Sources told Business Recorder here on Friday that the Directorate General of Intelligence and Investigation IR Karachi has investigated the matter in detail. The viewpoint of the Directorate General of Intelligence and Investigation IR Karachi has been confirmed by the order of LTU Lahore.
While conducting an investigation into the issue of sharing Good Declarations (GDs) in petroleum sector, it was observed that two oil marketing companies have imported motor spirit (petrol) for themselves as well as on behalf of other OMCs. In this connection an inquiry has been conducted and after a cumbersome exercise, 156 GDs have been identified by Directorate of Intelligence & Investigation Inland Revenue Karachi which are in the name of the said two petroleum companies but not claimed by any of the OMCs. A confirmation was obtained from these two OMCs and it was found that GDs pertain to a third petroleum company. A contravention report was forwarded by the directorate I&I IR to LTU Lahore for adjudication on point of jurisdiction.
The matter has been adjudicated in LTU Lahore and para-wise comments have been provided by Directorate of Intelligence and Investigation Inland Revenue (IR) Karachi to the council of the registered person in the case. After 10 to 11 hearings an order No 12-ST/2016-17, dated 07-02-2017, has been passed wherein it has been established that the charges framed are correct and adjudicating authority has ordered to recover the whole principal tax of Rs 353,485,825 along with default surcharge (to be calculated at the time of payment) and penalty of Rs 17,674,291 and 353,485,825 aggregating to Rs 724,645,941 excluding default surcharge, Directorate of Intelligence and Investigation Inland Revenue (IR) Karachi added.
The assessment order of LTU Lahore revealed that Directorate of Intelligence & Investigation has issued a contravention report. On the basis of the report the registered person (RP) was issued a show cause. The notice revealed that it has been reported by the Directorate of Intelligence & Investigation (Inland Revenue), Karachi that the said OMC of Lahore has not paid output tax (sales tax) on the value addition of the imported oil.
Directorate of Intelligence & Investigation (IR) Karachi investigated the matter that two OMCs have imported motor spirit (petrol) for themselves as well as on behalf of other OMCs. It is the normal practice in petroleum sector that the GDs are in the name of another OMC, but claimed by the concerned OMC on self NTN (local purchase) of their sales tax returns.
The sales tax returns of two OMCs (A and B) have been reconciled with their customs data. After confirmation from the OMC (A), 87 GDs have been identified which are in the name of the OMC (A) but it is the share of a third OMC (C). Likewise 69 GDs have also been identified, after the confirmation of second OMC (B) which are in the name of the OMC (B) but actually it is share of the OMC (C).
The said GDs exist in customs data but have not been declared by any OMC. Since OMC (C) pertains to jurisdiction of LTU Lahore, hence a letter was issued by the Directorate of Intelligence, with the list of 87 GDs pertaining to OMC (C) to obtain the viewpoint of OMC (C). In the said letter the company was requested to provide the month of claim and serial number of Annexure-A or B, in front of each GD.
From the reply it is clear that the GDs have not been claimed in Annexure-A (local purchase) and Annexure-B (import). The contention of the taxpayer that it is shown in Annexure-C is not plausible. It is evident that there is no possibility to show purchase in sales columns of sales tax returns. The examination of the sales tax returns shows only registered sales and one entry in each month for unregistered sale.
Thus it is clear from the reply of the taxpayer that GDs whose value of import stands at Rs 16.213 billion pertain to OMC (C) and imported through OMC (A) and OMC (B) and have not be declared in sales tax returns, neither in purchases nor in sales, thus it led to evasion of the sales tax of Rs 353 million on value addition made on this activity as well as due income tax is also recoverable on this undeclared taxable activity.
The LTU Lahore observed that the registered person has deliberately not shown the GDs and violated the provisions by not declaring these GDs in terms of section 2(37) of the sales Tax Act 1990. An amount of Rs 353,485,828 principal sales tax is recoverable on account of value addition not deposited on these purchases, along with default surcharge under section 34 of the Act which is to be calculated at the time of actual payment. The registered person is also liable to be penalised under relevant provisions of section 33 of the Sales Tax Act, 1990.
The LTU Lahore has also perused the legal objections raised by the counsel of the registered person and comments submitted by the officer of the Directorate of Intelligence & Investigation (Inland Revenue) Karachi and given thoughtful consideration to the both arguments.
The order of LTU Lahore elaborated that the OMC (C) has imported oil on sharing basis and GDs of import were not declared in the sales tax returns. The particular situation in the instant case is that petroleum products are imported by all the OMCs on shared cargo basis ie the goods are imported by OMCs (A and B) but the ultimate consignees can be other OMCs depending on the shared cargo. RP contended that it is the ultimate consignee in the entire subject GDs and it has paid the due taxes and duties. The counsel of the RP stated that they have directly paid the duties and taxes along with other charges from their own bank account at the time of importing oil. The RP claims that these GDs were not claimed in sales tax return due to non-uploading of GDs from customs data in Annexure-B of the return. The counsel of the RP stated in their defence that the Oil Companies Advisory Committee (OCAC) in the meeting held on 19.11.2013 advised the OMCs to adjust their input tax paid on imports in the respective tax period sales tax returns other than imports. The committee also advised that such imports can be declared in annexure-A by inserting self NTN.
Legally speaking, clause (ii) of sub-section (2) of section 7 of the Sales Tax Act, 1990 provides that a registered person shall not be entitled to deduct input tax from output tax unless in case of goods imported into Pakistan, he holds bill of entry or goods declaration in his name and showing his sales tax registration number, duly cleared by the customs under section 79 15[, section 81] or section 104 of the Customs Act, 1969. As per contention of the registered person, GDs import were in the name of OMC (A) or OMC (B) and not in its name, hence the reduction of output tax without holding valid GDs in its name is not legally valid at all.
The registered person deliberately did not follow the explicit provisions of the Sale Tax Act, 1990 and even not considered the directions of OCAC and concealed the sales which resulted in short payment of sales tax into the national exchequer, order of LTU Lahore added.