Messrs AZIZ GARMENTS INDUSTRIES, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2004 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 641 (2003)

Customs Act (IV of 1969)---

----S. 35---Sales Tax Act (VII of 1990), S. 22---Manufacturing Bond Rules, Rr. 13 & 24---General Customs Order 2 of 1999---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Drawback of the exported goods---Export of garments---Claim of duty drawback on use of imported goods and locally purchased fabrics---Required documents were filed---Inordinate delay ---Non issuance of such claim as a policy where inventory register under S.22 of the Sales Tax Act, 1990 had not been maintained---Validity---Details of locally purchased fabrics duly verified by the Customs Officials was provided to 'Customs Authorities---Copies of bills/vouchers were provided---Audit report, though claimed to be contrary to law, was also provided---Department was reminded about the pending claims but the assessees had not received any reply from the Department---Department came up with the explanation that the complainants did not maintain inventory registered under S. 22 of the Sales Tax Act, 1990 and the Collector (Exports) had taken a policy decision that all such cases would be rejected---Said policy decision was not notified through a public notice---Rebate claimed was rejected without issuing any, show-cause notice, any adjudication order or any intimation of proceedings to such effect---Such position clearly showed that the Customs Authorities had kept the rebate claims pending without .any justification for the last five years---Despite supplying all the documents, no action was taken---Such conduct portrayed a very dismal picture of the working of the Export Collectorate and deserved immediate corrective action---Federal Tax Ombudsman recommended the Central Board of Revenue to direct the Collector of Customs to decide the duty drawback claims filed in 1998 for payment of rebate within thirty days and the responsibility for inordinate and unjustified delay be fixed and appropriate disciplinary action to be taken against the delinquent officials within sixty days.  

Mirza Muhammad Awais for the Complainant.

Feroze A. Junejo, Deputy Collector of Customs (Exports).

FINDINGS/DECISION

The complaint has been filed against the alleged discriminatory treatment and non-payment of duty drawback claims filed in 1998. The complainants have stated that they are bona fide manufacturers and exporters of cotton made-ups for the last two decades. In the past the exporters were allowed to import accessories and auxiliaries duty-free under S.R.O. 69(I)/70 to utilize the same in the manufacture of made -ups, and duty drawback was admissible on exported goods partially composed of temporarily imported duty-free goods after deduction of its value from the FOB value for calculation of rebate. Under rule 13 of the Manufacturing Bond Rules, notified vide S.R.O. 1140(I)/97, it was provided that the repayment of customs duty was admissible under standard S.R.O. on goods manufactured and exported in case duty-paid goods procured from local market were used in the manufacture of finished export goods.

2. The complainants stated that they procured duty-paid fabrics from the local market, in-bonded the same, manufactured cotton made- ups and exported the same, and filed 57 duty drawback claims during April to November, 1998 for a total amount of Rs.10,16,785. These claims have been pending since then without any legal and cogent cause and nothing has been communicated to them despite reminders. In these shipments, duty-free imported buttons, rivets, buckles etc. imported under S.R.O. 1140(I)/97 were consumed.

3. They were directed to submit the details of locally purchased fabrics in-bonded duly verified by the Customs Officials which were supplied on 27-11-1999. They were asked to provide copies of bills/vouchers against purchases which were provided vide letter, dated 18-12-2000. They were directed to provide the audit report of the firm prepared by the Chartered Accountants pertaining to the year 1996-97 and 1997-98 which was also provided. They claimed that the demand of these documents was contrary to law and against the provisions of the S.R.O. They stated that they have not been served with any objection or show-cause notice and no communication has been received from the Customs Authorities which is an illegal attitude based on mala fide and ulterior motives. They approached the Department vide letter, dated 21-6-2003 reminding about the long pending duty drawback claims without result. They suspected that instead of considering the case on merits, the Department was trying to cover-up the delay by issuing some orders without show-cause notice.

4. The complainants invited attention to the Complaint No.1267/K of 2002 of Messrs Fatani Impex where the attitude, actions and the demand of irrelevant documents has been declared without justification and payment was recommended. In the Complaint No.1269 of 2002 of Messrs U.S. Apparel and Textile, Lahore, on the same subject, the amount has been released after intervention of this office.

5. The complainants argued that the exports made by them were legal, locally purchased duty-paid fabrics and imported duty-free accessories were used in the manufacture of the exported garments and the value of these items were deducted from the FOB value for rebate on the standard notification. They stated that hundreds of cases of the other exporters of the same period and of identical nature have been sanctioned and paid but their cases have been totally ignored. They contended that this was a clear case of discrimination, favouritism and administrative excess which amounted to maladministration and requested that the delay in disposal of the duty drawback claims be declared as mala fide, illegal, with ulterior motive and C.B.R. and the Collector of Customs be directed to dispose of pending duty drawback claims and make payment to them.

6. The respondent's reply to the complaint was submitted on the date of hearing. The Additional Collector of Customs stated in his reply that the duty drawback claims filed by the complainants remained pending for want of inventory of fabrics locally purchased for the manufacturing bond prior to 5-11-1997. The exporters were asked vide letters, dated 17-7-1998 and 20-9-1999 to submit Appendix-V of the (duty drawback) S.R.O., which was provided on 27-11-1999.

7. The Sales Tax Collectorate was requested vide letter, dated 11-2-2002 to conduct the audit of the unit to ascertain the veracity of information. According to the audit report received on 11-5-2000, the complainants did not maintain inventory register as required under section 22 of the Sales Tax Act. It was, therefore, held that their cases did not merit consideration. However, a reference was made to the C.B.R. vide letter, dated 15-7-2003 for certain clarifications and reminders were sent on 21-7-2003 and 6-8-2003. The issue would be settled on receipt of advice from the C.B.R.

8. During the hearing the complaint Mr. Muhammad Awais, Advocate, submitted a revised list of 68 duty drawback claims for Rs.12,79,025 filed ht 1998, which have been pending since then. He stated that rule 13 of S.R.O. 1140(I)/97 clearly prescribed that the duty drawback of local fabrics used in the manufacture of export goods was admissible. He stated that the documents demanded by the Customs Department were presented in 1999-2000. The complainants have not received any communication from the Customs, and no objection about the claims filed by them has been raised. C.B.R. had prescribed the procedure of dealing with such duty drawback cases vide CGO 2/99 and further clarification was issued on 15-3-2001. Even then no decision was taken.

9. The learned advocate stated that Additional Collector of Customs had claimed an his reply that the exporters were asked to provide record/inventory register as required under section 22 of the Sales Tax Act which was not made available. He stated that firstly no such notice was received by the exporters, and secondly section 22 prescribed records for registered persons making taxable supplies and was not applicable to the exporters who were neither making taxable supplies nor had they asked for refund of sales tax. He further stated that the exporters maintained record as required under S.R.O. 1140(I)/97 and Department would have been justified to ask them to produce these records.

10. The learned advocate argued that the Federal Tax Ombudsman has directed the Customs Authorities to pay the duty drawback in two identical cases mentioned in the complaint. The case of the complainants should also be decided in the light of the decisions already taken in the two complaints. He added that the review applications of the respondents was rejected in both the cases.

11. The learned advocate referred to the statement of the Assistant Collector of Customs that the matter has been referred to the C.B.R. and after the clarification of the C.B.R. they would need another two months to decide the issue. He argued that the matter has already been inordinately delayed and further delay would not be tolerable.

12. The Deputy Collector of Customs stated that a policy was devised in the Collectorate that verification of local purchases should be made from the Sales Tax Collectorates. He stated that it was wrong to argue that the complainants were not making taxable supplies because exporter were also suppliers of zero-rated taxable goods. He admitted, however, that the policy devised by the Department was not notified through a public notice. He stated that the Sales Tax Department, on inquiry from the Export Collectorate, informed that the complainants had not maintained record under section 22 of the Sales Tax Act. The Collector, therefore, took a' decision in 2001 that all such duty drawback claims where sales tax records had not been maintained be rejected and, as a policy 'matter, all these cases stood rejected.

13. The Deputy Collector explained that the decision was taken in pursuance of rule 24 of the S.R.O. 1140(I)/97 which provided that the licensee of bonds was required to give account of the input of finished goods to the satisfaction of an officer not below the rank of Assistant Collector, and it was, therefore, decided that where the records were not produced, the claims be rejected. He went on to state that once the policy decision bad been taken by the Collector, the process of deciding each case was to be undertaken but individual show-cause notices and consequent orders had not been issued and passed.

14. In his counter-argument, the learned advocate stated that the complainants have furnished to the Customs Authorities evidence of in-bonding of duty-paid locally procured goods verified by the Customs Officer. He strongly objected to, the demand of sales tax records under rule 24 of S.R.O. 1140(I)/97 arguing that the Customs Authorities have stretched the satisfaction of the officers of the Customs Authorities' too far. He also believed that there was no policy decision on this account. The learned advocate reiterated 'his request that the decision of the complaint be taken on the dines of the, decision in the complaints of Messrs Fatani and Messrs US Apparels.

15. It has been brought out in the complaint that 68 duty drawback claims for a total amount of Rs.12,79,025 filed in 1998 have been pending without decision. The Complainants provided to the Customs Authorities the details of locally purchased fabrics duly verified by the Customs officials on 27-11-1999. Copies of bills/vouchers were provided on 18-12-2000. Audit report, though claimed to be contrary to law, was also provided. The Department was reminded about the pending claims but the complainants have not received any reply from the Department. In identical two cases the similar rebate claims of other exporters have been sanctioned.

16. The respondent have come up with the explanation that the complainants did not maintain inventory register under section 22 of the Sales Tax Act and the Collector (Exports) had taken a policy decision that all such cases would be rejected. (This policy decision was not notified through a pubic notice). Thus the rebate claims stood rejected without issuing any show-cause notice, any adjudication order or any intimation to this effect. It has now been stated that some clarifications have been sought from the C.B.R. and the pending claims would be decided as soon as clarification was received.

17. The position summarized above clearly shows that the Customs Authorities have kept the rebate claims pending without any justification for the last five years. Despite all the documents supplied to them no action has been taken. This portrays a very dismal picture of the working of the Export Collectorate and deserves immediate corrective action.

18. It is recommended that C.B.R. direct the Collector of Custom to

(i) decide the duty drawback claims filed in 1998 for payment of rebate within thirty days;

(ii) the responsibility for inordinate and unjustified delay be fixed and appropriate disciplinary action be taken against the delinquent officials within sixty days; and

(iii) compliance be reported within one week of the implementation of the above recommendation.

C.M.A./1034/FTO Order accordingly.