Fraudulent refund claims: internal control mechanism helps FBR save Rs 1.586 billion

The internal control mechanism of the Federal Board of Revenue has helped save Rs 1.586 billion in less than one year through effective implementation of pre-emptive system to stop fraudulent sales tax refund claims. Sources told Business Recorder here on Thursday that huge revenue leakage is taking place across the country in the form of bogus refund claims in connivance with tax officers.
The major portion of such refund cheques goes into the pockets of tax officers working with the organised gangs, whose business is bogus refund claims. The amount issued in the form of bogus claims is so high that only in 66 of the cases the FBR has been able to save Rs 1.586 billion in a short period by stopping issuance of refund cheques claimed on bogus documents.
Directorate of Intelligence and Investigation Inland Revenue (IR) FBR has detected 66 big cases of bogus refunds claims where warnings were issued to the Regional Tax Offices (RTOs) to stop issuance of such refund claims. The cases were detected in less than one year and the concerned RTOs have confirmed the detections made by the agency. The RTOs have also taken action on the report of the directorate of intelligence IR. During this period, the RTOs have blanketed or suspended 14 units on the detection made by the directorate of intelligence IR. If the RTOs and directorate of intelligence IR would jointly take action against the bogus refund claimants, the FBR can save billions of rupees which are presently leaked in the form of fraudulent refund claims. It would be more beneficial for the department that the agency and RTOs should work together against the menace of bogus refund claims.
According to sources, the result of "Red Alters" issuance is now visible at the level of field formations. The government has saved valuable amount of Rs 1.586 billion during the period under review. If the pre-emptive system is not in place, the huge amount of Rs 1.586 billion has been paid as refund to the fraudulent units. Out of Rs 1.586 billion, RTOs have confirmed Rs 889 million. In all 66 cases, nobody has filed any case with the office of the Federal Tax Ombudsman (FTO). FTO is the competent forum to deal with the cases of maladministration and no case has been filed against the cases made by the agency. Taxpayers have also not made any representation with the Chairman FBR against the "Red Alerts" issued by the directorate. Contrary to this, the RTOs have accepted the legal stance of the directorate of intelligence IR.
In one case, Chief Commissioner RTO Hyderabad has fully endorsed the case framed against a textile unit of Hyderabad by directorate of intelligence IR involving huge amount of Rs 183,289,558. According to the letter of Misri Ladhani Chief Commissioner Inland Revenue RTO Hyderabad to Director Central Sales Tax Refund Office (CSTRO) FBR, the Director, Intelligence and Investigation Inland Revenue, Karachi has issued a 'red alert' in case of a Textile Mills Limited recommending that the pending refund of Rs 183,289,558 may be withheld/ kept pending till the RTO Hyderabad give comments/ views on the aforementioned observations. It was also recommended that all other refunds (if any) of the said unit may not be processed/issued unless the matter stands resolved. Thirdly, immediate post refund audit of the subject business concern may be initiated to recover the bogus/dubious refunds already issued to the tune of Rs 195,862,058. Keeping this in view, the audit proceedings were initiated by the Additional Commissioner IR, Audit Division Zone-I, RTO, Hyderabad under section 36(1)/11(2) of the Sales Tax Act, 1990 for the tax periods 2009-10, 2010-11 and 2011-12. These proceedings have been finalised and illegal input claims of the taxpayer have been disallowed vide Order-in-Original No 01 of 2012 dated 5.12.2012, creating a demand of Rs 517.130 millions inclusive of a penalty @100% under section 33 of the said Sales Tax Act.
Moreover, the Commissioner Inland Revenue Zone-I, Regional Tax Office, Hyderabad has also initiated action under section 21 of the Sales Tax Act, 1990 against the taxpayer. The Chief Commissioner RTO Hyderabad said that all the pending refunds were already stopped by the Commissioner Inland Revenue Zone-I, Regional Tax Office, Hyderabad by issuing a formal order No 2733 dated 16.5.2012 u/s 10(3) of the Sales Tax Act, 1990 read with Sales Tax Rules 39(2) and copy was endorsed to your good office. Since, the cited tax demand is under the process of recovery, it is once again recommended that the refund claims of the taxpayer through Expeditious Refund System (ERS) shall not be processed/issued, Chief Commissioner Inland Revenue RTO Hyderabad added. RTOs have suspended or blacklisted the following units on the recommendations of Directorate of Intelligence and Investigation Inland Revenue (IR), Sadiq Textile, AZ & Brothers, Friends Enterprise, Hanata Trading, Creative Leather Industries, Ahmed Smelters, Cima Corporations, Ashad Corporation, Messers Altamash, Messers Sajjida Enterprise, Messers Ahmed Industries, Jaguar Textiles, Fateh Textile and Beluga Enterprise, documents added.