Director General of Intelligence and Investigation Inland Revenue (IR) Lahore has unearthed a mega tax fraud by a leading electronics company of Lahore involved in evasion of duties and taxes to the tune of billions. It is learnt on Tuesday that the intelligence agency of the Federal Board of Revenue (FBR) has drafted the contravention report against the company and forwarded it to the relevant Regional Tax Office (RTO) for adjudication.
The agency has unearthed the financial crime committed by the Lahore-based electronics company by going after the entire supply chain involved in the mega tax fraud. This case is first of its kind where agency's officers have carried out in depth investigation by analysing available records, supply chain and bank record information to hunt the entire supply chain involved in tax fraud. The agency has systemically recovered all relevant documents and verified tax records and bank accounts to unearth the financial crime committed in an organized way to evade the authorities.
The company has been involved in under invoicing/under declaration of value of supply of its goods from July, 2007 to June, 2013 and is involved in evasion of tax by making payment of sales tax & extra tax thereon on suppressed prices of its goods/articles without mentioning the trade discount, if any, on sale invoices, director I&I IR said.
According to details of the contravention report, it is clear that electronics company Lahore in connivance with others has violated the provisions of Section 3,6,7, 22,23, 26&73 of the Sales Tax Act, 1990 read with Chapter XIII of Special Procedure Rules 2007 and Section 3A, 4,6,17 & 18 of the Federal Excise Act, 2005 and wilfully/deliberately evaded sales tax amounting to Rs 3,710,295,446 extra tax amounting to Rs 171,857,553 & special excise duty amounting to Ra 150,296,736 (Total Rs 4,032,449,745) by committing tax fraud as defined under Section 2(37) of the Sales Tax Act; 1990 and sub section 3(c) & 12 of section 19 of the Federal Excise Act, 2005, which is recoverable from them under section 11(2) & 11(3) of the Sates Tax Act, 1990 and section 14 of the Federal Excise Act, 2005 along with default surcharge under section 34 of the Sales Tax Act, 1990 & section 8 of the Federal Excise Act, 2005 beside penal action under section 33(2) 33(4), 33(5),33(8), 33(9),33(110) 33(12), 33 (13) & 33(16) read with section 2(37) ibid and section 19(I), 19(3)(b)(c)(e), 19(7), 19(8) and 19(12) of the Federal Excise Act, 2005.
The reported position pertains to undeclared/suppressed value of goods/supplies made by the company only during the period July 2098 to June 2013, therefore, it will not restrict the department to proceed further in accordance with the provisions of Law, if at any later stage it comes into the notice of the department that the company had committed/violated any other offence under the Sales Tax Act.
According to the agency, a credible information was received that a manufacturer-cum-retailer, involved in whole sale and retail business of specified electric home appliances is involved in tax evasion by way of under invoicing/under declaration of value of supply of its products/goods and parking of additional amount of consideration received against actual value of supply in a bank account maintained in the name of employees of the said registered person. The company is involved in misusing the facility of single stage taxation through under invoicing/under declaration, wherein only the manufacturer or the importer had to levy and collect sales tax and subsequent supplies are exempt from making payment of sales tax.
The examination of debit/credit amounts in the bank account revealed that huge amounts are being deposited and withdrawals made are in cash, most of which are made by the employees of the company. Moreover, huge sums of money are being transferred to, amongst others, personal bank accounts of Directors of company.
It was observed that the company was liable to pay sales tax @ normal rates (16 percent or 17 percent whichever applicable during the period from year 2007 to 2013) and Extra Tax @0.75 percent (along with FED/SED @1 percent during the period when it was applicable) on its value of supply as a manufacturer of such goods. Chapter XIII of the Sales Tax Special Procedure Rules, 2007 envisages that extra amount of sales tax at the rate of 0.75 percent (now 2 percent) of value of supplies shall be levied and collected on the supplies of all specified electric home appliances by the manufacturer of such goods in addition to the tax payable under sub section (1) and (2) of Section 3 of the Act, as the case may be. As per their sales tax declarations, the registered person's total declared local sales of Rs 25,533,333,061 during the period July 2007 to June 2012, the company has declared sales to unregistered persons of Rs 19,864,727,110 which is 78 percent of its total declared sales. The under invoicing in the case of unregistered persons was fraudulently managed. The sales on the declared values/prices cannot be verified from unregistered buyers/general public due to unavailability of their complete identification, ie, names, complete addresses, CNICs, etc, with the registered person.
The company was in a position to under invoice its sales made through its own retail outlets/shops/centres and sales declared to be made to unregistered persons. Sources said that being a manufacturer-cum-retailer, is required to advertise and notify "wholesale" and "retail prices" of its goods in accordance with the provisions of section 2(28) of the Sales Tax Act, 1990. In response to statutory notices by the concerned Deputy Director, made false statement that whole sale and retail prices are not advertised/notified by the registered person. The company deliberately made this false statement and denied to provide said price lists to avoid its tax implications as notified prices are much higher as compared to declared sale prices/value of supply offered for tax by the registered person.
An examination of sales data, for the period 01-07-2008 to 30-06-2013, of the company provided by the registered person during investigations revealed that per unit price or rate of goods/articles sold through "Counter Sales" ie, through registered person's own shops/centers/retail outlets or declared sales to unregistered persons are drastically less in price/rate than the notified prices as per price lists. Whereas, prices or rates of goods sold to their dealers who are registered with sales tax department or those registered persons/buyers who have to claim adjustment of input tax are closer to notified prices as per price lists applicable for the relevant period. Also, on each and every date, declared selling price or rate of any article sold to dealers & registered persons/buyers are up to 50-60% higher in price/rate as compared to sale price of sales of same items declared to be made to unregistered persons as well as declared sales from own retail outlets/shops to general public. This variation of price or rate of same item on same date(s) to the extent of up to 50-60 percent clearly indicates that company is involved in under invoicing of sales declared to unregistered persons/general public to defraud the national exchequer of its due taxes and parking concealed sale proceed in above mentioned bank accounts opened in the names of their employees. Otherwise, it is against the normal business practice to sell same item on same date with price variation of up to 50-60 percent to different buyers.
The bank accounts in different names were opened just to park sale proceeds of company and a fraudulent attempt has been undertaken by filing income tax returns to avoid incidence of sales tax by the registered person on concealed amount of sale proceeds.
During the course of investigations under section 37, 38, 38A & 38B of the Sales Tax Act, 1990 conducted till date, it has transpired that the company has issued price lists of their articles/goods and declared both invoice/wholesale price and retail price in the said price lists. It was obligatory upon the company, being a manufacturer-cum-retailer, to notify wholesale and retail prices of its products/goods in accordance with the provisions of section 2 (28) of the Sales Tax Act, 1990. The comparison of invoice/wholesale price mentioned on the price lists with the price mentioned in the supply registers revealed huge difference in price of all articles/goods. It is thus evident from the abovesaid comparison that the company is engaged in under invoicing/under declaration of value of supply of its goods during the period from July, 2007 to June, 2013 and is involved in evasion of tax by making payment of sales tax & extra tax thereon on suppressed prices of its goods/articles without mentioning the trade discount, if any, on sale invoices, agency added. The mega fraud has peeled the fake mask of gang that had dented the national kitty through under-invoicing/misdeclaration of value of goods being supplied during a specific period.
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