ISLAMABAD: A gang of fraudsters who are believed to have issued invoices in the name of bogus companies to claim more than Rs1 billion in input tax adjustments from the sales tax department has been busted in Karachi.

An official told Dawn that the main accused and mastermind of the gang, Jawed Anwer Khan, son of Shamsuddin Khan, had been arrested by the Intelligence and Investigation Department of Inland Revenue, Karachi. He was involved in issuing fake and flying invoices of sales tax.

The invoices were issued by bogus companies which claimed refunds from the sales tax department without having paid a single penny for raw materials. Flying invoices are used by registered taxpayers to claim undue refunds from the tax department by showing excessive use of raw materials.

Take a look: Billions lost in bogus sales tax refunds

Bogus firms claimed refunds from sales tax department without paying a single penny for raw materials

According to the official, Arshad Ali Khan, another accused, was arrested in January in the same case. He was fraudulently running M/s Kotila Corporation claiming to be its proprietor. The Customs Court’s special judge remanded him in police custody for 14 days.

During investigation, Arshad denied having claimed the ownership of Kotila Corporation but accepted that he had opened a bank account in the name of the corporation on the instructions of Jawed Anwar Khan.

“This is a major success. More arrests are expected in the case,” the official said.

The practice of issuing fake and flying sales tax invoice claims has been rampant for several years. It causes losses of billions of rupees to the exchequer every month.

According to an interim challan, a copy of which is available with Dawn, accused Tousif Ahmad, son of Zamiruddin, and Rashid Ali Khan, son of Sher Ali Khan, are absconding, while Jawed Anwer and Arshad Ali are in custody. An FIR in the case was registered in January.

The investigation into the scam was initiated on information provided by the Directorate of Intelligence and Investi­gation of Inland Revenue, Islamabad.

Kotila Corporation was engaged in producing and issuing fake sales tax invoices to several registered persons who are gaining the benefit of millions of rupees.

The investigators found that the original proprietor of Kotila Corporation, Mohammad Noor Mohammad, had expired in Feb 2007 and the tax department had been intimated, along with death certificate, about cancellation of sales tax registration of the firm. No business activity was carried out by the firm after his death and no such documents were available from July 2008 onwards.

But the accused had been filing sales tax returns in the name of Kotila Corporation from July 2011 onwards by using their e-filing user ID and passwords from unspecified premises and generating fake input tax credit through such invoices.

The investigation revealed that invoices had been issued to known business concerns. Thirty-four cheques for Rs86.077 million were issued to a Lahore-based firm alone.

A cartel of 12 units was found generating and issuing fake/flying sales tax inv­oices to several registered persons and claiming illegal/inadmissible input tax. Most of them are suppliers as well as buyers of each other. Moreover, they claimed most of the input tax in their monthly sales tax returns from their 23 blacklisted, suspended and non-active units.

These units adjusted input tax from suspended and blacklisted units and also claimed fake input tax which was not declared by suppliers in their monthly sales tax returns. Similarly, these units made supplies on papers to 18 blacklisted and suspended units.

Published in Dawn, March 20th, 2015

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