On the recommendations of the Directorate of Intelligence and Investigation Inland Revenue (IR) Karachi, the Federal Board of Revenue (FBR) will cancel Sales Tax Registration Numbers (STRNs) of commercial importers, who have wrongly obtained 'manufacturing' status of textile products to evade taxes at the import stage.
Sources told Business Recorder here on Friday that certain commercial importers have obtained the STRNs under the category of 'manufacturers' without having any manufacturing facility at declared business premises. On physical inspection, the units are found to be non-existence, and not genuine manufacturers of yarn or other textile products. Usually, fraudulent units are detected during scrutiny of refund claims or input tax adjustments. The units not filing refund claims or seeking input tax adjustments are not focused by the tax department. In these cases, no refund claims have been filed and value addition tax at import stage has been evaded during one time transaction. The goods are imported without payment of value addition tax by commercial importers having status of 'manufactures' and sold in the open market without going through any manufacturers process. The detection of the scam would result in deletion of 'manufacturing status' from registration profile of involved commercial importers. The tax department will also initiate proceedings of blacklisting the units under section 21(2) of the Sales Tax Act 1990.
Central Registration Office (CRO) of the FBR has received a report of the Directorate of Intelligence and Investigation (IR) Karachi pinpointing several commercial importers, who have wrongly declared themselves as manufacturers to evade payment of value addition tax at import stage. It has been recommended to delete their STRNs obtained under the status of 'manufacturers'. The agency has also communicated lists and details of the cases to the CRO FBR Islamabad for necessary action.
Details revealed that the directorate Karachi has received credible information that the said registered persons are involved in massive evasion of sales tax by misusing the provisions of SRO 1125(1)/2011 and by enjoying the manufacturing status without having such facilities of manufacturing. In fact, the units are non-existent at declared addresses despite extensive efforts. The subject units are also engaged in concealing the sales and declaration of sales to dubious registered persons through which exchequer has been deprived of millions of rupees of payable sales tax.
The issue has been examined by retrieving data, sales tax returns and GDs of imports from the official web-portal of FBR. It is noticed that during the period from April, 2014 to July, 2014 one of the registered persons has declared imports of Rs 383,945,781 under the garb of manufacturing and therefore, evade value added tax @ 2 percent levied upon imports by commercial importers.
It is also worth mentioning here that by declaring itself wrongly as manufacturer the subject unit has made most of its imports without payment of value addition tax at import stage and caused loss to national exchequer amounting to Rs 7,678,916 on this account till July, 2014.
The details of another unit revealed that the said unit purchases fabrics from local market and the unit has nothing to do with the import of textile related items. On visit of declared address, a small unit has been found which is engaged in stitching of garments on CMT basis.
A thorough inquiry of the issue is underway, however, to avoid further loss to the exchequer, the directorate has requested the CRO FBR Islamabad that manufacturing status of the involved units may be deleted from the registration profile of the said persons till finalization of inquiry and proceedings for blacklisting in terms of section 21(2) of Sales Tax Act, 1990 on point of jurisdiction.
The Directorate of Intelligence and Investigation IR Karachi has also intimated the relevant Model Customs Collectorates (MCCs) that the involved registered person may be treated as importer instead of manufacturer and value added tax levied thereon may be collected at the time of clearance of imported goods at custom stage till the finalization of such inquiry.
The physical verification reports of certain units revealed that in pursuance of order by the Additional Director (HQs), Intelligence & Investigation Inland Revenue, Karachi, the concerned auditor visited the declared manufacturing premises of involved units. The purpose of visit was to check/verify physical existence of suitable manufacturing facility for in house consumption of huge imports of different goods related with textile industries and another purpose of the visit was to verify huge stocks.
On visit of given addresses, it was observed that such units do not exist at declared addresses. Further efforts were also made to trace the declared addresses in the vicinity but no such address was found. It is therefore, reported that the involved units are prima-facie not genuine manufacturers of yarn etc and have declared them as manufacturing unit of yarn just to evade the taxes at the import stage, sources added.
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