The Federal Board of Revenue has approached the Ministry of Law and Justice to obtain a legal interpretation on the powers and jurisdiction of the Directorate of Revenue Receipt Audit (DRRA) to get the taxpayers record for carrying out sales tax audit of companies.
Sources told Business Recorder on Tuesday that some of units selected for sales tax audit have already been thoroughly audited by the external auditors of the DRRA. In these cases, taxpayers are not ready to cooperate with the board's auditors in carrying out two audits in a financial year. The FBR's exercise of audit resumption is facing problems due to illegal scrutiny of taxpayers' record by the DRRA's auditors. The Law and Justice Division would clarify about the actual jurisdiction of DRRA as well as FBR auditors for carrying out audit of taxpayer's record. The ruling of Ministry of Law would remove confusion about the limitations of DRRA's auditors, who unnecessarily intervene into the board's jurisdiction for audit purposes.
Sources said that once the Law Division clarifies the issue, it would bar the external auditors from conducting audit of taxpayer record. The Law Division would also clarify whether the taxpayers can receive notice of DRRA audit through the concerned Collectorate of Sales Tax and whether the involvement of collectorate makes the DRRA audit legal?
The FBR has asked the Ministry of Law to clarify whether the auditors of DRRA are legally empowered to audit the taxpayer records. Presently, a clear policy is required on sales tax audit of those companies, whose audit has already been conducted by the DRRA.
Details revealed that some of the corporate companies selected for field audit (2005-2006) have argued that DRRA has completed audit and issued certificates to them. The companies opined that the FBR is not legally empowered to conduct second audit during the same year. Under section 25 of the Sales Tax Act, 1990, the sales tax officers, on the basis of the record, may, once in a year, conduct audit. Referring to the section 25, units contested that if a company is selected for audit once a year, it could not again be picked up for another audit during the same period.
Sources said that certain Regional Tax Offices (RTOs) have also sought clarification from the concerned authorities about the audit of units, who were earlier cleared by the DRRA. During suspension of FBR field audit, DRRA audit remained in vogue and a large number of accounts of taxpayers have been audited since 2004. Now, if the audits conducted by the DRRA were legal, how a company could again be picked up for audit for the same year under section 25 of the Sales Tax Act? RTOs questioned.
It seemed that there is an ambiguity on the DRRA's audit of taxpayers registered with the sales tax department. Sources said that the DRRA is not legally empowered to obtain taxpayer's record through collectorates. They said that the board can pick any company for audit based on selection criteria, even if this unit has obtained clearance from the DRRA.
According to sources, the audits conducted by the DRRA are illegal. The FBR has received representations from few top companies that the DRRA had completed their audit in 2005-2006 and the FBR cannot conduct audit twice during the same period. However, the viewpoint of these companies is not correct, as DRRA is not the competent department to examine sales taxpayer's records.
In the past, DRRA Lahore had conducted statutory audit of the taxpayers, demanding complete record from the registered units. In these cases, the auditors of the DRRA had served sketchy notices to the taxpayers of Rawalpindi and Islamabad through Regional Tax Office (RTO), Rawalpindi etc without quoting the legal provisions of laws. Sources said that the FBR is facing serious problem in smooth implementation of the audit resumption plan due to parallel sketchy system of DRRA of conducting taxpayer's audit. The auditors of the DRRA are not legally empowered to conduct statutory audit of registered taxpayers. Similarly, they cannot demand tax record from the taxpayers.
Sources said that the FBR is the only authority to conduct such audit of the registered units. The DRRA could check the sales tax working to verify whether refunds were correctly issued or other such matters. They have no powers to operate as sales tax or federal excise officials for checking of taxpayer's record on their own.
Sources said that the audit team is the staff of DRRA, which is a branch of Auditor General of Pakistan and is not defined as an officer of sales tax. The staff of DRRA is non-existent authority under the Sales Tax Act, 1990. A non-existent authority cannot have an access to the books of accounts and other sales tax record under section 25 read with section 37 and section 38 of the Sales Tax Act, 1990 either directly or indirectly. This is the statutory position till the law amended up to date.
They said under section 30 of the Sales Tax Act, 1990, the only authority which can appoint sales tax officer is FBR. The FBR has never issued any notification in the official Gazette of Pakistan conferring jurisdiction with reference to area, case, class of cases and type of industry to DRRA.
Neither SRO 1195(I)/90 nor section 30 of the Sales Tax Act, 1990 appoints the staff of DRRA as officer of Sales Tax", therefore, whole exercise intended to be undertaken by the audit team of DRRA is patently illegal and without jurisdiction. No fiscal statute (including Sales Tax Act, 1990) allows the Auditor General to conduct the audit of a private party or a taxpayer. Therefore, the access to the record of the registered person, preparation of audit observation and initiating legal proceedings is an arbitrary exercise.