Following the directive of the Public Accounts Committee (PAC), the Federal Board of Revenue (FBR) on Wednesday made Nadir Khan Hoti, Collector, Model Customs Collectorate, Rawalpindi, and Sheeraz Ahmed, Deputy Director, Directorate-General of Training and Research, Karachi, Officers on Special Duty (OSD), as they were involved in issuance of inadmissible sales tax refunds to a payphone company.
The PAC was shocked to hear that tax officials involved in issuance of illegal sales tax refund to Dancom Pakistan (Pvt) Ltd were given petty punishments like 'censure' after confirming their involvement in an unlawful act as these officials are still working on different key positions including Collector of Customs.
PAC Chairman Nisar Ali Khan expressed serious concern over issuance of illegal refunds, and issued directives to FBR to immediately remove all officials involved in the case from their present positions. "The committee is extremely disappointed over handling of such scams by the FBR. All the tax officials involved in this tax fraud should not be allowed to work again on important positions", he added.
The committee noted with concern that no recovery has been made from the payphone companies involved in obtaining fraudulent refunds. The PAC further directed the FBR to write a letter to the Ministry of Interior to place the names of the directors of the involved company on the Exit Control List (ECL). Even if some foreign nationals are directors of such companies, they should also be sent to jail, Nisar said.
Thirdly, a special committee has been constituted to analyse the whole issue and also examine the legal aspects of the scam to expedite recovery proceedings. Muhammad Ramazan Bhatti, FBR Member, Domestic Operations, South, explained to the committee that the FBR issued a ruling in the past, which was revised in consultation with the Law and Justice Division.
On the basis of revised ruling, the refund claims were filed by the exporters. Later, the FBR again approached the Law and Justice Division for revision of the ruling. He said that similar cases have also been detected in Lahore where inadmissible refunds were issued to payphone companies. A larger bench has also been constituted to dispose of similar cases.
FBR Chairman Sohail Ahmed said that the FBR is reviewing the entire sales tax refund system to make it more transparent. The FBR would ensure that the overruling powers of tax officials to remove objections of refund claims should be taken away. The intelligence system of the FBR for detection of inadmissible refunds is very effective and mega scams have been detected by the Directorate General of Intelligence and Investigation.
Referring to the audit para, he said some of the directors of the company are Malaysian and others included Laiq Ahmad Sheikh, Luqman Ahmad and Basharat Khan. The company was engaged in the telecom business. The tax officials including a collector and 4-5 auditors, who issued inadmissible refund have taken the plea that vague FBR clarification has resulted in wrong interpretation of law.
The officials, who were involved in processing of claims were Nadir Khan Hoti Collector Model Customs Collectorate Rawalpindi and Sheeraz Ahmed, Deputy Director, Directorate General of Training and Research Karachi and Naeem Ijaz Quershi, a Grade-19 official of Customs and Excise Group presently at Nipa training. One committee member observed that on the one hand people were unable to obtain admissible refund claims and on the other illegal refunds were being issued with connivance of tax officers.
Details showed that according to section 3-D of the Central Excises Act, 1944, section 3-B of the Sales Tax Act, 1990 read with Sales Tax Refund Rules, 2002, any person who had collected any tax or charge, whether under misapprehension of any provision of the above Acts or otherwise, which was not payable as tax or charge or which is in excess of the tax or charge actually payable and the incidence of which has been passed on to the consumer, shall pay the amount of tax or charge so collected to the Federal Government.
Dancom Pakistan (Pvt) Ltd under the Collectorate of Sales Tax, Rawalpindi was allowed refund of central excise duty/ sales tax paid on Telecom Services for the period January, 2001 to January, 2005 although the incidence of that had already been passed on to the consumers. This caused grant of in-admissible refund of duty/ tax of Rs 140.002 million during May and July, 2005. The lapse was pointed to the department in June, 2006 and to the FBR in August, 2006.
The department replied that the case was adjudged vide order in original 1/2008 dated 14.01.2008 and amount of Rs 140.002 million was ordered to be recovered along with default surcharge besides penalty equivalent to 100 percent of recoverable tax/ duty. Currently appeal filed by the unit is pending before Appellate Tribunal.
However, the registered person has challenged the recovery proceedings through a writ petition which is pending before the Lahore High Court, Rawalpindi Bench. In the meantime the ADRC has also been constituted vide FBR order dated 22.05.2009 at the request of the registered person to resolve the dispute. However, necessary proceedings for the recovery of govt dues are under way.
The meeting held in May, 2009 took a very serious view of the case and recommended that more concerted/aggressive efforts are needed to effect recovery in this case. Despite the clear directives of previous meeting, no tangible efforts have been made by the LTU, Islamabad to recover the amount.
The meeting held in August, 2009 directed the LTU to take concrete measure to show tangible progress of the recovery. The LTU, Islamabad shall complete the task and report by August 31, 2009 to FBR and Audit for verification of the action taken. It further directed the LTU, Islamabad to continue pursuing early disposal of case by the ADRC.
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