FINDING/RECOMMENDATIONS MUSHTAQ AHMAD SUKHERA, FEDERAL TAX OMBUDSMAN.----This is an own motion investigation initiated while exercising powers conferred under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000 to investigate irregularities committed by the FBR field formations in processing and sanctioning of bogus sales tax refund during the period 2011-14 as identified by the Directorate General I&I-IR, FBR. The "Red Alerts" in such case were issued to the field formations concerned but neither any action was initiated against the fake claimants and their connivers in the Deptt, who were involved in bogus registration, processing and sanctioning of fraudulent refund and issuance of refund cheques, nor was any action proposed against the related officers/officials of bank branches concerned and PRAL management.
2. In the case of Messrs AZ Printers STRN 1700381604612 NTN 3374552-8, a Registered Person (RP), engaged in the manufacturing of pulp, paper and paperboard, investigation was conducted by the I&I-IR FBR. It was revealed that on the basis of fake and flying input from Messrs Popular Board (Pvt.) Limited the RP had claimed bogus sales tax refund for the tax period May, June, July, August and September 2012 aggregating to Rs.28.725 million. Out of the above claim, the RP had already been issued on 02.01.2013 sales tax refund amounting to Rs.7.507 million.
3. Thus, Red Alert was issued by the Directorate of 1&I-IR Karachi vide letter dated 23.01.2013 for retrieval of bogus sales tax refund already issued and concomitant necessary action against the person(s)/official(s) involved in the nefarious and unlawful activities.
4. The Deptt's sleeping over such crucial anti tax evasion exercise carried out by I&1-IR led to serious instances of maladministration on account of certain acts of omission and commission, reflecting improper motives, jeopardizing good governance and transparency in tax administration.
5. Comments of the Secretary , Revenue Division, Islamabad were sought in terms of Section 10(4) of the FTO Ordinance read with Section 9(1) of the Federal Ombudsmen Institutional Reforms Act, 2013. In response thereto, the Chief Commissioner-IR (CCIR), RTO-III, Karachi submitted parawise comments vide letter dated 15.11.2019.
It was contented that Red Alert in the instant case was issued by Directorate of I&I-IR, Karachi vide letter dated 23.01.2013. However, case record of the RP was transferred from RTO-II Karachi to RTO-III vide FBR's Jurisdiction order dated 21.07.2016. The Commissioner-IR- Zone-II of RTO-II Karachi had already suspended status of the RP for consecutive non filing of sales tax returns, vide order dated 16.03.2015. However, while transferring the RP's case record, the RTO-II Karachi did send copy of the Red Alert letter hence no further action could be taken. It was further contended that after issuance of Red Alert, no further refund was issued to, the RP status of which continued to be suspended till to date.
6. Averments of the Deptt considered and case record perused.
7. It is observed that a country-wide investigation against huge bogus sales tax refunds, issued on the basis of fake and flying invoices, was carried out by the Directorate General I&I-IR FBR. After painstaking exercise, I&I-IR unearthed number of cases, where fake RPs were registered with the connivance of the field staff. The fake RPs claimed on the basis of fake and flying vouchers, bogus refund and in most of the cases get away with fraudulent refund, causing colossal loss to already cash starved exchequer. In the case of instant RP also on the basis of investigation, Red Alert was issued by the Director I&I-IR Karachi vide letter dated 23.01.2013, pointing out various discrepancies and inconsistencies requiring the Deptt for further investigation and retrieval of bogus sales tax refund amounting to Rs.7.507 million for tax period August 2012. Unfortunately, the Deptt did not grasp gravity of the state of affairs, and except suspending status of the RP i.e. after prolonged delay of more than 2 years on 16.03.2015; no serious effort appeared to had been made for retrieving loss of revenue incurred on account of issuance of sales tax refund amounting to Rs.7.507 million. The Deptt also did not make any effort whatsoever, to unearth the culprits from within and without, who were involved in sales tax registration of the fake RP. Obviously, the registration and issuance of refund was not a simple task but required a team work, involving not only the main beneficiaries of fraudulent refund but also having connivers in the Deptt and bank officials who facilitated in opening the fake bank accounts through which refund cheques were drawn.
8. The CCIR RTO-III Karachi has tried to absolve himself from the responsibility by simply stating that Red Alert letter was not in the record received from the defunct RTO, Karachi. The studied silence on the part of the CCIR RTO-III Karachi regarding failure to retrieve huge loss of revenue and not initiating action against the culprits is also very strange. This is evidently a case of gross maladministration where, except suspending the RP that too after two years of the receipt of Red Alert, the Deptt had failed to initiate any proceedings for retrieval of bogus refund amounting to Rs.7.507 million, pertaining to tax period August 2012. The perpetrators who were involved in registering the fake RP and facilitating issuance of refund cheques were also not taken to task. Sadly, even after filing of the instant complaint, the Deptt seems disinclined to take any action in this regard. It also sounds strange that the Directorate General I&I-R FBR and its field offices, after conducting such laudable effort of detecting fraudulent activities whereby national exchequer was made to suffer colossal loss of revenue, and issued letters of Red Alerts to the field formation but did not pursue the matter to its fruition.
FINDINGS:
9. Failure of the Deptt to initiate action against the person (s)/of ficials(s) involved in registration of fake RP and retrieval of refund already issued prior to issuance of Red Alert, is tantamount to maladministration in terms of Section 2(3)(i)(d) and (ii) of the FT O Ordinance.
RECOMMENDATIONS:
10. FBR to-
(i) direct the Chief Commissioner-IR, RTO-III, Karachi to investigate and indentify the officials involved in registration of fake RP and initiate disciplinary/criminal action against those found involved;
(ii) identify the officers/officials who were involved in processing on the basis of fake and flying vouchers and issuing refund of sales tax pertaining to tax period August 2012, amounting to Rs.7.507 million and take appropriate criminal/disciplinary action against them;
(iii) initiate appropriate action including criminal proceedings leading to prosecution of RP and recovery of amount of Rs.7.507 million, swindled from public exchequer;
(iv) report compliance within 45 days.