The Directorate General of Intelligence and Investigation Inland Revenue (IR) has unearthed a chain of fake and flying invoices involving an importer/exporter of Gujranwala and his beneficiaries in Karachi for availing fraudulent adjustment of sales tax on the basis of fake imports.
Sources said that the agency has established the chain of fake sales tax invoices starting from Gujranwala and linking with two units in Karachi. The entire chain of units involved in claiming illegal adjustments through fake/flying sales tax invoices has been detected and cases have been framed against the accused persons/units. Directorate experts' team analysed the data for detection of the entire chain involved in the said fraud.
The investigation proceedings in the case of subject registered person were initiated on the basis of information of evasion of sales tax. The inquiry conducted by I&I-IR reveals that the company of Karachi (MACO International) is allegedly involved in utilisation of fake and flying invoices for fraudulent adjustment of sales tax. There was also dummy unit of Karachi, which facilitated the subject registered person in provision of fake and flying invoices. In order to probe the matter, notice u/s 37 of the Sales Tax Act, 1990 was issued, but the taxpayer did not pay any heed to the statutory notice. However, it has established that the subject person neither made any purchases from the alleged supplier nor paid tax on the goods/material used for subsequent taxable supplies. He wilfully adjusted inadmissible input tax amounting to Rs 2,184,585. Thus sales tax amounting to Rs 2,534,119 including the amount of penalty is recoverable from the registered person. For adjudication of the matter and recovery of the evaded tax, contravention report has been sent to the Chief Commissioner-IR, RTO-III, Karachi for necessary action by the agency.
Brief facts of the case are that credible information was received that M/s Al Rehman Traders, Gujranwala is involved in issuance of fake invoices on the strength of fake imports. To probe further into the matter, approval for investigation under section 38 read with section 25(2) of the Sales Tax Act, 1990 was sought from the competent authority. After the approval, physical verification of the said unit of Gujranwala was conducted. However, the accused Ilham ur Rehman proprietor was not available at the given address mentioned in tax profile.
As per tax profile of this unit, it has been registered with sales tax since 16.4.2008 as importer/exporter with principal activity as "retail sale via mail order houses or via internet." In the beginning, the unit either remained non-filer or filed null sales tax returns for the period July 2008 to June 2010. Later on from July 2010 to June 2011, the unit showed huge imports of Rs 774,585,153 in one year on which it claimed input tax of Rs 161,847,886.
Further investigation revealed that the unit had shown total fake imports and claimed inadmissible input tax as these imports could not be verified from PRAL/ ITMS database. On the basis of this fake input tax, he declared sales amounting to Rs 445,543,701 and evaded sales tax amounting to Rs 77,734,689 (principal amount). On the strength of this information FIR No 05/2015 dated 20.10.2015, was lodged against the unit located at Wahdat Colony, Gujranwala, and its buyers, beneficiaries, suppliers, connivers, abettors and others.
A company of Karachi is one of the beneficiaries of M/s Al-Rehman Traders as during the periods 04/2014, 06/2014, 07/2014, 08/2014, 09/2014, 10/2014, 11/2014, 12/2014, 01/2015 & 02/2015 they have fraudulently claimed illegal/inadmissible input tax adjustment amounting to Rs 2,184,585 on the strength of fake/flying invoices of Karachi-based company which have shown their purchases from Gujranwala unit that issued fake invoices on the strength of fake imports.
In order to proceed further in the matter, notices under section 37 of the Sales Tax 1990 vide Cno 4376 dated 09.05.2016 and reminder vide CNo 42 dated 13.07.2016 were sent to Karachi based company at address of Adam Cottage, 91/3, Bahadurabad, Karachi, being one of the beneficiaries in fake transactions for production of record related to purchases made in the shape of invoices, proof of physical movement of goods, mode of payment and personal appearance to justify that their purchases were bona fide and legitimate. But Karachi based company did not respond which clearly shows that it has nothing to say in its defence.
It is clear that during the period 04/2014, 06/2014, 07/2014, 08/2014, 09/2014, 10/2014, 11/2014, 12/2014, 01/2015 & 02/2015, Karachi based company has neither purchased any goods/raw material from M/s Pak Traders Karachi not paid any inland tax on goods/raw material used for subsequently taxable supplies thus, have violated the provisions of Sections 3, 6, 7, 8, 8A, 22, 26, 37(2) & 73 of the Sales Tax Act 1990 and from them under section 8A & section 11 of the Sales Tax Act,1990 along with penalty amounting to Rs 2,534,119 under sections 3(5),33(8)33(11c)33(13),33(16) & 33(19) read with section 2(37) ibid and default surcharge (to be calculated at the time of recovery) under section 34 of the Sales Tax Act, 1990.
The reported position pertains to so-called supplies shown by a trading company of Karachi to Maco International Karachi, therefore, it will not restrict the department to proceed further in accordance with the provisions of law, if at any later stage it comes into the notice of the department that the unit had adjusted input tax against fake and flying invoices of other suppliers or in violation of section 73 of the Sales Tax Act, 1990 or committed any other offence under the law. A separate report in this regard will be issued by the directorate for recovery of said amount along with default surcharge and penalty from the registered person, the report added.