Gujarat-based Manpasand Beverages Limited (MBL) which is known for its mango drink MangoSip and packaged drinking water OXY Sip is suddenly in a center of controversy as Central GST Commissionerate of Vadodara has scanned a ₹40 crores GST scam. The food and beverages firm is backed by SAIF Partners which holds 25% shares in MBL.
According to a Business Standard report, CGST Commissionerate sources said that Manpasand Beverages allegedly created and showed sales and purchases across more than 30 fake units. MBL founder Dhirendra Singh along with his brother Harshvardhan Singh, Managing Director Abhishek Singh and CFO Paresh Thakkar was arrested on May 23 after a raid by the CGST Commissionerate.
In 2011, SAIF Partners invested around ₹40-50 crores in Manpasand Beverages Ltd and picked up 25% stake in the firm. The report further adds on that Deloitte, the US-based multinational professional services firm resigned as the auditor as soon as the top executives of MBL were arrested.
Founded in 1998 by Dhirendra Singh, MBL had its presence in rural and small town and cities. The company counts Bollywood actors Sunny Deol and Taapsee Pannu as its brand ambassadors, both of them endorsing its MangoSip brand. The company also signed up boxing champion Mary Kom to endorse its ready-to-drink ORS sports drink.
At the end of 2018, the firm has already reached its heights and sold its products through a distribution network of 6 lakh outlets. It was also planning to set up its fourth plant in India in addition to its existing plants in Vadodara, Varanasi and Sri City.
Usually, fraudulent companies show real running units and acquire fake invoice from here and there to claim Input Tax Credit (read our GST Guide).
However, in the case of MBL, the company set up several fake units across the country. Real purchase and sale transactions were then shown with values inflating with each transaction in order to claim a large sum of Input Tax Credit (ITC).
MBL allegedly showed inter-unit transactions worth ₹300 crores to claim an ITC of ₹40 crores. The transactions took place in 2018-19, according to government sources. According to the CGST Commissionerate sources, the transaction begins taking place three-four months ago.
Several chartered accountants and corporate lawyers who are following the case said that the circular trading involved one of the real units showing a sales transaction to a fake unit, which is then followed by series of transactions adding a slight margin at each stage. This trail eventually ended up as a purchase transaction by a real unit of the firm.
“The real unit which shows purchase, in the end, can now claim a tax credit on the inflated value at each stage. Mostly, it is even difficult for auditors to find out such a long trail of 30 fake units because there are no RoC (Registrar of Companies) records. Also, there is no law in the country that prohibits such kinds of circular trading. Only CGST intelligence can smell it when they follow the trail on their system and find that these are similar or even the same transactions are shown again and again,” said an independent corporate law expert.
MBL is not the first company from the portfolio of SAIF Partners which came into controversy. Earlier, Infrastructure Leasing & Financial Services (IL&FS) was allegedly involved in a fraud. IL&FS is also backed by SAIF Partners. Last month, Hari Sankaran, former Vice Chairman of IL&FS was arrested by the Serious Fraud Investigation Office (SFIO). One more thing to be noted here, IL&FS also had Deloitte as its auditor at that time.