FAISAL TARIQ VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2004 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1495 (2003)

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.19, 3A, 11, 14, 33, 34 & Sixth Sched., Sr. No.42‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Compulsory registration‑‑‑Hotel‑‑‑Notice for production of accounts for audit‑‑‑Compulsory registration without any evidence/report of turnover exceeding from threshold of Rs.2.5 millions ‑‑‑Validity‑‑ According to S.14 of the Sales Tax Act, 1990 as it stood at the time of compulsory registration a person was required to be registered if his annual turnover exceeded Rs.2.5 millions if he was a manufacturer (including a hotel) or Rs.5.0 millions if he was a retailer ‑‑‑Admittedly, department did not have any material whatsoever in the form of an enquiry report or any other evidence to show that the Complainant's receipts exceeded Rs.2.5 millions and he was liable to compulsory registration under S.19 of the Sales Tax Act, 1990‑‑‑Income‑tax assessment framed in the Complainant's case for the year 1999‑2000 clearly indicated that the Complainant's sales were far below the said threshold‑No case for the compulsory registration was made out under S. 19 of the Sales Tax Act, 1990 and subsequent, levy of penalty‑‑‑Federal Tax Ombudsman recommended that the deregistration proceedings in the complainant's case be finalized without further delay and penalty of Rs.5000 levied under Ss.33 and 34 of the Sales Tax Act, 1990 be deleted under S.45A of the Sales Tax Act, 1990.

Muhammad Tariq Khan for the Complainant.

Imtiaz Shaikh, Deputy Collector for Respondent.

FINDINGS/DECISION

This is a complaint relating to the allegedly illegal registration of the complainant's business under section 19 of the Sales Tax Act, 1990 and against the imposition of penalty under sections 33 and 34 of the said Act. The main points in the complaint are as follows:‑‑

(i) Falcon Hotel, owned by the complainant, is a low standard hotel which is not liable to pay bed tax or central excise duty.

(ii) The total receipts for the income‑tax assessment year 2002‑2003 were Rs.260,000 which were properly declared in the return filed with the Income Tax Department.

(iii) The Deputy Collector, Sales Tax (Registration and Information Division) has wrongly and incorrectly allotted a sales tax registration number to the complainant.

(iv) The complainant does not fall within the category of persons required to be registered under section 14 of the Sales Tax Act.

(v) No notice was served on the complainant and no opportunity of being heard was given prior to the registration.

(vi) Vide an application, dated 8‑3‑2003 the Collector, Sales Tax, Peshawar was requested to cancel the illegal registration but no response was made by him while on the other hand a show -cause notice, dated 9‑4‑2003 was issued by the Assistant Collector, Hazara.

(vii) According to the Sales Tax Act, 1990 hotel business (service providers) are placed within the category of "manufacturers" vide C.B.R.'s ruling No.63 of 2002, dated 12‑10‑2002 and thus section 3A and Sr. No.42 of the 6th Schedule would be applicable in the complainant's case.

(viii) Vide his order No.524 of 2003, dated 24‑5‑2003 the Assistant Collector, Sales Tax, Haripur has also imposed an illegal penalty of Rs.5,000 without considering the facts and circumstances of the case.

It has been prayed that the illegal registration and the penalty order be cancelled.

2. The respondent's reply has been received in which the main points are as follows:‑‑

(i) Being a registered person the complainant is required to maintain proper records, to issue tax invoices and to file sales tax returns. The complainant's reference to income‑tax returns is irrelevant unless the prescribed records are produced.

(ii) The complainant was given opportunity of being heard and to produce the relevant records after the compulsory registration notice served on 31‑1‑2003 (copy enclosed) but he failed to do so. Moreover the complainant's business premises were visited by the Haripur Circle's Tax staff in order to assess the complainant's eligibility for sales tax registration but the complainant refused to produce the relevant documents leaving no option but to make compulsory registration under section 19 of the Sales Tax Act.

(iii) The complainant has not maintained any record to ascertain his annual turnover as provided in section 3A and Item No.42 of the 6th Schedule to the Sales Tax Act. The complainant is, therefore, not entitled to any concession in this regard.

(iv) The complainant was issued a proper notice, dated 31‑1‑2003 requiring him to get himself registered but he failed to comply.

(v) In pursuance of the complainant's letter, dated 8‑3‑2003 his case for deregistration has been examined. The complainant has, however, not produced any records despite written intimation, dated 25‑2‑2003 and he also did not attend the meeting with the sales tax staff convened by the hotels association on 16‑6‑2003.

(vi) The complainant being a registered person had failed to file the tax return for February, 2003. A show‑cause notice under section 11 was, therefore, issued to him but the complainant filed a reply which was not relevant.

(vii) The compulsory registration under section 19 of the Sales Tax Act is legal and it is the complainant who has failed to get himself registered under the normal procedure and to produce the relevant records for audit despite opportunities.

(viii) The complainant should produce records to establish the quantum of his turn over for purposes of enrolment under section 3A.

It is thus contended by respondent that there was no fault on the part of the Sales Tax Department and it is actually the complainant who has failed to obtain registration, maintain records and file tax returns. It has been prayed that the complaint be dismissed.

3. During the hearing both sides reiterated their positions and the complainant's representative again stated that the notice, dated 31‑1‑2003 was never received by the complainant. The respondent's representative on his part was unable to furnish any proof of service and could not even state how the notice was sent. The records produced were also silent in this, regard. Similarly no documents or report could be produced by the respondent's representative in support of the contention that the complainant had refused to produce the required records before the visiting sales tax staff of the Haripur Circle. Similarly no report as envisaged in section 19 of the Sales Tax Act was produced by the respondent's representative to show that‑ the relevant sales tax authority had any basis for concluding that the complainant was required to be registered under section 14 but had failed to comply with the requirement. It was contended by the representative of the complainant that the hotel in question was being run by the complainant for the poorer classes although the family also had‑ some good hotels in respect of which sales tax etc. was being regularly paid. It was stated that the hotel had no kitchen or restaurant and even the employees of the hotel had to take their meals outside. It was also stated that the hotel had very low room rent and that much better hotels such as Faisal Hotel, Abbottabad and Mount View Hotel, Abbottabad were deregistered by the Sales Tax Department vide orders, dated 11‑7‑2003 but the complainant has not been deregistered. Reference was also made by the complainant's representative to the income tax assessments under normal law made in the complainant's case for the assessment years 1993‑94 and 1999‑2000 where in the first mentioned assessment the receipts were estimated at only Rs.120,000 and in the second assessment the declared receipts of Rs.240,900 were accepted. The complainant also stated that no notice relating to deregistration proceedings had been received.

4. The contentions of the two sides have been considered. According to section 14 of the Sales Tax Act as it stood at the time of the compulsory registration a person was required to be registered if his annual turnover exceeded Rs.2.5 million if he was a manufacturer (including a hotel) or Rs.5.0 million if he was a retailer. The representative of the department did not admittedly have any material whatsoever in the form of an enquiry report or any other evidence to show that the complainant's receipts exceeded Rs.2.5 million and he was thus liable to compulsory registration under section 19 of the Sales Tax Act. On the other hand, the income‑tax assessment framed in the complainant's case for the year 1999‑2000 clearly indicates that the complainant's sales were far below this threshold. There was thus no reason for the compulsory registration made in the complainant's case under section 19 of the Sales Tax Act and for the subsequent penalty levied in his case.

5. In the light of the above, it is recommended that:‑

(i) The deregistration proceedings in the complainant's case be finalized without further delay.

(ii) The penalty of Rs.5000 levied under sections 33 and 34 of the Sales Tax Act, 1990 be deleted under section 45A of the Sales Tax Act.

(iii) Compliance in respect of (i) and (ii) above be reported within 30 days.

C.M.A./1025/FTO Order accordingly.