Thursday July 25, 2024

FBR discovers non- tax paid cigarettes at warehouse

By Mehtab Haider
May 31, 2017

ISLAMABAD: In a rare but unique case, the FBR has unearthed mismatched different brands of cigarettes to the tune of 5988 packarites in a warehouse of Philip Morris Pakistan which is allegedly used as facility for undeclared/concealed production of non tax-paid cigarettes.

This case shows alarming trends that the legal cigarette manufacturer is allegedly being involved into producing and selling non duty paid cigarettes in the country.

Sharing details of this episode revealed that the FBR’s Regional Taxpayer Office (RTO) Rawalpindi tracked a vehicle loaded with cigarette of different brands manufacturing by M/s. Philip Morris Pakistan (PMP) Ltd. The vehicle was intercepted soon after its exit from company’s hitherto undeclared warehouse at GT Road, Chakwal Morr, Mandra, Gujjar Khan, Tehsil Gujjar Khan District Rawalpindi.

The PMP’s warehouse staff produced certain record in follow up of seizer of their vehicle for clarification. Examination of record revealed that statutory provision of Federal Excise Act, 2005, Federal Excise Rules, 2005 and SRO 217(I)/2010 dated 31.03.2010 are not being observed.

As a result of this exercise total 132 packarites of unmatched cigarette were seized and a separate Contravention Report has already been framed and sent for adjudication to LTU Karachi. However the alarming ratio of mismatched cigarette, unearthed while examining the aforesaid vehicle necessitated & triggered the subsequent action by RTO Rawalpindi wherein the team members were authorised for detail physical checking of undeclared warehouse.

The team accordingly visited the premises and found huge cigarette manufacturing and packing machine were parked at the premises despite the fact that PMP had submitted a categorical report to Directorate General I&I-IR that all machines of Mandra Factory have been scrapped & cut into pieces.

This reply was furnished during an inquiry by I&I-IR wherein one of such PMP’s machines was detected by I&I-IR at an undeclared/illegal cigarette manufacturing unit at Buner, KPK.

Presence of huge plant & machinery not only beliesPMP’s statement to I&I its presence poses a potential threat on account of any possible illegal manufacturing. A contravention report in this regards has already been forwarded to LTU Karachi.

Huge stock of 14000 packarites of different brands was stored in the warehouse. Detailed stock taking and cross matching of different documents/record (impounded during the said exercise) revealed some serious violation of FED/ST law & procedure, leading to and establishing factum of tax fraud. Some glaring details are given hereunder.

The responded had never declared premises at Mandra as their warehouse to the department as provided under Rule-15 of the Federal Excise Rules, 2005. It was only after the aforesaid operation this warehouse has been added by PMP on its web profile.

The reconciliation of physically available Stock at the premises vis-à-vis Transport Advice-Cigarette SRO 217(I)/2010 dated 31.03.2010 was made in the Philip Morris (Pakistan) Ltd and Muhammad Israr CNIC 16102-2269378-7, Senior Security Supervisor of M/s. Philip Morris (Pakistan) Ltd at Mandra.

This exercise revealed that following 5988 Packarites of different brands, available in stock did not match with the transport invoices. The above mismatch clearly indicates that aforesaid 5988 Packarites of different brands of cigarette were not transported through prescribed Stock Transport Advice-Cigarette i.e. therefore, neither identifiable nor mentioned in Federal Excise record available in the warehouse.

This how un-documented stock of cigarette was shifted for non-document / un-declared sales with the intension of evasion of Federal Excise Duty and Sales Tax. There was a huge stock of missing cigarette packarites which were brought from factory to this warehouse but at the time of stock taking neither found physically available nor surfaced in the sold quantities.

The available sales record at the said warehouse was also checked and found infested with glaring discrepancies. Sales Invoice are being issued by the warehouse management in complete violation of SRO 217(I)/2010 because the crucial most field i.e serial no of packages of the prescribed “Sales-cum-Transport Invoice for supplies from warehouse to distributor or wholesaler” is left blank.

This non compliance itself renders all sales unverifiable because in the absence of distinct & serialised number of packarites the warehouse management can conveniently manipulate the figure of sales. It is pertinent to mention here that all sales invoice are generated through a centrally controlled computerised mechanism at Karachi, meaning thereby all warehouse across the country are churning the same unverifiable, incomplete and management sales invoices.

The FBR found that 5988 out of 14665 packarites have been found mismatched. This ratio is alarmingly high and similar trends of tax evasion are suspected from the day this undeclared warehouse is being operated. Similar discrepancies at other warehouse of PMP cannot be ruled out.

However, in a letter written by AF Ferguson & Co on behalf of Philip Morris to Special Assistant to PM on Revenues, Chairman FBR and Member IR Policy, claimed that no raid whatsoever had been conducted on May 8, 2017 and said that Central Coordinator of IR-Enforcement has unearthed this case of tax fraud on 10-3-2017. The PMP has voluntarily joined and participated in the investigation proceedings without any reservation and protest.