Hyderabad: Shell companies that had been lying dormant for years and have suddenly become active after the rollout of GST are under the scanner. A probe by the ministry of corporate affairs showed that Delhi tops the list with over 26,000 shell companies, followed by Hyderabad at 25,000.
Officials suspect that shell companies are being used to claim input tax credit on inter state transfer of goods post GST. Officials of the Central Excise and Service Tax and state commercial taxes department have begun tracking the suspicious business transactions of these firms to see if there was any tax evasion since GST was rolled out.
Officials suspect that some firms, especially those in jewellery and textiles, are exploring ways to find loopholes in GST to reduce, delay or avoid tax payments. This is because jewellery, textiles, and other industries where the tax burden has increased due to GST as compared to the previous VAT system, are now looking for ways to escape tax.
“A provision in the GST law mandates companies transferring goods to a branch outside the state to pay inter state GST. If the company sells goods outside the state, it gets six months to pay IGST. This provision is prompting some firms to close their branches and start shell companies at branch locations to defer the payment,” said an official source in commercial taxes department.
While many jewellers are opening shops across the country, in textiles the situation is a bit different with the grey market being huge and no excise on fabric is being levied till now. The provision of tax on transferring goods to branches outside the state and sale outside state on approval basis could cause issues, they say.
Officials are scrutinising a sudden spurt of activity in old companies and formation of new companies and are fearing that these are specifically created to evade GST. Officials are also tracking a few companies having an annual turnover between Rs 50 crore and Rs 200 crore, as these are likely to be creating shell companies. Officials feel that these ir-regularities are more bet-ween B2B than B2C firms.
