The Central Government has confirmed a significant escalation in Goods and Services Tax (GST) evasion and Input Tax Credit (ITC) fraud, revealing widespread misuse of shell entities and inactive firms for generating fake invoices. According to official data, tax authorities detected an alarming rise in bogus ITC claims across sectors, with financial years 2024-25 and 2025-26 (up to October 2025) registering 15,283 and 24,109 cases, respectively.
The cumulative ITC fraud value has already reached ₹41,664 crore in the current financial year, underscoring the scale of manipulation in GST credit claims. Notably, the pharmaceuticals sector alone accounted for ₹7.5 crore of fraud executed through inactive or non-functional firms used as paper fronts to pass inadmissible credits.
Fraudulent ITC Now a Cognizable, Non-Bailable Offence
In response to the growing menace, the Finance Ministry has reiterated that the fraudulent availment of ITC without a valid tax invoice or supply of goods/services has now been classified as a cognizable and non-bailable offence. The amendment intends to deter operators of fake networks designed to circulate invoices without actual business activity.
Crackdown Measures and Technology Controls
As part of an intensified compliance strategy, the Centre outlined a series of systemic, legal, and enforcement tools designed to curb fake invoicing ecosystems. These include:
- Automatic suspension of GST registration in cases flagged for risk parameters or discrepancies.
- Automated compliance alerts under Rule 88C and Rule 88D for mismatch of tax liability and ITC claims.
- Restriction on filing GSTR-1 for non-filers of GSTR-3B in the preceding period
- ITC allowed only against invoices uploaded in GSTR-1 and auto-populated in GSTR-2B
- Risk-based biometric Aadhaar validation at registration
- OTP-based PAN authentication
- Mandatory submission of valid bank account details within 30 days
- Geo-tagging of the declared place of business to verify physical existence
The Government also confirmed the rollout of advanced digital tools including Invoice Management System and e-invoicing integration to trace the invoice trail and identify circular trading networks.
E-Way Bill System Under Tight Scrutiny
The Centre acknowledged deficiencies in the E-Way Bill mechanism, particularly its vulnerability to document duplication and reuse across consignments. In corrective response, the following measures have been implemented:
- Prohibition on generating more than one E-Way Bill on the same document number and date
- Blocking of E-Way Bill generation for GST return defaulters
- Ban on use of transport documents older than 180 days for generating E-Way Bills
- Strengthened cross-verification protocols between E-Way Bill data and GST returns
Officials noted that these measures are critical to closing gaps exploited by fictitious traders, dormant firms, and networks set up solely for circular billing.
Policy Transparency Through Parliamentary Responses
The Ministry of Commerce and Industry has also issued clarifications in Parliament on GST evasion through “sleeping modules”—entities registered but remaining inactive until used for ITC transfer—and on loopholes previously observed in the E-Way Bill system.
