And now, the fake bill ripoff

Meet Suresh Gupta, the man whose fake bills of Rs 250 cr helped firms cheat FIs and the taxman

JUST when you think you’ve seen everything, corporate India surprises you once again. First it was using political clout and bribes to get financial institutions (FIs) to sanction loans, then it was pressuring FIs to buy their shares; then fake balance sheets were prepared, and money borrowed from these FIs was siphoned off; and now it’s fake bills — to rip off the taxman.

Meet Suresh Gupta, a small-time entrepreneur operating out of Ghaziabad and Delhi, whose job was supplying fake bills to various corporates. He’d provide fake bills to them for supplying machinery/raw materials, and would get paid by cheque. He’d move the funds to various front firms, finally withdraw the money in cash, and return it to the corporate after deducting his commission of between 0.25 and 2 per cent. When caught by the Income Tax authorities some months ago, he said he’d supplied Rs 200 crore of such bills to groups like National Steel Industries of Indore, the Usha Group of Delhi and Ispat Group of Mumbai (also an Usha concern) over the last eight years. By the way, Gupta’s just one of thousands of such ‘entry’ suppliers.

Based on this, various offices of the Usha Group were raided by income tax, and the CBI has registered cases against the Rais who own the group — they have been accused of showing bogus expenditure and siphoning off funds borrowed from FIs. Now it’s clear the Rais are going to contest the charges — despite the impressive paper-trail, till proven in court, these will remain ‘charges’ — as will National Steel when it is questioned. Yet, the fact remains tax frauds have become an increasingly menacing problem.

Over the past week, for instance, there’ve been several reports by the Comptroller and Auditor General that have pointed out glaring lacunae in the way taxes are assessed. The report for March 2000 gives details of under-asse- ssment of taxes by a whopping Rs 2,861 crore. Similarly, sometimes deliberate under-assessments and failure to monitor payments have been pointed out by the CAG as far as import duty is concerned. What the CAG had to say about the rampant abuse of the last VDIS scheme, and the collusion of the tax authorities in this, is of course well known.

A very curious case of tax violation and bogus bills, quite similar to the kind the Rais have been accused of, is that of Pravin Kumar Tayal who now owns the Bank of Rajasthan. When questioned by this newspaper, Tayal denied this as untrue, but read on, because the case is truly curious.

On August 1, 1996, the Income Tax authorities in Mumbai searched the residential, commercial and factory premises of the Shree Krishna Group that is owned by Tayal. They found ‘evidence’ the group had inflated bills of the cost of textile machinery by as much as Rs 145 crore. When the taxmen contacted the suppliers of the machinery they found these suppliers either did not exist, or their addresses as given in the company records did not exist. No excise or sales taxes had been paid on the machinery, no payments had been made by cheque to these suppliers — the company said they’d all been paid either by cash (below Rs 10,000) or by sale of yarn/cloth. Nor were there any bills of transporters, or records of any cost of installation of this machinery — Tayal told this newspaper that the records did exist, but had got burnt in a fire in the building they were stored in.

Later, a fresh list of suppliers was provided to the tax sleuths, and of these, four were interrogated. All four had come to Mumbai, from Uttar Pradesh, at the end of 1992, none had bank accounts, sales tax registration numbers, or even telephone numbers. All operated from their residences, had hardly any immovable or moveable assets, had never filed tax returns, didn’t have any invoices of their own supplies, and had never supplied machinery either before or after they supplied it to the Shree Krishna Group.

Yet, when given all this evidence, including the tax investigation report which stated this, Tayal said it was fabricated. And why not, for as he said, he’d even got a tax refund for this period — clearly when the final order was made, the income tax authorities were convinced by his arguments.

So what happened? Either the original investigations of the IT authorities were completely off-track (and given the level of detailed work done, it seems a bit difficult to believe), or the tax authorities got compromised later. What’s curious is that despite sending a fax to the Revenue Secretary on the matter, there was no response from the finance ministry as to what exactly had happened.

What makes the issue of tax fraud worse is that this is often related to diversion of funds borrowed from state-owned financial institutions. For as the Reserve Bank of India inspection report of IFCI puts it, ‘‘site visits (are rarely done) to verify the physical existence/condition of the securities.’’ Little wonder then that with each passing year, the volume of non-performing loans continue to increase. And that the finance ministry, and the financial institutions under it, continue to ignore warnings from institutions such as the RBI or the CAG.

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