Market fees and GST worth over Rs 200 crore on cotton is being evaded in Haryana every year by hoodwinking the government through non-existent firms in connivance with some unscrupulous officials, it has come to light.
The unearthing of three non-existent firms by the Excise and Taxation Department last week has laid bare the modus operandi of evasion of market fees and GST in the procurement and trading of cotton.
Priya Industries, Meham; Pooja Industries, Mahendragarh; and Preeti Industries, Gurugram, duped the state exchequer of Rs 105.01 crore by issuing bills worth Rs 1,067.84 crore. While the first two firms, though registered for musical instruments and wheat, issued invoices for Rs 689.56 crore for cotton that attracts 5 per cent GST, the third firm raised invoices for Rs 378.28 crore largely for commodities with GST tags of 18 and 28 per cent.
How it happens
As per industry estimates, arrival of cotton in Haryana till December 31 was 12,54,500 bales, which converted into raw cotton becomes 54.45 lakh quintals (one bale of cotton is equal to 4.5 quintals of raw cotton). However, the Haryana State Agriculture Marketing Board (HSAMB) collected market fees and Haryana Rural Development Fund (HRDF) merely on 31.29 lakh quintals, which means that more than 40 per cent of total cotton has been procured without paying taxes.
Further, going by the figures of the State Agriculture Department, Haryana produces a minimum of 1 crore to 1.25 crore quintals of cotton every year given the fact that the acreage of cotton hovers between 6 lakh and 6.5 lakh hectares and average yield is 20 quintals per hectare.
But the HSAMB records show that total arrival in the state is between 40 and 45 lakh quintals.
The “Cotton Production and Balance Sheet” of the Cotton Corporation of India shows that in 2016-17, Haryana produced 20 lakh bales (90 lakh quintals of raw cotton). However, the “arrival” of cotton as per HSAMB that year was 41.48 lakh quintals.
“Every year, more than half of cotton arriving in markets is procured without bills in connivance with HSAMB officials, thus hoodwinking the Board of 2 per cent market fees and 0.8 per cent Haryana Rural Development Fund (HRDF). Later, the cotton procured without bills is sold on bills to mills by bogus transaction through non-existent firms registered specially for this purpose,” the sources revealed.
The non-existent firms, which exist in records of the Excise and Taxation Department but not on the ground, procure bills of items like cement and cigarettes, which carry a GST tag of 28 per cent, or items like batteries, TMT bars, etc, with a GST tag of 18 per cent.
The bills are easily available with the dealers for a small percentage of 1 to 2, as customers rarely demand bills for these items and even if they do, it is not entered in books by such dealers.
A bogus non-existent firm having “purchase” bill for cement worth Rs 10 crore is presumed to have paid Rs 2.8 crore of GST (rate is 28 per cent) without actually purchasing the commodity or paying the tax and the firm can claim input credits for this amount.
Now, cotton being a commodity with 5 per cent GST, the firm will not invite any GST liability even after selling cotton worth Rs 56 crore to mills, as the firm can adjust input credits.
The bogus firms close their business within a few months before the authorities can lay their hands on them. Raj Kumar Beniwal, Chief Marketing Executive Officer (CMEO) of HSAMB, however, said that cotton produced in the state sometime is sold in other states and hence figures of the Agriculture Department are no guarantee that all the stocks are purchased by dealers in the state.
Black deeds on back of white gold
Cotton production in Haryana as per Agriculture Department is 1-1.25 crore quintals
Arrival of cotton in Haryana as per HSAMB records is 40-45 lakh quintals
Market fee/HRDF evasion is 2.8% of value
Bogus firms procure bills of cement, etc, with 28% GST tag and manage to sell cotton worth 5.6 times the value of bills procured as the commodity has 5% GST tag
There is GST evasion on the entire amount