ISLAMABAD: The Large Taxpayers Office (LTO), Karachi, for the first time in the history of the Federal Board of Revenue (FBR), registered an FIR against a big corporate entity involved in sales tax evasion of nearly Rs5 billion by issuing fake sales tax invoices valuing Rs30 billion.

Sources told Business Recorder that the case is related to the documented steel sector involving two individuals (father and son). This case was transferred to the LTO Karachi on the basis of turnover. Within three months, records were examined, chain audit was completed and the culprits have been arrested.

A steel sector beneficiary voluntarily deposited Rs10 million and notices have been issued to other beneficiaries and FIRs would be registered against steel units who availed illegal tax credits.

Sales tax assessment: FBR to fix minimum values of steel products on quarterly basis

Sources said that this is the first-ever FIR registered against any big corporate entity by the LTO. The FIR has been registered against the culprits and two arrests have been made on Monday. It is expected that strict action would also be taken against units falling under the jurisdiction of other LTOs connected with the said scam. These corporate beneficiaries have availed illegal input tax adjustment for reducing their sales tax liability.

During scrutiny of the tax profile of the registered person of LTO Karachi, Nawab Khan was found involved in the issuance/receipts of fake invoices and its output tax is being used for claiming refund or input tax adjustment by other registered persons.

The LTO Karachi initiated an investigation/scrutiny of the tax profile and observed a very abnormal tax profile of this registered person (importer/distributor/ retailer). Sources said that it is established that the registered person has claimed/adjusted inadmissible input tax as the suppliers from whom purchases have been shown, have never supplied the goods to the said unit.

Thus, by claiming by adjusting inadmissible input tax through submitting fake and fraudulent sales tax returns, declaring fake bank accounts and issuing fake sales tax invoices valuing Rs14,529 billion, involving sales tax of Rs2.471 billion, to all buyers, which has deprived the national exchequer by the registered person and the accused persons namely, Nawab Khan, who violated the provisions of the Sales Tax Act, 1990.

During the analysis of data relating to purchase and sales from sales tax returns for the tax periods December 2021 to February 2023, it is revealed that the unit declared local purchase value amounting to Rs13.88 billion -and claimed input tax on local purchases which comes to Rs2.36 billion – front fake/unrelated suppliers.

The registered person has also made supplies to buyers falling under the jurisdiction of LTO Karachi and issued fake/flying invoices to facilitate the beneficiaries to claim the input tax and is also involved in supplies of either irrelevant description or without any description with an intention to evade sales tax and further tax and to claim bogus refunds.

It has been further revealed that the registered person has not paid a single penny since sales tax registration on account of sales tax and further tax as per data obtained from sales tax returns. It has been observed that the registered person declared purchases of yarn, fabric, tyre and paper product in Annexure- A of the sales tax return whereas he declared the sale of steel remeltable scrap which itself proves that their purchasing product are not even matched with selling products and he is involved in issuance/of fake and flying invoices.

Thus, the registered person has obtained fake/flying input tax from fake/unrelated suppliers many of whom are in-active/suspended/blacklisted. It is, therefore, established that all the above persons/suppliers are involved in mere paper transactions.

Similarly, Aftab Ahmed is prima facie son/relative of accused Nawab Khan registered in LTO Karachi is also involved in the issuance of fake and flying invoices, during the period December 2021 to April 2023, whereas, Nawab Khan, the owner of the said company issued fake and flying invoices to Aftab Ahmed, they are doing business from the same office.

The registered person has also made (paper transaction only) supplies and issued fake/flying invoices to facilitate the beneficiaries to claim the input tax pertaining to supplies with irrelevant description or without any description with an intention to evade sales tax and further tax and facilitation of claims of bogus refund.

Copyright Business Recorder, 2024