LAHORE: The Punjab Revenue Authority (PRA) has initiated a probe into possible evasion of tax worth millions of rupees by a catering firm and an advertising agency which have jointly organised many high-profile ceremonies of the provincial government in the last three years or so.

The PRA’s preliminary probe into the accounts of the catering firm has detected an amount of Rs67.327 million evaded under sales tax on services and pushed the officials to investigate the accounts of the advertising agency as well because of event management services they jointly provided to the government.

The owner of catering firm says his company dealing in lighting system got registered with the PRA in 2015 and show-cause notices served on him with claim of Rs67 million sales tax evasion were unjustified. “I have recently paid Rs0.7 million to the PRA and struck only three business deals with the advertising agency. I am calculating my tax after the notice and will engage my attorney to fight case with the PRA as 75pc of the claims are irrelevant,” he said. He, however, could not provide the details of tax submission.

The advertising agency had been asked through an official notice to provide the month-wise detail and mode of payment to the catering firm from July 2013 to December 2016.

Dawn learnt on authority that the events including inaugural ceremonies and follow-up gatherings were attended by Prime Minister Nawaz Sharif, Chief Minister Shahbaz Sharif and other top government functionaries on different occasions.

Official documents available with Dawn show that the PRA has detected invoice record of Rs59 million of 44 customers against provision of event management services since 2013. This is against the official declaration of Rs390,325 by the catering company.

A source in the Punjab government told this reporter that both call and reminder notices were served on the Lahore-based catering company in October/November 2016 for producing sales record. Upon non-compliance a team visited its office in December and seized some record which, together with preliminary investigation, showed that the quantum of identified business could be hardly 10pc of the total business volumes of the catering firm, he said.

He said the detailed investigations subject to availability of invoice record and banking transactions of the advertising agency and the catering firm could lead to more revelations.

The source further said the advertising agency paid Rs35 million to the catering firm for managing events at powerhouses in Nandipur, Muzaffargarh and Sahiwal, while the Northern Power Generation Company Limited, the state-owned entity, had paid money to the advertising agency on behalf of the government.

According to the show-cause notice served on the catering firm on Feb 24, the record of the registered person was examined to establish that he issued invoices worth Rs59.02 million to 44 customers in the last three years against the provision of event management services without declaring the same in monthly sales tax returns.

During the scrutiny of record, some bank account numbers were unearthed and it transpired that the company had used bank accounts of its low-paid employees for crediting huge amounts prima facie relating to its business.

The registered person made payments to different service providers amounting to Rs49.59 million from March 2013 to March 2016 against receipt of services taxable as per Sales Tax on Services Act 2012. Since these service providers (suppliers) were providing taxable services without getting registered with the authority, the registered person was required to withhold and deposit the amount of ST before making the payment in terms of Section 10, 14 and 18 of Punjab ST of Services Act 2012 read with the Punjab Sales Tax on Services (Withholding) Rules 2015.

“The registered person has failed to discharge statutory obligations and is thus liable to pay an amount of Rs68.4 million in terms of Section 19 of the Act read with the Rules.

“On the basis of foregoing facts it is concluded that the catering company has violated the provisions of sections 3,10,11, 14, 18, 19, 25 and 35 of the Act 2012 and Rules 2015 and are called upon to show cause under section 24 and 52 of the Act 2012 read with the section 60 of the Act ibid as to why the Punjab ST to the tune of Rs67.327 million may not be assessed along with the default surcharge under section 49 of the Act and why penal action may not be taken against them as per serial no 2 and 8 of section 48 of the Act ibid...”

“Their written explanation to this effect must reach the PRA within 15 days of this letter. In case they wish to be heard in person or through an authorised representative they or their representative may before the officer on March 13. In case of non-compliance the case will be decided ex parte on the basis of facts available on record,” says the notice.

In a written call notice the same day to the Chief Executive Officer of the advertising agency under Section 53 of the Punjab Sales Tax on Services Act 2012 by the Assistant Commissioner Enforcement I Unit VI, the PRA states: “It is intimated that this office is conducting an investigation in the case of the catering firm. It was accordingly requested to provide the month-wise detail of services received from them along with detail and mode of payment during the period from July 2013 to December 2016, however the same has not received so far.

“Now in exercise of powers you are hereby directed to appear in person before the undersigned on March 2, 2017 along with the above mentioned record. The proceedings under the Act shall be deemed to be judicial proceedings with the meaning of sections 193 and 228 of the Pakistan Penal Code 1860.”

One of the resident directors of the advertising agency who also appeared in person upon PRA’s notice on March 2, said he had visited the PRA and assured the official concerned of full cooperation in providing their business relations with the catering company and the record of payments in the last three years.

He said the company was registered with the PRA and regularly pay taxes and submit sales tax returns.

The advertising agency owner told Dawn that his agency generated Rs33 million business deals with the catering firm (its vendor) against four events and submitted bill to the latter. He said the responsibility of deduction of GST was either of the vendor (service provider) at the time of clearance of bill or the provincial government being end-user. He said the PRA should investigate the catering firm and not the agency. He said if their vendor had not billed GST to the provincial government, his agency would now do it.

Meanwhile, the Pakistan Advertising Association in its press release says the advertising agencies, being merely a service provider, are not responsible for depositing GST with the government exchequer. “As a general practice the government departments make payments to the agencies after GST deduction. The agencies after getting paid by the government departments as per government rates keep their own commission and forward rest of the amount to media outlets or vendors as the case may be.

“In such cases the question of tax evasion by advertising agencies does not arise,” it says and calls upon the tax authorities to stop harassment of its member agencies on the pretext of GST collection and recoveries.

Published in Dawn, March 5th, 2017