The Karnataka State Commercial Taxes Department has uncovered an alleged fake Input Tax Credit (ITC) racket involving suspicious transactions worth nearly ₹2,384 crore in a major crackdown on GST fraud.

Officials said the operation was jointly investigated by the department’s Enforcement Wing (South Zone) and the Service Analysis and Intelligence Wing.

Scrap trade and shell firms under scanner

Investigators believe the network operated through shell companies, fake invoices, and paper-based business transactions under the guise of scrap trading, e-waste recycling, and Tungsten Carbide scrap dealings.

Two accused, identified as Saleemulla Baig and Hassain Baig, have been arrested in Bengaluru.

Authorities alleged that Saleemulla Baig, linked to SKS Traders, used 72 bogus supplier entities involving suspicious transactions worth nearly ₹2,172 crore and fake ITC claims of around ₹382 crore.

Meanwhile, investigators claimed Hassain Baig, associated with K.H. E-Waste Recycler in Nayandahalli, operated through 55 fake supplier firms involving transactions worth approximately ₹212 crore and fraudulent ITC claims of nearly ₹38 crore.

Bogus firms existed only on paper

Officials said many firms under investigation lacked genuine infrastructure such as warehouses, employees, transport records, or actual business operations.

One company reportedly showed turnover growth from ₹50 crore to ₹945 crore within three years despite little evidence of real commercial activity.

Authorities suspect fake invoices and circular transactions were used to artificially inflate turnover and generate fraudulent tax credits.

Wider financial probe underway

Investigators believe the accused repeatedly floated new shell companies under different identities whenever enforcement action or ITC blocking measures were initiated.

Cyber crime expert Triveni Singh said organised economic offenders increasingly use digital systems and layered shell entities to execute sophisticated financial frauds.

Officials stated that the probe is now expanding to identify additional beneficiaries, financial handlers, and linked shell entities. Further arrests and asset attachment proceedings are also expected