The Directorate of Intelligence & Investigation Inland Revenue (IR), Lahore has unearthed a gang of fraudsters involved in the registration of dummy business companies under the Sales Tax Act, 1990 to conduct fictitious transactions within the supply chain of fake and flying sales tax invoices to evade sales tax worth billions of rupees.
In this connection, the directorate submitted a detailed report to the Federal Board of Revenue (FBR) on Friday.
During investigation under section 38 of the Sales Tax Act, 1990, as per Annexure-A for the tax period November 2022, a dummy registered unit claimed input tax of Rs. 8.5 billion on account of the purchase of horses, asses, mules, and hinnies live (HS Code: 0101) at a purchase value of Rs. 50 billion against an invoice issued by another dummy unit, which filed only Annexure-C of the sales tax return but did not file a sales tax return for the said tax period.
This is done through hoodwinking the STRIVE software of the Federal Board of Revenue. As per STRIVE, the taxpayer can claim input tax in Annex-A of the Sales Tax Return against an invoice if the said invoice and tax are duly declared by the supplier in annexure C which is actually filed prior to the filing of the Sales Tax Return as the due date for filing of Annexure-C is 10th of the month succeeding the tax period to which it pertains whereas due date for filing of sales tax return is 18th of the month succeeding the tax period to which it pertains.
This act of tax fraud has resulted in the introduction of a fake sales tax input of Rs. 8.5 billion in the system without ever being actually paid which has been subsequently transferred to various dummy and genuine registered businesses operating mainly in the ghee and packaging material manufacturing sector who have adjusted such fake input tax against output tax to defraud national exchequer by reducing sales tax liability.
The fraudsters utilized many other dummy units for layering and creating complexity in the supply chain to avoid detection of fraudulent activity and for parking the fake input tax for issuing fake and flying invoices in the future.
From the perusal of the pattern of tax fraud and inter-linkages preliminary inquiry on the basis of personal profiles, sales tax registration, sales tax returns, and IP addresses, it is found Abbas Nawab s/o Nawab Khan along with other accomplices knowingly, dishonestly, and fraudulently and without any lawful excuse has committed tax fraud and also abetted and caused others to commit tax fraud in terms of section 2(37) of Sales Tax Act, 1990 by way of operating a gang of fraudsters involved in registering and operating dummy sales tax registered persons and by way of creating fake input sales tax and issuing fake and flying invoices in violation of section 3, 6, 7, 8, 8A, 14, 22, 23, 26 and 73 and other relevant provisions of the Sales Tax Act, 1990.
Therefore, Directorate I&I-IR Lahore lodged FIR against accused Abbas Nawab involved in the scam who has been arrested. Another suspect, who was in contact with the arrested accused whose identity card was used by the main suspect to register a dummy unit and involved in the supply chain of fake invoices in the instant crime of claiming bogus tax credit was also arrested. Later on, the third accused was arrested. All the suspects were produced in the court of the special judge (Custom & Taxation), Lahore on Friday, and three-day remand was obtained. The timely action by the Directorate of Intelligence and Investigation (IR) Lahore has prevented further disbursement and utilization of fake input tax.