ISLAMABAD: Amid hype over revenue flowing out of amnesty schemes, tax authorities appear locked in internal disputes over interpretation of tax laws, risking over Rs22 billion in a single case of Gwadar port because of delaying legal proceedings.

Sources told Dawn that the top management at the Federal Board of Revenue (FBR) was recently presented with challenges in around 11 cases in which field offices did not collect customs duty in the first place and then followed lengthy route of internal debates.

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The FBR chairman and members were asked by the director general customs audit to intervene and secure due taxes. The sources said it appeared the customs authorities at Gwadar had previously engaged the FBR top management for a clarification in a manner that could bury the matter, instead of adopting a legal course of adjudication.

11 pending audit cases involve a revenue loss of Rs27.3bn

At a recent meeting, the director general customs audit made a complaint against the imminent revenue loss and desired a push on certain unwilling collectors into action in 11 long pending audit cases involving revenue loss of Rs27.3 billion. The FBR, however, encouraged the collectors to pursue its clarifications in big revenue loss cases instead of directing them to submit these cases to FBR’s adjudication courts.

After the meeting, the FBR issued two types of instructions to nine customs collectors which could further delay legal proceedings against big tax evaders who had already enjoyed inaction for years after detection of duty/tax evaded by them, minutes of the meeting showed.

In the first set of instructions, the FBR has directed the Collectors of Model Customs Collectorate Gwadar, MCC (Appraisement) Lahore, MCC (Preventive) Lahore and MCC Peshawar to pursue their respective clarifications with the FBR in four cases involving duty/tax evasion of Rs22.55bn.

Just one among these four cases involved sales tax evasion of Rs22bn. Customs authorities of Gwadar had opposed recovering the sales tax of Rs22bn levied vide SRO 1486(I)/2012, on the remeltable iron/steel scrap they had not collected in the first place between December 2012 and May 2016.

They argued that the SRO levied sales tax on remeltable iron/steel scrap imported as such and not on the remeltable iron/steel scrap imported in the form of ships and recovered from ship-breaking. The meeting was told by the auditors that this argument had the effect of an admission that the SRO was discriminatory and, therefore, unconstitutional.

This could prompt the importers who have paid sales tax worth hundreds of billions of Rupees on remeltable iron/steel scrap imported as such during the period from December 2012 to May 2016 to file refund applications claiming that this sales tax had been collected from them under an admittedly discriminatory and unconstitutional law.

In the second set of instructions, the FBR directed the Collectors of Model Customs Collectorate Appraisement (West) Karachi, MCC Port Qasim Karachi, MCC Peshawar, MCC Faisalabad, MCC Appraisement (East) Karachi and MCC Islamabad to verify/ econcile the audit’s stated position with the director general customs audit.

In these seven cases involving revenue loss of Rs4.745bn, collectors’ protracted inaction and their reluctance and failure to submit the cases to FBR’s adjudication courts for legal proceedings had brought the cases to FBR’s notice for intervention.

Surprisingly, instead of asking the collectors to immediately submit these cases to adjudication courts and to recover the lost taxes, the FBR has directed the collectors to adopt a course which circumvents the legal course of adjudication provided for such cases in the customs law. The FBR has directed the collectors to verify/reconcile these cases with the director general, a process which the collectors concerned have already employed for years to delay legal proceedings against tax evaders.

The collectors’ motivation to seek FBR’s clarifications in big revenue loss cases instead of submitting such cases to customs adjudication courts in accordance with the customs law stemmed from FBR’s own practice in such cases. The following two cases illustrate FBR’s practice.

In a gold jewellery export case detected in the jurisdiction of Model Customs Collectorate (Preventive), Lahore, and involving revenue/penalty loss of Rs34bn, the FBR obtained a clarification from the ministry of law on collector’s instance which the customs officials concerned were now using to bury the case and to justify their three years’ long inaction to impose and recover a penalty of Rs34bn under Section 156(1)(9) of the Customs Act.

In an earlier case of 2012 and again in a clarification on the point of jurisdiction, the FBR transferred the adjudication proceedings from Lahore where a container of polyester fabrics was seized to Faisalabad from where the container had been cleared under GD No. 365 as cotton fabrics causing duty and tax loss of Rs958,800.

The adjudication officer at Faisalabad released the goods ignoring the established and major offence of mis-declaration in the case saving the importer from payment of 35pc mandatory penalty or redemption fine thus causing a further loss of Rs3.2 million to the national exchequer.

Published in Dawn, July 2nd, 2018