KARACHI: Post Clearance Audit (PCA) South has unearthed a massive fiscal fraud and EFS scam perpetrated by M/s Gulf Enterprises. Initiated in July 2024, the audit was part of a concerted effort to scrutinize the company’s financial dealings, prompted by credible intelligence on the unit’s dubious activities.
DG PCA Dr Zulfikar Ali Chaudhry, tasked Director PCA South, Sheeraz Ahmed, to investigate allegations of the misuse of the export facilitation regimes by the textile company.
During a preliminary scrutiny based on available customs, sales tax, and income tax data, several discrepancies came to light. These irregularities prompted a physical inspection of the factory premises on July 10, 2024 and July 23, 2024 which confirmed the validity of the information received. Shockingly, the PCA audit team, comprising of audit officers Mujahid Iqbal and Imran Saifee, discovered that 163 MT of Yarn, intended for export, had been illicitly removed, in clear violation of the EFS Rules, causing a duty tax evasion amounting to Rs 40 million, besides Rs. 15 million surcharge. Further investigations revealed that the company had been misusing its “manufacturing status” to claim exemptions and concessionary tax rates at the import stage while engaging in local sales of the imported yarn. This malpractice led to an additional duty tax evasion estimated at Rs 298 million, besides Rs. 40 million surcharges.
Scrutiny of sales tax records led to the discovery that the importer was involved in selling smuggled goods that were neither legally imported nor purchased locally. Items such as cotton sewing thread, sisal textile fibers, and synthetic monofilament of 67 decided or more were being sold illicitly, resulting in evasion worth Rs 158 million.
During the visit of factory premises, the Audit Team also observed that the unit did not have any installation facilities relating to Spinning, Dying, or Printing Stitching, and only machines of yarn texturing / covering were found installed, many of which were out of service. The installed machinery of M/s Gulf Enterprises contradicted with the goods exported under EFS; as finished items such as dyed and printed finished fabric had been exported. This discrepancy raised serious doubts on the genuineness of exports made under the EFS. The accused importer was unable to justify manufacturing and export of said finished goods without having corresponding manufacturing facilities; thus indicating that exported goods were procured from the unregistered local market to justify consumption and export under the EFS regimes.
The importer was also found involved in over-invoicing to inflate both import and export values involving Rs 173 million. Furthermore, the substantial volume of yarn imports was also found inconsistent with the importer’s financial standing, prompting PCA to initiate an investigation into possible money laundering activities.
The findings exposed M/s Gulf Enterprises as a hub of extensive financial malpractice, smuggling, and fraudulent activities. Consequently, on August 8, 2024, the PCA South lodged an FIR for fiscal fraud under Section 32A of the Customs Act, involving Rs. 551 million, and arrested the accused Abu Bakar being the sole proprietor of M/s Gulf Enterprises.
There is information of massive misuse of export facilitation regimes by the unscrupulous traders. The PCA formations of FBR remain committed to uncovering the fiscal frauds, bringing the culprits to justice, and preventing further financial losses to the government and the economy by taking stern actions on the misuse of export facilitation regimes.