(a) Sales Tax Act (VII of 1990)---

----S. 13 & Sixth Sched., S. No.4, Item No.4---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Exemption- Coconut seeds, import of---No restriction/condition for sale---Recovery of sales tax---Validity---Seeds,. fruits and spores for sowing, under Hdg. 2.09, were exempt from sales tax---Customs Authorities had released the imported consignments lawfully allowing sales tax` exemption after completing the formalities---Department had not produced any orders,

instructions, rules and regulations with regard tit the restrictions/conditions about the sale of coconut seeds---Government had not prescribed any regulatory mechanism in this regard---Collector and his subordinate officials acted beyond jurisdiction and without authority.

(b) Sales Tax Act (VII of 1990) ---

----Sixth Sched. S.No.4. Item No.4---Establishment of Office of Federal Tax Ombudsman (XXXV of 2000), S. 2(3)--- Maladministration ---Raid on assesses office premises, its search, seizure of the documents, and institution of case for tax evasion and contravention of various provisions of Sales Tax Act, 1990 were undertaken without lawful basis---Recovery of sales tax, additional tax and penalty on the basis of allegations that the importers were selling coconut seeds imported for sowing purposes---Non-serious adjudication ---Pendency of the case for over two years---Refusal to receive the appeal---Validity---All these acts established that action taken by the Department i.e. the Collector and his subordinate officials, the adjudication order passed by the Deputy Collector, and the refusal of the Collectors. (Appeals) not to allow the complainants to even file an appeal, were contrary to law, perverse, arbitrary and unreasonable, unjust, oppressive, and a regrettable example of administrative and judicial excess in misuse of powers, which constituted maladministration under S.2(3) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000.

(c) Sales tax------

----Seizure---Obligation of officials---Was necessary to make inventory of all files, documents and articles and provide a receipt to the complainant duly signed by the authorized officer immediately at the time of seizure and removal form the premises.

(d) Sales Tax Act (VII of 1990)---

----S. 13 & Sixth Sched., S. No.4, Item No.4---Exemption---Import of coconut seeds---Demand of sales tax, additional tax and penalty on sale of such seed to private parties---Raid---Search and seizure---Rude behaviour---Removal of record without making inventories ---Validity-- Considering all facts and circumstances of the case Federal Tax Ombudsman recommended that Central Board of Revenue to set aside the order passed by the Deputy Collector and quash the entire proceedings against the complainants within thirty days; an enquiry be instituted and disciplinary action be taken against the concerned functionary and report be submitted within sixty days letter be issued to the other official not to behave rudely with taxpayers and instructions be issued that while seizing the records/documents/articles of any unit complete inventory should be prepared on the spot and delivered to the unit duly signed by the authorized officer before the removal from the premises.

Muhammad Ishaque for the Complainants:

Dr. Mubashir Baig, Deputy Collector of Sales Tax (West).

Najeebullah Jafferi, Deputy Superintendent.

Tehseen Saleem, Deputy Superintendent.

FINDINGS/DECISION

The complainants have filed this complaint against the officials of Sales Tax Collectorate (West). Karachi, for disturbing them continuously from 14-4-2000 because they did not give them the bribe of Rs.300,000 to close the sales tax matter. The proprietor of the firm stated in the complaint that he was an old man of 73 and had recently undergone a major stomach. Operation in the Agha Khan Hospital. The Sales Tax Auditors raided his office and behaved with him (and treated him and his. staff) as big criminals, searched the records of the office and the drawers of the tables, took away one diary of the record of sales of the imported consignments of coconut seeds/semi husked Coconut, and also 68 files of other importers cleared by his son's company SKI International Traders.

2. He alleged that the two Deputy Superintendents Najeebullah Jaffery and Tahseen Saleem were the persons who conducted the raid. Najeebullah Jaffery telephoned his son after a few days and demanded Rs.300,000 to close the matter. His son recorded the conversation which could be produced before this forum. Mr. Jaffery threatened him that he would have to pay huge amount to the Sales Tax Department against penalty etc. In this regard, he also narrated the case of a demand of Rs.20 crore against a businessman, which was closed on payment of a huge amount. The other Deputy Superintendent, Tahseen Saleem visited their residence and asked his son to arrange payment of Rs.300,000 which he refused.

3. He stated that since the amount was not paid, the officials submitted a `forged' report against them to the Assistant Collector, and the Deputy Collector issued a show-cause notice, dated 9-9-2000 for recovery of Rs.13,56,950 for violation of different sections of Sales Tax Act. They replied to the show-cause notice of 22-9-2000. they were called for hearing on different dates but the Deputy Collector was not available in the office. Finally they received a letter for hearing on 15-5,-2002 and the Proprietor himself reached the office to attend hearing. He stated that -he submitted before the Deputy Collector that the coconut seed was liable to 15% duty and zero style tax under the Sixth Schedule to the Sales Tax Act. The import of coconut semi husked was liable to 15 % duty and 15 % sales tax. Under the amnesty scheme of the Government, they had paid sales tax and additional sales tax amounting to Rs.83,921.

4. The complainants stated that during the hearing he argued before the Deputy Collector (Adjudication) that there was no, rule or order for the importers to produce proof of sale to the growers and (any condition) that the imported coconut seeds could not be sold anywhere else in Pakistan. The complete list of PRAL (Pakistan Revenue Automation Ltd.) for imports during August .1998 to July 1999 submitted with the reply to the show-cause notice was adequate proof that all importers had paid 15 % duty and no sales tax and the Sales Tax Department had not asked a single importer to pay sales tax or penalize him as vas done in his case. He also explained that the three companies, namely I.A. Qazi and Sons, SKI International - Traders, and Trade and Commerce Corporation were completely independent and not sister concerns as wrongly reported by the Deputy Superintendents.

5. He stated that the Deputy Collector (Adjudication) gave him a patient hearing and did not cross-examine on a single point. However, the Deputy Collector decided the case against them, vide the Order-in- Original, dated 21-9-2002, requiring them to pay sales tax Rs.804,834 alongwith additional tax Rs.5,52,116. He wrote an appeal (for submission) to the Collector (Appeals) and went to the office to personally file it. The Collector (Appeals) refused to accept the appeal and asked his PA not to acknowledge its receipt unless the total amount was deposited in the treasury. Another request vide letter, dated 23-10-2002 was also made to him to accept the appeal as they were not in a position to make the payment. The proprietor requested that action be taken Against the sale tax officials who demanded Rs.300,000 bribe from them and summon the Complainants and the concerned officials of the Sales Tax Department for hearing before this forum.

6. The Collector, Sales Tax and Central Excise (West), Karachi, replied to the complaint that information was received that a few importers of coconut seeds were selling their product in the local- market. They were also importing semi-husk coconut for edible purposes. He stated that according to the regulations of the Federal Seeds Certification Department, Ministry of Food, an importer could only import, seed under the concessionary rate of duty and avail sales tax exemption when the consignment was utilized for sowing/growing. These importers were required to submit undertaking before the Seeds Department not to sell the goods in the open market A team was constituted for Audit of Sales Tax records of a leading importer Messrs IA Qazi and Sons and during the visit of the Audit Team, the proprietor informed that they were not maintaining any sales tax record but filing sales tax return regularly. They were asked to produce private record of sales, which they refused. Therefore, under section 38 of the Sales Tax Act. their private record was resumed.

7. The Collector stated that the scrutiny of the records revealed that, besides importing coconut seeds, they were also importing semi husk coconut. The import data of coconut seeds and semi husked coconut from July 1998 to August 2000 was obtained from PRA L showing the actual quantity of imports (which had) not (been) shown in the sales tax return(s). The private record also proved that the ,coconut seeds were sold in the market, especially to the parties of Lahore and Hyderabad. A few transport documents confirming dispatch to Lahore and Hyderabad were also resumed.

8. The Collector added that according to the Pakistan Coconut Plantation Society, the coconut seeds could be planted within 100 miles of the coastal area: He stated that Messrs 'Trading and Commerce Corporation, the sister concern of Messrs 1A Qazi and Sons, were also engaged in the same trade. It was found that Messrs SKI International Traders and Messrs-IA Qazi and Sons had joint business. Their personal bank accounts were checked and it was found that from July 1998 to May 2000, the total amount of Rs.22,130,640 had been received through their 11 accounts. It was not possible to distinguish how much of the amount was received against sales of coconut seeds. The amount of customs duty and sales tax evaded by the unit was calculated on the basis of the PRAL data. Show-cause notice was issued to the complainants for violation of sections 3, 5, 6, 10, 11, 22, 23 and 26 of the Sales Tax Act, and recovery of sales-tax amounting td Rs.8,04,834 and additional tax Rs.5,52,116 determined under section 36 read with section 34 of the Sales Tax Act besides penal action under section 33 ibid.

9. In the parawise comments, the Collector denied the charges of demand of Rs.300,000 and stated that this was baseless, fabricated and an after-thought as more than 11 hearings had been conducted before the adjudication authority but this complaint was hot made. He stated that the complainants had failed to `maintain' (mention) any date and time of the telephonic calls whereby the alleged bribe was demanded. The allegation regarding taping of the conversation of Deputy Superintendent' Jafferi might not be genuine in modern advanced technology era. The Collector stated that all the allegations levelled by the complainants seemed to be fabricated having no legal ground and without admissible evidence. The investigation against the complainants had annoyed them and they have leveled baseless charge of bribe of Rs.300,000 against the officer. He commented at length (favourably) on the assets of the two Deputy Superintendents.

10. During the hearing of the complaint, the complainants reiterated the circumstances under which his office was raided by the sales tax officials who rummaged through, the table drawers and seized the private records of his firm as well as the other firms located in the same premises and the records of the importers/exporters whose goods were cleared by his son. He stated his firm imported coconut seeds arid paid the customs duty at the import stage and the import of coconut seeds was exempt from sales tax under the Sixth Schedule to the Sales Tax Act The Assistant Collector of Sales Tax (West) had issued a notice, dated 14th April 2000 under section 38 of the Sales Tax Act to raid the office premises of the complainants, and the officials named in the complaint delivered the notice and took away all the records comprising 46 files of their office. The Department issued show-cause notice, dated 19-6-2002 leveling two allegations, firstly that they had proof that imported coconut seeds was exempt from sales tax under the Sixth Schedule to the Sales Tax Act The Assistant Collector of Sales Tax (West) had issued a notice, dated 14th April 2000 under section 38 of the Sales Tax Act to raid the office premises of the complainants, and the officials named in the complaint delivered the notice and took away all the records comprising 46 files of their office. The Department issued show-cause notice, dated 19-6-2002 leveling two allegations, firstly that they had proof that imported coconut seeds were sold in the local market to the traders of Lahore and Hyderabad, and secondly that Mr. Kaukab Iqbal son of Mr. I.A. Qazi, who was operating Messrs Trade and Commerce Trading Corporation, was also selling coconut seeds imported by both their concerns in-the local market. The complainants stated that they replied to the show-cause notice on 22-9-2000 and enclosed a letter, dated 27-6 2000 from the Seed Inspector that the Seed Department had no restriction on selling of seeds in a particular area.

11. The proprietor of the firm stated that during the period intervening the issue of the show-cause notice and the passage of the order-in-original, Tahseen Saleem and Najeebullah Jaffery, Deputy Superintendents, contacted the complainant's son Mr. Kaukab Iqbal on telephone and demanded Rs.3 lac from him on behalf of the team members of the raiding, party. Mr. Kaukab Iqbal had in his possession the record of their telephonic conversation. The money was not paid to these officials and they kept on threatening the complainants. When their efforts to extort money did not materialize, the order was passed against them. Mr. Kaukab Iqbal stated that these officials also threatened his wife that the disclosure of the (tape) recorded conversation to the authorities would cost him. his life. This threat was not brought to the notice to the Collector of Sales Tax because Mr. Kaukab Iqbal was--advised that his clearing and forwarding business would be adversely affected by a complaint against the officials of a sister department.

12. The advocate representing the complainants raised some significant legal points. He stated that notice under section.38 of the Sales Tax Act should be issued with the approval of-the C.B.R. or the Collector. The Assistant Collector did not state in the notice that prior approval from C.B.R. or the Collector had been obtained and therefore the notice was illegal. Secondly, subsection (3) of section 32 debarred the officer to whom any power was delegated under the Sales Tax Act from further delegating such powers. In contravention of this provision, the Assistant Collector delegated the powers to raid and search to the Deputy Superintendents. He argued that the show-cause notice was issued in June 2000 and the adjudication order was passed in September; 2002, i.e., two years and three months after the issue of the show-cause notice. It has been provided under section 11(4) of the Sales Tax Act that the order should be made within 45 days of issuance of show-cause notice or the extended period of 90 days. Therefore, the adjudication was legally flawed and deserved to be set aside.

13. The advocate also argued that there were no orders of the Seed Certification Department forbidding the, sale of imported coconut seeds in the market at Karachi, Lahore or anywhere else in Pakistan: There were no orders of the Customs Department or the C.B.R. prescribing any conditions on import and sale. There were no restrictions either in the Sales Tax Act or imposed by the (Provincial) Agricultural Department. The complainants imported the coconut seeds and paid duty according to the customs tariff availing exemption from sales tax under serial 4 of the Sixth Schedule to the Sales Tax Act. The complainants have never acted against the provisions of law nor evaded customs duty and sales tax. It was not true that coconut could be grown only within 100 miles of (the coastal area of) Karachi. According to the latest research and reports, confirmed by the Council General of Sri Lanka based in Pakistan, the coconut plantation could be established even in the mountain area and riverbeds.

14. He stated that it was not possible to determine how much amount was received on the sale of Coconut Seeds and determination of tax liability on mere presumption was in any case not justified. The amount of sales-tax recoverable as indicated in paragraph 4 of the show-cause notice was based on presumption. The total amounts received by the complainants included transportation charges, loading and unloading charges, and several other expenses and dues. The department has merely 'taken the figures of the bank account as the value of supplies made by the complainants. It was wrong to report that the complainants were not maintaining the sales tax record. The factual position was that the audit party did not pay any visit to their office: When they conducted the raid, they met Mr. Kaukab Iqbal; the proprietor of Messrs ASKI International. He was engaged in the customs clearing and forwarding work and obviously did not maintain sales tax record.

15. The advocate invited attention to the list of 35 importers of coconut seeds obtained from the Computer Bureau of the Appraisement Collectorate and stated that none of these importers had either paid the sales tax or has been called upon by the authorities to pay the tax. The complainant's firm had been singled out for this illegal action and harassment by the sales tax officials. He requested that the order passed by the adjudication officer/the Deputy Collector of Sales Tax be set aside and strict administrative action be taken against the sales tax officials for demanding illegal money and harassing the complainants.

16. The Deputy Collector reiterated the, arguments advanced in the reply of the complaint and the comments and added that the show-cause notice was duly issued to the complainants, full opportunity was provided to them to explain their position and as many as 14 hearings were conducted because several officers were transferred one after another. He stated that the provision of decision within 4, 5 days, or extended period of 90 days, under subsection (3) of section 36 of the Sales Tax Act was recommendatory in nature as per ruling given by the Lahore High Court and not mandatory. On inquiry, the Deputy Collector replied that under the Sixth Schedule of the Sales Tax Act, there was no bar or conditionality on the sale of imported coconut seeds. However, he stated, the correspondence with the Federal Seeds Certification Department disclosed that the sale of coconut seeds was not allowed.

17. The Deputy Collector was asked to furnish answers/comments on some questions and issues raising out of the proceedings of the complaint. His answers are reproduced below:--

(i)Q. Whether Collector's prior approval under section 32(3) of the Sales Tax Act. had been taken for raiding the office of the complainants?

Ans. The Collector of sales-tax had authorised the Additional Collector and the Assistant Collector to proceed in the case.

Q. Whether the Collector had authorized the team members under section 38 of the Act to conduct raid?

Ans: Section 32 of the Sales Tax Act empowers the C delegate the powers to any officer of the Sales Tax Department by notification in the official Gazette; subsection that the Officer to whom any power is delegated to delegate it further.

(ii)Q. What are the restrictions on the sale of the coconut seeds in the local market and the evidence the Department has that coconut seeds were sold to unauthorized persons?

Ans: The private diaries resumed at tile time of visit revealed that the complainants had sold the goods to the persons other than the growers (belonging to the) outstation (destination).

(iii)Q. Out of 35 importers identified in the PRAL printout, what was the number of importers who had paid sales tax on coconut seeds or against whom cases were made out?

Ans. No reply.

(iv)Q. The proviso under subsection (3) of section 36 lays down that the order for recovery of tax under-levied or short levied should be made within 45 days issue of show-cause notice or extended period of 90 days. What was the justification for ignoring this time-limit?

Ans. On page No.9 of the note-sheet of file No.16(35)ST/W/TECH?2000 there is a note that extension has been granted by the C.B.R. up to 30-9-2002. Additionally, in a decision by the Appellate Tribunal in Appeal No.2041/LB/2001, it has been held that the time limit for adjudication after issue of show7cause notice is directory and not mandatory.

(v)Q. coconut seeds imported for sowing were exempt under the Sixth Schedule of the Sales Tax Act. Under what law was the case made out against the complainant?

Ans. No Answer.

18. The submissions made by the complainants and their counsel and the arguments put forward by the respondent have been discussed in the foregoing paragraph at considerable length. This is a unique case in that the Collector of Sales Tax arrogated unto himself the functions of the policy maker, the regulator and the enforcement agent end took the view that since in his opinion, and according to his information, the complainants were selling/dispatching the goods to the wrong parties, they were liable to sales taxe and not entitled to the exemption prescribed in the Sixth Schedule. The C.B.R. or the Federal Government had not prescribed any rules nor issued any instructions for the importers and the department or given any directive about exercising control on the sale of coconut seeds genuinely and lawfully imported and cleared by the Customs Authorities.

19. Thus armed with the Collector's illegal directive, the Sales Tax Department, in its zeal to verify the sales of imported coconut seeds, swung into action, without the legal authority to undertake post importation verification. The raid of the office premises, its search, seizure of the documents, and institution of case for tax evasion and contravention of various provisions of Sales Tax Act were undertaker, without lawful basis. The Deputy Collector (Adjudication) issued the show-cause notice and decided the case against the complainants ordering recovery of sales tax, additional tax and penalty on the basis of the allegations that the importers were selling coconut seeds imported for sowing purposes. The Adjudicating Officer placed reliance solely on the letters of the Seed Inspector to the President, Coconut Plantation Society, expressing concern on the import of coconut seeds, and calling for detailed information from the said Society for monitoring the Coconut Seeds imports and their utilization. When the complainants wanted to file an appeal before the Collector (Appeals), he refused to receive it without prior payment of dues and also forbade his Personal Assistant from receiving the appeal document:

20. The legal position is absolutely clear that under Item 4 under Serial No.4 of the Sixth Schedule of the Sales Tax Act, 'Seeds, fruits A and spores for sowing'; under heading 12-09, are exempt from sales tax. The Customs Authorities had released the imported consignments lawfully allowing sales tax exemption after completing the formalities. The respondent has not produced .any orders, instructions, rules and regulations with regard to the restrictions/conditions about the sale of coconut seeds The Government has not prescribed any regulatory mechanism is this regard. The Collector and his subordinate officials acted beyond jurisdiction and without authority.

21. The Deputy Collector (Adjudication) merely reproduced the written reply of the complainants and the para-wise comments of the Departmental representative in the adjudication order, dated 21-9-2002. She has drawn conclusion from some correspondence of Federal Seed Certification Department and the Seed Inspector and refused to entertain the pleas of the complainants and ordered the recovery of sales tax and additional tax mentioned in .the contravention report in addition to penalty. The respondent has contended that the hearing was conducted 14 times but the complainants did not mention about the demand of bribery. Firstly 14 dates of hearing represent adjournments. 14 times and hardly as many opportunities for defence; they not merely show the quick turnover of the officers but also betray how non-seriously the adjudication work is taken: Secondly, the adjudication order itself gives a clear impression that the officer did not apply her mind and meekly, almost summarily, she pronounced judgment in accordance with the charges framed in the contravention report. The pendency of the case for over two years cannot be justified under any circumstances. It has not been denied by the department that the Collector (Appeals) refused to receive the appeal against the order of the Deputy Collector.

22. From the foregoing facts it is established that action taken by the department i.e. the Collector and his subordinate officials, the adjudication order passed by the Deputy Collector, and the refusal of the Collectors (Appeals) not to allow the complainants to even file an appeal, were all contrary to law, perverse, arbitrary and unreasonable, unjust, I oppressive, and a regrettable example of administrative and judicial excess in misuse of powers, which constitute maladministration under section 2 of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000.

23. The other issue involved is in respect of allegations of corruption, rude behaviour and harassment by staff members particularly Najeebullah Jafferi and Tehseen Saleem. On this issue evidence was recorded. The complainant, Iqbal Ahmad Qazi, his son Kaukab Iqbal and Mumtaz Ali Shaikh and Syed Tanvir Hussain were examined who supported the complainant, while the statement of Tahseen Saleem and Najeebullah Jafferi was also recorded. All these witnesses were cross-examined.

24. A perusal of the statements recorded makes it clear that the staff members particularly, Tehseen Saleem and Najeebullah Jafferi have behaved rudely in the office of the complainant. They had taken away all the files including the files of complainant's son and his clients who is carrying on his business of clearing agency in the same premises where his father (complainant) has his office. However, illegality was identified that no proper receipt enumerating each and every file or document seized was given to the complainant at the time of inspection of record or seizing them. A receipt only stating the number of files was issued. This is not a correct procedure. It was necessary to make inventory of all files, documents or articles and provide a receipt to the complainant duly signed by the authorised officer immediately at the time of seizure and removal from the premises.

25. Besides this from the evidence of P.W.1 it seems clear that Najeebullah Jafferi had demanded bribe from the complainant. Witnesses were examined on behalf of the complainant to corroborate the statement of Kaukab Iqbal who had produced tape-recorded talks between him and Najeebullah Jafferi. Although during cross-examination Najeebullah Jafferi challenged veracity of the tape-recorded statement, it seems from his statement as well that he admits that the tape-recorded talk contained his voice and that he had talked with Kaukab Iqbal. Further more the talk between Kaukab Iqbal and Najeebullah Jafferi at the latter's residence in the night is supported by two witnesses. Although the veracity of their statement had been challenged yet while considering such cases one should keep in mind facts and circumstances where traders hardly make false allegations of corruption and bribe out of fear and revenge action. It is therefore, necessary that full enquiry should be made and disciplinary action may be taken against Najeebullah Jafferi. As regards Tehseen Saleem except his rude behaviour allegation of demanding bribe is not established. He has clarified his position and filed documents to show that prima facia his assets were legally acquired.

26. Considering all facts and circumstances of the case it is recommended that C.B.R.

(i)Set aside the order passed by the Deputy Collector and quash the entire proceedings against the complainants within thirty days;

(ii)An enquiry be instituted and disciplinary action be taken against Najeebullah Jafferi and report be submitted within sixty days.

(iii)Letter be issued to Tehseen Saleem not to behave rudely with tax payers.

(iv)Instructions be issued that while seizing the records/documents/ articles of any unit complete inventory should be prepared on the spot and delivered to the unit duly signed by the authorized officer before- the removal from the premises.

(v)Compliance with regard to (i) and (ii) as indicated therein and with regard to (iii) and (iv) within thirty days.

C.M.A./828/FTOOrder accordingly