Messrs ASKARI CEMENT LTD., RAWALPINDI VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2004 P T D 75
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs ASKARI CEMENT LTD., RAWALPINDI
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 1117 of 2002, decided on /01/.
rd
November, 2002. (a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)-----
----S. 9(2)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Allegation of maladministration ---Preliminary objection was that appeal lay against such order to Tribunal and the jurisdiction over the complaint was barred in terms of S.9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Validity-- Since the maladministration was alleged for passing an order arbitrarily against the law the question of jurisdiction could be answered only after necessary investigation---Where maladministration was alleged the jurisdiction of the Federal Tax Ombudsman was attracted independent of the assessment made---Jurisdiction of the Federal Tax Ombudsman to investigate any allegation of maladministration on the part of the Revenue Division or any tax employee in respect of any decision taken, process employed, recommendation made or act done was unquestionable---Where the allegation was proved, the jurisdiction was exercised to recommend appropriate remedy possible and available under the law; compliance of recommendation was mandatory unless a valid reason was offered for not complying with the same.
(b) Sales Tax Act (VII of 1990)---
----Ss. 7, 3, 6, 18, 22, 26, 33(2)(CC), 36 & 59---C.B.R. Letter C. No.1(111)STT/2000, dated 13-7-2002---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)-- Determination of tax liability---Exemption---Levy of tax---Adjustment of input tax paid on account of different general store items/utility bills within a period prior to levy of sales tax---Disallowance of in defiance of Tribunal's order ---Validity---Maladministration was proved in passing the Order-in-Original which was not only barred by time but invalid even otherwise on account of being in deliberate defiance of the ratio of decisions of Tribunal---Federal Tax Ombudsman recommended that Central Board of Revenue, of its own motion should call for the record of adjudication proceedings in the case, under S.45-A of the Sales Tax Act, 1990 and pass such order as it may think fit to vacate the illegal Order-in-Original.
Tahir Razzaq Khan, F.C.A. for the Complainant.
Amar Rashid, DCIT for Respondent.
FINDINGS/DECISION
Maladministration is alleged in the instant complaint on the part of Collector Adjudication Sales Tax for arbitrarily holding in his Order in-Original dated 18-7-2002 that it was not entitled to the benefit of adjustment of input tax paid on stocks of inputs, acquired prior to withdrawal of exemption of sales tax on Cement w.e.f. 5-9-2000 because the Unit (complainant) was already registered with the Collectorate. He held that the adjustment was available under section 59 of the Sales Tax Act, 1990 only to a person who is subsequently required to be registered under section 14 due to new liabilities or levies or gets voluntary registration under section 18. The Collector directed to pay the adjusted input tax of Rs.8,510,594 in the Government treasury alongwith additional tax under section 34 of the Sales Tax Act, 1990 as well as a penalty equal to 3 % of the 'tax involved under section 33(2)(CC) ibid.
2. The Collector further held that adjustment in tax period 9/2000 of input tax paid on utility bills of gas and electricity pertaining to the month of July, 2000 and paid in August, 2000 was also inadmissible. The registered person, therefore, was directed to pay sales tax amounting to Rs.2,650,979 alongwith additional tax under section 34 of the Sales Tax Act, 1990. A penalty equivalent to 3% of the Sales Tax was also imposed under section 33(2)(CC) ibid.
3. The adjustment of input tax amounting to Rs.13,626 in October, 2000 paid on telephone bill was also held un adjustable because the amount was paid as central excise duty on telephone bill. During that period central excise duty paid on telephone bills could not be adjusted against output tax payable on cement. Such adjustment of central excise duty against sales tax was allowed only when clause (c) of subsection (14) of section 2 of the Sales Tax Act, 1990 was amended by the Finance Ordinance, 2001. The under reference adjustment claimed by Unit precedes the amendment and is thus not legally admissible. The Unit, therefore, was directed to pay Rs.13,626 alongwith additional tax under section 34 of Sales Tax Act, 1990. A penalty equivalent to 3% of the sales tax involved is also imposed on the Unit under section 33(2)(cc).
4. It is alleged that the decision is against the lady and betrays incompetence and ineptitude of the tax functionary in discharge of his duties and responsibility which amounts to maladministration as defined under subsection (3)(i)(a) and (ii) of section 2 of Ordinance XXXV of 2000.
5. The Collector of Sales Tax, Rawalpindi responding to notice under section 10(4) of Ordinance XXXV of 2000 has raised preliminary objection that as appeal against the impugned Order-in-Original lies to the Customs, Central Excise and Sales Tax Appellate Tribunal, the jurisdiction of Federal Tax Ombudsman over the complaint is barred in terms of section 9(2) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000, herein called "Ordinance XXXV of 2000" .
6. Since the maladministration is alleged for passing an order arbitrarily against the law the question of jurisdiction can be answered only after necessary investigation. Where maladministration is alleged the jurisdiction of the Federal Tax Ombudsman is attracted independent of the assessment made. The jurisdiction of the Federal Tax Ombudsman to investigate any allegation of maladministration on the part of- the Revenue Division or any tax employee in respect of any decision taken. process employed, recommendation made or act. done is unquestionable. And where the allegation is proved, the jurisdiction is exercised to recommend appropriate remedy possible and available under the law: compliance of recommendation is mandatory unless a valid reason is offered for not complying with the same.
7. Facts relevant to the allegation, briefly, are that the complainant unit is involved in the manufacture and sale of Portland Cement. Presently, this product is subject to sales tax. The legislative history of tax on cement is asunder:--
| S.No. | Date on which tax imposed/withdrawn. | Statute |
| 1. | July 1st, 1996---Tax on cement levied. | Finance Act, 1996 |
| 2. | March 27th, 1997---Sales Tax withdrawn and exemption granted to cement sector. | Finance Supplemen tary (Amendment) Act, 1997 |
| 3. | September 5th, 2000---Exemption on cement for sales tax withdrawn. | Sales Tax (Amendment Ordinance 2000) |
8. It was reported by the staff of Collectorate of Sales Tax and Central Excise, Rawalpindi that during the audit of Messrs Askari Cement Ltd., Wah Cantt. it was observed that the complainant adjusted input tax in September, 2000 amounting to Rs.8,510,594 paid on the procurement of different general store items purchased prior to 5-9-2000. The Unit. also adjusted an amount of Rs.2,650,979 as input tax paid on utility bills for August, 2000 while the supply of cement came in the ambit of sales tax w.e.f. 5-9-2000. It also adjusted Rs.13,626 as input tax, paid in October, 2000 on telephone bills, which was not admissible.
9. It indicated contravention of the provisions of sections 3, 6, 7, 22, 26 and 36 of the Sales Tax Act, 1990. Accordingly, a show-cause notice was issued to the complainant Messrs Askari Cement Ltd. Wah on 20-3-2001 calling upon them to show cause within ten days of the issuance, of the notice as to why sales tax amounting to Rs.11,175,199 alongwith additional tax under section 34 of Sales Tax Act, 1990 should not be recovered from them and why penal action under section 33 should not betaken for violation of above-mentioned provisions of Sales Tax Law. Hearing was fixed on 10-4-2001 (time-barred on 9th May, 2001).
10. The counsel of the respondent sought adjournment and submitted on 15-5-2001 that the registered person adjusted an amount of Rs.8.510 million as input tax on account of different general store items in the monthly return of 9/2000 filed on 15th October, 2000. The input tax had been paid within a period of 30 days prior to the levy of sales tax on cement i.e. September 5, 2000. It was duly supported by verifiable sales tax invoices for local and imported merchandise. The adjustment, therefore, was legal and permissible under, the law. It was further submitted that though supply of cement ceased to be liable to; sales tax since 27th March, 1997, the Unit remained registered under section 14:
11. However no order was passed till another show-cause notice on the same issue was issued on 1-5-2002 and an arbitrary Order-in-Original was passed on 18-7-2002 much after 20-3-2001, the date of issuance of original show-cause notice under section 36(2) of the, Sales Tax Act.
12. Representatives of the parties are heard. It is submitted on behalf of the complainant firstly that the Collector (Adjudication) has himself recorded in the impugned order that scrutiny of record shows that in the identical case of Messrs Gharibwal Cement Ltd. the Adjudicating Authority decided the case in favour of the Department. Messrs Gharibwal Cement feeling aggrieved, went in appeal and the Appellate Tribunal (Islamabad Bench) set aside the said order vide judgment in S.T. Appeal No.994 of 2001, dated 16-5-2002.
13. It was observed by the Tribunal that this Unit had adjusted input tax paid (a) on Electricity and Sui Gas bills for the month of August, 2000, (b) on stores and machinery parts purchased during the month of August, 2000 and (c) import from June to September, 2000. It was also reported that this unit adjusted amounts of input tax in September, 2000 and in the month of October, 2000 which were not paid in the same tax periods hence the appellants were alleged to have contravened the provision of sections- 3, 6, 7, 22 and 26 of the Sales Tax Act, 1990 punishable under sections 33, 34 and 36 ibid.
14. A notice was thus issued to the appellants on 22-1-2001 calling upon, them to show cause as to why sales tax to the tune of Rs.23,057,4991 alongwith additional tax should not be recovered from them and why penal action should also be not taken against them for violation of above-mentioned provision of the Sales Tax Law.
15. The Tribunal after considering the facts, that were identical to instant case, observed:--
"In order to claim the input tax on unsold stock under section 59 a company should have been subsequently required to be registered. In view of provisions of sections 14 and 15, appellant company was subsequently required to be registered when cement became a taxable supply and the appellants accordingly applied for such registration on 15-9-2000 and were issued required certificate of registration on 26-9-2000 and this application for registration was not rejected on the score that it already stood registered. In our view, the appellants company was entitled to the benefits and obligations envisaged under section 59 ibid from 26-9-2000 and legally justified to claim credit of input tax of opening stock on 5-9-2000 as Cement because a taxable supply on the said date. The findings arrived at by the learned respondent contrary thereto on this legal 'issue are thus held to be not sustainable in law. "
16.Finally the Tribunal concluded:--
"Keeping in view the facts and circumstances of the case as well as the ratio decidendi available in the above cited judgment of the Honourable High Court as well of this Tribunal's Bench from Lahore jurisdiction, we conclude that the amount paid by the appellants company belonged to it and the company was entitled to seek at its discretion, either adjustment or refund through the input tax paid and the impugned Order-in-Original No.77/2001 dated 10-4-2001 being not sustainable in law, is hereby set aside and the appeal is accepted. "
17. Secondly the authorised representative of the complainant submitted that the cement as classified under PCT Heading No.25.23 was exempt but partly manufactured goods like clinker remained taxable (if sold) during the period of exemption. This was the primary reason that the application for deregistration was not moved. However, in terms of section 7, the complainant, being a registered unit, was entitled to deduct input tax in the corresponding tax periods beginning from 5th September, 2000 against output tax on cement produced through such inputs. This situation according to law is similar to the vegetable ghee/cooking oil manufacturers where the Board has already allowed input adjustment claim vide para. 3 of letter C. No. 1(111)STT/2000, dated July 13, 2002.
"3. A registered person can, however, claim adjustment of input tax paid during the tax period as per subsection (1) of section 7 of the Sales Tax Act, 1990: Thus local manufacturers of ghee and cooking oil may, make an application to respective Collector for permission 'to adjust input tax already paid on stock before June, 2002 as per newly-added proviso to section 66 of the Sales Tax Act, 1990. "
It follows from the above passage of the clarification that substantively adjustment of input tax was available to the manufacturers which had continued to be registered during the period Ghee was exempt from Sales Tax (as in the case of complainant).
18. Thirdly the A.R. submitted that even otherwise the complainant was entitled under section 66 of Sales Tax Act, 1990 to claim a refund on account of input tax adjustment that could not be claimed within the period corresponding to the period in which it was paid because the output was exempt from sales tax during such period. However, the complainant, according to A. R. opted for adjustment instead of seeking refund under section 66. The opted course has been endorsed by C.B.R. through C.NO.1(111)STP/2000, dated 13-7-2002 in case of Ghee units.
19. The A.R., therefore, submitted that the ratio of decision of the Tribunal in the case of Gharibwal Cement that "the amount paid by the appellant company belonged to it and the company as entitled to seek at its discretion" squarely applied to complainant's case.
20. Finally the authorized representative submitted that the Order-in-Original passed by the Collector on 18-7-2002 is against the law. The show-cause notice under subsection (2) of section 36 was issued on 20-3-2001 and no order could be passed under subsection (3) of section 36 of the Sales Tax Act after forty-five days of issuance of show-cause notice or within a further extended period, in no case not exceeding ninety days, as stipulated in the proviso to subsection (3) of section 36.
21. The representative of the respondent did try his best to support the impugned order as well as the written reply of the Collector but he could not defend the blatant illegality of disregarding the binding decision of the Tribunal by the Collector (Adjudication). His submissions that the limitation of time stipulated in proviso to subsection (3) of section 36 of Sales Tax Act was declaratory and not mandatory were also found out of context.
22. The alleged maladministration is proved in passing the Order-in-Original which is not only barred by time but invalid even otherwise on account of being in deliberate defiance of the ratio of decisions of the Tribunal in the identical case of Gharibwal Cement ibid.
23. It is recommended:--
(i)That Board, of its own motion calls for the record of adjudication proceedings in the case under section 45-A of the Sales Tax Act, 1990 and pass such, order as it may think fit to vacate the illegal Order-in-Original, and
(ii)Report compliance within forty-five days of this order.
C.M.A./868/FTOOrder accordingly.