SWEETY EXPORTS, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 155 (2002)

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.10, 4 & 7‑‑‑Sales Tax Refund Rules, 2000, Rr.2(1)(iv), 7(4), 13, 8(2) & 9(1)(v)‑‑‑STGO of 2000‑‑‑C.B.R. Instruction No.10 of 2002 dated 31‑1‑2002‑‑‑C.B.R. Circular No.1/20‑STB/2000, dated 19‑6‑2000‑‑‑Customs General Order No. 18 of 1995 and Customs General Order No.2 of 1996‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Claim of refund‑‑ Excess amount to be carried forward of refunded‑‑Extent of payment of refund claimed‑‑‑Department withheld refund against the invoices of those concerns who had not discharged their sales tax liability and an amount was still outstanding against them‑‑Input tax against the invoices claimed by the complainant having not been paid into Government exchequer, the refund against those invoices could not be made and there was reason to believe that the invoices were fake ‑‑‑Assessee contended that a notice had to be served under R.8 of the Sales Tax Refund Rules, 2000 on the claimant requiring him to show cause in writing as to why the claim should not be rejected‑‑‑If the refund claimed by the complainant was found inadmissible the Revenue was under legal obligation to inform the claimant under R.7(4) and R.8 within one month of the filing of claim‑‑‑No such notice, either under R.7(4) or R.8 of the Sales Tax Refund Rules, 2000 was served‑‑‑Refund could only be refused after affording a reasonable opportunity of hearing and through an adjudication order specifying reasons, therefore, as provided under R.8(2) of the Sales Tax Refund Rules, 2000‑‑‑Validity‑‑‑Regarding the unsettled refund claimed, it was found that there was substance in the submissions of the complainant that formal proceedings under para. (1) of R.8 of the Sales Tax Refund Rules, 2000 should be initiated and concluded under para. (2) of said rules so that the complainant, if so advised may approach appropriate, judicial forum for redress, if any‑‑ Maladministration on account of delay in circumstances, was clearly established‑‑ ‑Regarding the refund claim based on invoices which were claimed to be fake and no tax had been deposited in Government Treasury, there was substance in the submission of the complainant that there was no valid reason not to take up the proceedings under R.8 of the Sales Tax Refund Rules, 2000 on merits‑‑‑Undue delay in these cases was established‑‑‑Delay in settling the refund claim based on invoices was blatantly perverse and arbitrary; which was based on irrelevant considerations as was evident from facts, and was due to neglect, incompetence and inaptitude in discharge of duties‑‑‑Concerned officers instead of enforcing recovery from the defaulter‑collecting‑agent had withheld the genuine refund claim of the complainant‑‑‑Federal Tax Ombudsman recommended (i) Deputy Collector of Sales Tax concerned to take up proceedings under R.8 o‑f the Sales Tax Refund Rules, 2000 and decide about the refund claim of Rs.515,296 within 30 days, (ii) Deputy Collector of Sales Tax concerned to take up proceedings under R.8 of the Sales Tax Refund Rules, 2000 regarding refund claims on the basis of invoices and verify if the payments against such invoices were verified and if so it should be sufficient evidence to allow the claim and decide the claims within 30 days and (iii) Deputy Collector of Sales Tax concerned to allow the claim against specific invoices within seven days.

Silver Cotton Mills Ltd. v. C.S.T., Karachi 1984 PTD 216; Fazal Shafiq Textile Mills v. C.S.T., Karachi 1985 PTD 44 and Abbasi Textile Mills Ltd. v. C.S.T., Karachi 1983 PTD 53 ref.

Syed Sagheer Tirmizi and Syed Ali Adrian, A.C.A. for the Complainant.

Fawad Nasir Khan, D.C.S.T. for Respondent.

DECISION/FINDINGS

The complainant, a registered commercial Exporter has alleged maladministration on the part of Deputy Commissioner Sales Tax (Refund) Faisalabad for sitting over the following refund claims aggregating Rs.842,884 without taking any decision:

(i) Sales tax refund for the tax period 10/2000 of Rs.607,712.

A total Sales Tax refund claim for the month of October, 2000 was Rs.1,956,350 out of which the Sales Tax refund of Rs.1,348,638 has been issued while the balance amount of Rs.607,712 is still outstanding for the last one year and four months.

(ii) Sales tax refund for the tax period 12/2000 of Rs. 111, 606

Sales Tax refund claim for the month of December, 2000 was Rs.3,061,611. The Sales Tax refund of Rs.2,950,005 has already been issued and 'the remaining amount of Rs.111,606 is outstanding for the last one year and two months.

(iii) Sales tax refund for the tax period 1/2001 of Rs.19,111

Sales Tax refund claim for the month of January 2001 was submitted for a total amount of Rs.747,552. The Sales Tax refund of Rs.728,441 has been issued and balance amount of Rs.19,111 is still outstanding for the last one year and one month.

(iv) Sales tax refund for the tax period 4/2001 of Rs.104,455

The Sales Tax refund claim for the month of April 2001 was Rs.2,465,137 out of which Rs.2,360,682 has already been issued and the balance amount of Rs.'104,455 is outstanding for the last ten months.

2. Complainant further alleged that the applications for issuance of remaining amount of refund were also submitted to the concerned Sales Tax Officials on 28th November, 2001. However, no reply was received from the sales tax officials in this regard. The complainant has prayed that the Collectorate of Sales Tax, Faisalabad may be directed to issue a refund voucher of Rs.842,884 alongwith additional compensation under section 67 of Sales Tax Act (Act) at the rate of 14% per annum of the amount of refund due.

3. Notice was issued to Revenue Division under section 10(4) of the Ordinance XXXV of 2000 calling for written reply to the complainant. The Collector of Sales Tax, Faisalabad submitted in response to notice that out of a claim of Rs.1,956,350 an amount of Rs.1,348,638 for the tax period 10/2000 had already been issued. An amount of Rs.515,276 claimed against shipping bill No.4993 was found inadmissible, as the condition of same‑stage‑goods was not fulfilled in the case of the aforesaid shipping bill. According to Collector the STGO 3 of 2000 had relaxed the condition of the same‑stage‑goods or continuous chain tax invoices stipulated in the Sales Tax Refund Rules, 2000 notified vide S.R.O. 417(I)/2000, dated 20‑6‑2000 in respect of such inputs as are purchased or acquired up to 31st August, 2000 provided that outputs manufactured or produced therefrom are exported up to 30th September, 2000, . Since goods were actually exported in the instant case in the month of 10/2000, the complainant was not entitled to the benefit of relaxation in the condition of same‑stage‑goods. Further an amount of Rs.92,436 was withheld against the input tax invoices of Messrs Hammad Textile Industries, who were allegedly issuing fake/flying invoices, without physical supply of goods. The Collector submit ted that information regarding Messrs Hammad Textile Industries for being involved in issuance of fake/flying invoices was also communi cated to APCEA, the representative organization of the exporters, vide Collectorate's Letter No. ST‑Audit (76‑99)875 dated 2‑3‑2001.

4. Regarding the balance out of next claim for tax period 12/2001 (the correct tax period is 12/2001), the Collector submitted that an amount of Rs.109,562 was withheld against the input tax invoices of Messrs Aamna Looms Industries, Faisalabad on the same grounds as invoked for withholding the claim amounting to Rs.92,436 (supra).

5. The Additional Collector, Sales Tax Faisalabad ordered to conduct the audit of Messrs Aamna Looms Industries who failed to provide sales tax record and show their manufacturing facilities. It, therefore, was inferred that only paper transaction was made and no supplies were physically delivered. An amount of Rs.2,044 was withheld on account of input tax claimed against courier service. Board had recently clarified the issue regarding admissibility of input tax on courier services related with exported goods vide Board's Instruction No.10 of 2002, dated 31st January, 2002. The matter according to Collector, was being examined in the light of Board's instruction/clarification and would be decided on merits soon.

6. Regarding the claim relating to tax period 1/2001 the Collector submitted that an amount of Rs.19,111 was withheld against input tax invoices issued by Messrs Aamna Looms Industries for the reason stated above.

7. The Collector further submitted that for the period 4/2001 an amount of Rs.10,463 was also withheld against input tax invoices issued by Messrs Aamna Looms Industries Faisalabad for the reason recorded supra while Sales Tax refund of Rs.93,992 had been withheld against the invoices issued by Messrs Accord Textile Mills, who had not discharged their sales tax liability and an amount of Rs.4.5 million was still outstanding against them. As the input tax against the invoices claimed by the complainant had not been paid into Government exchequer. According to the Collector, the refund against those invoices could not be made.

8. Learned counsel of the complaint Mr. Tirmizi, submitted the detail of Sales Tax paid for the goods exported vide shipping bill No.4993 dated 29‑9‑2000 as under:‑‑‑

Conversion charges paid @ 5.50 per meter of cloth of 101,358 meters amounting to Rs.557,469 to an unregistered weaver. No Sales Tax was paid. Had the conversion been done by a registered weaver, Sales Tax payable @ 15 % would have amounted to Rs.83,620.35 and it would have also been claimed as refund.

9. The complainant, being a commercial exporter, also submitted that bill of exports (duplicate copy) indicating Mate Receipts number and date in accordance with sub‑para. (v) of para. 1 of rule 9 of the Refund Rules, 2000. But the claim was refused in entirety on the ground that the goods exported did not satisfy the condition of "Same state goods" as defined in rule 2(1)(vi) of Sales Tax Refund Rules, 2000 which is reproduced hereunder:

"Rule 2 (1)(vi): `same‑state‑goods' means goods produced by a registered manufacturer‑cum‑exporter for export or purchased by a commercial exporter against tax invoice for export as such and includes the goods which have been got manufactured or processed from one or more than one registered vendor manufacturing or conversion charges."

10. Thus the condition that the complainant allegedly failed to fulfil was that although all the goods had been got manufactured from registered vendors against tax invoices but conversion was got done by unregistered weavers against non‑tax invoices. This in terms of C.B.R. Circular No. 1/20‑STB/2000, dated 19‑6‑2000 is a break in a continuous chain of tax invoices envisaged in the rule supra.

11. However, according to him the condition was violative of sections 4 and 7 of the Act that allowed the facility of zero‑rated exports. The power to frame rules provided under section 50 of the Act according to learned counsel was granted to frame procedural rules and not for curtailment of statutory facilities and concessions. The learned counsel submitted that framing of Rules is within the competence of Revenue Division and where it can be established that the decision of Revenue Division to frame a particular rule is contrary to law, it amounts, to allegation of maladministration on the part of the Revenue Division warranting investigation under 9(1) of Ordinance XXXV of.2000.

12. Alternately, he submitted that it was incorrectly contended by the Collector that the goods were exported in the month of October and thus did not qualify for relaxation. The goods according to Mr. Tirmizi, were exported on 29th September, 2000 as evident from the shipping documents showing delivery of goods to and inspection of goods by the Customs Department at Faisalabad Dry Port.

13. The Deputy Commissioner Sales Tax, however, took exception to the contention of Mr. Tirmizi that the date of export was to be reckoned with the date of delivery of goods to the Customs at Dry Ports. He submitted that export of goods from Pakistan through sea routes was reckoned by the date of "Mate Receipt‑Number" issued by the Master of the Ship. He referred to C. G. O. No. 18 of 1995 and C. G. O. No. 2 of 1996 in support of his submission.

14. Mr. Tirmizi the learned counsel of the complainant, however, submitted that the fact remains that the D.C. S.T. neither conducted any proceedings under rule 8 in this regard nor conveyed any formal decision to reject the claim. He prayed for recommendation to formally conduct the proceedings and to pass a formal order within reasonable time.

15. Regarding the written reply of the Collector explaining the reason of withholding the refund of input tax on the basis of invoices of Hammad Textile Industries in tax period 10/2000, the learned counsel submitted that admittedly the supplier was a registered person; there was no specific allegation that the tax invoices issued to the complainant were fake or were issued without actual supply of goods. The only allegation was that the Revenue had reason to believe that Messrs Hammad Textile Industries were issuing fake invoices. He further contended that there was neither any evidence that invoices issued to the complainant, were issued without physical delivery of goods nor physical exports of the goods had been denied. Besides, he submitted that the intimation dated 2‑3‑2001 referred to by the Revenue could not be relied upon against the complainant as the tax invoices in this case had been issued in the month of October 2000 i.e. long before the date of intimation.

16. Regarding the credit for input tax claimed in tax periods 12/2000, 1/2001 and 4/2001 on the basis of invoices of Aamna Loom Industries, Mr. Tirmizi submitted a copy of Order‑in‑Original dated 2‑5‑2001 to show that the Sales Tax Department conduct d an in‑depth audit of Messrs Aanma Loom Industries for the period from 29‑9‑2000 to 28‑2‑2001, during which period the tax invoices were issued to the complainant. A sum of Rs.895,234 was found recoverable against the registered person (R.P.) and the said amount had been recovered from them; no finding has been recorded against the R.P. alleging issuance of fake flying invoices. He further submitted that the deliberate omission by Revenue to refer to the audit conducted in the month of March 2001 as well was very significant and amounted to concealment of material facts by the Department.

17. Similarly regarding withholding a sum of Rs.93,992 in tax period 4/2001 claimed on the basis of invoices of Accord Textile Mills, the learned counsel submitted that the only reason submitted by the learned Collector was that the said Registered Person owed a sum of Rs.4.5 million as Sales Tax. The reason offered by the Collector, according to the counsel was irrelevant and that he had failed to justify the withholding of the refund claim. He submitted that Messrs Accord Textile Mills was a registered person and duly authorized to issue tax invoices; genuineness of the tax invoice in question has been accepted. The said unit was neither suspected of issuing fake/flying invoices nor the genuineness of the R. P. or its existence had been questioned. Neither input tax paid by the complainant was in doubt nor the physical delivery of goods had been questioned.

18. The learned counsel has placed reliance upon three decisions of Sindh High Court reported as Silver Cotton Mills Ltd. v. C.S.T., Karachi 1984 PTD 216, Fazal Shafiq Textile Mills v. C.S.T., Karachi 1985 PTD 44 and Abbasi Textile Mills Ltd. v. C.S.T., Karachi 1983 PTD 53 wherein the Court has clearly enunciated the principle that transactions made by a party with a licensee (registered person) cannot be questioned in the case of such party unless it is established that licence (Registration) had been cancelled before the date of transaction or the non‑existence of the license (registered person) was within the knowledge of the assessee/exporter.

19. The learned counsel submitted that maladministration was established because under rule 8 of the Sales Tax Refund Rules, 2000 (Refund Rules, 2000), a notice had to be served on the claimant requiring him to show cause in writing, as to why the claim should not be rejected. Similarly, as per Sales Tax Refund Rules if the refund claimed by the complainant was found inadmissible the Revenue was under legal obligation to inform the claimant under rule 7(4) and rule 8 within one month of the filing of claim. However, no such notice, either under rule 7(4) or rule 8, was served. The refund could only be refused after affording a reasonable opportunity of hearing, and through an adjudication order specifying reasons therefore, as provided under rule 8(2) of the Refund Rules, 2000.

20. Submissions made from both sides are considered and the findings are recorded hereunder:

(a) Regarding the unsettled refund claim of Rs.515,296, it is found that there is substance in the submissions of learned counsel of the complainant that formal proceedings under para. (1) of rule 8 of the Refund Rules, 2000 should be initiated and concluded under para. (2) of Rues so that the complainant, if so advised, may approach appropriate judicial forum for redress, if any. Maladministration on account of delay is clearly established;

(b) Regarding the refund claim based on invoices of Hammad Textile Industries and Amna Looms industries, there is substance in the submissions made on behalf of the complainant recorded in paragraphs 12 and 13 (supra) and there is no valid reason not to take up the proceedings under rule 8 on merits. In these cases too, the undue delay is established.

(c) Delay in settling the refund claim based on invoices of Accord Textile Mills is blatantly perverse and arbitrary; it is based on irrelevant ground as evident from facts, recorded in para. 14 and involves neglect, incompetence and ineptitude in. discharge of duties. The concerned officers instead of enforcing recovery from the defaulter‑collecting‑agent have withheld the genuine refund claim of the complainant.

Recommendations

21. It is now recommended that:

(i) D.C.S.T. concerned to take up proceedings under rule 8 of the Refund Rules, 2000 and decide about the refund claim of Rs.515,296 within 30 days.

(ii) D.C.S.T. concerned to take up proceedings under rule 8 of the Refund Rules, 2000 regarding refund claims on the basis of invoices of Hammad Textile Industries and Amna Looms Industries on merits and verify if the payments against such invoices have been made through banking channel to the bank accounts of the two suppliers. In case the payments are verified, it should be sufficient evidence to allow the claim and decide the claims within 30 days;

(iii) D.C.S.T. concerned to allow the claim against' invoices of Accord Textile Mills within seven days; and

(iv) D.C.S.T. concerned to report compliance within 45 days of the order.

C.M.A./M.A.K./484/FTO??????