Directorate of Intelligence and Investigation Inland Revenue (IR) Karachi has strongly recommended the Inland Revenue officers in Karachi to stop issuance of cheques in certain illegal sales tax refunds claims filed by fraudulent units, using innovative techniques to evade the authorities.
Sources told Business Recorder here on Monday that the agency has asked the regional tax officials of IRS to stop clearance of refund cheques in cases where directorate of intelligence IR has issued "Red Alerts" to the field formations. In certain cases, no manufacturing premises exit on the declared businesses addresses in Karachi. The serious violations of rules and regulations have been witnessed in sales tax refund cases for which agency has stopped the IRS officers of Karachi from issuance of refund cheques.
According to the directorate of intelligence IR, in the first case, the record shows that the unit has received considerable amount of input from another unit amounting to Rs 3245040/-, Rs 2780320/-, Rs 2496640. and Rs 2692256/- for the tax periods September, October, November 2011 and January 2012 respectively. The import data shows that the unit has been importing "Methanol, Cethanol, SBP-70, mixed xylene, light white oil" which has no relevance with the nature of manufacturing activity of said unit, ie manufacturing of textile products. Therefore, the claim of input tax against the purchase from another company by the subject unit is not legally acceptable.
The unit is already under investigative audit under section 38 of Sales Tax Act 1990 Directorate I & I IR Karachi on the instruction of FBR Islamabad. A ground check was conducted by the Directorate I & I IR Faisalabad and it was found that no machinery was installed at the said premises and the only supplies made are in the form of "thinner" supplied to local shops of paints, workshops of denting vehicles, furniture painting and motorcycle rickshaw shops.
On the basis of the said facts the Directorate I&I IR has requested Regional Tax Office (RTO)-II Karachi for blocking of the unit. Similarly the input sales tax claimed against the purchases made from certain importers do not match the manufacturing activity of textile products of subject unit.
On the basis of irrelevant input by the subject unit, the latter has exported following goods/raw materials which are related to textile sector. It included 50% polyester, 50% cotton dyed printed bed sheet sets; 65% polyester, 35% cotton dyed printed bed sheet sets; 100% polyester dyed printed un-stitched ladies chadders. Poly cotton blended fabrics; Poly cotton dyed printed un-stitched ladies chadders; 100% cotton dyed terry towels; 100% cotton dyed terry bathrobes; 100% dyed cotton pants; Poly cotton dyed fabrics; 100% cotton vest; Nena Mehndi; Cotton Terry sleepers; 100% cotton dyed mens paints; 100% cotton dyed mens shorts and 100% cotton dyed zipper hooded.
The above list of exports of the unit during the relevant tax periods shows that if the textile related exports have no relevance with the nature of input claimed from various suppliers and the sales tax refund generated on this input is bogus and illegal.
The directorate of intelligence IR said that as per record the declared manufacturing address of the said unit is in North Karachi Industrial Area. A ground check was conducted to verify the genuineness of business activity and it was found that there was no mention of business ie unit name on the said premises and even the supervisor was unable to identify/recognise the name of the said business.
According to the staff/workers the business activity on the said premises started just four months back at a very limited scale just four stitching machines. There were two electric meters installed on the said premises having meter Numbers AP-070988 and AL603816 and the billing amounts of these meters have also been specified. In comparison made between the consumption of electricity and the quantum of Sales/export declared by the subject business concern in its sales tax returns, it clearly shows that the manufacturing activity of the said unit is very limited and therefore, huge sales/exports cannot be made from such a limited manufacturing facility with low consumption of electricity.
It was already mentioned in the "Red Alert" issued by the directorate of intelligence IR that in another case a registered person is an exporter of leather footwear whereas to create bogus refunds the credit of fake input from plastic goods and food items is shown. For instance, three units are importers/manufacturers of plastic raw material but the said business is showing input from these units. FIR has already been filed against the unit on July 10, 2012. Similarly another unit has been engaged in food products but again the subject refund seeker (a footwear manufacturer/exporter) is taking credit of fake input from it.
Referring to another example of a textile unit, directorate of intelligence IR said a ground check was conducted to verify the genuineness of the manufacturing facilities of the said unit located at Korangi Industrial Area declared in its tax profile. The ground check report shows that on the declared address there is no sign board or name plate by the name of Unit (Textiles) engaged in the manufacturing of textile goods. As per report the said business premises are owned by a person engaged in the business of doing "deco paint on the wood sheets" by another name and style. The ground check report clearly reveals that the said unit does not exist on its declared business address and therefore, does not own required manufacturing facilities to manufacture textile goods.
The objection raised by this Directorate is that as per section 7(1) of Sales Tax Act the refund claimant can get the credit of input tax up to 180 days prior to the date of submission of claim of refund. In the instant case the processing officer/officials give credit of input tax related to June & September 2005 against the claims of refunds filed during the tax period January to December 2011 which is not legally acceptable.
As per refund rule No 28 of chapter 5 of SRO.555 (1)/2006 dated 15-06-2006, only that refund claim can be entertained/processed if the claimant furnished the claim on the prescribed software (RCPS) along the supported documents within 60 days of the filing of return which can be extended for a further 30 days by the Commissioner Sales Tax. Since in the instant case the input of Rs 2,717,385/- and Rs 24,417,325/- was related to the tax period June 2005 and September 2005 respectively, therefore the credit of this input against the refund claims for the tax periods January to December 2011 cannot be legally acceptable. In the light of above facts related to the said cases the directorate is of definite view that the refunds issued/sanctioned in the above cases are illegal and therefore, cheques may not be issued in these cases, directorate of intelligence IR added.
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