EXPOSE

Minister orders probe: Cement 'Mafia' VAT scam bared

by a Staff Reporter

As the Inland Revenue Department investigators bared another VAT scam involving the cement industry, Industries Minister, Kumara Welgama has moved in swiftly to protect the local cement and construction industry. Inland Revenue men uncovered a VAT scam in the cement industry this week where the State is reported to have suffered a loss of Rs. 14 million during the first half of this year. The Criminal Investigation Department (CID) has been called into probe this scandal, authoritative sources disclosed.

Minister Welgama told the "Sunday Observer" that he would take all possible steps to protect and upgrade the Ceylon Cement Corporation and Lanka Cement Ltd, to boost the construction industry and leave no room for unscrupulous elements to operate a 'mafia' in the cement industry that would affect the State. The Minister on Wednesday met top officials in the cement industry to discuss measures to improve the local cement industry.

The Minister who has ordered a probe into this cement scandal at ministry level, has summoned officials of the Mahaweli Marine Cement Company for a meeting on Tuesday (22). "The government owns 10 per cent of shares at Mahaweli Marine and I shall leave no room for corruption in the industry", Minister Welgama stressed.

According to investigations conducted by the Inland Revenue Department, companies which are not registered for VAT were involved in the purchase and distribution of cement. However, documents have been prepared to make VAT claims using VAT registered institutions.

International Cement Traders (Pvt) Ltd (ICT), 44, New Nuge Road, Peliyagoda, registered as a cement manufacturing company with the Sri Lanka's Standards Institution (SLSI). The government allows only three categories of approvals to operate as a cement manufacturer. The institution should manufacture cement, import cement in bulk form to sell either in bulk or branded bag form, or import cement in bag form to sell it in the local market.

Investigations reveal the ICT was expected to import cement from India, Malaysia and Indonesia in bulk form and sell them in the local market under the brand name "Sinha Cement".

However, during this period, Zeeniya Traders of Grandpass had begun to source Mahaweli Marine cement. Such cement, according to investigations, imported to the country had been disposed to ICT without the knowledge and approval of SLSI. Mahaweli Marine Ltd. had used a company named, Fadee Cement Ltd, 536 3/1, Galle Road, Colombo 3 to purchase such cement for ICT. Fadee Cement, investigators have found out is not a VAT registered company. Fadee Cement had purchased a Metric Ton of cement from Mahaweli Marine at Rs. 6500/- and sold to ICT at Rs. 8500/- per MT. The initial purchase had been made on December 05, 2005. ICT, according to government and SLSI regulations, is prohibited to purchase cement from the local market.

Ceylon Cement Corporation Chairman, Lalindra Liyanage who had attended a Board meeting of Mahaweli (Lafarge) Marine on May 29, 2006 as the Corporation holds ten per cent shares of Mahaweli Marine had expressed shock as to why Fadee Cement had been provided cement at a lower rate of Rs. 6500/- per MT when the Corporation bought it at Rs. 7600/- per MT from Mahaweli Cement. He had then ordered to stop all sales to Fadee Cement. But, according to documents perused thereafter, Mahaweli Cement had continued to issue cement to Fadee at the same rate. Mahaweli Cement Managing Director, Rex Hatherley had told Liyanage, that cement was being issued to Fadee Cement on a request made by the former Chairman of the Sri Lanka Cement Corporation. Liyanage had called for the written request of his predecessor. But,Hatherley had replied, "Rats have eaten it".

Meanwhile, sources at Mahaweli Marine disclosed that due to irregularities in the company, it was now in debt to State banks for over one billion rupees though the government owned 10 per cent of shares.

Inland Revenue investigators revealed that Fadee Cement had not provided VAT receipts to ICT as they were not a VAT registered company. In order to overcome this obstacle, arrangements had been made to issue VAT invoices through Zeeniya Traders, Grandpass, a VAT registered cement dealer to ICT though Zeeniya Traders had not purchased any cement from Mahaweli Marine Ltd for such a purpose.

A total of 12,750 metric tons of Mahaweli cement has been sold to ICT through Fadee Cement from 5 December 2005 till 30 June 2006 in this manner to the value of over Rs. 108 million with Zeeniya Traders having issued VAT invoices. The total value of VAT invoices during this period is Rs. 14 million. Investigators further revealed the VAT registration numbers of Mahaweli Marine as 104064833-7000, Zeeniya Traders 114129399-7000 and International Cement Traders 114402877-7000. They said that Fadee Cement who have purchased the cement on behalf of ICT was not registered for VAT.

The Inland Revenue Department, which is in possession of all sales invoices and purchase memos between Mahaweli Marine, ICT and Zeeniya Traders Ltd has sought the assistance of the CID to initiate a separate investigation into this VAT scam.