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FTO Orders FBR to Take Action on Millat Tractors’ Alleged Tax Fraud Case

The Federal Tax Ombudsman (FTO) has issued an order in favor of the poor growers/farmers’ community of Sindh and directed the Federal Board of Revenue (FBR) to investigate the alleged tax fraud committed by M/s Millat Tractors Ltd (MTL) against the payment of inadmissible sales tax refund of Rs. 14.887 billion for tax period 2017-2022.

The FTO has issued a detailed order dated February 10, 2023, against the said company. This is the fourth consecutive order issued against the leading tractor manufacturing company.

The complainant is a senior vice president of the Sindh Chamber of Agriculture, Hyderabad and on behalf of his association has complained against the alleged illegal payment of sales tax refund in billions of rupees to M/s Millat Tractors Ltd Lahore (Respondent 1) by managing self-made documents against transactions made through black money, by using fake and flying invoices, Benami names and unrelated CNIC numbers without adhering to mandatory conditions mentioned under Sections 73 and 23 of the Sales Tax Act, 1990, which were never audited by the FBR for unknown reasons and purchase of fake/flying by claiming input tax for millions of rupees and sales to black-listed persons and illegal.

The FTO’s order revealed that bookings of tractors are made by black money investors who themselves are not shown as buyers/growers/farmers rather they are only carrying on the purchase and sale of tractors for profit/commission motive by concealing tax and tractors invoiced in the names of unrelated Benami CNIC persons who have purchased tractors without agricultural land holding and mostly used for purposes other than agriculture i.e., industry, trolleying bricks and construction material, digging of land, cleaning of garbage, etc.

According to the findings of the FTO’s order, the core issue is the allegation of tax fraud on payment of an inadmissible sales tax refund of Rs. 14.887 billion during tax periods July 2017 to June 2022 under SRO  363(I) 2012 dated 13-4-2012 and SRO 563(I)/2022 dated 29-4-2022 to M/s Millat Tractors Ltd (MTL) against transactions fake invoices, benami names, and CNIC numbers, without adhering to mandatory conditions mentioned in section 73 of Sales Tax Act 1990, depriving the benefit to poor farmers.

The allegation of “tax fraud” requires a detailed examination of claims of refund in billions of rupees by MTL defined under section 2(37) of the Sales Tax Act 1990. The term “Tax Fraud” has been defined under section 2(37) of the Sales Tax Act 1990, and the FTO’s order maintained.

The FTO has recommended the FBR direct the Chief Commissioner of Inland Revenue (IR), Large Tax Office (LTO), Lahore to probe/conduct a detailed inquiry against the said company.

In addition, the issue of benami transactions as raised by the complainant where the payment is made by black money investors and tractors are delivered to other persons, and sale invoices are issued to other dummy/fictitious unrelated persons is a tailor-made Benami Transaction cognizable under Benami (Transactions) Prohibition Act, 2017.

Such a camouflaging transaction in the garb of engineered purchases attributed to fake Buyers/growers/farmers shields the particulars of black money investors by misusing CNICs of unrelated persons and investments made and profits earned by the beneficiaries remain concealed and untaxed, the FTO’s order stated.

On the one hand, it conceals commercial transactions made by non-growers/ farmers/black money/Benami CNIC paves the way for claiming bogus Sales Tax refunds by Tractor Manufacturing companies like MTL and Others.

The FTO has recommended FBR to direct the Chief Commissioner IR, LTO, Lahore to Probe / Conduct a Detailed Inquiry in the Light of Discussions held in the FTO order, in accordance with the provisions of the Sales Tax Act 1990 read with SRO 563(I)/2022 dated 29-04-2022, 1248(I)/2020 dated 23-11-2020 and 363(I)/2012 dated 13-04-2012.

The FTO has also recommended d Director General Benami Initiative, FBR to Probe the incidence of Benami Transactions through 82 dealers by Millat Tractors Limited not only in the case of MTL but also other leading tractor manufacturing units. Such glaring instances of omission and commission on the part of the department reflecting “neglect, inattention, inefficiency, and ineptitude, in the administration or discharge of duties and responsibilities” are clearly tantamount to maladministration in terms of section 2(3)(ii) of FTO Ordinance, 2000, the FTO’s order added.

MTL Response

The tractor-maker responded by saying that followed all rules. In a statement to the bourse, it said: “Millat Tractors Limited fully abides by all applicable laws of the country in its dealings. Sales Tax refunds for tractor manufacturers were governed by SRO 363(1) 2012 till 28-04-2022. On issuance of SRO 563(1) /2022 dated 29-04-2022 certain conditions for refunds were incorporated and given retrospective effect. MTL has already challenged the retrospective applicability of the SRO 563 (1)/2022 in the Lahore High Court and Commissioner Appeals. LTU. Lahore. The Company shall file an appeal against the order of FTO with the President of Pakistan”.

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