Pak ‘Hyd’ address flags fraud as GST-2 loophole used to float shell firms
HYDERABAD: A surge in suspicious Goods and Services Tax (GST) registrations following the rollout of GST-2 has led commercial tax authorities to uncover widespread address fraud, exposing how traders exploited automated approvals to create shell firms and evade taxes.
Officials said the new system, designed to speed up GST registration through swift and automated approvals, created loopholes that were quickly misused. Several applicants submitted dubious address details, including manipulated documents, blank white papers and fake sale deeds, to secure GST numbers without proper verification.
In one striking case, a company dealing in nappies uploaded a forged utility bill claiming it was issued by the Hyderabad Electric Supply Company (HESCO). Officials later found that the Hyderabad mentioned in the document referred to a city in Pakistan, not India, triggering alarm during scrutiny.
According to official estimates, around 300 fraudulent GST registrations have been suspended over the past two months, marking one of the most significant crackdowns since the indirect tax regime was launched.
Authorities attributed the spike to changes under GST-2, particularly Rule 14A, which allows GST registrations to be generated automatically even before physical or field verification. This enabled traders to float fictitious firms using fake addresses, while continuing to operate their legitimate, GST-compliant businesses in parallel.
By routing transactions through these shell entities, traders moved goods swiftly across state borders and evaded GST payments. In several cases, Permanent Account Number (PAN) details of individuals unconnected to the fake firms were misused before the fraud was detected.
Officials said the scale of carelessness in some applications was startling. “When traders try to secure GST numbers, they occasionally encounter error messages in the online system. Some uploaded screenshots of those errors, while others submitted phoney sale deeds. Shockingly, some even uploaded pictures of white tissue paper as their address,” an official said.
Red flags became evident after authorities noticed an unusual spike in registrations beginning October last year, with numbers peaking in November and December. Between November and December 2025, new GST registrations rose sharply compared to the same period in 2024. In December 2025 alone, registrations jumped to 11,420 from 6,571 a year earlier, while November saw registrations surge to 13,860 from 6,460 in 2024. Registrations rose marginally from 6,028 in September 2024 to 6,353 in September 2025.
