Recently, the Suzhou Municipal Tax Service, State Taxation Administration, Second Inspection Bureau, in accordance with the law, investigated and dealt with a tax evasion case involving Kunshan Jinhxxx Machinery Equipment Co., Ltd. After investigation, from January 2021 to September 2024, the company submitted fictitious VAT and corporate income tax returns by generating revenue from the disposal of scrap steel, issuing invoices, and making payments unrelated to its production and operations, underreporting taxes and fees such as value-added tax and corporate income tax, with a total amount of 1.4676 million yuan. In February 2025, the Suzhou Municipal Tax Service, State Taxation Administration, Second Inspection Bureau, made an administrative penalty decision in accordance with the law to recover taxes and fees, charge late payment fees, and impose a fine totaling 2.6951 million yuan. At present, the taxes and fees involved, late payment fees, and fines have all been recovered into the treasury.

Suspicious points emerge: steel sheet processing falsely claimed as non-waste disposal income

Based on daily analysis of tax big data and related leads, the Suzhou Municipal Tax Service, State Taxation Administration, Second Inspection Bureau found that Kunshan Jinhui Rong Machinery Equipment Co., Ltd. mainly sells various thick plates cut into steel modules of different sizes, but had scrap steel disposal income. Further analysis of the declaration data found that the loss rate in its production process was far below the normal level of the same industry and same process. The company was suspected of obtaining income from the disposal of scrap steel, and the inspection department decided to open a case and investigate the company in accordance with the law.

Initial screening: claimed that the process was highly advanced and losses were low

Inspectors conducted an on-site inspection of the company’s business premises, inspected the production workshop, and learned about the product process flow from the person responsible for the enterprise. The company’s production workshop was about 1000 square meters, equipped with more than a dozen ordinary cutting machines commonly seen in factories and workshops, and a small pile of scrap steel shavings was stacked in a conspicuous place in the workshop. Inspectors asked the workshop staff about the storage time and cleaning cycle of the scrap steel shavings. The staff, with a vague tone, said that the existing scrap steel shavings had been piled up for a long time and had never been processed, while repeatedly stressing that its production process was advanced and that almost no waste materials were generated during production. However, no advanced production process equipment was found in the workshop. This was obviously contrary to common sense.

Focused investigation: uncovering key evidence of hidden income

Inspectors conducted a focused inspection of the company’s finance office. A preliminary review of the books found no obvious suspicious points, and the financial staff again repeatedly stressed that its production process was advanced and that almost no waste materials were generated. Was this really the case? Was it really because the production process was advanced and no waste materials were generated?

With this question in mind, inspectors turned to other relevant materials and discovered a separately kept cash journal, and found the corresponding electronic ledger in the computer. The amounts did not match the book records. Further verification showed that it recorded the company’s off-book cash receipts and expenditures, including cash received from the disposal of scrap steel! The journal also showed that the company disposed of scrap steel about 3-4 times a month, with each transaction bringing in tens of thousands of yuan in cash.

Inspectors quickly secured the relevant evidence, and after counting the company’s purchase and sales of various types of steel sheets, found that its overall loss rate exceeded the average loss rate of the same industry and same process. It can therefore be inferred that the company’s earlier claims by production and financial staff that almost no waste materials were generated during the production process were not true.

The evidence is conclusive; the net of justice is vast and leaves nothing out

To further verify the facts, inspectors obtained the company’s corporate bank account information. After verification, from January 2021 to September 2024, the company generated a total of 4.1461 million yuan in waste material disposal income during the steel sheet cutting process, which was not declared for tax purposes. At the same time, it was also found that the company had 68,000 yuan in expenditures unrelated to its production and operations. Faced with complete evidence chains and detailed data, the company ultimately admitted the illegal fact that the cash income from waste material disposal was transferred into personal accounts and had not been declared for tax purposes.

Article 63, Paragraph 1 of the Law of the People’s Republic of China on the Administration of Tax Collection states: if a taxpayer forges, alters, conceals, or destroys account books and vouchers, or overstates expenditures or understates income in account books, or refuses to file tax returns or makes false tax returns after being notified by the tax authorities, and fails to pay or underpays the taxes payable, it constitutes tax evasion. For taxpayers who evade taxes, the tax authorities shall recover the unpaid or underpaid taxes and late payment fees, and impose a fine of not less than 50% but not more than five times the unpaid or underpaid taxes; if a crime is constituted, criminal liability shall be investigated in accordance with the law.

The Suzhou Municipal Tax Service, State Taxation Administration, Second Inspection Bureau, in accordance with the law, made an administrative penalty decision against the company for tax evasion, ordering the recovery of taxes and fees, charging late payment fees, and imposing a fine totaling 2.6951 million yuan. At present, the taxes and fees involved, late payment fees, and fines have all been recovered into the treasury.

Original report link: State Taxation Administration Jiangsu Provincial Tax Service website Tax News Steel sheet cutting, where did the taxes go?——Unveiling the tax evasion case of Kunshan Jinhui Rong Machinery Equipment Co., Ltd.