A manufacturer of iron and steel in Karachi is said to have paid electricity bill of Rs 3,000 monthly and claimed sales tax refund of Rs 67 million, which was duly accepted, cleared and processed - an oversight by dealing officials beyond imagination.
Sources told Business Recorder here on Monday that Directorate General of Intelligence and Investigation Inland Revenue (IR) has asked the Chief Commissioner Regional Tax Office (RTO) Karachi to explain why concerned Zone of the RTO failed in checking the tax returns of a single fraudulent unit in the presence of large number of auditors and senior auditors. It is impossible that the registered manufacturer has not claimed input tax on the utilities and filed sales tax refund claim of Rs 67 million.
The directorate of intelligence IR has immediately issued "Red Alert" to the RTO Karachi and stopped processing of fraudulent sales tax refund claim filed by H. Manufacturer with the declared address of Urdu Bazar Road, Shershah Colony, Karachi. According to the "Red Alert" issued by the agency, apparently tax evaders and their insider cohorts are conniving criminally in defrauding the national exchequer. In the instant case, dare devil attitude of the said gangsters can be judged from various acts of omission and commission.
The directorate of intelligence IR has gathered documentary evidence that the manufacturing concern claiming around Rs 67 million as sales tax refund does not exist at the given premises and instead a small unit (involved in repair of water pumps/machines), owned by some other individuals has been operating for the last 4-5 years. As per tax profile, the unit has declared its main business activity as manufacturer of basic iron and steel and declared his electricity consumer No LA111360.Against this meter payment of RS.3420 ie averaging Rs 570 per month has been made during March-September, 2012. It is pertinent to mention here that during said period the consumer was billed at fixed monthly rates of Rs 335.76.
Against consumer No-AP078094 (which has not been mentioned by the said unit) payment of RS.54184 ie averaging RS.7740 per month has been made during May-October, 2012. With the said billing, huge volume of manufacturing entails sales tax refund of RS.67 million, which is an impossible phenomenon.
The directorate of intelligence IR said that the declared address of the unit as per tax profile is M-II- B/75 old No 190, street 67, Urdu Bazar Road, Shershah Colony, Karachi. A ground check conducted by the Directorate General I&I-IR, to verify the genuineness of the manufacturing claim, shows that on the said address an old building is constructed which is owned by Baitullah Khan, who has given a portion to Nahid Khan and Nadir Khan on rent for the last four to five years. Reportedly the place was being used for repair of boring pumps used in drilling of water wells. The item boring pump is not included in the zero rated regime and this regime covers only surgical goods, medical equipments and wheel chairs, which shows that the subject unit has illegally claimed refund against input of steel related raw material as it has no manufacturing activity related to surgical goods, medical equipments and wheel chairs, sources added.
During the course of scrutiny of monthly sales tax returns, and refunds claim filed by M/s H Manufacturer for the period December-2011 to September-2012 following serious discrepancies have been observed in the data available at the official web portal of FBR. As the concerned Zone of RTO Karachi has failed to take cognisance of the said pitfalls therefore, the agency is constrained to issue "Red Alert".
The taxpayer is registered as manufacturer of basic iron steel from December 19, 2011 in sales tax. Accordingly as per Boards Jurisdiction order the unit falls under the jurisdiction of Regional Tax Office, II, Karachi, whereas the taxpayer has managed to transfer his jurisdiction to RTO, Karachi and somehow managed to submit refund on RCPS in RTO, Karachi having no lawful jurisdiction over the case of taxpayer. The record shows that despite huge turnover the unit has neither filed income tax return for Tax Year 2012, nor the statutory withholding statements. The refund claim history of the taxpayer revealed that the ratio of the refund claim against the sales is very high as compared to the genuine refund claimants reflected hereunder.
The scrutiny of suppliers revealed that as per official website of FBR and Commodity code all are engaged in the business of Iron and Steel which has no relevance with textile or garments industry. Moreover, either these suppliers are importers or wholesalers/Distributors with huge turnover and nil/nominal tax payments. Therefore, it is suspected that no sales tax has been deposited for the supplies made to the said manufacturer.
All the supplies have been made to un-registered persons on zero-rate. It is worth mentioning the all iron and steel products are taxable and in the past it has been observed that fake/fraudulent refund claimants have obtained bogus refunds by declaring themselves manufacturers of surgical items/ wheel chair etc (which are zero rated). All the supplies are shown to un-registered persons and no address has been mentioned on the sales tax invoices with a view to conceal the facts regarding the commodity being supplied. The taxpayer is registered as manufacturer however no input tax on utilities has been claimed, sources maintained.
The directorate of intelligence IR said that to safeguard the government revenue "Red Alert" is generated. In the lights of aforementioned facts it is crystal clear that the total input tax of subject unit is bogus and the whole activity chain is just an engineered affair aiming at illegal sales tax refund. Therefore, it is requested that concerned commissioner may be directed to investigate the matter before processing of refund. The agency pointed out that in the presence of sizable number of auditors and senior auditors why concerned Zone has failed to identify the aforesaid discrepancies, which could have been traced through a cursory desk audit.
While processing sales tax refunds, the status of income tax proceedings has not been ascertained. The exercise may be made mandatory in all such cases because it represents the real spirit of integration of inland taxes, the agency said. The RTO Karachi may like to develop its internal control mechanism so as to identify all such cases within its respective jurisdiction, directorate of intelligence IR added.