Audit seeks action against Customs officials for fraudulent act

Updated 13 Nov 2019

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Some of the accused officials have been enjoying top positions in the Customs department and have been promoted to senior grades. — AFP/File
Some of the accused officials have been enjoying top positions in the Customs department and have been promoted to senior grades. — AFP/File

LAHORE: The Internal Audit (Customs) has recommended to the Lahore Collector Customs Adjudication to issue show cause notices to three additional collectors and a few deputy collectors who had allegedly issued fraudulent consumption certificates in 1999- 2000 to an automotive parts manufacturer.

The manufacturer imported raw material to make automotive vehicle body parts under three concessionary SROs between 1997 and 2003 but fraudulently sold it in the local market in violation of the conditions of concessionary facility.

Some of the accused officials have been enjoying top positions in the Customs department and have been promoted to senior grades and again posted against important positions in the Federal Board of Revenue (FBR).

According to the letter sent by Internal Audit (Customs) Director Dr Akhtar Hussain, Al Shamsher Engineering had availed itself of duty/tax concessions of Rs222 million in five years under the concessionary SROs. He stated in his letter that it would not be possible to recover the said amount of lost taxes and duties from the company and impose fine on its owners for violating the conditions of concessionary import facility unless the FBR officials who had abetted in its fraud are not proceeded against.

Another company Makma Steel Craft set up in 1991 in Gadoon Amazai by the owners of Al Shamsher Engineering was also found earlier to be involved in similar illegal practices and was found to be misusing concessionary SROs to evade duty/taxes on import of raw materials for making agricultural inputs and automotive parts. However, this firm also used to sell the imported raw material in the market in contravention of the conditions for such imports.

The Peshawar Collectorate of Customs had caught the fraud and made a case against it.

A criminal case is already pending with an accountability court against Al Shamsher Engineering and the FBR officials with whose alleged connivance the company had committed the fraud.

The Lahore Internal Audit director made the recommendation to issue show cause notices to the officials involved in the scam after the Lahore High Court remanded back the case to Collector adjudication Lahore for fresh hearing. The Company had moved the court eight years ago against a previous decision of the Customs appellate tribunal to recover the unpaid duty/taxes and slap fine on its owners. The court remanded back the case because of the failure of Collector adjudication in 2006 to launch the same proceedings also against the Customs officials involved in the scam.

It is interesting to note that the FBR’s accused officials had looked away when the company was first found by the Lahore Collectorate to have fraudulently removed raw material worth Rs17.5 million in 1998 from its bonded warehouse in Badami Bagh. Instead of cancelling the permission given to the company to import duty/tax free 10,000 ton CRC sheets each year for five years, the officials actually helped the firm misuse the concessionary SROs till June 2003.

The firm was allowed to import duty-free raw materials in huge quantities in spite of the fact that it did not have capacity to consume it. An evaluation of its capacity in 2001 showed that it could use at the most 7,500 tons of CRC sheets which it did not use actually in a year as against 10,000 tons it was allowed to bring in under the concessionary regime. But no action was taken to stop the misuse of the facility that caused substantial losses in tax and duty revenue to the FBR.

No official action was taken even when the firm was found to have pledged the raw material to obtain a bank loan. The high court had ordered in 2002 to auction the pledged material worth Rs11 million to allow the bank to recover its loan after the company defaulted on its payments. On top of that, it was allowed to significantly exceed its import quota limit in 2001 and 2002 by 35,665kg and 299,254kg.

It was the Duty Suspension Audit Organisation that exposed the fraud in 2004, finally leading to criminal and quasi-judicial proceedings against the firm. The NAB was given the criminal inquiry of the case in 2005 but no headway was made for 10 years. At present, the case is still pending with the Accountability Court.

Published in Dawn, November 13th, 2019