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The cases of fake and flying sales tax invoices invoking billions of rupees have been surfaced in Faisalabad after withdrawal of sales tax zero-rating facility from textile sector from July 1, 2019, sources told Business Recorder.

Directorate Intelligence & Investigation (IR), Faisalabad, has initiated tax fraud proceedings against a gang of sales tax fraudsters within the textile sector involving over 28 spinning mills and finished fabrics traders using bank accounts involving transactions of Rs 1.6 billion.

It is learnt that the first information report (FIR) has been registered against the main culprit (Naeem). The investigation reveals that a gang of fraudsters has registered five to six businesses for the purpose of income under the said name. It transpires from further investigation that the gang of fraudsters fraudulently opened and operated nine bank accounts using identity of Naeem.

In identity-related frauds in sales tax, the fraudsters use IDs, pin codes, passwords, sales tax registration numbers (STRNs), national tax numbers (NTNs) and/or computerized national identity card (CNIC) numbers of persons other than actual beneficiaries to defraud national exchequer. Examination of bank accounts and other documents revealed that Naeem was part of a gang of fraudsters involved more than twenty-eight spinning mills and finished fabrics traders using bank accounts involving Rs 1,605 million.

Investigation revealed that not a single business under the name of accused Naeem has been registered for the purpose of sales tax and therefore, the accused Naeem in connivance with other fraudsters defrauded national exchequer by evading sales tax calculated on the basis of credit entries reflected in different bank accounts. It appears that identity of Naeem is misused by gang of fraudsters mostly large companies dealing in textile sector to generate fake and flying invoices for claiming /adjusting against output tax in a bid to understate tax liability and or claim fraudulent refunds.

This tax fraud case against gang of fraudsters further strengthened when summons issued to accused Naeem returned undelivered with a report that the relevant person is not available on the given addresses. Moreover, not a single business registered under the national tax number of Naeem existed at the addresses given.

The inquiry revealed that the stated bank accounts were maintained by Naeem in collusion with the gang of fraudsters. Apparently Naeem made payments to the spinning units against purchases to the tune of Rs 1,240 million from them and supplied the same in the open market during tax period from 09/2016 to 03/2019 without getting sales tax registration and charging/paying sales tax thereon. Therefore, it is established that the fraudster companies actually made undeclared sales to Naeem and payments were made through fictitious above bank accounts. Prima facie, more than 28 spinning mills are involved in issuing /adjusting fake and flying invoices.

Given the facts, tax fraud case under section 37A read with section 2(37) of the Sales Tax Act 1990 has been registered against Naeem, business concerns, beneficiaries and others. Further investigations are underway, which are expected to lead to busting a racket involved in issuing /adjusting fake/flying invoices.

Copyright Business Recorder, 2019

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