VAT scam: State unfolds the big sham

Twelve of the businessmen indicted for fraudulently obtaining VAT refunds had obtained these refunds without carrying out any production, a requirement to obtain such refunds, Deputy Solicitor General Buwenaka Aluvihare said in his statement opening the case on the Rs. 4,000 million VAT scam.

The case was taken up at the Colombo High Court before Judge Sunil Rajapakse this week. The Attorney General filed indictment on two officials of the Income Tax Department and 11 leading businessmen mostly involved in the garment trade, with amassing money to the tune of Rs. 4,000 million between November 15, 2002 and December 15, 2004, by producing false documents. All suspects present in Court pleaded not guilty to the charges. The suspects have been charged with misappropriation of funds.

One suspect who was originally charged – Neville Wattaladeniya - has since passed away. In this case Nyanasiri de Soysa (retired Deputy Commissioner Inland Revenue), Ananda Wickramasinghe (Deputy Commissioner Inland Revenue), Rasheed Mohammed Mursheed, Bakeer Mohamed Mursheed, Mohammed Subair Faousul Awami, Mohamed Maujul Ameer Murshad alias Mohammed Nazeer Cader, Nagur Adumai Mohammed Nashmi alias Abdul Ibrahim, Mohammed Kameel Kuthubdeen, Abdul Wadood Mohamed Safi alias Meer Saibu Liyaqath Ali, Sinniah Subramaniam, Salawadeen Mohammed Ashrof, Mohamed Cassim Mohamed Safik, Mohamed Ismail Mohammed Rizwin alias Sulaiman Lebbe Abdul Kareema and Sahabdeen Abdulla have been indicted.

DSG Aluvihare on behalf of the prosecution told court that all the suspects were connected to the fraud and this is the biggest fraud reported to the courts in the country's legal history where VAT refunds had been obtained fraudulently and the third to the 14th accused had obtained the refunds without being involved in any production.

The first and second accused of the Inland Revenue Department were also involved in the fraud, he said. A former Inland Revenue Deputy Commissioner Piyadasa Guruge who is currently serving as Finance Ministry Advisor, told court that it was a political decision to change the VAT to the GST as politicians believed that VAT was unpopular among the public.

He said that in 1992 when he was serving the department as a Senior Assessor there was discussions held about imposing the VAT and in October that year the Finance Ministry opened a section as the VAT Development section of which he served as the Deputy Director. One of the objectives of the department was to educate the relevant officials as well as the public.

He said in 1996 when the Bill was presented to Parliament, on a political decision the name was changed from VAT to GST and presented to Parliament as the VAT was not popular among the public. Mr. Guruge said that in 1998 when the GST section was set up at the Inland Revenue in 1998 he took over as the head of the section and served until there until he retired in May 2000.

Explaining the system Mr. Guruge said an importer purchasing an item for Rs. 100 had to pay Rs. 112.50 (12.5 per cent tax). He was later entitled to a refund by claiming it through the Inland Revenue Department giving details of cost of production and investment. He said under the provisions, if the Commissioner of Inland Revenue was satisfied with the information provided, the refund would be made. DSG Aluvihare, Senior State Counsel Gihan Kulathunga and State Counsel Asad Nawavi and Shanil Kularatna appeared for the prosecution.

Tilak Marapana, PC with P.H.Manatunga, Sarath Liyange, R.Y.D.Jayasekara, Janaka Marapana, Ranil Samarasundara and Buddhika K Jayasinghe appeared for the first accused. Chandika Peiris, V.G.Karunasena and Anil Silva for the second accused, D.G.Kumarasinghe, PC with Mahendra Kumarasinghe for the fourth accused, Isham Kariyapperuma and Wasantha Wanigasekara for the 6th, 13th and 14th accused Denzil Gunaratna, PC with Shanaka Silva and Buddhika Jayasinghe for the 8th accused and N. Gamage with Shanaka Ranasinghe for the 11th accused. The next hearing was fixed for tomorrow.

Accused (de Soysa, Wickremasinghe, Rasheed Mursheed and Bakeer Mursheed) indicted for the misappropriation and releasing of Rs. 70.8 m. to Initag Kandy (Pvt) Ltd, Rs. 120.7 m. to Initag Apparels (Pvt) Ltd, Rs. 70.3 m. to Worldgate Apparel Company, Rs. 160 m. to Worldgate Apparels (Pvt) Ltd and Rs. 76 m. to Worldgate Euro Apparel Gate Company.

Accused (de Soysa, Wickremasinghe, Bakeer Mursheed and Faousul Awami) indicted for the misappropriation and releasing of Rs. 90.3 m. to South Lanka Garments Industries and Rs. 150.7 m. to South Lanka garments. Accused (de Soysa, Wickremasinghe, Bakeer Mursheed, Maujul Ameer and Mohammed Nashmi) indicted for misappropriation and releasing of Rs. 175.8 m. and Rs. 159.6 m. to Pro Garments.

The 1,2,3,4 and 9th accused (de Soysa, Wickremasinghe, Rasheed Mursheed, Bakeer Mursheed and Liyaqath Ali) indicted for misappropriation and releasing of 187.9 m. to Ali LMSL Creation Apparels Company.

Accused (de Soysa, Wickremasinghe, Bakeer Mursheed, Sinniah Subramaniam and Mohammed Ashrof) indicted for misappropriation and releasing of Rs. 106.1 m. to Universal Garments Export, Rs. 102.5 m. to Unilever Export Garments, Rs. 61.2 m. and Rs. 51.4 m. to Lotus Apparel, Rs. 144.2 m. to Upali Garments (Pvt) Ltd, Rs. 78.4 million and Rs. 54 m. to S.Subramaniam and Rs. 150. 8 m. to Lotus Garments.

Accused (de Soysa, Wickremasinghe, Rasheed Mursheed, Bakeer Mursheed, Nazeer Cader and Kameel Kuthubdeen indicted for misappropriation and releasing of Rs. 328.1 m. Euro Clothing (Pvt) Ltd. Accused (de Soysa, Wickremasinghe, Rasheed Mursheed, Bakeer Mursheed, Mohammed Nashmi and Kameel Kuthubdeen) indicted for misappropriation and releasing of Rs. 319.1 m. to Youthline Apparels (Pvt) Ltd.

Accused (de Soysa, Wickremasinghe, Rasheed Mursheed, Bakeer Mursheed, Ameer Murshad and Kameel Kuthubdeen) indicted for misappropriation and releasing Rs, 245.5 m. and Rs. 101.5 m. to Cobe Apparels. Accused (de Soysa, Wickremasinghe, Bakeer Mursheed, Ameer Murshad, Mohammed Nashmi and Kameel Kuthubdeen) indicted for misappropriation and releasing of Rs. 177.1 m. to Lord and Taylor company.

Accused (de Soysa, Wickremasinghe, Bakeer Mursheed and Mohamed Safik) indicted for misappropriation and releasing Rs. 29. 9 m. to Canbro International (Pvt) Ltd. Accused (de Soysa, Wickremasinghe, Rasheed Mursheed, Bakeer Mursheed) indicted for misappropriation and releasing of Rs. 137.8 m. to Minipe Garments (Pvt) Ltd.

Accused (de Soysa, Wickremasinghe, Rasheed Mursheed, Bakeer Mursheed, Abdul Kareema and Abdulla ) indicted for misappropriation and releasing Rs. 188.8 m. to Polytex Apparels. Accused (de Soysa, Wickremasinghe, Bakeer Mursheed and Liyaqath Ali) indicted for misappropriation and releasing Rs. 20.7 m. to Creative Apparels.

Accused (de Soysa, Wickremasinghe and Kameel Kuthubdeen) indicted for misappropriation and releasing Rs. 51.9 m. to K.I.L.Apparels, Rs. 69.9 million to Randu Garments, Rs. 52.5 m. to Fashion Garments, Rs. 71.6 m. to D.T.N.Apparels, Rs. 69.2 m. to Supreme Garments.