Nowadays, despite the power to arrest tax evasion above Rs. 5 Crore, Uttar Pradesh GST still relies on police FIRs.
A major GST fraud involving fake transactions worth Rs. 1,811 crore and an estimated GST evasion of ₹341 crore has been uncovered by the Uttar Pradesh State GST Department. The fraudulent network was operated through 122 shell companies, many of which were registered using only two mobile phone numbers, indicating a highly coordinated and centrally managed racket. The alleged mastermind is a Lucknow-based iron trader, and 12 FIRs have been registered in the case so far.
According to officials, the firms involved issued bogus invoices and claimed fake Input Tax Credit (ITC) without any actual movement of goods. The operation is believed to extend across several states, and forensic investigation of financial documents and digital trail data is ongoing.
122 fake GST-registered firms identified across multiple states. ₹1,811 crore worth of fraudulent billing transactions detected. ₹341 crore estimated GST revenue loss to the State exchequer. Numerous firms registered using just two mobile numbers, indicating orchestrated control. 12 FIRs filed, and further arrests are expected.
During the investigation, it was found that 72 companies facilitated fake transactions totaling ₹1,274.41 crore. 50 companies accounted for bogus invoicing worth ₹537.20 crore.
Can the State GST Department File an FIR?
This large-scale action has brought forward a significant legal debate on procedural enforcement under the UPGST Act.
The UPGST Act does not contain a specific provision for lodging an FIR. However, Sections 69 and 132 provide State GST officers the authority to arrest an accused if the alleged tax evasion exceeds ₹5 crore. Despite this, UPGST officers often file FIRs with police under IPC for offenses such as:
- forgery,
- fraud,
- criminal conspiracy,
- creation of fake documents.
The legal debate was highlighted in the Madhya Pradesh High Court decision in Deepak Singhal vs. Union of India, where the Court noted that when the GST Act already provides for arrest and investigation, relying solely on FIR-based police investigation may undermine the purpose and structure of GST enforcement, unless separate IPC offenses are clearly established.
Enforcement Concern in Uttar Pradesh
In many cases in Uttar Pradesh State GST officers lodge the FIR and consider their duty complete, after which the case is transferred to the police for investigation.
However police officers do not possess specialized expertise in GST law and ITC fraud methods.
This results in weak evidence gathering, delays in prosecution, dilution of charges, and loss of government revenue during recovery proceedings.
Meanwhile, the UPGST Act grants the same arrest powers to State GST officers that CGST officers possess under the Central GST framework.
Thus, just as CGST officers can investigate and arrest directly, UPGST officers are equally empowered to arrest under Sections 69 and 132 — without needing to depend on police FIR processes.
Conclusion
This case has exposed not only a massive tax evasion network, but also a significant administrative gap in enforcement practice in Uttar Pradesh.
If State GST officers exercise their statutory arrest and investigation powers directly, instead of transferring cases prematurely to the police, prosecution will strengthen, revenue recovery will improve, and fraud deterrence will be more effective.
Strengthening in-house technical investigation, adherence to Section 69 & 132 enforcement powers, and reducing overdependence on police investigation could significantly improve the State’s ability to combat large-scale GST fraud.
