ISLAMABAD: The Federal Tax Ombudsman (FTO) has discovered that a leading tractor manufacturing company used computerised national identity card (CNIC) numbers of unrelated persons to issue sales tax invoices in the names of benami farmers or dummy growers to conceal commercial transactions and claim inadmissible refunds.
In this regard, the FTO has issued an order in complaint No 3367/ISB/ST/2022 filed against M/s Millat Tractors Limited (MTL) and the Large Tax Office (LTO), Lahore. According to the order, the CNICs have been misused to conceal the transactions as well as the actual buyers of tractors.
As per details of the case, the complainant booked 1,001 agriculture tractors from MTL on June 21, 2022, paying in advance full consideration amounting to Rs1,252,851,600, 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 MTL 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 LTO Lahore also informed the FTO that as per the contention of the complainant 91 pay orders were issued in favour of the respondent company; however, only 47 tractors were issued to unrelated parties but received by the complainant under collusive arrangements of 1,001 tractors. Therefore, the mala fide on the part of MTL has to be viewed seriously under the law.
The MTL also ignored conditions laid down under SRO 563(I)/2022 for supply of tractors at 5 percent reduced rate.
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The mala fide on the part of the complainant and the MTL can be viewed that they made transaction for supply of such vehicles in sheer violation of strict restrictions and conditions as envisaged under SRO563(I)/2022 dated 29th April, 2022.
The FTO order revealed that the bookings of tractors are made by commercial dealers who themselves are not the growers/farmers; rather they are only carrying out 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 — i.e. industry, trolleying bricks and 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 a perfect benami arrangement which has already been prohibited under Benami (Transactions) Prohibition Act, 2017.
The FTO order stated that when the instant complaint is analysed, admittedly payer remains Shahzad Riaz, the complainant, but as per invoices issued by the MTL, 47 unrelated persons have been shown as the payers who neither made the bookings of tractors through the authorised dealer(s), nor made any payment, nor maintained any business relationship with the payer nor were owned by the real payer/complainant. The case appears to be a classic example wherein goods are delivered to one person and invoices are issued to the other/dummy/fictitious person.
The MTL’s stance that the dealer in question had obtained 47 CNICs from the complainant and submitted them onwards to MTL is not only unsubstantiated it is against the legal provisions as well. When the payment through 91 pay orders made by the complainant is directly being received and credited to MTLs accounts then there remains no ambiguity about the payer, especially when 47 tractors were delivered by MTL to the complainant, it stated.
The FTO order further stated that the authorised representative has failed to provide any explanation as to how and under which provision of law sales tax component of payment received by MTL 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 1,001 tractors from the payer/complainant, MTL has contravened sales tax act and the LTO Lahore failed to take any suo motu cognisance of this glaring fact. Such genuine instances are clearly distinguishable from the bulk of sales wherein payment is received from someone else and invoices are issued in the names of names lenders/benamidars, the FTO order maintained.
Responding to the FTO’s order, M/s Millat Tractors Limited has sent a letter to the Pakistan Stock Exchange Limited that said: “The management of the company has reviewed the FTO order on Sales Tax invoicing and other alleged violations. Management of MTL is of the view that the order has serious legal and factual flaws and weaknesses and accordingly MTL management has decided to confront this order at the next available appellate forum. The legal and taxation provisions have also not been appreciated.”
The company is hopeful that it will forcefully defend its legal position at all appellate forums, it added.
Copyright Business Recorder, 2022
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