1. AUDIT, RECOVERY PROCEDURES & PENALTIES UNDER SALES TAX ACT, 1990 AND FEDERAL EXCISE ACT 2005 BY MUNIR QURESHI CHIEF COLLECTOR OF CUSTOMS (SOUTH)

2. TYPES OF AUDIT AUDIT BY SALES TAX DEPARTMENT AUDIT BY DRRA AUDIT BY CA FIRMS & COST ACCOUNTANTS

3. LEGAL PROVISIONS FOR AUDIT Section 25 (1) of Sales Tax Act, 1990 & Section 46 of Federal Excise Act, 2005 empower officer of sales tax & Federal Excise to conduct audit of sales tax records of a registered person once in a year; Section 25 (1) of Sales Tax Act, 1990 & Section 46 of Federal Excise Act, 2005 empower officer of sales tax & Federal Excise to conduct audit of sales tax records of a registered person once in a year; Section 25 (2)*: Officer of the department is empowered to re- conduct audit of sales tax records of a registered person even if the same are already audited by the auditors of DRRA; Section 25 (2)*: Officer of the department is empowered to re- conduct audit of sales tax records of a registered person even if the same are already audited by the auditors of DRRA; Section 32 (A): Special Audit under may be conducted by Chartered Accountants and Cost and Management Accountants; Section 32 (A): Special Audit under may be conducted by Chartered Accountants and Cost and Management Accountants; Section 8(B): requires a registered person subject to audit under the Companies Ordinance 1984 to submit annual audited accounts duly verified by the Chartered Accountants, showing value addition of less than 10% in case he wishes to claim adjustment/ refund of tax paid by him. Section 8(B): requires a registered person subject to audit under the Companies Ordinance 1984 to submit annual audited accounts duly verified by the Chartered Accountants, showing value addition of less than 10% in case he wishes to claim adjustment/ refund of tax paid by him. *Added vide Finance Act 2008-09 *Added vide Finance Act 2008-09

4. AUDIT SELECTION CRITERIA A registered person may be selected for audit on the following basis:- A registered person may be selected for audit on the following basis:- Selection by FBR on the basis of abnormality of sales tax profile of a registered person Selection by FBR on the basis of abnormality of sales tax profile of a registered person Selection by the Collectorate on the basis of obvious variation in the Purchase or Sales figures of a registered person; Selection by the Collectorate on the basis of obvious variation in the Purchase or Sales figures of a registered person; Collector may order for audit on the basis of information from reliable sources or on the request of registered person himself; Collector may order for audit on the basis of information from reliable sources or on the request of registered person himself; Post refund audits Post refund audits

5. AUDIT PROCEDURE Audits to be completed within three to four days, however, under special circumstances the above said period could be extended; Audits to be completed within three to four days, however, under special circumstances the above said period could be extended; Currently auditors are authorized to conduct desk audits only; Currently auditors are authorized to conduct desk audits only; Audit reports to be signed by Auditors or Senior Auditors duly approved by Assistant/ Deputy Collector needs to be submitted within 14 days to Additional Collector; Audit reports to be signed by Auditors or Senior Auditors duly approved by Assistant/ Deputy Collector needs to be submitted within 14 days to Additional Collector; Audits by Special Auditors under section 32 A to be monitored by the Collectorate and audit reports to be submitted to Additional Collector/ Collector accordingly; Audits by Special Auditors under section 32 A to be monitored by the Collectorate and audit reports to be submitted to Additional Collector/ Collector accordingly; The audit reports which detects recovery of more than one million rupees or points out toward serious procedural lapse invariably needs to be forwarded to Board; The audit reports which detects recovery of more than one million rupees or points out toward serious procedural lapse invariably needs to be forwarded to Board; The Board shall also critically evaluate the audit report. The Board shall also critically evaluate the audit report.

6. PENALTIES UNDER SECTION 33 OF THE SALES TAX ACT, 1990

7. OFFENCE 1. Where any person fails to furnish a return within the due date. Such person shall pay a penalty of five thousand rupees: Such person shall pay a penalty of five thousand rupees: Provided that in case a person files a return within fifteen days of the due date, he shall pay a penalty of one hundred rupees for each day of default. PENALTIES

8. OFFENCE 2. Any person who fails to issue an invoice when required under this Act PENALTY Such person shall pay a penalty of five thousand rupees or three per cent of the amount of the tax involved, whichever is higher. Such person shall pay a penalty of five thousand rupees or three per cent of the amount of the tax involved, whichever is higher.

9. OFFENCE 3. Any person who un- authorizedly issues an invoice in which an amount of tax is specified. PENALTY Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of the tax involved, whichever is higher. Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of the tax involved, whichever is higher.

10. OFFENCE 4. Any person who fails to notify the changes of material nature in the particulars of registration of taxable activity.. PENALTY Such person shall pay a penalty of five thousand rupees Such person shall pay a penalty of five thousand rupees

11. OFFENCE 5. Any person who fails to deposit the amount of tax due or any part thereof in the time or manner laid down under this Act or rules or orders made thereunder PENALTY Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of the tax involved, whichever is higher: and upto 3 years imprisonment upon conviction by Special Judge if the amount is not paid within 60 days Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of the tax involved, whichever is higher: and upto 3 years imprisonment upon conviction by Special Judge if the amount is not paid within 60 days

12. OFFENCE 7. Any person who is required to apply for registration under this Act fails to make an application for registration before making taxable supplies. PENALTY Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of tax involved, whichever is higher: and upto 3 years imprisonment upon conviction by Special Judge if not registered within 60 days of start of taxable activity Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of tax involved, whichever is higher: and upto 3 years imprisonment upon conviction by Special Judge if not registered within 60 days of start of taxable activity

13. OFFENCE 8. Any person who fails to maintain records required under this Act or the rules made thereunder PENALTY Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of tax involved, whichever is higher. Such person shall pay a penalty of ten thousand rupees or five per cent of the amount of tax involved, whichever is higher.

14. OFFENCE 9. Where a registered person who, without any reasonable cause, in non compliance with the provisions of section 25,— (a) fails to produce the record on receipt of first notice; (b) fails to produce the record on receipt of second notice; and (c) fails to produce the record on receipt of third notice. (c) fails to produce the record on receipt of third notice. PENALTY such person shall pay a penalty of five thousand rupees; such person shall pay a penalty of ten thousand rupees; and such person shall pay a penalty of fifty thousand rupees.

15. OFFENCE 10. Any person who fails to furnish the information required by the Board through a notification issued under sub-section (5) of section 26 PENALTY Such person shall pay a penalty of ten thousand rupees. Such person shall pay a penalty of ten thousand rupees.

16. OFFENCE 11. Any person who,— (a) submits a false or forged document to any officer of sales tax; or (b) destroys, alters, mutilates or falsifies the records including a sales tax invoice; or (c) Knowingly or fraudulently makes false statement, false declaration, false representation, false personification, gives any false information or issues or uses a document which is forged or false. PENALTY Such person shall pay a penalty of twenty five thousand rupees or one hundred per cent of the amount of tax involved, whichever is higher. He shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with fine which may extend to an amount equal to the loss of tax involved, or with both..

17. OFFENCE 12. Any person who denies or obstructs the access of an authorized officer to the business premises, registered office or to any other place where records are kept, or otherwise refuses access to the stocks, accounts or records or fails to present the same when required under section 25, 38 or 38A. PENALTY Such person shall pay a penalty of twenty five thousand rupees or one hundred per cent of the amount of tax involved, whichever is higher. He shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to an amount equal to the amount of tax involved, or with both.

18. OFFENCE 13. Any person who commits, causes to commit or attempts to commit the tax fraud, or abets or connives in commissioning of tax fraud. PENALTY Such person shall pay a penalty of twenty five thousand rupees or one hundred per cent of the amount of tax involved, whichever is higher. He shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with fine which may extend to an amount equal to the loss of tax involved, or with both.

19. OFFENCE 16. Any person who fails to make payment in the manner prescribed under section 73 of this Act.. PENALTY Such person shall pay a penalty of five thousand rupees or three per cent of the amount of tax involved, whichever is higher. Such person shall pay a penalty of five thousand rupees or three per cent of the amount of tax involved, whichever is higher.

20. OFFENCE 18. Where any officer of Sales Tax authorized to act under this Act, acts or omits or attempts to act or omit in a manner causing loss to the sales tax revenue or otherwise abets or connives in any such act. PENALTY Such officer of Sales Tax shall be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to amount equal to the amount of tax involved, or with both. Such officer of Sales Tax shall be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to amount equal to the amount of tax involved, or with both.

21. OFFENCE 20. Where any person repeats an offence for which a penalty is provided under this Act PENALTY Such person shall pay twice the amount of penalty provided under the Act for the said offence Such person shall pay twice the amount of penalty provided under the Act for the said offence

22. RECOVERY PROCEDURES FOR SALES TAX & FEDERAL EXCISE (SECTION 48 OF THE SALES TAX ACT & RULE 60 OF THE FEDERAL EXCISE RULES Issuance of demand Issuance of demand Deduction of recoverable amount from any payable refund Deduction of recoverable amount from any payable refund Stoppage of clearance Stoppage of clearance Sealing of business premises Sealing of business premises Attachment of property Attachment of property Sale of property Sale of property Page Cont.

23. OFFENCES, PENALTIES, FINES AND ALLIED MATTERS UNDER SECTION 19 OF THE FEDERAL EXCISE ACT, 2005 Who fails to file or files an incorrect return Who fails to file or files an incorrect return Five thousand Rupees in case of Non Filing of Return and Ten Thousand Rupees or Five Per cent of the duty involved, which ever is higher in case of non or short payment of duty due, in addition to the amount of duty due from him. Five thousand Rupees in case of Non Filing of Return and Ten Thousand Rupees or Five Per cent of the duty involved, which ever is higher in case of non or short payment of duty due, in addition to the amount of duty due from him. Provided that in case a person files a return within fifteen days of the due date, he shall pay a penalty of one hundred rupees for each day of default OFFENCE PENALTY

24. Untrue or Incorrect statement or document or failure to give or produce any information or documents Untrue or Incorrect statement or document or failure to give or produce any information or documents Twenty thousand rupees and in case of counterfeit and falsifies the fine may extend to one hundred thousand rupees and also punishable with imprisonment for a term which may extend to five years or with both. Twenty thousand rupees and in case of counterfeit and falsifies the fine may extend to one hundred thousand rupees and also punishable with imprisonment for a term which may extend to five years or with both. OFFENCE PENALTY

25. Illegally removes, stores, keeps, withdraws, fraudulent evasion, claims, takes or avails adjustment of duties not admissible under The Federal Excise Act, 2005. Illegally removes, stores, keeps, withdraws, fraudulent evasion, claims, takes or avails adjustment of duties not admissible under The Federal Excise Act, 2005. Five thousand rupees or five times of the duty involved, whichever is higher and to punishment with imprisonment which may extend to five years or both. Five thousand rupees or five times of the duty involved, whichever is higher and to punishment with imprisonment which may extend to five years or both. OFFENCE PENALTY

26. OFFENCE Manipulation of data without the approval of Collector Manipulation of data without the approval of Collector Claim of illegal refund or duty drawback Claim of illegal refund or duty drawback PENALTY Seventy five thousand Rupees or ten times of the duty involved, whichever is higher and to punishment with imprisonment which may extend to five years or both One hundred thousand Rupees or five times of the duty involved, whichever is higher and to punishment with imprisonment which may extend to five years or both

27. OFFENCE Obstructing Federal Excise Officer for the prevention of offences under this Act. Obstructing Federal Excise Officer for the prevention of offences under this Act. PENALTY Five thousand Rupees or five times of the duty involved, whichever is higher and to punishment with imprisonment which may extend to three years or both