''Missing Traders Fraud'' concept introduction likely

The Central Board of Revenue (CBR) is likely to introduce an international concept of "Missing Traders Fraud" in budget (2005-06) to search and hunt persons involved in fake buying and selling of goods to claim huge amount of sales tax refunds.
Official sources confirmed to Business Recorder on Friday that the CBR is seriously considering to adopt this concept presently applicable in the UK to search for the entire chain of businessmen involved in such type of frauds. Internationally, "Missing Traders Fraud" is commonly known as ''Carousel Fraud''.
Explaining the concept, the sources said that the CBR is making efforts to curb missing traders fraud. The buying and selling is not done in line with the ordinary business activity, but for claiming refund on false documents.
In certain cases, the refunds are issued on invoices of non-existent traders or fake invoices. Another type of ''Carousel Fraud'' is forensic export of goods. The goods declared are those on which refunds could be claimed, but actually other cheap items are exported instead of documented goods.
Forensic fraud is recording the transactions in the books of accounts without substance and actual transactions. In this type of fraud the transactions are patched and invoices and other accounting record is tailored in order to secure refund or benefit from the exchequer. Such documents are used in the Collectorates especially with reference to receipt and payment of certain amounts to certain parties.
Under the missing traders fraud, the transactions which gave rise to the disputed sum were in each case part of a series, or circle - a "carousel" - of transactions whose purpose was not the buying or selling of goods, but to commit fraud.
In such cases there are three concepts "specific circularity", "general circularity" and "ring fence". The organiser is called "ring master". In this type of fraud, the transaction remains within the ring fence.
Such type of frauds are (1) form part of a series whose objective is fraudulent; (2) its relevant transactions are devoid of economic substance; (3) the transactions are to be judged as a whole and innocence of wrongdoing is immaterial; (4) doctrine of legitimate expectation can be invoked to met the input tax claims; (5) principles of proportionality or of legal certainty are not offended for depriving the assessee from input tax; and (6) thus, refusal of input tax credit claim, under such circumstances, is justified.
The sources said that the Sales Tax Act, 1990 does not properly cover tax frauds in line with the international best practices. Different international laws cover a particular type of fraud like Carousel Fraud, Extrinsic Fraud, Intrinsic Fraud, Forensic Fraud and other types of frauds.