Nampally to ECIL: Anatomy of ITC scams, fake firms, invoices
Hyderabad: A 20-year-old delivery boy from Nampally, a daily wage worker from ECIL, and an automobile company in Serlingampally seem disconnected. Nonetheless, they have all become central characters in a Input Tax Credit (ITC) scams.
The Input Tax Credit (ITC) mechanism is a key part of the Goods and Services Tax (GST). It aims to support genuine businesses, avoid double taxation, and promote compliance. The idea was that buyers would get credit for tax paid on inputs only when the seller has actually paid taxes to the government. This creates a strong incentive for buyers to deal with honest and compliant sellers who pay their dues promptly.
This very feature is now seemingly being exploited. Unscrupulous actors avail ITC through completely fake firms and non-existent transactions. The individuals named in the GST registrations are often unaware domestic helpers, drivers, or low-income employees whose identities have been misused by the actual beneficiaries operating in the shadows.
The scale of ITC fraud is rising, which can be confirmed from the government data from Lok Sabha showing 7,231 detected ITC fraud cases involving Rs 24,140 crore in 2022-23. This shot up to 9,190 cases amounting to Rs 36,374 crore in 2023-24 and surged to 15,283 cases hitting Rs 58,772 crore in the 2024-25 financial year.
How fake firms and stolen identities fuel a multi-crore ITC fraud
The fraud begins with the acquisition of a legitimate identity. In a case filed with the Central Crime Station (CCS), Hyderabad, a victim, who was a daily wage worker at ECIL, was seeking a personal loan when he received a WhatsApp message from a number claiming to represent ‘One Step Solutions’. He provided his Aadhaar, PAN, bank statements, and even shared OTPs, only to later discover that a GST registration, ‘Dasari Enterprises’, had been opened in his name.
To his shock, he unexpectedly received a Welcome Letter from the GST Department regarding GST registration in his name, which he had never applied for, and on 25 August 2025, GST officials visited his house and directed him to meet them at the GST Office, Gagan Vihar Complex, Nampally. When he went to the office the next day, he learned that someone had deceptively obtained GST registration in his name and that someone had already made huge financial transactions amounting to crores of rupees.
In another case with CCS, a victim, a delivery boy, and his friends were gradually groomed by an individual named Firoz Malik at a tea shop in Nampally with an offer to start a business. Initially, they were not interested due to a lack of funds, but he further persuaded them by assuring them that he would make all arrangements, invest the entire amount himself, and that they only needed to provide their personal details such as PAN card, Aadhaar card, electricity bill, bank account details, and a new SIM card for the registration of the business.
"He also promised that the profits would be shared equally (50-50) and misrepresented that these documents were required to apply for a trade license for a partnership business. These were used to create eight different firms, including ‘KGN Traders’, Deccan Enterprises, ‘Global Enterprises’, 'Minhaaz Enterprises', ‘Cristal Enterprises’, ‘Frontier Enterprises', and ‘Himalaya Enterprises’, each used to generate invoices worth Rs 10-25 crore without any real business activity," said the victim in his complaint.
With the documents, fraudsters obtain GST registration for paper-only firms. These entities then generate high-volume invoices for non-existent supplies. The fake firm sells goods to another entity, which uses the invoice to illegally claim ITC, reducing its tax liability. The originating ghost firm never pays the tax it has ostensibly collected and vanishes.
Pan-India problem with local link
The problem extends far beyond individual cases. A recent Enforcement Directorate (ED) operation in five states started with a case against the fake ‘Amit Traders’ in Guwahati. It uncovered a fraud scheme involving fake invoices worth nearly Rs 700 crore and bogus ITC of Rs 116 crore.
Hyderabad’s Vinardh Automobiles Pvt. Ltd. was a notable node in this network. The company reportedly admitted to fabricating its entire turnover of Rs 110 crore over two financial years (2022-23 and 2023-24), creating false records of vehicle manufacturing and sales to fraudulently claim GST refunds. The ED found evidence of siphoning, kickbacks, and the use of fake e-way bills.
The preliminary investigation reveals that fake ITC has been passed to big genuine MNCs for which detailed investigation is going on. "The searches resulted in the freezing of bank balances, the seizure of immovable property documents, and the recovery of incriminating records exposing systematic misuse of the GST framework through bogus invoicing, fake e-way bills, and layered fund transfers," said the ED in a statement.
Govt's weapon: The Invoice Management System
In his reply to a question on ITC frauds in August 2025, Minister of State in the Ministry of Finance Pankaj Chaudhary stated that they have deployed a multi-layered defence. Key measures include mandating that ITC can only be claimed for invoices uploaded by the supplier in their GSTR-1 form. The introduction of mandatory e-invoicing for businesses with over Rs 5 crore turnover has added another layer of traceability.
Systemic changes are also being implemented, OTP-based verification of PAN during registration, risk-based biometric Aadhaar authentication, geo-tagging of the place of business, and physical verification for high-risk cases. The rules now require new registrants to furnish bank account details within 30 days, and registrations are suspended for non-compliance.
Recent amendments have made fraudulent ITC availment a cognizable and non-bailable offence. The liability has been extended to the beneficiary who retains the benefit of transactions without genuine invoices.
The introduction of the Invoice Management System (IMS) in 2024 is designed to help recipient taxpayers manage incoming invoices more effectively. It allows recipients to accept, reject, or pending invoices filed by their suppliers. With the implementation of IMS, registered recipients can now cross-verify and reconcile invoices reported by suppliers in their GSTR-1, enabling better verification and strengthening the ITC claim process.