Sales Tax Act (VII of 1990)---

----Ss.10 (2) & 73---C.B.R. Letter C. No. 2(7)STP/ 99-PT, dated 1-1-2002---S.R.O. 417(1)/2000, GO-3/2000---S.R.O, 2(I)/2003, dated 1-1-2003---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund of excess amount of input tax---Inordinate delay for issuance of refund---Department admitted that in respect of invoices where refund had not yet been paid, no notice had been given and invoices were still being examined ---Validity-- Department had not submitted any convincing reason to justify as to why no action was taken to decide the refund claims against exports during the whole year-Allegation of inordinate delay had been established-- Substantial amount was released to the complainant when they filed the complaint---Department had the right to carry out the requisite verification and audit but this should had been done within a reasonable period of time soon after the claims were filed---Guidelines provided in Central Board of Revenue's Letter C. No.2(7)STP/99-PT, dated 1-1-2002 regarding the process of the cases where a few invoices were found to be fake or issued by, suspected units had not been followed---Present instance was a clear case of maladministration on the part of Sales Tax Authorities---Federal Tax Ombudsman recommended that Central Board of Revenue may direct the Collector of Sales Tax and Central Excise to examine the remaining refund claims without further delay and in respect of invoices whose genuineness is not established, issue show-cause- notice to the complainant/assessee and afford them opportunity of hearing and representing their claim and decide the refund claims within thirty days.

M. Mubeen Ahsan, Advisor, Dealing Officer.

Khalid Siddiqui for the Complainant.

Zahid Habib, Assistant Collector of Sales Tax East) Karachi.

FINDINGS/DECISION

The complaint has been filed against the Sales Tax Collectorate (East), Karachi, on account of inordinate delay in deciding the sales refund claims. The complainants have stated that they have been in the business of export for a long time and export goods worth approximately rupees 1400 million per annum and earn valuable foreign exchange. They have complained against the alleged gruesome attitude of the Sales Tax Department towards the exporters which had damaged the exports and the day to day changes in the Rules and Regulations anq prescription of formats have hindered the business activity. They have been placed in such a situation that they feel helpless in concentrating oh exports and in searching new avenues. Their refund claims for the months of January to December, 2002 have been stuck up in the Department without any reason and only a small portion of claims of. January, February and March, 2002 has been paid.

2. The complainants have stated that they fulfilled all obligations relating to refund claims as required under S.R.O. 417(I)/2000, GO-3/2000 and section 73 of the Sales Tax Act. The requirements that they should purchase the goods from the registered persons and make payment through banking channel and complete the chain of invoice have been fulfilled. The new condition of providing Bank Credit Advice for setting the refund claim recently imposed vide S.R.O 2(I)/2003, dated 1-1-2003, has also been fulfilled and Bank Credit Advices in respect of all claims pending with the Department have been submitted.

3. They stated that a "post mortem" of their records was also conducted and four audits were carried "out by the Refund Section, the Post-Refund Section, by the Collector himself, and by the Annual Audit Team. After undergoing so many audits and investigations, the result remained the same and the claim was not paid. They sent repeated reminders to the Department but no acknowledgement or reply was received. The complainants stated that they were facing a liquidity crunch situation and their legitimate refund amount was blocked by the Department. They were not in a position to export goods and their export business was damaged leading them to bankruptcy. They complained that the Collector of Sales Tax (East), the Deputy Collector and the Assistant Collector (Refund) were, responsible for the inordinate delay. They requested that the difficult faced by them on account of non payment of their genuine claims be redressed.

4. The Department was required to furnish the reply to the allegations by 17-3-2003 and this date was extended to 24-3-2003. However, the reply was not received. On the date of hearing on 23-4-2003, the Assistant Collector submitted a copy of parawise comments sent to the C. B. R. but not received in this office. It was stated in the comments that the sales tax refund claims for. January to November, 2002 were not processed as the complainants had not previously provided complete supportive documents. Two suppliers were categorised as suspected units and four suppliers were non/nil filers. Therefore, the detailed audit of the complainants was carried out to ascertain the factual position. He stated that an amount of. Rs.4,92,07,711 has been sanctioned and Rs.1,52,94,028 deferred to 24-3-2003. Additionally, the amount of Rs.1,27,12,490 has been carried forward as the purchases were not found to have been consumed and exported. He stated that admissible refund has been sanctioned, the (decision regarding the) amount claimed against dubious purchases has been deferred and there has been no inordinate delay on the part of the Sales Tax Collectorate.

5. During the hearing of the complaint, the Counsel representing the complainants reiterated that the refund claims on account of exports made during January to November, 2002 amounting to Rs.650,26,306.97 had been withheld by the Department and despite their persistent efforts and requests, neither any payment was made nor any intimation given by the Department. Even when they approached the Member (Sales Tax), there was no response to their pleas. When they filed complaint in the office of the Federal Tax Ombudsman, an amount of Rs.492,07,711 was sanctioned and paid on 24-3-2003.

6. The Counsel stated that the complainants have learnt that the Department had withheld the refund of Rs.72,26,680 without disclosing the reasons, and had also not paid the remaining amount of Rs.85,91,915.97. According to him, the basic problem with the Department was that it did not reply to their persistent plea and no intimation was given despite all possible efforts about the unpaid/outstanding refund claims. The Department has not informed why the refund of a huge amount has been withheld and why the remaining amount too has not been paid. This attitude of the Department was in clear violation of the instructions issued by the C.B.R., vide letter C. No.2(7) STP/99-PT, dated 1-1-2002, that if a refund claim was supported by tax invoices issued by the suspected units a show-cause notice be issued to the claimant and he may be afforded hearing before a decision with regard to the admissibility under the law was taken. This directive of the C.B.R. has not been complied with.

7. The Assistant Collector replied that the complainant's refund claims were of complex nature because that they had purchased goods from several suppliers and six of them were categorized as suspected units. In several invoices the sales tax had been collected by the suppliers but not-paid to the Department. He stated that the Department remained in constant touch with the complainants but (admitted that) no notice had been issued to then-. He also admitted that in respect of the invoices of approximate Rs.15 million where refund has not yet been paid, no notice has been given to them and the invoices were still being examined. He stated that the Department would soon write to them to furnish clarifications, and: where the clarification was satisfactory, the amount would be sanctioned and for the remaining invoices, a show cause notice would be issued. The Assistant Collector promised that the processes of payment of the verified invoices and issuing show-cause notice for the remaining invoices would be finalised within a week.

8. The submissions made by both the sides have been examined. The Department has submitted no convincing reason to justify why no action was taken to decide the refund claims against exports during the whole year of 2002 and the allegation of inordinate delay has been established. A substantial amount was released to the complainants when they filed complaint in this office. The Department had the right to carry out the requisite verification and audit but this should have been done within a reasonable period of time soon after the claims were filed. The guidelines provided in C.B.R. letter No. C. 2(7) STP/99-PT, dated 1-1-2002 regarding processing of the cases where a few invoices were found to be fake or issue by suspected units have not been followed. It is a clear case of maladministration on the part of Sales Tax Authorities.

9. It is recommended that C.B.R. direct the Collector of Sales and Central Excise (East), Karachi.

(i)to examine the remaining refund claims without further delay;

(ii)in respect of invoices whose genuineness show-cause notice to the complainants and afford opportunity of hearing and representing their claim; and

(iii)decide the refund claims within thirty days.

(iv)compliance be reported within forty-five days.

C.M.A./830/FTOOrder accordingly.