Directorate General of Intelligence and Investigation (I&I) Inland Revenue (IR) has unearthed a purported sales tax evasion of Rs 187.160 million by a housing society of Lahore, which was involved in supply of electricity to its residential and commercial consumers without registration with the sales tax department.
Sources told Business Recorder here on Wednesday that the Federal Board of Revenue's (FBR) intelligence agency has detected this unique kind of tax evasion by a housing society of Lahore. Huge amount of sales tax is involved in one case of this housing society. The similar nature of cases in other cities may expand the scope of the investigation by the Directorate General of I&I IR. The agency has carried out a detailed investigation in the case leading to the detection of massive sales tax evasion by the said housing society of Lahore.
Details of the case revealed that on the basis of information collected by the agency about massive sales tax evasion, tax affairs of the said housing society were investigated. The inquiry revealed that the taxpayer was involved in transmission, distribution and supply of electric power to its residential as well as commercial consumers. The taxpayer was, therefore, liable to pay sales tax, extra sales tax and further tax under section (u/s) 3 of the Sales Tax Act, 1990 read with SRO 509(1)/2013 dated 12.06.2013.
On the other hand, the society had not even got itself registered u/s 14 of the Sales Tax Act. However, for the period from September 2011 to June 2015 the taxpayer was liable to charge and pay sales tax amounting to Rs 187.160 million but it failed to discharge its liability.
Thus, the Co-operative Housing Society Lahore is liable to pay the aforesaid amount of sales tax. Accordingly contravention report has been sent to Chief Commissioner, Corporate Regional Tax Office Lahore, for adjudication and retrieval of loss of revenue amounting to Rs 187.160 million along with default surcharge and penalty. The contravention report of the tax department said that credible information was received that the said Cooperative Housing Society Lahore is involved in massive evasion of sales tax by way or non-payment of sales tax on generation, production, transmission, distribution and supply of electric power to residential and commercial users.
Under Chapter-III of Special Procedure Rules 2007, every person who generated, produced, transmitted and supplied electric power by electricity generation, transmission and distribution companies licensed under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, including their distributors, dealers and agents, or by any other person dealing in importation, generation, production, transmission, distribution and supply of electric power shall charge and collect sales tax at the rate specified in sub-section (1) of section 3 of the Act for collection and payment of sales tax on electric power. Moreover, such person is liable to be registered in terms of section 14 of the Sales Tax Act, 1990 read with Chapter 1 of Sales Tax Rules, 2016.
Since, this Cooperative Housing Society found involved in tax evasion by making taxable supplies to its users without obtaining sales tax registration number (STRN) and by non-payment of sales tax on taxable supplies by way of generation, production, transmission, distribution and supply of electric power, therefore, permission to conduct investigation into the matter in terms of section 38 read with first proviso to section 25(2) of the Sales Tax Act, 1990 (the Act), was sought from the competent authority.
During the course of investigation, it was observed that the housing society is registered with office of the Registrar Co-operatives Punjab, Lahore, and falls in the definition of "company" under section 2(5AA) (e) and falls in the definition of "person" under section 2(21) (b) of the Sales Tax Act, 1990.
The Co-operative Housing Society is also a "manufacturer" as defined in section 2(17) of the said Act, and is also engaged in making of "taxable supplies" chargeable to sales tax under section 3 of the Sales Tax Act, 1990 read with Chapter III of Special Procedure Rules 2007. Furthermore, it is making taxable supplies without getting registered itself under section 14 of the Sales Tax Act, 1990 read with Rule 3 to 5 of Sales Tax Rules, 2006 which falls in the ambit of the definition of tax fraud under section 2(37) of the Sales Tax Act, 1990. The Co-operative Housing Society Limited is liable to be registered within the meaning of section 2(25) of the Sales Tax Act, 1990 read with Rules (4) and (5) of Chapter I of SRO 555(1)/2006 dated 5.6.2006.
The report said that scrutiny of record provided by the society revealed that during the period from September 2011 to June 2015 the said unit had sold electricity to domestic as well as commercial users and had failed to charge, levy and pay sales tax amounting to Rs 140,895,030 in terms of section 3 of the Sales Tax Act, 1990 read with Chapter III of "Special Procedures Rules, 2007 issued vide SRO 480(I)/2007 for collection and payment of sales tax on electric power, Rule 13(2)(b) levy and collection of Sales Tax which is reproduce as under:
In case generation, transmission, distribution and supply of electric power by a public sector project like WAPDA, a private sector project including an IPP, a captive power unit or any other person, the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electric power including all charges, surcharges excluding the amount of late payment surcharge, rents, commissions and all duties and taxes whether local, provincial or federal, but excluding the amount of sales tax, as provided in clause (46) of section 2 of the Act, the report added.