Notices issued for carrying out sales tax audit

ISLAMABAD (March 04 2006): The Central Board of Revenue (CBR) has empowered the Directorate General of Intelligence and Investigation (I&I), Customs and Excise to conduct sales tax audit of registered taxpayers, and the directorate has issued notices to certain units demanding sales tax record for carrying out the task.

Sources told Business Recorder on Friday that DG (I&I) is not authorised to conduct audit of registered persons under the Sales Tax Act, 1990, whereas section 38 of the Act empowers the Board to depute a person for access the record whenever required.

According to the notice served to the taxpayer, the DG (I&I) has been authorized by CBR to deal with sales tax audit matters clearly indicating that the Board has empowered the directorate to scrutinise the sales tax record of the registered taxpayers.

As per notice, the directorate has demanded last three years' record of the units to thoroughly review it for the purpose of audit. The record includes sales tax returns, purchase register, purchase invoice/bill of entry, output register/sales tax register, sales invoices, bank statement and stock register.

Sources said that the sales tax department/directorate's staff is not legally bound to give reason while demanding record from the registered taxpayers. The directorate after examining the record would be able to decide about issuing 'show-cause notice' or formal charge sheet to the unit.

However, if the taxpayer gets prior information about the cases under review there are chances of record tampering in favour of the taxpayer before submitting the same to the directorate.

However, tax lawyers and experts were of the view that the directorate has no power to conduct sales tax audit of the registered taxpayers, whereas the DG (I&I) has started issuing notices to the registered units demanding tax records in the garb of inquiry.

Experts said that the directorate has not provided relevant details about the inquiry to the taxpayer. Under civil jurisprudence, a person against whom inquiry is initiated has to be given charge sheet for an offence. Moreover, the person is required to record the evidence in this regard, they added.

They opined that the CBR had issued instructions in 2001 whereby record to be produced by the importers had been specified.

This record could be demanded by the Directorate of Revenue Receipt Audit (DRRA) or sales tax officials, whereas the same record has been demanded by the directorate's staff under the caption of notice. Now, the taxpayer has the right to know about CBR instructions authorising the directorate to investigate the sales tax matters.

Even if the CBR has given this power to the directorate, the authority should inform the taxpayer about the crime committed by the taxpayer prior to initiation of inquiry, tax experts added.

On the one hand, the CBR has suspended the field audit to check harassment by auditors, and on the other, the Board has empowered the directorate to examine sales tax record of taxpayers.

This might also result in harassment to the registered units. Recently, the collectorates of sales tax and federal excise, adjudication, Karachi had withdrawn the show-cause notices issued to certain businessmen by DG (I&I), experts added.

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