The Federal Board of Revenue’s (FBR) Directorate of Internal Audit, Inland Revenue, Karachi, has filed a First Information Report (FIR) against Power Cement Limited, accusing the company of tax fraud amounting to Rs316 million. The allegations center around fake purchase transactions from fraudulent entities, which were used to illegitimately claim input tax credits and reduce the company’s sales tax liabilities.
According to the FIR, Power Cement Limited engaged in fabricated transactions with several dubious suppliers, including Al-Junaid Impex, Farhan Impex, and MSN Enterprises, none of which were found to have legitimate business operations or physical transfers of goods. The detailed investigation, as reported by Mettis Link News, highlights significant discrepancies in the company’s tax filings across multiple tax periods.
The investigation uncovered multiple instances of fake transactions aimed at reducing sales tax liabilities. Notable findings include:
- Al-Junaid Impex: Power Cement made paper transactions worth Rs102.9 million between May and September 2022, resulting in a sales tax fraud of Rs17.5 million.
- Farhan Impex: The company claimed fake purchases totaling Rs1.54 billion between November 2022 and February 2023, leading to a sales tax loss of Rs289.8 million.
- MSN Enterprises: A fraudulent purchase worth Rs53.3 million in June 2022 caused a sales tax fraud of Rs8.9 million.
These transactions were part of a broader scheme involving intermediaries like Trader Zone, where no physical transfer of goods occurred. The investigation revealed that these suppliers did not provide any evidence of withholding tax deductions, compliance with Section 73 of the Sales Tax Act, or the physical movement of goods.
Further scrutiny of the suppliers involved showed that they lacked the basic infrastructure needed for legitimate business operations, such as storage facilities or transportation vehicles. Investigators visited two declared addresses of Al-Junaid Impex, but both locations were occupied by unrelated businesses, confirming the entity’s non-existence.
Additionally, M/S Trader Zone, one of the fraudulent suppliers, continued to generate fake invoices despite its owner passing away in January 2019. The company’s sales tax records falsely reported sales of over Rs66.5 billion, although the owner’s personal pension income was less than ten thousand rupees per month. The fraudulent activities of Trader Zone, along with other proxies, resulted in a significant loss to the national exchequer, with the suppliers failing to pay Rs11.31 billion in sales tax.
Legal Actions and Implications
The FBR is now seeking legal action against Power Cement Limited under Section 21 and Section 11 of the Sales Tax Act 1990, holding the company accountable for unpaid taxes and fraudulent activities. The Large Taxpayers Office (LTO) Karachi has been urged to disallow the Rs1.64 billion in fake purchases claimed by the company under the Income Tax Ordinance 2001.
The case is still under investigation, with authorities expected to take further legal steps to recover the lost revenue and address the fraudulent practices. This development marks a significant step in the FBR’s ongoing efforts to clamp down on tax evasion and safeguard the country’s financial integrity.
The full extent of the fraudulent activities and potential repercussions for Power Cement Limited remain under further scrutiny.
