MBL was also on its way to setting up its fourth plant in the country. Its manufacturing plants in Vadodara, Varanasi and Sri City are either operational or under construction.
Yet, the recent arrests by the Central GST Commissionerate Vadodara-II of its whole-time director Abhishek Singh, along with his brother Harshvardhan Singh and Chief Financial Officer Paresh Thakkar, for allegedly fraudulent claims of input tax credit (ITC) of Rs 40 crore have revealed a deeper ploy of operating through fake units in the country.
And it is here that MBL has stood out among such similar cases of GST frauds unearthed by the CGST’s intelligence. According to CGST commissionerate sources, MBL allegedly created and showed sales and purchases across more than 30 fake units.
“Usually the cases one comes across show companies
running real units but acquiring fake invoices here and there to claim input tax credit (ITC). But in the case of MBL, it has been found that the company set up several fake units and across the country at that. Real purchase and sale transactions were then shown with values inflating with each transaction in order to claim a cumulatively large sum of input tax credit,” a source told Business Standard.
In this case, MBL allegedly showed inter-unit transactions worth Rs 300 crore, which led to an accumulation of input tax credit (ITC) of Rs 40 crore. According to CGST commissionerate sources, the transactions took place on several occasions in 2018-19, beginning three-four months ago.
Independent chartered accountants and corporate law experts who have followed the case said the circular trading involved one of the real units showing a sales transaction to a fake unit, which is then followed by a string of similar transactions, adding a slight margin at each stage and eventually landing up as a purchase transaction by a real unit of MBL.
“The real unit which shows purchase in the end can now claim tax credit on the inflated value at each stage. Mostly, it is even difficult for auditors to find out such a long trail of 30 fake units because there are no RoC (Registrar of Companies) records. Also, there is no law in the country that prohibits such kinds of circular trading. Only CGST intelligence can smell it when they follow the trail on their system and find that these are similar or even same transactions shown again and again,” said an independent corporate law expert.
The board of directors, on the other hand, says it is ignorant of the matter even though most of them have resigned. So far, five of the six directors have quit the company. They are Vishal Sood, Bharat Vyas, Chirag Doshi, Milind Babar and Dhruv Agrawal.
On Wednesday, the apex court, while agreeing to hear the central government’s plea seeking clarification of its powers, had asked the high courts to not intervene in such cases now. The Supreme Court said if high courts were to entertain such CGST cases, they “will keep in mind” that the top court had on May 27 agreed with the Telangana high court order upholding the powers of the GST commissioner to arrest an accused without filing an FIR under CGST laws.