ISLAMABAD: The Federal Tax Ombudsman (FTO) has strongly recommended the Federal Board of Revenue (FBR) to probe into the aspect of massive Benami transactions in tractor manufacturing sector and monitor and enforce sales tax invoicing system to verify the input tax claims/refunds of a leading tractor manufacturing company.
According to an order issued by the FTO on Tuesday against a top tractor manufacturing company, where a complainant has highlighted before the FTO that he had booked 1001 agriculture tractors from a tractor manufacturing company on 21-06-2022, paying in advance full consideration amounting to Rs. 1,252,851,600/-including 5 percent sales tax (under serial number 25 of the 8th Schedule of the Sales Tax Act, 1990), through 91 pay orders. However, the company only delivered 47 tractors to the complainant in the month of June 2022 and failed to deliver the remaining 954 tractors even after expiry of 60 days.
The department (LTO, Lahore) has failed to verify the genuineness of refund, authenticity of buyers and specific cases of fake invoices and alleged tax fraud.
The FTO office referred to the SROs related to refund to agriculture tractors manufacturers and therefore, due diligence is required while issuing refund, but the FBR has also not been able to verify the genuineness/authenticity of supply chain under section 2(33A) of the Sales Tax Act, 1990.
The FTO office discovered that whenever any booking is made by a genuine grower/farmer through authorized dealers, the payment through banking instruments is made by the buyer/grower himself and invoice is issued in his own name. Such genuine instances are clearly distinguishable from the bulk of sales wherein payment is received from someone else and invoices are issued in the name lenders/Benamidars.
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It is evident from the proceedings that bookings of tractors are made by commercial dealers who themselves are not the growers/farmers rather they are only carrying on the purchase and sales of tractors for profit/commission motive. Tractors purchased in this manner are invoiced in the names of unrelated persons and mostly used for purposes other than agriculture, ie, industry, trolleying bricks & construction material, digging of land (housing societies), cleaning of garbage etc. so refund in such cases is inadmissible. Thus most of the sales tax invoices are issued in the names of Benami farmers/dummy growers. This scenario is perfect Benami arrangement which has already been prohibited under Benami (Transactions) Prohibition Act, 2017.
While concluding the proceedings, the Tax Ombudsman has recommended the Chief Commissioner IR, LTO, Lahore to conduct exhaustive review of the instant case so as to ensure that section 2(44) and section 23 of Sales Tax Act, 1990 and all relevant SROs governing Tractors manufacturing sector are implemented in letter and spirit.
The FTO has recommended Chief Commissioner IR, LTO, Lahore to verify the contents of the instant complaint especially challenging the genuineness of input tax claimed by the respondent and also verify the genuineness of farmers and DG Anti-Benami Initiative, FBR to probe the incidence of Benami transactions in Tractors manufacturing sector.
While conducting exhaustive investigations, FTO has made serious observations against the company.
As per invoices issued by the Company, 47 unrelated persons have been shown as the payers who have neither made the booking of tractors through the authorized dealer, nor made any payment, nor maintain any business relationship with the payer and nor owned by the real payer/complainant. The case appears to be classic example wherein goods are delivered to one person and invoices are issued to the other/dummy/fictitious persons.
The arrangement would shield the true particulars of real payer/investor by portraying the made-up particulars of an unrelated person whose CNIC has been misused to conceal the transactions made by the real payer. Investments made and profits earned by the beneficiaries thus remain concealed and untaxed.
Such an arrangement has neither any legal backing nor fits in the parameters of section 23 of ST Act, 1990.
The company’s assertion that this practice is prevalent in the whole tractors manufacturing sector doesn’t carry weight if the practice in question is against the clear provisions of law and it only encourages Benami transactions.
In the instant case though full price of 1001 tractors, inclusive of chargeable Sales Tax at that point of time was paid by the complainant in June, 2022, yet this transaction was not accounted for by the Company while filing the sales tax return for the month of June, 2022. When the Company was confronted on this account their AR’s 1st response was that time of supply is linked with delivery of goods and as booked tractors were not delivered therefore there was no need to declare the same in June 2022. But when enquired about non-invoicing of 47 tractors in the return of June, 2022, in the name of complainant to whom theses tractors were actually delivered in the month of June, 2022, AR had no explanation to offer. Similarly, though AR is of the view that time of supply is strictly linked with delivery of goods yet he couldn’t offer any plausible reason when the aforesaid proviso was referred which obligates.
According to AR this proviso is redundant in the face of main provisions of law but he failed to substantiate his assertion. His next argument was that the said proviso only covers cases where part payment is made: once again an over simplistic interpretation of law. If law is applicable on part payment, how would it ignore the incidence of full payment?
Moreover, the Company has failed to provide any explanation as to how and under which provision of law sales tax component of payment received by the company can be retained by the supplier for an indefinite period and how sales tax paid by the buyer can be adjusted against price differential, if any by supplier on its own without disclosing this fact in the relevant sales tax return. Thus, by non-declaration of whole transaction and nonpayment of sales tax recovered against 1001 tractors from the payer/complainant, the company has contravened sales tax Act and LTO Lahore failed to take any suo motu cognizance of this glaring default.
Regarding payment of Kibor-plus 3% for failure to deliver tractors within 60 days under SRO 837(I)/2020 dated 30-06-2020, it is evident that 1001 tractors were booked on 21.06.2022 against full payment including 5% sales tax though 91 pay order by the complainant and the respondent company was to deliver the same within 60-days of the booking but he only delivered 47 tractors to the complainant though authorized dealer of the respondent company. Revision of prices apart the violation of aforesaid SRO is evident.
Copyright Business Recorder, 2022
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