The Directorate General of Post Clearance Audit (PCA), Karachi, has busted a gang of commercial exporters who, with great ease, obtained hefty duty drawback on fake documents under the Pakistan Customs Computerised System (PACCs), exposing the ineffectiveness of the Risk-Management System.
Sources told Business Recorder here on Saturday that the DG PCA Karachi unearthed this mega scam where exports were made to Malaysia, Russian Federation, UAE, Saudi Arabia on bogus documents, and the same were cleared by PACCs, and subsequently huge amounts of duty drawback were paid to the untraceable exporters.
The detection of such tax fraud in the complicated technical system of PACCs requires exceptionally high skills to check forged data in the presence of ineffective Risk-Management System. The Directorate's audit team not only managed to verify export data but also found that no remittances of foreign exchange had been received in most of the cases. The data analysis by DG PCA further detected that the commercial exporters declared low-risk items to misuse the Risk-Management System of PACCs. As no physical examinations were involved, the gang managed to evade the authorities. The scope of investigation has been expanded to check similar nature of cases under the PACCs.
The DG PCA thoroughly scrutinised the computerised data of the PACCs, which detected payment of fraudulent duty drawback to commercial exporters against phony exports. The PCA experts were surprised as to how commercial exporters were claiming huge amount of duty drawback despite persistent decline in rates for last many years. Due to tariff rationalisation, the repayment of customs duty has also decreased as per reduced import duties. The fraudulent techniques adopted by commercial exporters remained undetected by PACCs, but exhaustive exercise by the PCA officials would also help in checking such frauds in future.
A team of PCA experts also made a number of recommendations to the Federal Board of Revenue (FBR) to prevent such kinds of mega scams in future. In this connection, the Directorate has submitted a report to the FBR.
This Directorate General has also contacted Pakistan's Commercial Wings abroad (Malaysia, Russian Federation, UAE, Saudi Arabia) to verify the details of import declarations of consignees abroad.
Details showed that the DG PCA Karachi had detected a large number of cases of fraudulent duty drawback amounting to Rs 186 millions made through PACCs obtained by a racket of commercial exporters against phony exports. During the audit of duty drawback claims, sanctioned by Model Customs Collectorate (MCC) of PACCs for the period of July 2007 to date, it has been found that while prominent exporters/manufacturers have been claiming/obtaining nominal amounts of duty drawback against their exports due to low prevailing drawback rates, a number of unknown commercial exporters obtained huge amounts of duty drawback from PACCs.
During the subject audit, 179 cases of dubious duty drawback payments have been detected involving an amount of Rs 186 million. Out of these cases, in 162 cases exports have been made against individual names instead of company name having vague/fake addresses. Random physical verification of Karachi-based addresses showed that these were either fake or the exporters no longer exist on the addresses. Moreover, the exports have been made against fake or forged E-forms as confirmed by the concerned banks and no remittance of foreign exchange has been received in most of these cases.
As the duty drawback rates are mostly on ad valorem basis, export values in the subject cases have been found to be extraordinarily high as compared to export values declared by regular exporters (the export value of a subject consignment of leather jackets of one container load is at par with the export value of a consignment exported by a regular exporter containing 10 container loads).
In none of the subject cases, more than one container had been exported against a single Goods Declaration. Most of the consignments had been cleared by Export Risk Management System of PaCCS without customs examination as the exporters managed to hoodwink the system by declaring the first item on Goods Declaration as cotton waste (50 kg) or cotton t-shirts (100 pcs) or bed sheets (100 pcs) because the export RMS of PaCCS probably treats such items as low risk.
Another important aspect that came to the notice of audit team was that the declared quantities of goods exported had been inflated beyond any logical justification (the consignments comprising only 1x20 feet container have been declared to consist of 16000 leather jackets/20000 hockey sticks whereas identical consignments exported by regular exporters have maximum declared quantities of 3000 leather jackets/6000 hockey sticks per 40 feet container.
During the audit exercise, PCA obtained the actual weight of containers exported from the concerned terminal operators which showed huge discrepancies in a number of cases leading to the conclusion that the declared quantities were grossly misdeclared (for example containers declared to contain 25000 kg fabrics actually weighed 4400 kg only).
In 33 cases, the subject exporters misused duty drawback notification SRO 613(1) 12007 allowing duty drawback of Rs 16.86 per sheet on "decorative laminated sheets all sizes"- a very vague description. The said exporters declared huge quantities of decorative laminated sheets (98000 sheets per container) and obtained duty drawback of up to Rs. 1,600,000 per consignment. The total amount of duty drawback in the said 37 cases is Rs. 40 million. The rate of duty drawback as revised on May 31, 2008 was 3.98 percent ad valorem and no exports of the said item had been made by these exporters after revision of rate.
In order to effectively plug the loopholes in the system and avoid the subject frauds in future, the DG PCA Karachi has made the following recommendations:
First, the PaCCS risk management system for exports may be reviewed immediately in the light of findings. Second, as per Customs General Order 12 of 2002, pecuniary jurisdiction for sanctioning of duty drawback claims has been notified which is not being observed in PaCCS and all duty drawback claims are sanctioned by officers of Deputy/Assistant Collector level. It is recommended that the pecuniary jurisdiction vide aforesaid CGO may be implemented in PaCCS.
Third, currently the duty drawback assessing officers have no access to Carrier Information relating to weight of export containers which may be made available to them.
Fourth, sanctioning of duty drawback claims of commercial exporters may be made only after confirmation of receipt of foreign exchange by concerned E-form issuing bank.
Fifth, as per procedure in vogue, duty drawback cheques are dispatched to the business addresses of the exporters through courier services. Since most of the addresses of the subject exporters have been found to be fake it is suspected that the cheques were handed over personally. A formal enquiry may be conducted by the Board to probe into this fiscal fraud and bring the culprits to justice. Sixth, the procedure of Export Valuation Committees in vogue in "One Customs" clearance system for sanctioning of duty drawback may also be implemented in PaCCS.
Seventh, contravention cases are being initiated by this Directorate General and the Board shall be kept informed about further progress in due course of time, sources added.