Nagpur: Tax sleuths have come across a unique case of GST evasion in which allegedly fake film distribution rights were sold through shell companies to avail input tax credit (ITC). This is part of a series of raids conducted by the Nagpur unit of directorate general of GST intelligence (DGGSTI) to catch tax dodgers from different sectors.
Reducing GST liability by getting fraudulent ITC through fake purchases from shell firms has been the common modus operandi in all. Taxmen, who generally come across cases of fake purchases of physical commodities, said that for the first time purchase ficticous of film distribution rights were booked in its accounts by a company.
In this case, the chain starts from a shell firm in Dhule extending to another such company — M & M Consultants, finally reaching a rights assigner which is a major corporate house actually in the business of film distribution. The last two companies are from Mumbai. It was seen that allegedly fake sales worth Rs290 crore by M & M Consultants led to generation of fake ITC worth Rs25 crore.
The films, whose rights were sold merely on paper, were produced by big banners and included both old and new pictures.
Dhule-based firm Star Vision, which later was found to be a non-existent entity, had sold film rights worth Rs7 crore to Mumbai’s M & M Consultants which later recorded many more transactions with large corporates. Even the second company was not found at the given address.
Following searches, the rights assigonor, which is into the business of film distribution, paid up Rs25 corer against the ITC it had allegedly got through fake transactions. Sources said the liability can be higher for which investigations are under way.
The DGGSTI has arrested M & M Consultant’s director Pradeep Malankar who has been remanded to judicial custody till December 18, said a press release issued by the agency.
Searches revealed that the third company was engaged in licensing of movie rights by major production houses for broadcasting on national and international channels and had declared itself to be the sole rights holders of a number prominent production banners. The rights were further transferred on contract basis. In this chain, the rights were only transferred on paper.
Film distribution which is taxed as a service attracts 12% GST. In some of the deals even commission was recorded on which another 18% of tax is levied.
Lately, the DGGSTI had conducted a series of searches in which firms were found recording fake purchases to claim ITC. ITC is a proportionate reduction in GST liability on the basis of tax paid at the time of purchase of inputs which can be in the form of raw material or services.
The drive had begun in November and so far six arrests have been made leading to deduction of fake ITC worth over Rs80 crore and recovery of Rs30 crore.