Infra and steel firms under DGGI radar for tax fraud in Hyderabad
In a decisive move against tax evasion, the Directorate General of GST Intelligence (DGGI) has ramped up its crackdown on fraudulent invoicing, targeting infrastructure, iron and steel firms, metal scrap dealers, and restaurants across Hyderabad. The investigation has uncovered a complex web of financial transactions where major infra and real estate firms allegedly route funds through multiple accounts before siphoning them off in cash or converting them into assets like gold and diamonds—without any real supply of goods or services. Several companies have already paid hefty penalties running into crores, signalling a deep-rooted issue within Hyderabad’s business ecosystem. Adding to the complexity, many shell companies used in these transactions are registered outside Telangana, making enforcement efforts more challenging. In some cases, auditors were found complicit in setting up these shell firms, further exposing regulatory loopholes in the financial oversight system.
One of the most alarming findings in the ongoing probe is the shift in strategy adopted by infrastructure firms to evade detection. Unlike in previous instances where companies claimed fraudulent input tax credit (ITC) on fake invoices—making them liable under the GST Act—many have now stopped claiming ITC altogether. This allows them to avoid direct legal action while continuing financial manipulations under the radar. The DGGI, which had previously focused on cases where ITC claims were involved, is now revising its approach to tackle this emerging loophole. Additionally, the crackdown extends to the iron and steel sector, which has been flagged as a high-risk industry for tax evasion. Many firms in this sector have been found operating through fake entities, under-invoicing goods, and fraudulently claiming ITC. Recognising these risks, the government has introduced the Reverse Charge Mechanism (RCM), which places the tax liability on registered buyers if the supplier is unregistered. The 54th GST Council has also proposed tax deduction at source (TDS) for metal scrap purchases, aiming to enhance compliance in this sector.
From a sustainability perspective, financial transparency and tax compliance are critical for fostering ethical business practices. Widespread tax evasion not only distorts competition by favouring fraudulent entities over law-abiding businesses but also deprives the government of crucial revenue needed for infrastructure development and social welfare initiatives. Illicit financial activities contribute to economic instability, making it harder for cities like Hyderabad to plan long-term sustainable growth. As international businesses and investors increasingly prioritise Environmental, Social, and Governance (ESG) factors, the persistent issue of financial fraud could damage Hyderabad’s reputation as an attractive investment hub. Governments in developed economies are strengthening regulations to combat financial irregularities, and India must follow suit with stricter enforcement mechanisms to ensure transparency.
Beyond the financial implications, the crackdown also sheds light on broader civic and urban governance challenges. The existence of a large network of shell companies and complicit financial auditors underscores gaps in regulatory enforcement. Authorities need to adopt real-time monitoring systems and data-driven analytics to track suspicious transactions and prevent fraud before it escalates. Stronger inter-departmental coordination between tax authorities, financial regulators, and law enforcement agencies is essential to dismantle such tax evasion networks. For Hyderabad’s urban development to be sustainable, governance must evolve beyond reactive enforcement and focus on systemic reforms that prevent fraudulent financial practices at their root.
