Directorate General of Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue (FBR) is probing cases against the two multinational cigarette manufacturing companies to verify their sales tax and federal excise duty payments in line with the applicable tax laws.
Official sources told Business Recorder here on Tuesday that the agency has adopted a uniform investigation approach within the tobacco sector and detected a number of cases against the local manufacturers of Mardan.
The detection of cases of multinational companies has clearly shown that the directorate of intelligence IR has not given any discriminatory treatment to local manufacturers or multinational companies.
At present, there are two cases of top cigarette manufacturers in the pipeline.
One of the leading cigarette manufacturing multinational companies has been engaged in manufacture of a most expensive brand at its two plants in Punjab and KPK.
During the course of audit of the multi-national company by the Large Taxpayer Unit (LTU) Islamabad, the company has categorically declared that the expensive brand has only been manufactured at its plant located in Punjab and this brand subjected to highest rate of the Federal Excise Duty is not manufactured at its plant in KPK.
The directorate of intelligence IR has detected a case which has given ample evidence that the most expensive brand has also been manufactured at the KPK.
The multinational company has made a statement during audit by the LTU Islamabad that its prime brand has only been manufactured in Punjab and low expensive brand has been manufactured in KPK.
Whereas, the requirement of declaration of place where brand has been manufactured, has not been fulfilled by the manufacturer.
If this wrong information has been proved, it would have very serious implications for the multinational company as the same has been involved in manufacture of expensive brand without declaration to the tax department.
It is apprehended that the un-declared expensive brand seemed to be cleared from the KPK-based factory under the self clearance system and its un-declared selling is taking place in the market without payment of duties and taxes, official said.
Sources said that the issue came to the light when the staff of the directorate has intercepted a vehicle of dealer of multinational company within the jurisdiction of KPK.
On checking of the documents, the agency found that the serial-wise invoice of the cigarettes was not available with the consignment.
The requirements of the relevant statutory regulatory order (SRO) were not fulfilled by the dealer carrying the packets of cigarettes.
Under SRO.217 of the federal excise law, it is requirement to carry the transport-cum-sales invoice giving details of the name of brand, serial number of the packet etc.
The transport-cum-sales invoice also ensures that the FED has been duly paid on the cigarettes cleared from the factories.
One packet contains 10,000 cigarettes and invoice of some of the packets was not available.
The serial-wise invoice of the cigarettes is necessary under the law so that only specific invoice should be used for clearance of specific consignment.
The same invoice should not be repeatedly used for clearance of different consignments.
The SRO was issued on the request of the multinational company to check evasion of duties and taxes.
According to the directorate of intelligence IR, the same company has misused the SRO by not showing the relevant invoices while carrying the packets of cigarettes.
The agency found that serial number of invoices of some packets was present, but serial numbers in the invoice of other packets of cigarettes were not produced by the dealer.
The directorate has made the seizure report and submitted the same to the LTU Islamabad for adjudication.
When the officials of the agency securitized the details of the consignment, it has been found that the consignment contain prime brand of multinational company, liable to highest rate of duty, which has been cleared by unit located near Mardan.
On the other hand, the multinational company has declared to the LTU Islamabad that they are manufacturing the most expensive brand at their factory in Punjab and the same brand has not been produced in its factory located in KPK.
To a specific question raised by the audit that where the company is manufacturing its prime brand, the company responded that the brand is only being manufactured in the factory located in Punjab.
The factual status is that the same prime brand has been manufactured in its factory in KPK and the same has not been declared with the tax department.
The agency has repeatedly requested the multinational company to clarify their position, but the company has given no response.
The directorate of intelligence IR has evidence that the company is manufacturing the expensive brand at the factory located in the KPK as well.
The invoice has been issued by the factory located in the KPK.
If this has been proved, it would create serious problems for a big company for selling un-declared brand of cigarettes by making mis-statements before the tax authorities.
In the absence of the supervised clearance system for multinational companies, it is not possible to check the trucks cleared from their plant in KP to verify whether declared brands are being sold in the market or not.
The directorate of intelligence IR has strongly recommended to the LTU Islamabad to specifically analyse the revenue implications of such kind of wrong statements during audit of the unit, official said.
The second case against another multinational cigarette manufacturing company has been detected by Directorate of Post Clearance Audit (PCA) Karachi in the past.
The agency had detected short payment of federal excise duty, sales tax and withholding tax to the tune of millions on the import of cigarettes by the manufacturer.
The company had imported some of its brands from Philippines and liable to pay duties and taxes at the import stage.
The directorate of PCA had detected short-payment of Rs 400 million during valuation of the imported consignment.
The demand was raised and a contravention report was made against the company.
The directorate of intelligence IR has also sent the copy of the report to the LTU Karachi for necessary recovery of the involved amount from the company as admissible under the law.
As 90 percent of the involved amount includes sales tax, federal excise duty and special excise duty, the directorate of intelligence has intervened for recovery of the Inland Revenue taxes.
LTU Karachi is pursuing the case for recovery of the evaded amount.
The company has approached the judicial fora taking the plea that how FBR’s customs department as well as LTU Karachi can simultaneously take action against the unit, sources added.