Messrs WAH NOBEL ACETATES LTD., WAH CANTT. VS SECRETARY, REVENUE DIVISION, ISLAMABAD.
2004 P T D 1829
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs WAH NOBEL ACETATES LTD., WAH CANTT.
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD.
Complaint No.86 of 2003, decided on /01/.
th
August, 2003. (a) Sales Tax Act (VII of 1990)‑--
‑‑‑‑Ss. 10(1) & 67‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Excess amount to be carried forward or refunded‑‑‑Delayed refund‑‑‑Input tax refund claim‑‑ Investigation and verification‑‑‑Time limit‑‑‑Type of investigation and verification‑‑‑Where there were reasons to believe that the input tax refund claim was not admissible the provisions regarding entitlement and time limit shall not apply till investigation and verification of deposit of tax was completed‑‑‑Investigation and verification could be of two types: One, which was made in a normal and routing manner verifying the correctness of claim and the other where there were reasons to believe that the claim was not admissible‑‑‑In such cases investigation and verification may take some time but it should not be unreasonably lengthy‑‑‑Taxpayer should be made aware of the reasons, which had led to believe that the claim was not refundable and thereafter process of investigation may start‑‑‑Such verification and investigation should be completed within a reasonable period keeping in view the intention of the Legislature as expressed in S. 10(1) of the Sales Tax Act, 1990.
(b) Sales Tax Act (VII of 1994)‑‑‑--
‑‑‑‑Ss. 67, 66 & 10(1)‑‑‑Sales Tax Refund Rules, 1996‑‑‑Sales Tax Refund Rules, 1998, R. 9‑‑Sales Tax Refund Rules, 2000, R.9(2)‑‑ Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑Delayed refund‑‑‑Input tax on import of machinery‑‑ Claimed refund was paid in three instalments‑‑‑Claim of compensation non‑issuance of refund within the stipulated time‑‑‑Unreasonable delay in verification of documents‑‑‑Validity‑‑‑No document had been produced to justify delay in verification‑‑‑Unreasonable delay had been caused in passing the order for refund which amounted to negligence and delay was caused without any valid reason ‑‑‑Mal administration was established as the department unreasonably delayed the processing and decision on the refund application‑‑‑One of the conditions for refund was that amongst other documents a declaration ought to be filed to the effect that production was started within two years after the import of machinery and plant‑‑‑Said document though was said to, have been filed it had not been produced by either party‑‑‑Was necessary to ascertain whether the complainant commenced taxable supplies within the time fixed by the Central Board of Revenue‑‑‑Federal Tax Ombudsman recommended that Collector to inquire whether the complainant commenced production and supply of taxable goods within a period of two years from the date of receipt of refund; that in case the findings was in positive, the Collector to ensure that additional sum due under S.67 of the Sales Tax Act, 1990 was paid that in case the finding was in the negative the Collector to proceed in accordance with law and Central Board of Revenue 'to do counseling to the Custom officials to ensure better understanding and proper appli cation of relevant laws and rules while ,performing their duties.
Amanullah Khan, F.C.A. G.M. Finance and Tahir Razaq Khan, F.C.A. for the Complainant.
Muhammad Saleem, Deputy Collector Sales Tax and Muhammad Ishtiaq, Law Officer for the Revenue.
DECISION/FINDINGS
The complainant carries on business of manufacturing of acetic acid and esters. It is registered with the Collector of Sales Tax and Central Excise, Peshawar. It has been pleaded that during the year 1997 the complainant imported machinery and paid sales tax amounting to Rs.19,792,414. It applied for sales tax refund vide refund application, dated 5‑11‑1997 stating that all the shipments have arrived at factory site and are at erection stage. The Sales Tax Authorities delayed the issuance of refund for almost 3 years and issued in instalments as under:‑‑
| 1st instalment | Dated 22‑8‑2000 | Amount of Rs.65,97,471 |
| 2nd instalment | Dated 19‑10‑2000 | Amount of Rs.65,97,471 |
| 3rd instalment | Dated 30‑1‑2001 | Amount of Rs.65,97,471 |
According to the complainant the sales tax department was bound to issue the refund within 90 days of the date of application, dated 5‑11‑1997 but it delayed the refund for almost 3 years and this constituted maladministration. The complainant claims to be entitled to compensation amounting to Rs.7606.1.916 as provided under section 67 of the Sales Tax Act, 1990. The complainant further pleaded that it applied for compensation by application, dated 2‑4‑2002 followed by remainders, dated 24‑4‑2002, 2‑5‑2002 and 20‑12‑2002 but the respondent neither allowed any compensation to the complainant nor furnished any reply. It has been stated that if Sales Tax Authorities did not want to issue the refund for some valid reasons they should have issued a show‑cause notice under section 10(4) of the Sales Tax Act, 199(1, which show‑cause notice, was not issued. The complainant has claimed that as the refund was not issued within the stipulated time it is entitled to compensation under section 62 of the Sales Tax Act as a matter of statutory right.
2. In reply, the Sates Tax Collector, Peshawar has pleaded that refund application of the complainant was not accompanied by the supportive documents, which were sent by the complainant on 11‑11‑1999. Hence prior to this date refund claim of the complainant could snot be considered. The supporting documents were sent for verification and as soon as verification reports were received the refund claim was sanctioned and paid in three instalments. It has been stated that refund claim of the complainant does net fall under section 10(1) of Sales Tax Act 1990 because the complainant was not making any taxable supplies at the time of import of machinery. Therefore, question of payment of interest under section 67 of the Sales Tax Act, 1990 on the refund issued to the complainant does not arise. It has been pleaded further that 14% payment is made in cases, which fall under section 10(2). The complainant's claim was rightly sanctioned under section 66 of the Sales Tax Act.
3. From the facts it is obvious that a refund of Rs.19,792, 414 became due in 1997 and was paid by the department in three instalments on 22‑8‑2000, 19‑10‑2000 and 30‑1‑2001. The complainant has now made claim under section 67 of the Sales Tax Act for an amount equal to 14 % per annum of the amount of the refund. Under section 67 this amount for delayed payment is made provided the refund is due under section 10. The plea taken by the department is that the refund was made under section 66 and not section 10. Section 10 as it stood at the relevant time and applicable to the case reads as follows:‑‑
"Refund of Excess Amount of Input Tax.‑‑‑(1) Subject to the provisions of subsection (2), if in relation to a tax period the total deduction of input tax and other adjustments specified in section 9 exceed the amount of output tax, the excess amount outstanding at the end of that period shall be refunded to the registered person within ninety days of filing of tax return subject to such conditions as may be specified by the Board:
Provided that refund shall also be admissible to the registered person who, at the time of taking delivery of taxable plant and machinery, its components and spare parts is not making taxable supplies, subject to coition that he shall, within the period specified by the Board by notification in the official Gazette, commence taxable supplies and complies with such other conditions as are specified therein.
(2)Notwithstanding anything contained in subsection (1), the input tax incurred in connection with a zero rated supplies shall be refunded not later than thirty days of filing of return in such manner and subject to such conditions as the Board may, by notification in the official Gazette, specify:
Provided that those zero‑rated suppliers who prefer to claim refund of sales tax alongwith customs‑duty by making applications to the exporting customs station may continue to claim refund in that manner till such time any other procedure is notified by the Board.
(3)If a registered person is liable to pay any tax, additional tax or penalty payable under any statute administered by the Board, the refund of input tax shall be made after adjustment of unpaid outstanding amount of tax or, as the case may, additional tax and penalty
(4)Where there is reason to believe that a person has claimed input tax credit and refund which is not admissible to him, the provisions regarding his entitlement to credit or refund and the time limit of thirty days shall not apply till the investigation is completed and the claim is either accepted or rejected.
(5)For the purpose of claiming refund of input tax, the provisions of this section shall come into force from the first day August, 1996:
Provided that the tax returns for the month of June, 1996, shall be dealt with in accordance with the existing provisions.
Section 10 was amended by the ‑Finance Act, 1998 but the provisions regarding refund to the investor materially remained the same.
4. The complainant by letter, dated 5‑11‑1997 made a claim for refund under section 10 of Sales Tax Act. The department passed the following order, dated 22‑8‑2000:‑‑
"Messrs Wah Nobel Acetates Limited, Industrial Estate, Hattar filed monthly return under section' 66 (10 of 1997) of the Sales Tax Act, 1990 wherein refund claim amounting‑to Rs..19792414 was lodged:
The refund claim has been processed/scrutinized in, terms of S.R.O. 417(I)/2000, dated 20‑6‑2000. Upon scrutiny, of documentary evidence produced by the party in support of the refund claim, the claim appears to be in order. An amount of Rs.6597471 being 1/3rd of the total claim in favour of Messrs Wah Nobel Acetates Limited, Industrial Estates, Hattar may please be sanctioned provisionally and subject to subsequent investigation/audit later on".
5. Now coming to the controversy whether the complainant was entitled to refund under section 66 and not section 10, for proper appre ciation of section 66 as applicable in 1997 is reproduced as follows:‑‑
"Section 66
Refund to be claimed within one year.‑‑‑No refund of tax claimed to have been paid or over paid through inadvertence, error or misconstruction shall be allowed, unless the claim is made within one year of date of payment .
This section was amended by Finance Act, 1998 and reads as follows:‑‑
"66. Refund to be claimed within one year.‑‑‑No refund of tax claimed to have been paid or over paid through inadvertence, error or misconception or refund on account of input adjustment not claimed within the relevant tax period, shall be allowed, unless the claim is made within one year of the date of payment‑.
It may be pointed out that the words "or refund on account of input adjustment not claimed within the relevant tax period" was added by Finance Act, 1998. Therefore, this part of the present section 66 will not apply to the complainant as it became entitled to refund in the year, 1997 and application for refund was also filed in, 1997. The claimant's right to refund having perfected before the amendment, the same cannot be disturbed and the provision as it stood before amendment in 1998 will govern the case. The conditions laid down by section 66 as applicable to the present case are not attracted to the complainant's claim for refund because it was never claimed that the tax was paid due to inadvertence, error or misconception. Therefore section 66 cannot be applied to the complainant's claim. Although in the order it has been stated that monthly return was filed under section 66 the complainant maintains that it was not, filed under that section. A perusal of facts and the nature of inquiry and order passed make it clear that the case fell within the ambit of section 10. Even if section 66 was mentioned which is denied by the complainant mere mentioning of wrong section will not deprive the claimant of its right and claim.
6. It is noteworthy that although in the refund application it was clearly stated that the relevant documents enumerated therein were enclosed, the department never objected that the said documents were not received. Nor there is any mention in the order; dated 22‑8‑2000 about non‑submission of the relevant document with the application. However, it can be noted that the enclosed documents were in respect of import and shipment of the plant and machinery. The complainant has produced photocopy of department's letter, dated 12‑10‑1998 in which complainant was asked to produce original documents in support of the refund claim of Rs.3039607. Another letter of the claimant, dated 20‑3‑1999 addressed to the Senior Auditor reveals that hearing was held on 12‑12‑1998 and certain documents were required to be produced. The documents enclosed with this letter (20‑3‑1999) were photocopy of (i) lease deed, (ii) feasibility report (iii) declaration on judicial stamp paper that production was started within two years after the import of plant and. machinery and (iv) installation/completion certificate. It may be clarified that when the claim was made S.R.O. 695(I)196, dated 22‑8‑1996 (Refund Rules) were applicable which contained rule identical' of Rule 9 of Sales Tax Refund Rules, 1998. It provided that an investor claming refund uncle: section 10 is required to file all the above mentioned documents which are alleged to have been filed on 20‑3‑1999 during the course of hearing. The claim therefore, could not be treated under section 56. However, at the time of processing and passing order Refund Rules, 2000, S.R.O. 417(I)/2000 had been promulgated which, by Rule. 9(2) required the investor to furnish (i) bill of entry or tax invoice (ii) Plot allotment order or ownership documents of premises where such machinery and plant has been installed (iii) rent deed in case of rented premises (iv) feasibility report (v) loan documents if applicable. For claim of refund under section 66 bill of entry input tax invoices and out put :ax invoices in case of goods have been supplied domestically were required to be submitted. The documents submitted from time to time as required during hearing of the case clearly established that they were to be produced in support of claim for refund under section 10 and not section 66. Considering the facts and circumstances of the case the claim could. not be made under section 66. However as pointed out above the relevant part of section 66 added in 1998 does not apply to this case. For argument sake if the department processed the claim for refund treating it under section 66 then it fell in serious error as such processing was not permissible under law. It seems that the concerned officer did not properly and correctly apply the relevant provision of law and laboured under the misconception that section 66 as amended in 1998 was applicable to the case.
7. The claimant has contended that the Department has not explained the delay in deciding the claim of refund filed on 5‑11‑1997. In this regard reference has been made to the department's letter, dated 12‑10‑1998 by which original document in respect of claim of refund of Rs.3039607 were required to be produced. The complainants complied with the request. The hearing seems to continue till 12‑12‑1998 when again certain documents were required which were supplied on 20‑3‑1999. The learned representative of the complainant has explained that during hearing ail these documents were produced and examined but as no decision was made for three months again these documents were sent to follow up the case. The claimant issued a reminder on 11‑5‑1999 requesting to expedite the decision for refund of Sales Tax but no response was made by the department. Thereafter, refund was made by the department. Thereafter, refund was made in instalments on 22‑8-2000, 19‑10‑2000 and 30‑1‑2001. The delay prima facie remains un‑explained. The entire defence of the department is that the claim for refund was governed by section 66 hence no amount can be claimed under section 67. As discussed above this contention has no force.
8. Mr. Muhammad Salim, Deputy Collector Sales Tax contended that at the time of import of machinery the complainant was not making any taxable supplies hence sales tax paid on machinery is not an input tax and refund is not subject to time limit as claimed. In this connection reference can be made to the proviso to subsection (1) of section 10 reproduced above which provided that the refunds shall also be admissible to the registered person who at the time of taking delivery of taxable plant and machinery, its components and spare parts is not making taxable supplies subject to the condition, that he shall within the period specified by the Board by notification in the official Gazette, commence taxable supplies and complies with such 'other conditions as are specified therein. The complainant has submitted that installation of imported machinery and plant was completed on 30‑6‑1998, the trial run production started on 1‑7‑1998 and commercial production started on 1‑7‑1999. According to subsection (4) of section 10 where there are reasons to believe that the input tax refund claimed is not admissible the provisions regarding entitlement and time limit shall not apply till investigation and verification of deposit of tax is completed. The investigation and verification can be of two types. One, which is made in a normal and routine manner verifying the correctness of the claim. The other where there are reasons to believe that the claim is not admissible. In such cases investigation and verification may take some time but it should not be unreasonably lengthy. The party should be made aware of the reasons, which have led to believe that the claim is not refundable and thereafter process of investigation may start. Such verification and investigation should be completed within a reasonable period keeping in view the intention of the Legislature as expressed in subsection (1) of section 10. The respondents have pleaded that the claim papers were sent for verification and on receipt of report the refund was sanctioned. No document has been produced to justify delay in verification. There was unreasonable delay in passing the order for refund., This amounted to negligence and delay was caused without any valid reason. Mal‑ administration is established as the respondents unreasonably delayed the processing and decisi6n on the refund application filed in 1997. The respondents were duty bound decide within 90 days of the filing of return.
9. The refund order for payment of 1/3rd of the amount was passed on 22‑8‑2000 which was processed in terms of S.R.O. 417(1)/2000, dated 20‑6‑2000. One of the conditions for refund was that amongst other documents a declaration be filed that production was started within two years after the import of machinery and plant. Although this document is alleged to have been filed it, has not been produced by either party. The department has stated that this document was not filed. Without entering into this controversy it seems that perhaps the concerned officer under misimpression did not seem to have given due importance to this requirement. Although proviso to section 10 provided that refund shall be admissible to the registered person who at the time of taking delivery of plant and‑ machinery is not making taxable supplies subject to the condition that he shall within the period specified by the Board in official gazette commence taxable, supplies and complies with such other condition as specified such conditions have been specified, by the Board in the Refund Rules. The Senior Auditor who passed the order did not inquire whether the undertaking as required and referred above had been furnished and duly complied with. It may be noted that while sanctioning the payment the Deputy Collector had ordered that it shall be recoverable under section 48 of the Sales Tax Act if any discrepancy is found during subsequent investigation. It is therefore, necessary to ascertain whether the complainant commenced taxable supplies within the time fixed by the C.B.R.
10. It is therefore, recommended that:‑‑
(i)That the Collector to inquire whether the complainant commenced production and supply of taxable goods within a period of two years from the date of receipt of refund.
(ii)In case the finding is positive, the Collector to ensure that additional sum due under section 67 is paid.
(iii)In case the finding is negative the Collector to proceed in accordance with law.
(iv)The C.B.R. to do counseling the Customs officials to ensure better understanding and proper application of relevant laws and rules while performing their duties.
(v)Compliance be reported within 30 days.
C.M.A./986/FTOOrder accordingly.