The Federal Board of Revenue (FBR) has directed the collectors of customs to strictly follow the findings of the Post-Clearance Audit (PCA) to check wrong declarations and illegal exemptions of sales tax and withholding tax availed by certain importers of iron and steel products, chemicals and various other commodities.
The FBR has issued instructions to the Model Customs Collectorates (MCCs) to ensure preventive controls and precautionary measures at the import stage in view of detections made by the Directorate-General of PCA, Karachi.
Sources told Business Recorder on Monday that the Directorate-General of PCA, Karachi, had made huge detections in different sectors, unearthing various techniques used by unscrupulous importers for evading duties and taxes. The importers misused the facility due to weak operational controls or self-assessment clearance systems.
In many cases, the valuation rulings were not applied for accurate assessment of duties and taxes at the import stage. The names of chemicals and commodities were slightly changed to apply incorrect Pakistan Customs Tariff (PCT) headings to evade customs duty. Wrong classification of the goods had been declared by importers to levy lower rate of customs duty.
The fraudulent methods had been used to misuse the facility of self-assessment systems, computerised clearance, and exemption certificates. The PCA findings have clearly specified that the self-assessment system had been widely misused by the importers. The directorate of PCA has submitted its report to the FBR for necessary action by all collectors of customs.
Keeping in view the huge detections made by the DG PCA, Karachi, the FBR has forwarded the findings to the Model Customs Collectorates (MCCs) to check similar frauds in future. According to FBR instructions, issued to the collectors of customs, the DG PCA had detected a number of cases in which government revenue had been found evaded by taking undue advantage of either computerised clearance, based on self-assessment, or other weak operational controls in the clearance collectorates.
Accordingly, all the collectorates have been directed to improve their monitoring and control mechanism, particularly the Risk Management System (RMS) in the computerised clearance system to safeguard the government revenue, the FBR directive added.
The DG PCA informed the FBR that the directorate had started its audit function from December 1, 2008. Since then it had detected a number of cases where government revenue amounting to Rs 435.90 million had been found evaded by as many as 339 importers of various commodities by taking undue advantage of either computerised clearance, based on self-assessment or other weak operational controls.
The DG PCA said that it was necessary to share these specific observations with the Clearance Collectorates so that the operational controls at the clearance stage could be improved and made more effective to safeguard the government revenue at the very initial stage.
THE MAJOR DETECTIONS MADE BY THE PCA WERE: GP/CRC/ HRC STEEL SHEET (HS code 72.10) and ELECTROLYTIC TIN PLATES (HS code 7210.1210): While analysing the data of import on PCA software, it came to notice that Valuation Rulings have not been applied in as many as 1329 cases of GP/CRC/HRC steel sheets and electrolytic tin plates where consignments of the aforesaid commodities were released without application of Valuation Rulings. And, in majority of the cases, a lower rate of sales tax had been applied instead of correct rate of sales tax as envisaged in SROs 644(I)2007 and 645(I)/2007, both dated June 27, 2007.
This omission had caused loss to the government revenue to the extent of Rs 286.31 million. The Directorate said it was in the process of issuing audit observations to the concerned importers, for the purpose of recovering the evaded amounts.
SODIUM META BISULPHATE (HS code 2832.1090): While analysing the data, it came to notice that 56 consignments of SODIUM META BISULPHATE (HS code 2832.1090), involving a revenue of 13.32 million, were cleared from Pakistan Customs Computerised System (PACCS), availing exemptions of sales tax and income tax, which was not admissible on the import of this commodity.
Although this HS code appeared in exemption notifications SRO 525(I)/2006 dated 06-06-2006 (subsequently, SRO 509(I)/2007) and SRO 638(I)2005, nevertheless, the exemption was limited to only two commodities of this Heading ie Sodium Sulphide and Sodium Hydrogen Sulphide, and not Sodium Meta Bisulphite.
SODIUM BENZOSULFIMIDE (HS Code 2925.1100): The analysis of data of import on PCA software revealed that 2 importers, with a view to circumvent correct valuation, imported Sodium Saccharin by its chemical name ie Sodium Benzo Sulfimide, rather than its common trade name, to hoodwink the unsuspecting Assessing Officers.
The data retrieved from the PCA software showed that Sodium Saccharin has a normal value in the range of $3.25 to $4.71/kg, whereas those importers who had declared sodium saccharin by its chemical name, succeeded in clearing their commodities at a price as low as $0.82/kg, thus causing a loss to the government revenue to the tune of 13.74 million in 13 consignments. The Assessing Officers of the Clearance Collectorates, therefore, need to be educated on this matter so that the unscrupulous importers are frustrated in their clever tricks.
FISHING NET (HS code 5608.1100): The Board had clarified, vide its letter C.No 1(10) STT/2005 dated May 15, 2006, that exemption of sales tax under SRO No 621(I)/2005, superseded by SRO 525(I)/2006, was not admissible on the import of fishing net, classifiable under HS code 5608.1100.
This ruling, however, did not appear to have been enforced by the Clearance Collectorates insofar as the PCA Directorate detected 136 cases, involving revenue of Rs 43.78 million, where sales tax exemption was allowed on the import of Fishing Nets (HS code 5608.1100). Nevertheless, recovery proceedings were initiated by the Directorate.
BLOWING AGENT (HS code 3824.9099): During scrutiny of import data on PCA software, it came to notice that 71 consignments of Blowing Agents, involving revenue of Rs 22.2 million, were released under incorrect HS code of 2927.0090 at a lower rate of custom duty of 5 percent, instead of 10 percent, as applicable under the correct HS code of 3824.9099.
It further came to notice that the exemptions from sales tax available vide SRO 525(I)/2006 of June 6 2006 (later SRO 509(I)12007) and exemption from income tax vide SRO 638(I)/2005 had also been wrongly extended to Blowing Agents in addition to the wrong classification of the goods under HS cod 2927.0090, as mentioned earlier.
DI SODIUM DI HYDRO OXIDE (HS Code 2835.3900): Following a tip-off, the Directorate scrutinised the data of Di-Natrium Di-Hydrogen Pyrophosphate (also referred to as Sodium Acid Pyrophosphate) and it was detected that 17 consignments, involving revenue to the extent Rs 1.71 million, had been cleared under HS code 2835.2990 by paying customs duty @ 5 percent, instead of 10 percent, chargeable on these goods under correct HS code 2835.3900.
PRINTING INK (HS code 3215.1110): The import data of Printing Ink was retrieved from the system following information to securities data. It was observed that "Printing Ink for Inkjet Engravers", covered under PCT heading 3215.1110 (ie Black- printing ink) was exempt from payment of customs duty vide serial No 38-A of SRO 567(I)/2006 dated June 5, 2006 as amended vide SRO 1090(I)/2006 dated November 15, 2006 till June 11 2008 when the SRO was amended and the said item was deleted from SRO and the heading itself was placed in new duty slab of zero percent.
It was further observed that the item was exempt from levy of sales tax vide SRO.525 (I)/2006 dated 5th June, 2006 and income tax vide SRO.638 (I)/2005 dated 27th June, 2007 till 8th June, 2007 when SRO 525(I)/2006 dated 5th June, 2006 was superseded by SRO 509(I)/2007 dated 9th June, 2007 and the new SRO did not feature printing ink (black) of HS code 3215.1110 for exemption of sales tax.
A detailed scrutiny revealed that 59 importers had cleared 138 consignments of "printing ink" other than "Roller coaling Printing Ink (Black)" under HS code 3215.1110 instead of correct HS code 3215.1910 and 3215.1990, from various customs stations, causing a loss to the national exchequer to the tune of Rs 15.69 million.
The Directorate then initiated recovery proceedings against all such importers. The Board was requested to disseminate the information among the Clearance Collectorates to help improve their monitoring and control mechanism, particularly the RMS in the Computerised Clearance System, the PCA Directorate-General added.