Hyderabad GST Scandal: Automated System Exploited for Widespread Tax Evasion
Commercial tax authorities in Hyderabad have uncovered a significant surge in suspicious Goods and Services Tax (GST) registrations following the implementation of the GST-2 system. This investigation has revealed extensive address fraud where traders manipulated automated approval processes to establish fake entities and evade tax liabilities.
Automated Approvals Create Vulnerability
Officials report that the new GST-2 system, designed to enable swift and automated registration approvals, inadvertently created a loophole that was quickly exploited by numerous applicants. The revised process, particularly under Rule 14A, allowed GST registrations to be generated automatically even before physical or field verification could be conducted.
This automation enabled what authorities describe as oversmart traders to float fictitious firms using fraudulent addresses while simultaneously operating their legitimate, GST-compliant businesses in parallel.
Shocking Examples of Fraudulent Documentation
The scale of carelessness in some applications has shocked officials. Traders attempting to secure GST numbers submitted various dubious documents:
- Manipulated utility bills and forged documents
- Blank white papers uploaded in address fields
- Error message screenshots from the online system
- Phoney sale deeds and fabricated paperwork
- In some extreme cases, pictures of white tissue paper submitted as address proof
One particularly striking instance involved a company dealing in nappies that uploaded a forged utility bill claiming issuance by the Hyderabad Electric Supply Company (HESCO). Upon investigation, officials discovered the Hyderabad referenced in the document was actually located in Pakistan, not India.
Statistical Evidence of Fraud Surge
The red flags became evident as authorities noticed an unusual spike in registrations beginning October of last year, with particularly dramatic increases in November and December 2025 compared to the same period in 2024.
- December 2025: Registrations jumped to 11,420 from 6,571 in December 2024 – an increase of 4,849 registrations, reflecting a steep rise of 74%.
- November 2025: Registrations surged to 13,860 from 6,460 a year earlier – an increase of 7,400 registrations, translating to a striking growth rate of 115%.
- September 2025: Showed relatively stable activity with registrations rising marginally from 6,028 in September 2024 to 6,353 in September 2025 – an increase of just 325 or 5.4%.
Consequences and Crackdown
According to official estimates, approximately 300 fraudulent registrations have been suspended over the past two months, marking one of the most significant post-GST crackdowns since the tax regime was launched. By routing transactions through these shell entities, traders were able to move goods swiftly across state borders while evading GST payments.
In several cases, PAN numbers belonging to individuals completely unconnected to the fake firms were also misused before the fraud was detected. The intent behind these fraudulent registrations, authorities believe, was to conceal real business locations, avoid regulatory scrutiny, and systematically dodge tax liabilities.
The Hyderabad case highlights how well-intentioned automation designed to speed up business operations can be exploited when adequate verification safeguards are not in place. Commercial tax authorities continue their investigation as they work to strengthen the system against such fraudulent activities in the future.
