DG I&I IR detects tax fraud: two computer vendors set up 'fake' companies in Singapore

Two computer vendors / commercial importers of Karachi are said to have established fake companies in Singapore for bringing IT equipment into Pakistan through illegal channels by using bogus undervalued commercial invoices of renowned computer companies, evading duties and taxes at import stage. Sources told Business Recorder here on Friday that the Directorate General Intelligence and Intelligence Inland Revenue (IR) Islamabad has detected two companies vendors/importers, who have allegedly committed tax fraud. First company has committed tax fraud of Rs 140,335,551 and the second company Rs 493,791,701.
On the basis of credible information about evasion of tax the Directorate General I&I-IR obtained details of supplies made by an international IT company of Singapore to the said taxpayer. It was found that the said company had made purchases of servers, storage division and printers etc during January 2009 to March 2015 for Rs 765,254,685/-. The investigation revealed that the taxpayer allegedly created fake company in Singapore and then brought the goods in Pakistan through illegal channel. He also allegedly prepared bogus under-valued commercial invoices of computer products in Singapore to evade duty and taxes at import stage. The taxpayer made purchases of Rs 765,254,685 from a global IT company, Singapore. On the said sales detected by I&I-IR, recoverable Sales Tax along with value addition tax has been worked out at Rs 140,335,551. As such the taxpayer has committed tax fraud as defined u/s 2(37) of the Sales Tax Act, 1990. Accordingly contravention report has been sent by the directorate to the Chief Commissioner-IR, LTU, Karachi for recovery of the evaded tax.
In the second case, Directorate General I&I-IR obtained details of supplies made by M/s Hewlett Packard (HP) Singapore to the subject taxpayer. It was found that the electronics company had made purchases of various HP products during January 2009 to March 2015 for Rs 2,635,502,892. The investigation revealed that the taxpayer allegedly created a fake company in Singapore and then brought the goods in Pakistan through illegal channel. He also prepared bogus under-valued commercial invoices of HP products in Singapore to evade duty and taxes at import stage. The taxpayer made purchases of Rs 2,635,502,892 from international computer company in Singapore while declared nil import from them. On the said sales detected by I&-IR recoverable sales tax along with VAT has been worked out at Rs 493,790,701. As such the taxpayer has committed tax fraud as defined u/s 2(37) of the Sales Tax Act, 1990.
On the basis of above mentioned information this Directorate has issued notice/summon to the registered person under Section 37 of the Sales Tax Act, 1990 vide letter No 163 dated 19-08-2015 & 1402 dated 26-01-2016 to provide all relevant records/data of business activities for the period from January 2009 to March 2015. In this regard, the registered person attended this office and request for extension of time which was acceded. But despite lapse of considerable time the registered person has provided partial records on 1.3.2016.
The details submitted by registered person along with details provided by international computer company Singapore has been scrutinised and it has been observed that the company concealed the imports and supplies thereof in order to avoid payment of sales tax.
During investigation, it has been observed that the company declared imports of HP products in few months only and created fake companies in Singapore and then brought the goods into Pakistan through illegal channel. It also prepared bogus under valued commercial Invoices of HP products in Singapore to evade duty and taxes at the time of import in Pakistan.
The international compactor company has provided complete details of products sold to the company, being a Pakistani dealer of global company, during the period from January 2009 to March 2015 along with bank details and payment mode against above supplies. The international company of Singapore has also provided a copy of "Sales Through Report" submitted by vendor in respect of products sold in Pakistan during the same period. The "Sale Through Report" contains name of Pakistani buyers and year-wise quantity of products (ie Computers, notebooks printers etc) sold to the particular buyers.
In view of the investigation carried out by the directorate so far, record submitted by company and material evidence by Singapore-based international company it is proved that the vendor has committed tax fraud by undervaluing the HP products at Import stage through self generated fake/flying commercial invoices in Singapore. Local company has declared import of Rs 15,161,854 against total purchases of Rs 765,254,685 as per details provided by Singapore based company.
Taking into account foregoing facts which revealed that the company brought the products into the Pakistan through illegal channel and supplied the same in Pakistan without payment of leviable taxes, therefore all escaped taxes are recoverable. As it is a commercial importer and liable for payment of sales tax and value addition tax at import stage.
Thus in the light of foregoing facts, sales tax amounting to Rs 120,771,963 and value addition tax amounting to Rs 19,563,589 (total comes to Rs 140,335,551) are recoverable from the company under Section 11(2) of the Sales Tax Act, 1990 along with default surcharge under Section 34 of the Sales Tax Act, 1990. The registered person is also punishable under Section 33 read with 37B of the Sales Tax Act, 1990 for violation of Section 3. 6, 7, 7A, 8, 22. 23, 26 ibid and commission of tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990.
In the second case, same kind of investigation has been conducted by the agency against the second commercial importer of Karachi-based computer vendor. The sales tax amounting to Rs 423,831,879 and value addition tax amounting to Rs 69,957,822 (total comes to Rs 493,790,701) are recoverable from the company, under Section 11(2) of the Sales Tax Act, 1990 along with default surcharge under Section 34 of the Sales Tax Act, 1990. The registered person is also punishable under Section 33 read with 37B of the Sales Tax Act, 1990 for violation of Section 3, 6, 7, 7A, 8, 22, 23, 26 ibid and commission of tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990. Further, a separate contravention for the year 2013 and onwards will be forward accordingly after reconciliation of data received from the registered per.