Exclusion/adjustment certificates issued to steel industry: FBR suffers huge revenue loss

ISLAMABAD: The Federal Board of Revenue (FBR) has suffered a huge revenue loss on account of exclusion/adjustment certificates issued to the steel units by the commissioners for not charging sales tax on power consumption against cheques which were never deposited in the national kitty.

Sources told Business Recorder here on Wednesday that the FBR has initiated disciplinary proceedings against commissioners Inland Revenue, who issued exclusion/adjustment certificates to the steel units, but cheques were not deposited in the national kitty.

Notices have been served to the commissioners Inland Revenue, who violated the law and caused huge revenue loss, sources added.

The steel units are using electricity for steel and iron products and required to pay sales tax as per rates specified in the Sales Tax Special Procedure Rules 2007 (steel sector).

However, the department had issued exclusion/adjustment certificates of sales tax in which it was mentioned that the taxpayers have paid sales tax through various cheques, but it has not deposited the cheques in the national exchequer for which the department has issued the exclusion/adjustment certificates.

The FBR is investigating that how much such kind of exclusion/adjustment certificates were issued to the steel units in Lahore and what the actual revenue loss on this account.

The auditor designated by the Director General (Audit) Lahore of the Auditor General of Pakistan had pointed out some glaring discrepancies in collection of sales tax from Steel units falling under the jurisdiction of Corporate Tax Office (CTO), Lahore which needed stern action besides reconciliation by the concerned zone/CTO.

The details revealed that in CTO, Lahore, the Commissioners issued Exclusion certificates under Sub Rule 3(A) of Rule 58H of the Sales Tax Special Procedure Rules, 2007 to the registered persons so the LESCO did not charge sales tax per unit against advance payment (postdated cheques) but these cheques were not deposited in the government treasury and payment are not subsequently appearing in the sales tax collection/ledger of the registered persons.

The loss of revenue specified in Audit Report 2019-20 is about Rs.900 million in only 40 cases for the period july-2016 to June 2019. There are more than 350 steel units are registered in CTO, Lahore CTO, Lahore. The Member IR (Operation) FBR constitute a fact finding committee to investigate this matter, quantify the actual loss of revenue and the responsibility of this alleged tax fraud be fixed to commence action internally and recommend the case to any external agency for criminal proceedings.

A fact-finding enquiry committee examined discrepancies in collection of Sales tax from Steel units of Lahore. The chairman of the enquiry committee submitted report confirming the fraud of non deposit of sales tax payment collected through cheques in 39 cases only.

The CTO Lahore has succeeded to recover the amount of Rs153.667 million till now. The first information reports (FIRs) have been registered against the registered persons in 17 cases and the amount of Rs505.074 million is still under recovery. The pending recovery in the sub judice cases confirmed the view point of Audit of fraud.

The Fact Finding enquiry Committee observed that loss of revenue in these cases is deliberate. Furthermore, the Fact Finding enquiry Committee observed that the two exclusion certificate involving revenue Rs436.63 million have been issued to the un-registered person and no cogent reasons were provided by the CTO for the issuance of this exclusion certificate to a non-existing entity. The issuance of exclusion certificate to un-registered persons was serious lapse on the part of the concerned commissioner(s).

The fact-finding enquiry committee observed that this situation is alarming in the sense that, if the same exercise is replicated on overall basis in 350 Steel Sector cases, within the zone of CTO, Lahore, the quantum of irregularity in lieu of missing/dishonored cheques would be much higher.

The FBR has initiated disciplinary against the commissioners who issued such exclusion certificate and investigation has been started in remaining 310 cases in which exclusion certificate have been issued against postdated cheques and the subject cheques were not deposited in the government treasury.

Copyright Business Recorder, 2021