FBR files FIR against Power Cement for Rs316m tax fraud

October 11, 2024 (MLN): The Federal Board of Revenue’s (FBR) Directorate of Internal Audit, Inland Revenue, Karachi, has registered a First Information Report (FIR) against Power Cement Limited on charges of tax fraud amounting to Rs316 million.

The FIR followed a detailed investigation which revealed that Power Cement Limited was involved in fake purchases from fraudulent entities during various tax periods, aimed at reducing its sales tax liability by claiming fake input tax credits, according to the document available with Mettis Link News. 

The company allegedly engaged in fake transactions with several dubious suppliers, including Al-Junaid Impex, Farhan Impex, and MSN Enterprises, none of which had legitimate business operations or physical transfer of goods.

Key findings from the investigation include:

• Power Cement Limited made paper transactions worth Rs102.9m from Al-Junaid Impex during May and September 2022, leading to a sales tax fraud of Rs17.5m.
• The company also claimed fake purchases worth Rs1.54bn from Farhan Impex between November 2022 and February 2023, resulting in sales tax fraud of Rs289.8m.
• Another fraudulent purchase of Rs53.3m was made from MSN Enterprises in June 2022, causing a sales tax loss of Rs8.9m.

These transactions, involving no actual transfer of goods, were part of a larger scheme where Trader Zone and other proxies acted as intermediaries.

The suppliers were previously named in an FIR dated August 1, 2024, for their involvement in fraudulent activities.

Moreover, the implicated suppliers failed to provide evidence of withholding tax deductions, compliance with Section 73 of the Sales Tax Act, or the physical transfer of goods.

None of the involved entities had declared any storage facilities or vehicles, which are necessary for a genuine business operation.

This tax evasion scheme has caused an estimated Rs316m loss to the national exchequer. The FBR is seeking legal action under Section 21 and Section 11 of the Sales Tax Act 1990, holding Power Cement Limited accountable for unpaid taxes and fraudulent activities.

The FBR has requested LTO-Karachi to take swift legal action and ensure that the fraudulent purchases, amounting to Rs1.64bn, are disallowed under the Income Tax Ordinance 2001.

The investigation authority also visited two declared business addresses of Al-Junaid Impex, but in both instances, other unrelated businesses were found operating, confirming that Al-Junaid Impex was never present at these locations.

Additionally, no warehouse, vehicles, or office staff linked to Al-Junaid Impex were found.

Further investigation revealed that the company was involved in generating fake invoices and claiming fraudulent input sales tax.

It was discovered that Trader Zone, a supposed supplier, was also involved in this fraudulent activity. Surprisingly, Trader Zone's owner, who passed away in January 2019, was still being used for sales tax fraud after his death, the FIR document revealed. 

M/S Trader Zone falsely reported sales of over Rs66.5bn, despite its owner's pension income being less than ten thousand rupees per month.

This shows the extent of the fraudulent activities. No money trail, physical movement of goods, or proper documentation was found to support these transactions. Both Al-Junaid Impex and Trader Zone violated various tax laws and failed to pay over Rs11.31bn in sales tax to the government.

The case remains under further scrutiny by the authorities.

Copyright Mettis Link News