GST Evasion in UP: Ikhlaq’s Diary Links 535 Fake Firms to Nationwide Scam

Diary Leads SIT to Pan-India Network of Bogus GST Firms

A diary recovered from a Meerut-based accused, identified as Mohd Ikhlaq, has opened a major front in the fight against GST evasion. The diary reportedly details 535 fake firms, along with mobile numbers, partial account trails and operational notes, pointing to a sprawling bill-trading network that investigators say spans at least 22 states.

The case is being handled by a Special Investigation Team (SIT) of Uttar Pradesh Police working closely with the State Tax Department. Officials now suspect that the network may have enabled fraudulent Input Tax Credit (ITC) claims worth well over ₹1,000 crore, making it one of the most significant GST-related frauds discovered in the state so far.

The latest revelations build on an earlier phase of the probe, where authorities uncovered around 144 shell entities and identified GST fraud of approximately ₹400 crore. The diary has sharply widened the scope of the investigation, transforming what once appeared to be a regional racket into a pan-India compliance and enforcement challenge.

Inside the Ikhlaq Diary: 535 Firms, 22 States and Layered Operations

According to SIT briefings, the diary lists firms that appear to operate—at least on paper—in key commercial centres across India, including Delhi, Uttar Pradesh, Bihar, West Bengal, Gujarat, Tamil Nadu, Rajasthan, Madhya Pradesh, Jharkhand and Jammu & Kashmir, among others. Many of these entities are believed to be either non-existent on the ground or controlled by individuals who were never the real beneficiaries of the transactions recorded against their GST registrations.

Investigators believe these firms were used primarily for:

• Creating fake purchase and sale invoices to show artificial turnover.
• Generating bogus e-way bills for goods that never moved in reality.
• Passing on fraudulent ITC down the chain to real businesses seeking to reduce their tax outgo.
• Routing funds through selected bank accounts, with withdrawals and reversals used to layer transactions.

An HDFC Bank account has emerged as one of the key channels for these activities, and authorities have initiated freezing procedures while forensic scrutiny of linked transactions is underway.

Key Masterminds and Professional Enablers Under the Scanner

While Ikhlaq is in custody, the SIT believes he is not the only key operator. The alleged main handler, identified as Shahid from Meerut, is still absconding along with a chartered accountant suspected of providing technical and compliance support to the network.

Investigators say this accountant is believed to have helped with:

• Onboarding and “reactivating” dormant or fictitious firms on the GST portal.
• Structuring invoice chains to make fake transactions appear commercially plausible.
• Managing e-way bill generation and ITC pass-through to multiple downstream entities.

Several traders who allegedly benefited from these fake invoices and ITC pass-through have not yet presented themselves before the authorities. Officials have indicated that as more documentary and digital evidence is analysed, prominent beneficiaries and intermediaries could eventually face action.

Timber Trucks, Deposits and a Glimpse into the Physical Supply Chain

The SIT’s breakthrough in the case is linked to enforcement action on the ground. During the investigation, State Tax Department teams intercepted seven timber-laden trucks on the Lucknow–Moradabad Highway and Kanth Road after inconsistencies were found in their documentation.

These vehicles were seized, and traders are understood to have deposited approximately ₹14 lakh to secure their release. Officials now suspect that the seized consignments were part of a much larger chain of movements used to justify fake invoices and transport records, where actual goods and paper trails did not always match.

The episode has given investigators a rare opportunity: to compare real-world physical movements with the GST filings and e-way bills generated through the suspected bogus firms, strengthening the evidentiary base for subsequent legal action.

From Small Business Losses to Bill Trading: Ikhlaq’s Path into the Racket

Interrogation reports suggest that Ikhlaq previously ran a small tyre, wheel balancing and car wash facility in Meerut’s Shastri Nagar area around 2022. Mounting losses and financial stress allegedly pushed him to look for quick-money alternatives.

It was during this period, investigators say, that he was introduced to the concept of bill trading through fake GST firms. The proposition was straightforward yet highly illegal: acquire pre-registered dummy firms, route paper transactions through them, enable fraudulent ITC, and earn a commission on every round of fake billing.

The network reportedly purchased such pre-registered firms in places like Delhi, sometimes for as little as ₹50,000 to ₹1.5 lakh. Once onboarded, these entities were provided to professionals who helped generate invoices and e-way bills. According to statements cited by officials, the margin was attractive: for every ₹100 of artificial taxable value, the operators could earn a share of the proceeds, often translating to lakhs of rupees for each large fake invoice.

Data, CDRs and Bank Trails: SIT Builds a Digital Case

The diary does not just name firms; it also contains hundreds of mobile numbers believed to be linked to proprietors, intermediaries, data operators and account handlers. The SIT is now conducting a detailed analysis of Call Detail Records (CDRs), banking transactions and GST portal activity.

Investigators plan to use these data points to:

• Identify the real controllers of each bogus firm.
• Trace communication patterns between suspected masterminds, CAs and front-end operators.
• Match bank flows with declared GST turnover and ITC claims.

Senior officers have publicly stated that the investigation will proceed without fear or favour, and that any high-profile name emerging from the digital trail will be treated on par with smaller operators.

Implications for GST Governance and Corporate Compliance

Beyond its immediate criminal dimension, the Ikhlaq diary case has serious implications for the integrity of the GST ecosystem. Fake firms and bill trading undermine the core promise of GST—transparent value-added taxation—by creating parallel structures that recycle fake credits and erode genuine revenue.

For legitimate businesses, this environment creates dual risks:

• Exposure to investigations and notices if they are unknowingly linked to suspect invoice chains.
• Unfair competition from parties who reduce their tax burden through fraudulent ITC.

The case also highlights the need for stronger analytics within the tax administration: pattern recognition on unusually high ITC claims, network mapping of related parties, and high-frequency scrutiny of entities with little physical footprint but heavy turnover on paper.

Shunyatax Global Insight and Compliance Call-to-Action

At Shunyatax Global, we closely track such GST evasion cases because they illustrate how quickly vulnerabilities can be exploited when controls are weak and documentation is taken at face value. The Ikhlaq diary probe is a textbook case of why businesses must proactively strengthen their GST and ITC governance.

Organisations that rely on extensive vendor networks, multi-state operations or high-volume trading are particularly exposed if counterparty due diligence is weak. Periodic GST health checks, invoice-chain reviews, vendor risk assessments and data-led anomaly detection can significantly reduce the chances of being dragged into investigations triggered by someone else’s misconduct.

To build a more resilient GST compliance framework for your business, explore expert advisory and risk-assessment services at Shunyatax Global Services. Our team combines tax, technology and forensic insight to help you detect red flags early, strengthen internal controls and stay ahead of evolving enforcement trends.