Light sentences in mega scams: I&I DG's lenient view surprises FTO

Federal Tax Ombudsman (FTO) Dr Muhammad Shoaib Suddle has expressed surprise over the lenient view taken by the Directorate of Investigation and Intelligence Federal Board of Revenue (FBR) for not filing an appeal against the light sentences awarded to masterminds of mega scam of illegal sales tax adjustment.
In an order issued here on Wednesday, the FTO expressed serious concern over light sentences given by the Special Judge Customs to masterminds of the scam involved in illegal input tax adjustments. This is a first of its kind of case where the FTO has found that the Special Judge Customs have given light sentences to masterminds of mega scam and the concerned agency has ignored to file appeal against the light sentences given to the criminals.
While deciding a case no. 999/2011 in favour of Muhammad Yasin Butt of M Y Packages Gujranwala represented by tax lawyer of Lahore Waheed Shahzad Butt of Tax Resolution Services Company, the FTO observed that the culprits in this scheme have been able to get away with very light sentences considering the extent of their crime that involved an estimated Rs 230 million loss to the exchequer, which is indicative of the conspiracy between the perpetrators of serious financial crimes and their silent patrons within the ranks and files of FBR. The Directorate of Intelligence and Investigation even failed to appeal against the light sentences awarded in the case by the Special Judge Customs. One would expect the Directorate of Intelligence and Investigation to be zealously committed to bringing the perpetrators of such heinous crimes to book.
The FTO has directed the FBR to launch an investigation into the circumstances that why the officials of the Directorate of Investigation and Intelligence did not file an appeal against the apparently light sentences awarded to those who seemingly masterminded the scam.
Details of the case revealed that the complaint was filed against alleged arbitrary demand for payment of sales tax amounting to Rs 897,417/-, issuance of illegal Order in Original (O-I-O) and collusion and connivance of FBR/PRAL officials with outside rogue elements in issuance of fake sales tax invoices.
On merits, the department contends that the Directorate of Intelligence and Investigation after a detailed investigation in the matter had found that the Complainant claimed illegal input tax credit on the strength of fake sales tax invoices. When confronted, the complainant agreed on his own violation to deposit the amount involved into government account. A show cause notice was issued, and O-I-O passed on 29.07.2011 to levy penalty. The Dept, though sceptical of the Complainant's claim to a clean record in the past, was of the opinion that a clean past record was no guarantee for the future. The Dept insisted that the Complainant deposited the amount of Rs 897,417/- as he had colluded with the rogue elements and he know that serious consequences would follow if he failed to make good the loss to Government exchequer.
The complainant deposited the amount of Rs 897,417/- through four CPRs in the amount of Rs 160,133/-, Rs 272,183, Rs 90,005/- and Rs 375,096/-. There was no formal order in the field when he deposited the amounts. Prior authorisation, according to law, is a condition precedent for Government to hold amounts deposited by taxpayers. In the present case, as the complainant had not been subjected to any audit and no adjudication order was passed, the retention of the amount deposited by him in Government exchequer was illegal and warranted a refund in case there was no legal order in the field at the time of recovery.
The FTO observed that the sophistication of the scam is evident from the fact that but for the insider information, the racket may not have been exposed at all. The available evidence does not show that the informant or any other person ever identified the complainant directly as a member of the racket. The fact that the complainant was a one-time user of fake sales tax invoices was the main reason that the Dept believed that he was an integral part of the elaborate plan to defraud the revenue. Significantly, though the Dept retained his last five years sales tax documentation for more than a year and subjected it to rigorous scrutiny it was unable to detect any discrepancy therein. And as soon as he came to know that fake invoices had been unwittingly used by him, the Complainant immediately deposited the amount involved. The Dept says that he did so because he had a guilty mind. However the fact that he wrote on the CPR that the payment was being made under protest and wanted it to be returned to him as soon as recovery was made from the persons who had masterminded the racket would appear to exonerate rather than convict the Complainant. A person depositing the amount out of fear could not reasonably be expected to demand its return back to him in the event of recovery of the amount from the real perpetrators of the criminal scheme.
Coming to the Complainant's allegation of complicity of the Departmental and the PRAL officials with the racketeers, the ambient circumstances are certainly indicative of a nexus between them. Otherwise, M/s Waqar Ali Chaudhry, Imran Qamar, Furqan Ahmad Rind and their companions could not possibly have got hold of the User IDs, Passwords and Pin Codes. Nor would they have been able to set up 39 registered persons' profiles to put the scheme into operation. No meaningful investigation has been carried out so far to unmask the Pral's role, if any, in this nefarious scheme to defraud the revenue.
So far as the O-I-O regarding levy of 100% penalty and default surcharge, the Dept was unable to establish mens rea and wilful involvement of the Complainant in the scheme, which is a condition precedent to levy of 100% penalty.
According to the findings of the FTO, The action of the Department to recover sales tax from the Complainant without passing any legal order and thereafter charging 100% penalty without proving his involvement in the tax fraud scheme is tantamount to maladministration in terms of Section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.
The FTO has recommended that the FBR to direct the Chief Commissioner to refund the amount deposited by Complainant, under protest, as there was no legal order in the field at the relevant time. The FTO has further directed the Commissioner to cancel the Order-in-Original and conduct an enquiry to identify if any Pral officials were involved in the scheme and to proceed against the defaulters, as per law.