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Rs. 824crore GST Fraud; Why India reports one scam after another? Are these Financial entities not worried about Brand Equity?

News of GST fraud done by Insurance companies has just hit the newsstands.

Adding insult to injury, as if it is not enough for the citizens of this country to tackle high inflation costs along with a mute GDP forecast for FY23, a GST fraud to the tune of Rs. 824crore has been unearthed by some of the leading insurance companies in the country, multiple intermediary marketing companies, multiple Non – Banking Financial Companies (NBFCs) and several banks.

It makes us question how safe our money is with banks and other financial institutions. It has happened and going by our experience in the past when several banks went bust and the depositors had to run from pillar to post to get their monies back, did they?

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Leading Insurance Companies Under the Scanner.

The scam came to light when the GST (The Goods and Service Tax) authorities caught on to the alleged misappropriation of input tax credit (ITC) to the tune of a whopping 824 crore by 16 leading insurance companies in the market.

Why ICICI all the way, every time?

The probe into the alleged fraud started when red flags were raised pertaining to specific information against ICICI Prudential Insurance. The information was regarding availing of ineligible credit, according to the sources Directorate General of GST Intelligence (DGGI) on Thursday.

The probe against ICICI Prudential revealed that the insurance company had availed and utilized ineligible tax credits without the underlying supply of goods or services. During the investigation voluntarily paid Rs. 100 crores in cash.

However, when talking about the ICICI umbrella, this is not the first time that any division of ICICI has not come under the scanner.

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Over the past several years ICICI and related businesses have been making news on some scam or the other.

It started in 2021, ICICI – Videocon scam, which had the involvement of the husband Deepak Kochhar of Chanda Kochhar the then CEO of the bank.

Since then, several cases of fraud and mismanagement of funds have come into the media.

What is the GST Scam?

The ministry quoting the DGGI, Mumbai zonal unit said

  • “Investigations have revealed that input tax credit of ₹824 crores has been availed, out of which an amount of ₹217 crores has been paid voluntarily by these sixteen insurance companies so far,” 
  • it was noticed that these insurance companies have availed ITC based on invoices issued by several intermediaries for providing several services – advertising, marketing, and brand activation when in reality no such services were provided. Hence amounting to Fraud.

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What was the plan of operation?

The scam is intricate and well thought out – several non–banking financial companies (NBFCs) that were engaged in microfinancing businesses acting as corporate agents of these (under the scanner) insurance companies and are engaged in cross-selling their single premium credit akin to insurance policies in the way of their lending business.

 

Now as per the IRDA guidelines, the corporate agents are only permitted a nominal commission, however, these insurance companies in order to skirt these regulations resorted to obtaining invoices from intermediaries with the aim of transferring commission over and above the permissible limit to NBFCs.

These invoices were generated for obtaining services such as advertising, marketing and such wherein there have been none. The intermediaries in turn have sought/received invoices from NBFCs for such supplies/services.

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Oil – Ing the Wheel

Going by the statement of the officials, the modus was methodically planned and was executed mainly at the bidding of these insurance companies. What is surprising and disgusting at the same time is that according to the statements taken from the key persons involved in this systematic fraud plan disclosed the fact that the insurance companies had planned and executed the same since the inception of GST!

As of now, ICICI Prudential has not come out with any official statement on the same.

 

What are the Major Areas where GST Frauds Evolved?

  • Input Tax Credit & Invoices
  • Refunds

 

Input Tax Credit and Invoices – It has been understood that in the last three years a large number of GST-related frauds have come to light, these cases pertain to fraudulent invoices for invalid availing of Input Tax Credit (ITC) which is further used to pay GST on outward supplies or for claiming refunds. The basic aim is to use it as a tool for inflating the turnover of the supplier.

  • It has been noticed that the taxpayers have systematically worked out a way to issue Invoices without the supply of goods and services. In this plan, the payment of tax is made with the Input Tax Credit which is not available to the issuer of the invoice. Hence the issuer of the invoice would generate a fake invoice and show the payment of tax with the non-existent input tax credit. Also, instances have come under the scanner where no actual GST is paid.
  • Shell Companies – Another way of committing fraud under GST is by way of creating Shell companies. These Shell companies may be used by the fraudster to route multiple invoices through dummy entities and transfer the input tax credit from one company to another in a rotary manner to increase the turnover.
  • Taxpayers have also found loopholes in the system and have tried to sell services or goods without issuing invoices. This modus is referred to as utilizing zero–rated supply category or in simpler words, the sale proceeds are at a later date adjusted with the invoices issued to taxpayers making Zero- rated supplies. This enables one to claim an ITC refund.

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Does Investor and Customer sentiments matter? What is credibility?

The commonness of such incidents involving banks, insurance companies and NBFCs has come forth from time to time. Every other year one or the other scam, violation or fraud amounting to crores of rupees is covered in the media.

The most horrifying and worrying thing though is that these companies or financial institutions continue to work as if nothing has happened.

Take the case of ICICI, it is probably one of the most controversial financial entities yet. Year after year the company has come under the scanner, from the employees of the company to the manner in which this financial giant operates. It has one of the worst track records when it comes to customer satisfaction and customer confidence ( one can just search the internet for ICICI-related misgivings).

What is even more worrying is the fact that ICICI Prudential is an insurance company that may have customers running in thousands if not in millions; how confident would they be in investing their hard-earned money in any of their financial products?

Conclusion: It is not just the fact of avoiding taxes or making more profit. Indian companies especially the ones that provide essential services such as banking or insurance should be more honest and forthright in their dealings. It is not just about the brand name/ equity of the company but also the fact that they are answerable to their customers.

Perhaps, these companies don’t care about the customers; perhaps the race to profitability takes precedence over customer/ investor confidence. As long as the balance sheet shows monies adding up, a little slip here, and it is acceptable!

edited and proofread by nikita sharma

 

 

 

 

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