ISLAMABAD: Directorate of Intelligence & Investigation (IR) Lahore has unearthed a gang of fraudsters involved in registration of dummy business companies under the Sales Tax Act, 1990 to conduct fictitious transactions within the supply chain of fake and flying sales tax invoices to evade sales tax worth billions of rupees.

In this connection, the agency has submitted a detailed report to the Federal Board of Revenue (FBR) on Friday.

During investigation under Section 38 of the Sales Tax Act, 1990, as per Annexure-A for the tax period November, 2022, a dummy registered unit claimed input tax of Rs 8,500,000,000 on account of purchase of Horses, asses, mules and hinnies live(HS Code: 0101) at purchase value of Rs 50,000,000,000 against invoice issued by another dummy unit, which filed only Annexure-C of the sales tax return but did not file sales tax return for the said tax period. This is done through hoodwinking the STRIVE software of the Federal Board of Revenue.

As per STRIVE the taxpayer can claim input tax in its Annex-A of the sales tax return against an invoice if the said invoice and tax are duly declared by the supplier in its annexure C which is actually filed prior to filing of the sales tax return as due date for filing of Annexure-C is 10th of the month succeeding the tax period to which it pertains whereas due date for filing of sales tax return is 18th of the month succeeding the tax period to which it pertains.

This act of tax fraud has resulted in introduction of a fake sales tax input of Rs 8,500,000,000 in the system without ever being actually paid which has been

subsequently transferred to various dummy and genuine registered businesses operating mainly in ghee and packaging material manufacturing sector who have adjusted such fake input tax against output tax to defraud national exchequer by reducing sales tax liability.

The fraudsters utilised many other dummy units for layering and creating complexity of supply chain to avoid detection of fraudulent activity and for parking of the fake input tax for issuing fake and flying invoices in future.

From perusal of the pattern of tax fraud and inter linkages preliminary inquiry /investigation on the basis of personal profiles, sales tax registration, sales tax returns and from IP addresses, it is found Abbas Nawab s/o Nawab Khan along with other accomplices knowingly, dishonestly and fraudulently and without any lawful excuse has committed tax fraud and also abetted and caused others to commit tax fraud in terms of Section 2(37) of Sales Tax Act, 1990 by way of operating a gang of fraudsters involved in registering and operating dummy sales tax registered persons and by way of creating fake input sales tax and issuing fake and flying invoices in violation of section 3, 6, 7, 8, 8A, 14, 22, 23, 26 and 73 and other relevant provisions of the Sales Tax Act, 1990.

Therefore, Directorate I&I-IR Lahore lodged FIR against tax and a prominent accused Abbas Nawab involved in the scam has been arrested. Another

suspect, who was in contact with the arrested accused whose identity card used by the main suspect to register a dummy unit and involved in the supply chain of fake/flying invoices in the instant crime of claiming bogus/fake/ inadmissible tax credit was also taken into custody was arrested.

Later on, the third accused was arrested. All the three suspects were produced in the court of special judge (Custom & Taxation), Lahore on Friday and three-day remand was obtained.

Timely action by the Directorate of Intelligence and Investigation (IR) Lahore has prevented further disbursement and utilisation of fake input tax.

Copyright Business Recorder, 2023