‘Fake’ purchase of coal by cement makers: Abrupt transfer of officers halts probe into Rs11bn tax fraud

KARACHI: The Federal Board of Revenue (FBR) has reportedly halted investigations into an alleged Rs11 billion tax fraud case involving a prominent cement manufacturer, following the transfer of key investigating officers from the Internal Audit department.

The investigation, which had recently expanded to include three more cement companies, abruptly stopped after the FBR transferred all officers involved in the case to different cities, according to sources familiar with the matter.

The case initially gained momentum when investigators claimed to have recovered Rs1 billion from the primary accused cement company under investigation. This success prompted the Directorate of Internal Audit to broaden its scope, requesting the Large Taxpayers Office (LTO) Karachi to initiate an audit of three more cement manufacturers.

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The alleged fraud involved a sophisticated scheme where companies claimed input tax adjustments based on fake coal purchase invoices. The investigation revealed a complex chain of fraudulent transactions among 12 companies, all of which were previously blacklisted by various Regional Tax Offices (RTOs) across Pakistan.

Moreover, the documents said that they exploited the “active” status on FBR’s portal to lend credibility to their operations and used “withholding adjustments” and “fake credit notes” to generate fraudulent input tax claims.

Since December 26, 2023, the cement manufacturers have been given multiple opportunities to provide documentation supporting their claims, including purchase invoices, weight receipts, delivery challans, and bank payment proofs. However, they have failed to produce the required evidence, particularly documentation showing the utilisation of imported coal in their manufacturing process.

The case violates Section 73 of the Sales Tax Act, of 1990, which mandates all payments to be made through proper banking channels. Despite the serious nature of these allegations and initial progress in the investigation, sources confirm that the case has reportedly been shelved without any official explanation.

The sudden transfer of investigating officers and suspension of the probe has raised questions about the transparency of the investigation process and the influence of powerful industry players in regulatory matters.

Copyright Business Recorder, 2024