Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 10(2) & 67‑‑‑Sales Tax Refund Rules, 2000, Rr.6 & 7(2)‑‑‑C.B.R. Letter C,,No.2(7) STP/99‑PT dated 1-1‑2003‑‑‑S.R.O. 417(I)/2000‑‑ Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Refund of excess amount of input tax‑‑‑Withholding of total amount of refund due to few fake invoices or issued by the suspected units‑‑‑Validity‑‑‑Central Board of Revenue in its Letter C.No.2(7)STP/99‑PT dated 1‑1‑2003 observed that it would not be justified to reject a claim just because a few invoices were found to be fake or were issued by the suspected units; that the appropriate course in such case would be to disallow the refund claim to the extent of fake invoices and sanction the remaining amount, and if a refund claim was supported by tax invoices of suspected units; a show‑cause notice be issued before deciding the admissibility of the claim under the law‑‑‑Said Instructions were ignored by the Sales Tax Authorities ‑‑‑Federal Tax Ombudsman recommended that Central Board of Revenue to direct the Collector Sales Tax (West)., Karachi to get the invoices re‑verified from the Collectorate within thirty days and in case the genuineness of the invoices is not established issue, show‑cause notice to the complainant and decide the refund claim within two months.

M. Mubeen Ahsan, Advisor, Dealing Officer.

M. Shamshad Younus, Consultant.

Dr. Mubashir Baig, Deputy Collector of Sales Tax (West) and Nadeem Ahmed Rao, Senior Auditor.

FINDINGS/DECISION

The complaint has been filed against the Sales Tax Department for inordinate delay in deciding the claim for refund of sales tax. The complainants have stated that they had purchased textile made‑ups and paid sales tax Rs.10,60,756.20 in August, 2001 and the invoices were verified by the Collectorate (of the suppliers). They exported the goods and filed refund claims on 21‑12‑2001 to the Collectorate of Sales Tax (West), Karachi, but the same have not been allowed. The complainants stated that instead of honouring the refund claim in full, the Collectorate sent them a letter dated 1‑4‑2002 that their refund claims had been withheld for want of verification.

2. The complainants stated that the invoices pertaining to their refund claims had already been verified. In section 10(2) of the Sales Tax Act, it has been laid down that "input, tax incurred in connection with a zero rated supply shall be refunded not later than thirty days of filing" of the claim. Similarly, under sub rule (2) of rule 7 of the Sales Tax Refund Rules, it has been provided that 50% of the claim shall be sanctioned and paid within 20 days of furnishing of the supportive documents. In spite of these clear legal provisions, even 50% advance refund has not been allowed after expiry of more than one year.

3. The complainants stated that this was case of maladministration on the part of the respondents and requested that they be directed to allow the refund of the amount claimed; 14% mark‑up be added to the refund amount under section 67 of the Sales Tax Act, and the Chairman, C.B.R., be directed to take disciplinary action against the Collector of Sales Tax and Central Excise (West), Karachi, and Deputy Collector (Refunds) for illegally withholding their money without valid reason.

4. The Collector of Sales Tax and Central Excise (West), Karachi, stated in his reply to the complaint that the letter dated 1‑4‑2002 was a letter of authorization and not information as mentioned by the complainants. The claims of the exporters were processed and sanctioned in terms of S.R.O. 417(I)/2000 read with section 10 of the Sales Tax Act on queue basis but were withheld due to the suspected status of the suppliers Messrs Aneeza Hasil Exports, Lahore. With regard to the 50% advance payment, he stated that this provision was meant for manufacturer‑cum‑exporter and not for the commercial exporters. Concluding his reply, the Collector stated that the claim was pending due to inclusion of the supplier in the list of the suspected units issued by the C.B.R. and there was no delay/pendency on the part of the Department.

5. During the hearing of the complaint, Mr. Shamshad Younus, Consultant, stated that four invoices issued by Messrs Aneeza Hasil Exports, Lahore, relating to August, 2001, had been verified by the Lahore Sales Tax Authorities. The record of the purchases made by the complainants and supplies have been maintained in the respective registers. The evidence of the export of the goods in the form of shipping bill and bills of lading were also available and the rebate has already been paid by the Customs Authorities. The supportive documents were submitted to the Department with the refund application alongwith the proof of payment in the form of photocopies of the cheque and the bank statements as required under section 73 of the Sales Tax Act. More than one year has passed and persistent efforts have been made to obtain the refund but no positive intimation has been given by the Department and the refund was still outstanding.

6. The Consultant stated that under rule 7 of the Sales Tax Refund Rules, the refund should have been sanctioned within one month of the submission of supportive documents. As regards the Department's plea that the name of the supplier was included in the list of suspected units, the factual position vas that the name of Aneeza Hasil Exports did not appear in the list of suspected units circulated by the Karachi Collectorate in July, 2001 and the list issued in February, 2002. He argued that the invoices have been verified, the plea that the name of the supplier was among the suspected unit (when the supplies were made) was not supported by evidence and this was a clear case of maladministration on the part of the Sale Tax Authorities.

7. The Deputy Collector of Sales Tax responded that, under rule 6 of the Sales Refund Rules, the sanctioned and payment of refund claim was contingent on the satisfaction of the Officer Incharge about the genuineness and admissibility of the claim. In this case the appropriate officer was not satisfied because the name of the supplier Messrs Aneeza Hasil Exports was included in the list of suspected units issued by the C.B.R. on 1st December, 2002. When the name of a supplier was placed on the list of suspected units, the refund applications pertaining to its invoices were withheld and no action taken.

8. Mr. Nadeem Ahmed Rao, Senior Auditor, narrated the phenomenon of fake and flying invoices reportedly issued by a large number of units which have been declared as suspected by the authorities on account of their dubious activities. These units issued multiple invoices, maintained' multiple records and were not paying the sales tax or filing genuine returns with the Department. According to him, even where the sales tax amount had been paid, the suspicion remained whether the unit had issued the invoice to one purchaser or to several purchasers. The Department was justified for not processing the refund claim filed by the complainants.

9. The facts of the case as stated by the complainants and their Consultant and submissions made by the respondent have been discussed in the foregoing paragraphs. The complaint relates to four invoices issued by a supplier in August, 2001 against which claim for refund was filed in December, 2001. The complainants have submitted photocopy of a document issued by the Deputy Collector (Refund Division), Karachi, on which the Inspector, Sales Tax and Central Excise, 56‑Shadman Lahore, sent verification report. This verified document was returned by the Additional Collector, Lahore, under cover of his letter, dated 17‑1‑2002.

10. The consultant has argued with justification that the suppliers name did not appear in the lists of suspected units issued in July, 2001 and February, 2002, and it was included in the list issued by C.B.R. on 1‑12‑2042 long after the dates of invoices and the filing of the refund claim. Therefore, at the time of supplies made in August 2001, the supplier was not a suspected unit. The Department could have re‑verified the invoices and in fact comprehensive audit of the unit should have been undertaken and completed immediately after suspicion was raised about its activities. The fact that the refund application has been pending since December, 2001 is a clear case of maladministration on the part of the Sales Tax Authorities.

11. The manner in which a refund claim should be processed if some invoices are found fake or inadmissible has been laid down in C.B.R. letter C.No.2(7)STP/99‑PT dated 1‑1‑2003. C.B.R. has observed that (i) it would not be justified to reject a claim just because a few invoices were found to be fake or were issued by the suspected units, (ii) the appropriate course in such case would be to disallow the refund claim to the extent of fake invoices and sanction the remaining amount, and (iii) if a refund claim vas supported by tax invoices of suspected units, a show‑cause notice be issued before deciding the admissibility of the claim under the (Sales Tax) law. These instructions seem to have been ignored by the Sales Tax Authorities.

12. It is recommended that C.B.R. direct the Collector Sales Tax (West) Karachi to

(i)get the invoices re‑verified from the Lahore Collectorate within the thirty days;

(ii)in case the genuineness of the invoices is not established, issue a show‑cause notice to the complainants; and

(iii)decide the refund claim within two months.

(iv)Compliance be reported within two and a half months.

C.M.A./831/FTOOrder accordingly.