Federal Tax Ombudsman (FTO) Friday urged upon the Federal Board of Revenue (FBR) to overcome the huge revenue shortfall in 2022-23 by easily recovering evaded sales tax of Rs. 5.5 billion from steel melters/re-rollers, which obtained illegal exclusion certificates.
The FTO while concluding an inspection activity under Section 17 of FTO Ordinance, 2000 has recommended a feasible and conclusive way out to the FBR for affecting recoveries of evaded government revenue by way of misusing Rule 3(A) of Rule 58H of Sales Tax Special Procedure Rule,2007.
FTO has further observed that FBR facing a huge revenue shortfall, through timely and directional action can easily recover the loss as it doesn’t involve any complex and intricate legalities. The strategy to recover the lost revenue, recommended by the FTO office is equally
simple, FBR-driven, and hassle-free:
All Steel Units which availed Exclusion Certificate need to be confronted by FBR and amounts as per ECs must reconcile with the payment of Sales Tax at the relevant point of time and where ever there is a difference, it needs to be recovered, FTO added.
Briefly speaking, in order to facilitate Steel Sector, Special Procedure Rules were introduced in 2007. According to the above referred Special Procedure Rules, collection of Sales Tax from steel melters/ re-rollers/ composite of melters and re-rollers having single electricity meter was charged at specified rates under Rule 58H of Sales Tax Special Procedure Rule, 2007.
The above-levied sales tax was collected through monthly electricity bills on the basis of the consumption of electricity. However, subsequently, in the year 2014, sub-Rule (3A) was inserted under Rule 58H of the above said Rules, with effect from 04.06.2014.
The purpose behind the above insertion of sub-Rule (3A) was primarily to bring ease and convenience in Sales Tax collection from this sector i.e. steel melters. As a corollary to the above, the commissioners were empowered to collect Sales Tax directly from the steel melters and re-rollers after according to necessary adjustments in lieu of collection of sales tax at the import stage and by issuing an
adjustment/ exclusion certificate in this regard.
However, during the currency of the above facilitation scheme, the following glaring discrepancies were noticed first by DG External Audit, then by PAC, and finally by FTO Secretariat. In this external troika FTOs investigation findings, highlighting the misuse of authority in the issuance of exclusion certificates were distinctively clearer & conclusive:
- Issuance of exclusion certificates against cheque/ pay order instead of payment in treasury/ to the national exchequer.
- Returning of pay orders with illicit motives, to registered persons after issuance of exclusion certificates.
- Pay orders of one party were used in favor of the STRN of another party.
- Outright violation of concessionary regime i.e. Issuance of exclusion certificates to unregistered persons.
- Use of pay orders for deposition in treasury for a later period of a registered person.
- Inaction in cases of bounced back cheques.
The inspection team Constituted by FTO made strenuous efforts and examined voluminous data provided by Corporate Tax Office, Lahore. For cross check the team also retrieved the relevant data from Lahore Electrical Supply Corporation (LESCO).
According to FTO’s findings in the subject inspection, there is a huge gap between the number of exclusion certificates issued as per LESCO data and that of the CTO, Lahore.
Furthermore, CTO Lahore did not have information regarding amounts deposited in the treasury and corresponding CPR numbers, which are of crucial importance. Also, the non-production of records in respect of remaining exclusion certificates clearly depicts that the same fall in the extremely grey area where instances of maladministration, misuse of authority, and ulterior motives are likely to prevail.
According to FTO findings, based on examination of relevant records an amount of approximately Rs. 5.5 billion is suspected to be evaded in such cases at CTO Lahore.
All Steel Units which availed the Exclusion Certificate need to be confronted by FBR and amounts as per ECs must reconcile with the payment of Sales Tax at the relevant point of time and where ever there is a difference, it needs to be recovered.
Further, in order to ensure a fast recovery of this apparent loss of Rs. 5.5 billion, FTO has recommended FBR relocate the jurisdiction of Steel Cases from CTO Lahore to LTO Lahore or RTO Lahore for more independent and effective recovery proceedings. Similarly, any officers/officials having any link in the past, with the cases of steel melters must not be associated or assigned the fresh jurisdiction of said cases.
FTO has also recommended FBR recover the loss incurred on a priority basis through its investigation arm: Directorate General I&I-IR. Internal investigation on a Pakistan basis, with special emphasis at Lahore, solely aiming at the recovery of loss incurred is required to probe all cases of exclusion certificates.
