Regional Tax Office (RTO) Rawalpindi has unearthed a major case of tax evasion of Rs 4.1billion committed by a leading cosmetic manufacture, but the RTO and the company reportedly reached an agreement to pay only Rs 100 million and that too in installments spanning over a period of seventy months. According to the sources, the recoverable amount of Rs 4.1billion seemed to be reduced to Rs 100 million under the alleged agreement. The question arises whether the regional office has taken due approval of the proposed agreement from the FBR and whether tax liability of the unit could be drastically reduced under any provisions of the Sales Tax Act or Federal Excise Act and Income Tax Ordinance under an agreement between the department and the involved taxpayer. Moreover, whether such agreements are permissible under the law to reduce the tax liability and pay remaining amount in installments. In the presence of alternative dispute resolution committees (ADRCs), what is the legal status of such agreements between the department and the taxpayer?
Another question is whether the FBR has legal powers to give go ahead to any such kind of agreements to reduce recoverable amount of tax to be signed between the regional offices and the taxpayers in question? If such kind of arrangements are also taking place within the jurisdiction of other RTOs, whether reduction in tax liabilities through a mutually agreed arrangement between the regional field officers and taxpayers are legal and valid under the applicable tax laws, they added.
The registered person was confronted with Sales Tax and Income Tax figures recoverable from cosmetic company of Satellite Town, Rawalpindi on the verbal directions of authorities in RTO, Rawalpindi. Following has been agreed between the RTO, Rawalpindi and the registered person:
Under the proposed arrangement, the total figure of Rs 100 (million) is to be paid by the registered person out of which Rs 30 million will be paid through CPR against the recoverable sales tax, default surcharge and penalties in showcase notice C. No.788 dated June 5, 2017 on August 21, 2017. As per agreed agreement, the rest of Rs 70 million shall be paid in the monthly installments of Rs 1 million each through post-dated cheques submitted to the II&P Cell, RTO, Rawalpindi on 21.8.2017. The department has to settle the remaining dues of Rs 40 million as Sales tax and Rs 30 million against the recoverable amount of income tax and withholding tax. Soon after payment of Rs 30 million the original record impounded by the department will be returned to the registered person on the same day. The registered person shall provide 70 post-dated cheques for the remaining recoverable amount to the incharge II&P Cell, RTO, Rawalpindi. In case of dishonour of any cheque by due date of 10th of each month, this agreement shall stand terminated, proposed agreement said.
Interestingly the agreement does not mention any provision of law under which has been signed. Details of the case reveal that the cosmetics company of Satellite Town, Rawalpindi was compulsorily registered on 07.01.2015. As per information, the registered person is a manufacturer of cosmetics items of famous brand and sells its products throughout Pakistan. The registered person neither declared the sales taxable activities nor deposited any sales tax, examination of the tax profile shows that despite Sales Tax registration the registered person has not field any sales tax return.
Keeping in view the mentioned facts detailed audit in r/o of the mentioned registered person was initiated under Section 25 read with Section 38 of the Sales Tax Act, 1990 for the period July 2014 to April, 2017. Despite issuance and proper service of statutory notices, the r/person kept on using the delaying tactics and did not provide the required record for sales tax audit.
On the basis of available information and declaration of sales, in the Income Tax Returns filed for Financial Year 2013-14, 2014-15 and 2015-16 a show cause notice was issued. Following the Showcase notice three notices according opportunity of being heard were issued to the registered person through notice server. The said notices were property served however, the registered person failed to provide the requested record.
In the meanwhile discreet market survey and local enquires were conducted which revealed that the products of the sales tax registered person are available in most of the leading retail stores across Pakistan. The advertisement aired /telecast on national media regarding the product of registered person was also a proof to this effect.
Keeping in view the facts there was a strong reason to believe that the registered person is involved in suppression of important facts / sales / purchases pertaining to its business. Therefore in this connection the team of II&P (HQs) raided the business premises of the registered person under section 38 read with section 40 of Sales Tax Act 1990 on 08.8.2017. During this action under section 38 of Sales Tax Act relevant record was impounded and contravention report prepared.
The contravention report consists of 07 pages along with the list of 16 bank accounts. As per contravention report the escaped amount of sales is Rs 4.1 billion. The data both soft and hard was also retrieved from the sales ledger. Sources added that despite submission of incident report to FBR, contravention report has not been furnished to the Board. The Board has also not called the contravention report nor asked for any progress report on incident report. Against a huge tax demand of around Rs 4 billion, an agreement for small amount of Rs 100 million reached out of which only Rs 30 million has been deposited which is less than one percent of total tax. Such agreements promoting culture of tax evasion have also raised questions on the legitimacy of such agreement. The legality of such agreements should be checked by the FBR concerned Members.