Directorate General of Intelligence and Investigation Inland Revenue (IR) Lahore has unearthed massive tax evasion by leading Lahore-based beverage company to the tune of Rs 684,382,784 to be recoverable from the company along with default surcharge.
It is learnt that it is the biggest tax evasion case within the beverage sector has been framed by the expert team of directorate of intelligence IR. The agency has declared the case as tax fraud committed by the beverage company. During investigation/inquiry it was observed that the beverage company of Lahore charged Output Tax against Inter-company Sales and claims Input Tax against Inter-company Purchases. As Inter-company Sales and Inter-company Purchases for a specific period are approximately of the same taxable value, the company actually pays net sales tax with return on the difference between Output tax on taxable value of Third Party Sales and Input tax on taxable value of Third Party Purchases. However, the total amount of Third Party Sales as per Sales Tax Returns and Third party Sales as per Registered Person's Authorised Representative's letters do not match. On one hand, the company has paid Federal Excise Duty (FED) @ 6 percent against excisable value of aerated water which is same as given in Authorised Representative's Whereas, on the other hand, the unit who was required to pay sales tax on value of supply of aerated and non-aerated water/beverage has not charged and paid sales tax on that total value of supply.
The amount of difference in third party sales as per sales tax returns and third
party sales on which sales tax was required to be charged and paid comes out to be Rs 684382784/- (principal amount + 100 percent penalty) is thus recoverable from the registered person along with default surcharge which will be calculated at the time of recovery.
The agency has made out contravention report against the said registered person, sources said. Sources said that the company makes taxable supplies of finished goods (manufactured by the Registered Person) ie beverages which fall under Third Schedule of the Sales Tax Act, 1990 (Act) to itself. The company paid Output Tax against inter-company sales and claimed input tax against inter-company purchases. As inter-company sales and inter-company purchases are approximately of the same taxable value, the registered person actually pays sales tax on the difference between taxable value of third party sales and third party purchases.
In this connection, as required, details of company's supplies made during the relevant tax periods, duly reconciled with the submitted sales tax-cum-federal return, and its break-up in 'aerated beverages' and 'non-aerated beverages'. To substantiate company's position that FED liability has been properly discharged, to the Sales Tax returns for the periods under consideration.
Sources said that the value of supplies disclosed in company's sales tax returns includes value of inter-company supplies (ie supplies made from one manufacturing unit to other manufacturing unit), which, is not subject to charge of FED. Such supplies are appearing in the company's sales tax returns owing to the fact that company's each manufacturing unit is having a distinct sales tax registration number, thus, while any goods are transferred from one manufacturing unit to other manufacturing unit, it constitute supply in terms of section 2(33) of the sales tax Act, 1990. It may also be noted that, since, company is filing a consolidated sales tax return (consolidating results of all six manufacturing units) thus, in an overall perspective such inter-company supplies have no impact on company's net sales tax liability (worked out after making input tax adjustment against output tax liability,) as the same constitute purchases for the recipient manufacturing unit.
It is also important to clarify here that company while filing a consolidated single sales tax return, is retaining multiple (six in number) sales tax registrations under the approval granted by the FBR, sources said. Upon surfacing of the aforementioned difference the Registered Person was issued notices under section 37 of the Act to reconcile the aforementioned issue. Instead of making due compliance, the Authorised Representative of the Registered Person informed that the Lahore High Court, Lahore has granted interim relief to the Registered Person vide interim order in W.P no. 19243 of 2016. It is pertinent to note that the said relief is in terms of notice under section 37 of the Act in the instant case bears no. 4029 dated 11-04-2016, through which information/record was called for the tax periods July 2012 through December 2015. However, the notice issued notice under section 37 of the Act in the instant case bears no. 4914 dated 24-06-2016 and is regarding reconciliation of information already provided by the Registered Person which involves tax periods July 2011 through June 2012. The company is making a deliberate attempt to avoid the proceedings as it has no reasonable explanation. Furthermore, the first tax period involved will be barred by limitation from July 2016 and the Registered Person is trying to delay the proceedings so as to get the case barred by time.
The amount of difference in third party sales as per sales tax returns and third party sales on which sales tax was required to be charged and paid, as per registered person's authorised representative.
Keeping in view the facts, it is clear that during the period July 2011 to June 2012, the company has deliberately short levied the due sales tax on third party Sales of Rs 2,138,696,196/- which comes out to be Rs 342,191,39l/- thus, have violated the provisions of Section 3, 6, 7, 22, 23, 26 & 37(2) of the Sales Tax Act, 1990 and wilfully/deliberately evaded sales tax amounting to Rs 342,191,391/- (penalty for which is @ 100 percent of tax ie Rs 342,191,391/-). Hence committed tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990 which is recoverable from them under section 11(3) of the Sales Tax Act, 1990 along with default surcharge under section 34 of the Sales Tax Act, 1990 beside liable to penal action under section 33(2), 33(5),33(8), 33(11c) & 33(13) read with section 2(37) ibid, sources added.
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