ECONOMY PESTICIDES (PVT.) LTD., DERA GAZI KHAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2004 P T D 1841
[Federal Tax Ombudsman)
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
ECONOMY PESTICIDES (PVT.) LTD., DERA GAZI KHAN
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.392 of 2003, decided on /01/.
rd
July, 2003. (a) Sales Tax Act (VII of 1990)‑‑‑
‑‑‑‑S. 2(46)(e)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Value of supply‑‑‑Value addition‑ Pesticides‑‑‑Where there was sufficient reason to believe that the value of a supply had not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of Trade and the Sales Tax Department constituted by the Collector would be value of taxable supply‑‑‑Valuation Committee on pesticides had decided a minimum value‑addition of not less than 16% in addition to packing charges‑‑‑Value addition of 16% (minimum) as decided by the legally constituted Valuation Committee was correctly adopted by the Adjudication Officer.
(b) Sales Tax Act (VII of 1990)‑‑‑
‑‑‑‑Ss. 73 & 7‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Certain transaction not admissible‑‑‑Cash payments in bank account of supplier‑‑‑input tax adjustment‑‑‑Validity‑‑‑Payment made into the account of the supplier by tendering cash was not in conformity with the provisions of S.73 of the Sales Tax Act, 1990‑‑‑Cash receipts, were not banking instrument within the meaning of S.73 of the Sales Tax Act, 1990 and input adjustment claim in respect of those purchases were not admissible.
(c) Sales Tax Act (VII of 1990)‑--
‑‑‑‑S. 34‑‑‑Establishrrient of Office of Federal Tax ‑ Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Additional Tax‑‑‑Additional tax could be levied if the tax due or any part thereof had not been paid‑‑ Additional Tax was to be calculated right up to the date on which it was paid.
(d) Sales Tax Act (VII of 1990)‑‑‑--
‑‑‑‑Ss. 2(46)(e), 33(2) & 45A‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Value of supply‑‑ Value addition‑‑‑Sales of goods in bulk or in retail packing‑‑ Adjudicating Officer directed the auditor for 16% value addition in addition to the packing charges‑‑‑Twenty per cent value addition was made without making investigation whether the goods were sold in bulk or in retail packing‑‑‑Validity‑‑‑Adjudicating Officer did not give any definite findings whether the goods were sold in bulk or in retail packing‑‑‑Was just and fair that the case may be re‑examined for giving a definitive decision on merit after considering the arguments of the complainant and the relevant documents/evidence that the complainant may place before the Adjudicating Officer‑‑‑Federal Tax Ombudsman recommended that the Central Board of Revenue reopen the case under S‑45A of the Sales Tax Act, 1990 insofar as it related to inclusion of packing charges for levy of sales tax and imposition of penalty and direct the relevant authority to investigate and re‑examine whether or not the goods were sold in bulk or in retail packing and whether or not the penalty imposed in the case was legally imposed and then pass a fresh speaking order on merits after giving the complainant the opportunity of being heard.
Sheikh Ghulam Asghar for the Complainant.
Fazal‑ur‑Rehman, A.C. for Respondents.
DECISION/FINDINGS
It is a complaint of maladministration directed against Sales Tax Authorities, Multan and the Additional Collector Sales Tax (Adjudication) for instituting against complainant a false contravention case alleging evasion of sales tax on various counts and for passing an illegal Order‑in‑Original (142 of 2003, dated 22‑3‑2003) creating undue tax liability, demanding additional tax and imposing penalty. Brief facts of the case an narrated by the complainant are that the Senior Auditor, Sales Tax audited his record for the period 5‑1‑2001 to 30‑11‑2001, prepared a contravention report on the basis of which the Additional Collector issued a show‑cause notice demanding, in the first instance, a tax payment of Rs.26,70,919 on account of concealed purchases/sales, wrong input adjustment without making payment through banking channels and by clearing empty drums without charging sales tax. Subsequently, the contravention report was revised and the complainant was charged for concealment of sales of Rs.16,98,935 alleged payment of Rs.28,04,875 to suppliers of pesticides in cash rather than through banking channels because of which the input tax adjustment amounting to Rs.3,65,853 was alleged to have been wrongly claimed and the alleged sale of empty drums without charging sales tax. The complainant had sold pesticides to known persons and his sales were fully documented and not concealed. The payment to the suppliers was made through the banking channels. Although during the adjudication proceedings, the Senior Auditor had failed to provide evidence to substantiate the allegations, yet the Adjudicating Officer decided the case against the complainant. This amounts to maladministration. The show‑cause notice is illegal and liable to be vacated. The demand for additional tax and imposition of penalty are also unjustified. The impugned order may be set aside.
2. In this reply, the Additional Collector (Adjudication) has stated that the complainant has not availed the alternate legal remedy of appeal. The concealment of supplies is established as the complainant had failed to make value‑addition as decided by the Valuation Committee constituted under section 2(46)(e) of the Sales Tax Act, 1990. The Honourable FTO has already decided in Complaint No. 1300‑L/2002 that the value‑addition decided by the Valuation Committee was correctly applied. The complainant did not comply with the provisions of section 73 of the Act; as he did not make payment to the suppliers from his bank account as required under the aforesaid section. In complaint No. 1300‑L of 2002 the FTO has already observed that the cash deposit receipts do not serve the purpose of relevant section of the Sales Tax Act. ‑No maladministration has occurred. The Additional Collector passed a lawful order. The complainant may be filed.
3. In his reply, the Collector of Sales Tax, Multan has stated that the, case was decided after giving opportunity of defence to both parties. The complainant did not make 20% value‑addition to the purchases as decided by the Valuation Committee. The tax was short paid. The Adjudicating Officer dropped the charge of suppressed purchases because these were .reconciled from the record whereas the value addition of 20% was not made despite Valuation Committee's decision. The charge of under‑valuation is established. Since the payments were not made through banking channels the claim input tax adjustment was inadmissible. The Adjudicating Authority accepted the evidence provided by the prosecution. The complaint does not fall within the jurisdiction of the FTO as the complainant could avail legal remedy of filing the appeal.
4. During the hearing, tie Advocate of the complainant reiterated the points made in the written complaint emphasizing that there was neither any evidence of under‑valuation nor of concealment of sales and purchases. The value‑addition would be applicable only if the value declared in the invoice was proved as misdeclared. He referred to section 2(46) of the Sales Tax Act, 1990 according to which the price determined by the Valuation Committee becomes relevant only if there was sufficient reason to believe that the value had been under‑declared, otherwise the value declared has to be accepted. The prosecution failed to attend the adjudicating proceedings and furnish requisite evidence. The Adjudicating Officer himself became a party in deciding that the value‑addition may be calculated at 16% plus packing charges. He also erred in imposing additional tax and penalty. The Adjudicating Authority had failed to determine the extent of payable additional tax. He should have determined it under section 34 of the Act and not to leave it to the prosecution. Similarly, the penalty imposed under section 33(2) of the Sales Tax Act is also void as it does not mention the relevant sub‑clause of the aforesaid section. Thirty invoices were produced before the Adjudicating Officer, which did not indicate that the goods were sold in small packing. It is not a speaking order. The payment was made through banking channels. The complainant deposited cash in the bank account of the suppliers and the cash deposit slips are banking instruments. Entries to that effect were made in their own business account. i.e. in cash books, ledger etc. The section does not make it obligatory for the buyer to transfer the money from his bank account. The business account maintained by the complainant reflects these amounts having been paid to the supplier. The finance bill 2003‑2004 proposes to omit the section by substituting it by a new one. The charge of sale of empty drums was dropped. The FTO's decision cited by the respondents is not applicable.
5. The department representative stated that the show‑cause notice was served and the complainant was heard. Para. 4 of the adjudication order indicates that the representative of the prosecution did appear to attend the hearings. To begin with, there were mistakes, which were corrected. The discrepancy between the original contravention report and subsequent verification was removed. Valuation Committee set up by the Collector on 5‑3‑2002 had decided a value‑addition of 16% plus the packing charges in respect of supplies made during the period 1‑5‑2001 to 30‑11‑2001. The Committee consisted of Government and trade representatives. The show‑cause notice had charged under declaration of value and suppression of sales. The additional tax is to be calculated on the date the principal amount is paid and, therefore, its calculation was left to the relevant authorities. The Order‑in‑Original does mention section 33(2) as the section under which penalty was imposed. The complainant only deposited cash into the bank account of the seller whereas section 73 demands the transfer of money from buyer's bank account to the supplier's bank account. Since this was not done, the input adjustment was not admissible. The Adjudicating Officer applied his independent mind and dropped the charged of sale of empty drums without payment of sales tax. The pesticides were sold in small packing. The complainant is also registered as manufacturer. He received pesticides in drums and sold them to unregistered persons in smaller packing of various sizes.
6. The complainant, however, stated that the prosecution did not appear before the Adjudicating Officer four times. They supplied the pesticides in bulk and not in smaller packing as alleged yet the Adjudicating Officer ordered that charges on account of packing be added for purpose of recovery. The complainant had, applied 30 invoices to the respondents, which were neither checked nor examined by them. The authorities could have easily verified the actual position but failed to do so. The respondents, on the other hand, stated that the other set of invoices, which the department had possessed showed that the goods were supplied in small packing.
7. The arguments of the parties and the record of the case have been examined and considered. According to section 2(46) of the Sales Tax Act, 1990 the value of supply means in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipients for that supply but excluding the amount of tax. However, section 2(46)(e) provides that in case, where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representative of Trade and the Sales Tax Department constituted by the Collector will be value of taxable supply. The Order‑in‑Original indicates that the valuation committee on pesticides had decided a minimum value‑addition of not less than 16% in addition to packing charges. Thus the value addition of 16% (minimum) as decided by the legally constituted Valuation Committee was correctly adopted by the Adjudicating Officer. It is also observed that the complainant did not make the payment to the suppliers from his own bank account to the bank account of the suppliers. Instead, the payment was made into the account of the supplier by tendering cash, which is not in conformity with the provision of section 73 of the Act. The cash receipts, strictly speaking, are not a banking instrument within the meaning of aforesaid section. As such the input adjustment claim in respect of those purchases was not admissible. The contention that section 73 of the Act is proposed to be substituted by the finance bill 2003‑2004 is not relevant to the order under consideration. Additional tax can be levied if the tax due or any part therefore has not been paid as provided. It is to be calculated right C up to the date on which it is paid. There is, therefore, no maladministration on the foregoing counts. However, the department's position in regard to the packing charges is somewhat dubious. The Adjudicating Officer has observed "in this case the auditor has worked out value‑addition at 20 % without giving any justification and clarification whether the goods were sold in bulk or in packing, it is, therefore, ordered that calculation of sales tax, after considering 16% value‑addition should be made in addition to the packing charges". The complainant's contention is that 30 invoices were placed before the Adjudicating Officer but no investigation was made to find out whether the goods were sold in bulk or in retail packing and yet the Adjudicating Officer ordered the calculation of sales tax by adding 16% value‑addition plus packing charges. The Adjudicating Officer did not give 'any definitive findings whether the goods were sold in bulk or in retail packing. Similarly there is force in the complainant's argument that no clause of subsection (2) of section 33 of the Act has been mentioned in the order imposing penalty. It is, therefore, only just and fair that these aspects of the case may be re‑examined for giving a definitive decision on merit after considering the arguments of the complainant and the relevant documents/evidence that the complainant may place before the Adjudicating Officer.
8. As far as the question of jurisdiction is concerned it has been held by FTO in many cases including Complaint No. 1438 of 2002 that, where maladministration is alleged and established the Federal Tax Ombudsman has jurisdiction to investigate in the matter. The objection is overruled.
9. In view of the above discussion it is recommended that:‑‑
(i)The C.B.R. reopen the case under section 45A of the Sales Tax Act, 1990 insofar as it relates to inclusion of packing charges for levy of sales tax and imposition of penalty and direct the relevant authority to investigate and re‑examine whether or not the goods were sold in bulk or in retail packing and whether or not the penalty imposed in the case was legally imposed and then pass a fresh speaking order on merit after giving the complainant the opportunity of being heard.
(ii)Compliance report to be submitted within 30 days of the receipt of this order.
C.M.A.891/FTOOrder accordingly.