FBR arrests IT company officials for Rs1.04 bn tax evasion

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After rejection of bail plea by the Supreme Court for accused involved in massive sales tax evasion, the FBR on Monday arrested Attiq Ur Rehman, Saleem Zawari and Sheikh Mohammad Yaqoob of M/s Advance Business System (ABS).

According to contravention report of M/s Advance Business System Karachi (STRN 1712850003282) by tax authorities, the civil proceedings were initiated as per provisions of Section 11 of the Sales Tax Act to recover the evaded sales tax.

A complaint was forwarded to the Directorate (I&I-IR) Islamabad by the National Accountability Bureau vide No1049 dated 25.09.2013, wherein the involvement of various importers of computer products in tax evasion was indicated.

The complainant also provided details of purchases of the subject unit and of some other distributors. This data was matched with declaration of M/s Advance Business System in Sales Tax to establish the veracity of the complaint, which confirmed that the said unit is involved in tax evasion and tax fraud.

To obtain material evidence, search of premises of Islamabad Branch Office of M/s Advance Business System was carried out after obtaining prior approval from learned Magistrate Islamabad on 10.01.2014 under section 40 of the Sales Tax Act.  Further, documents, record and computer systems were taken into custody. The detailed analysis of the impounded record and computer systems revealed that Islamabad Branch office of the subject unit was issuing Non-General Sales Tax Invoices and operating Benami Bank accounts in Islamabad for depositing the evaded tax money to understate its tax liability.

When contacted, the computer manufacturers regarding M/s Advance Business System imports, M/s HP confirmed that during the period March 2010 to September 2013, Advance Business System made purchases from HP amounting to Rs4,198,537,486/. M/s DELL confirmed the purchases of Advance Business System amounting to Rs2,352,051,206/- during the period July 2012 to December 2013. M/s Advance Business System has provided data of purchases from ACER & Touchmate.

Compared to these purchases of Rs6,907,530,053, Advance Business System only declared Rs1,677,242,117/- worth of imports for the same period.

The difference between actual purchases and declared imports amounts to Rs5,230,287,936 /- on which sales tax was evaded knowingly and dishonestly by M/s Advance Business System. Therefore, the loss to the national exchequer caused by M/s Advance Business System is amounting to Rs1,046,057,587/- (approximately). Calculation of tax evaded is as under:-

The report says: “…sell through reports were also obtained from M/s HP to confirm that these products were sold in Pakistan. Hence, it was found during the investigation that the partners of M/s Advance Business System and their Manager of Blue AreaIslamabad violated the provisions of Sections 3, 6, 7, 22, 23, 26, 73 of Sales Tax Act, and committed tax fraud in terms of section 2(37) which are punishable under sections 33(11) & 33(13) of the Sales Tax Act, 1990 read with Sections 37A and 37B ibid. Therefore, criminal proceedings have been initiated against them and FIR No 1 of 2014 dated 18.2.2014 was registered against them. Investigation conducted so far revealed following facts:

“The investigation revealed that the partner of M/s Advance Business System maintains a dummy subsidiary company in Dubai (a tax haven) with the name of “I T Station FZE” and ships its consignments purchased from M/s Hewlett-Packard, M/s DELL, and other manufacturers to Dubai instead of Pakistan.

“The said company is owned & operated by Saleem Zaveri, partner M/s Advance Business System and it has office in Dubai. During investigation Mr. Salim Zaveri confirmed that he owns this company. The accused Saleem Zaveri & Shiekh Yaqoob claimed that usually they purchased in bulk quantities in order to get lower prices and import 20% goods to Pakistan and sold remaining 80% at Singapore. They have provided documents in support to their stance related to foreign sales, however, their claim regarding foreign sales is contradictory to the sell through reports submitted by them to their principal M/s Hewlett-Packard. Moreover the said business was not declared in income tax return of the accused Saleem Zaveri. Investigation of the case also revealed that products are massively under-invoiced in Dubai and then shipped to Pakistan, where the sales tax liability is understated. Investigation also revealed that all products were not imported through legal channel and these were smuggled into Pakistan to evade Sales Tax.

“M/s Advance Business System makes payments to the computer manufacturers from Dubai via banking channel, as confirmed from M/s Hewlett-packard and M/s DELL. However, most of payments from Pakistan to Dubai are sent through non-banking channels. During investigation they provided certificates issued by the banks showing transfer of 17.5 million US dollars for imported goods during the period July 2009 to June 2014. M/s Advance Business System failed to provide any documentary trail of remaining payments from Pakistan to Dubai. The undocumented payment model was contrary to the directions of State Bank of Pakistan and resultantly it enabled accused to cause loss to the national exchequer by declaring imports at lower rates (under invoiced).

“As M/s Advance Business System pays little to no amount of input tax on its imports, it consequently does not charge output tax and makes sales without charging of sales tax. The data recovered from the laptop found in the office of M/s Advance Business System Islamabad Branch established the fact that they made huge supplies without charging GST. The buyers were also contacted and they confirmed that they bought goods from M/s Advance Business System without paying GST. In order to deposit the proceeds of these sales and to conceal the actual sale proceeds from the tax authorities, Saleem Zaveri & Sheikh Yaqoob maintains benami/dummy bank accounts in the name of their employees.

“During investigation customers have confirmed that M/s Advance Business System requires its customers to make payments either in cash, or through cheques in favour of different undeclared accounts. During investigation Saleem Zaveri and Sheikh Muhammad Yaqoob admitted that Ghulam Murtaza Bhalli (Proprietor of G.M Traders as per bank documents) was their employee, however they denied having any relation with said bank account. The accused denied allegations that benami accounts were being operated to conceal sales however they could not explain why they directed their buyers to deposit sales proceeds in these accounts. They said they are not beneficial owners of these accounts. However, two of these accounts were opened on the registered addresses of M/s Advance Business System that shows their relation with accused.

“G.M Traders, A/c # 02011841920, Soneri Bank, Blue Area, Islamabad

Muhammad Akhlaq, A/c # 02050470802, Soneri Bank, Blue Area, Islamabad

Pervaiz Mobile, A/c # 1323-20309-714-116897, Summit Bank Ltd, Johar Town, Lahore

Muhammad Shahid A/c # 0554013091002584, MCB Baddar Commercial Branch, Karachi

M/s Walk & Pick, A/c # 0001-2002598399, Silk Bank Main Branch, Karachi

Muhammad Saleem, A/c # 12220311714116932, Summit Bank, Clifton Branch, Karachi

Muhammad Hussain, A/c # 12220311714116070, Summit Bank, Clifton Branch, Karachi

Saleem Parmer, A/c # 05400627900494903, HBL Garden Branch, Karachi

“In view of above, it is established that M/s Advance Business System has violated the provisions of Sections 3, 6, 7, 22, 23, 26, and 73 of Sales Tax Act and committed tax fraud in terms of section 2(37) which are punishable under sections 33(11) & 33(13) ibid.”

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