Sugar mills tax audit unaffected by court order

KARACHI: A Sindh High Court (SHC) order, declaring Sugar Inquiry Commission as illegal, may not affect the ongoing proceedings of tax audit against sugar mills, official sources said on Monday. The court in its decision on Monday ordered the relevant authorities to initiate action against sugar mills without referring Sugar Inquiry Commission.

The sources said the tax authorities had sent audit notices to sugar mills irrespective of the commission. “The audit proceedings are independent and as per instructions defined under the tax laws,” a senior official at Large Taxpayers Unit (LTU) Karachi said.

The SHC ordered: “The chairman FBR (Federal Board of Revenue) to open an independent inquiry(ies) to be carried out in accordance with the relevant taxation laws to determine whether and illegality under relevant taxation legislation have been committed by any of the petitioners without reference to the report of the commission and without reference to any letters related thereto which inquiry shall ensure the full due process rights of the petitioners, which inquiry shall not associate any person involved in the preparation of the commission’s report… .”

The official said the notices sent to the sugar mills were issued by invoking relevant provisions of Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005. The FBR following the publication of the Sugar Inquiry Report initiated audit of around 72 sugar mills in June 2020. The LTU Karachi also issued notices to around 27 sugar mills in this regard. The number of sugar mills with the LTU Karachi has not increased to 30.

The proceedings of audit against sugar mills were in progress and process would take time as per requirement of taxation laws, the official said adding that in the preliminary audit the LTU Karachi detected serious discrepancies in financial accounts of sugar mills.

Although the court dismissed the sugar inquiry commission constituted by the prime minister, the commission in its report had identified serious irregularities in the suppression of supplies for evading sales and income taxes. The commission recommended opening the last five years’ cases of the sugar mills and conducting forensic audit.

The sources said the desk audit of LTU Karachi revealed the sugar mills suppressed sales to evade sales tax besides they had also concealed profits to reduce income tax liabilities. On the basis of initial outcome the LTU Karachi had asked the sugar mills to provide complete records of sales and purchases by July 20, 2020. The official said the sugar mills had sought further time to produce required documents.