
Step 2: Fake invoice issuance The ghost firms issue tax invoices to real companies. These invoices show GST collected. In reality, no goods moved, no payment was actually made. The invoices exist only on paper.
Step 3: ITC claimed by real companies The real company receiving the fake invoice files GSTR-3B and claims the ITC shown on the invoice. The GSTR-2B system auto-populates the ITC from the ghost firm's GSTR-1 filing.
Step 4: GST never deposited The ghost firm takes the GST shown on the invoices and never deposits it with the government. The money is diverted to the masterminds.
Step 5: Detection GSTN analytics flags the ghost firm — zero e-way bills, no physical address verification match, no GST deposit despite large GSTR-1 outflows. DRI or GST enforcement raids the premises. Empty offices are found. Masterminds are arrested.
Step 6: Demand on recipient companies The real companies that claimed ITC from the ghost firm now receive Section 74 notices — demanding reversal of ITC with 100% penalty plus 18% interest. They are now fighting cases even if they believed the transactions were genuine.
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Why This Matters For Your Business
The single most important lesson from every fake ITC case:
Your ITC is only as safe as the due diligence you performed before onboarding the supplier.
Courts have protected genuine buyers who exercised reasonable diligence. Courts have not protected buyers who:
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Due Diligence Framework — Before Any New Vendor Onboarding
Check What to Verify How
GSTIN validity Active status, registration date GST portal search
Supplier's return compliance Last 6 months of GSTR-3B filed GST portal search
Physical existence Registered office address, phone Site visit or video call
Banking channel payment Pay only through RTGS/NEFT/IMPS Never pay cash
E-way bill generation For goods above ₹50,000 Generate and retain
PAN verification Match PAN with GSTIN Income Tax portal
Transaction justification Business rationale for new supplier Document in board/management record
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If You Have Already Transacted With A Suspected Ghost Firm
1. Check your GSTR-2B — if the supplier's invoices are no longer appearing, they may be under investigation
2. Do not proactively reverse ITC without taking legal advice — premature reversal may not protect you
3. If you receive Section 73 or 74 notice — file a detailed reply documenting genuineness of each transaction
4. Engage a GST advocate immediately — Section 74 proceedings carry 100% penalty
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