Messrs WELFARE TRADING COMPANY VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2005 P T D 1095
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs WELFARE TRADING COMPANY
versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 1316-K of 2002, decided on /01/.
17th July, 2004. Sales Tax Act (III of 1951)---
----Ss.10(4), 37, 37(a) & 73---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(ii)---Refund---Notice---Transaction through Banking channel---Complainant filed sales tax refund claim on April 2, 2002 supported by four input tax invoices issued by supplier with Sales Tax Registration Number---Same was handwritten---Payment was shown to have been made by Pay Order of a Bank---Bank statement showed that pay orders were credited to Supplier s Account in the same Branch of the Bank on the same dates---There was heavy credit balanceinthataccountofthesupplierfrom6-5-2002 up to 29-11-2002 amounting to Rs.39,00,848.700---On the same day Rs.39,00,000 were withdrawn---Department had asserted that no physical transfer of goods had taken place---Invoices submitted by the complainant were fake and he claimed bogus refund which was liable to be rejected under section 10(4) of the Sales Tax Act, 1990---Validity---Officers of the Collectorates were negligent in pursuing the matter during April to August, 2002 when the heavy transactions in the Bank Accounts were made---No serious effort was made either to serve the summons properly or toenforcecompliance---Acts of omission and commission reflect delay, negligence, incompetence and inaptitude of the concerned officer in discharge of his duties which was maladministration---Federal Tax Ombudsman recommended that the MemberSalesTax,CentralBoardofRevenuetoassignthecasetoatleasttwocompetentAssistantCollectorsintheCollectorateswiththesoleassignmentoftakingalllegalstepsandappropriateactionaccordingtolaw---Departmentwillbefreetomakeinvesti-gations inrespectofdealingsandtransactionsrelatingtothecase.
Muhammad Naseem for the Complainant.
Farrukh Sajjad, Dy. Collector for Respondent.
DECISION/FINDINGS
The above complaint was disposed of by the following order, dated 20-12-2002.
The department should make enquiries against Shahnawaz Exports and submit progress report in the matter every month. As stated by the representative of the Department no proceeding or action shall be taken against the complainant in pursuance of the show-cause notice, dated 1-10-2002 till the completion of investigation against Shahnawaz Exports.
2.Brief facts of the case found till that date were that complainant, exported in January, 2002, textile goods purchased on credit from Messrs Shahnawaz Export, Room No.3, 1st Floor, Arsalan Plaza, Kotwali Road, Faisalabad. The complainant filed a sales tax refundclaimonApril2,2002supportedbyfourinputtaxinvoices,issuedby the aforementioned supplier, bearing Sales Tax Registration No. 08-80-9195-636. Thesewereproformainvoicesinwhichthename, address and S.T.R. Number of supplier were handwritten. The invoices were forwarded by the aforesaid Deputy Collector (Refund) on 10-4-2002 to Faisalabad Collectorate for verification but no reply was received till 31-8-2002. The complainant made payment against the four invoices through four Pay Orders of Faisal Bank Limited, Jodia Bazar Branch Karachi, two each dated 6th and 7th May, 2002. It seemed from the statement of account produced by the representative of Faysal Bank, Jodia Bazar that Shanawaz Exports was a proprietary concern of Muhammad Nadeem as was reflected from the documents produced by the Bank. It was also clear that Account No.1232001801-006 was maintained in the name of Shahnawaz Exports with Faysal Bank, Jodia Bazar Branch. The address of Shahnzwaz Exports was stated to be RoomNo.3, 1st Floor, ArsalanPlaza,
Kotwali Road, Faisalabad. The statement of account was from 26-4-2002 to 29-11-2002. There was heavy credit balance in this account of Shahnawaz Exports during the period from 6-5-2002 up to 29-11-2002 amounting to Rs.3,900,848.700. On the sameday by Cheque No.00881 Rs.39,00,000 were withdrawn leaving a balance of Rs.8,48.700. The aforesaid Pay Orders were credited to Supplier s same Account in the same Branch of the bank on the same dates. 3.The alleged fraud came to light when the complainant stated that a reminder was issued by the Deputy Collector (Refund) to Faisalabad Collectorate on 13-8-2002 on the insistence of complainant because there was inordinate delay in settlement of refund claim. Faisalabad Collectorate ultimately reported vide letter, dated 28-8-2002 received at Karachi Collectorate on 30-8-2002 that the supplier was not registered with Faisalabad Collectorate and that the invoices issued by them are fake . The Additional Collector, Faisalabad further requested that matter may be investigated and person (s) who issued these fake invoices may be identifiedso that necessary legal action may be investigated by that Collectorate.
4.The Deputy Collector (Refund) (East) Karachi issueda notice, dated 1-10-2002 to the complainant stating the position as reported by Faisalabad Collectorate and requiring to show cause within fourteen days of the receipt of the letter as to why the refund claim amounting to Rs.844,603 should not be rejected and penal action should not be initiated against them under relevant provision of the Sales Tax Act for claiming refund on the basis of fake invoice.
5.The complainant explained that section 73 of the Act provided that a buyer should make payment for a sum exceeding Rs.50,000 through banking instruments like cross cheques, cross draft or any other banking instruments showing transfer of the payment in favour of the seller from business account of buyer, otherwise the buyer would not be eligible for the benefit of refund. The supplier was liable to deposit the tax so received fromthe buyer as the tax collection by the supplier was a trust, which could not be manipulated or appropriated in any manner to deprive the Government of the tax which the buyer had paid or which the buyer had been charged or which had been collected from the buyer in the name of a tax.
6.It was further stated that it was not the responsibility of the buyer to verify the genuineness of the registration of the supplier as long as the supplier issued the Sales Tax Invoice in respect of the payment of taxreceived by him from the buyer, by mentioning the Sales Tax Registration Number. The buyer was required under section 73 of the Sales Tax Act to produce the proof of payment of Sales Tax for claiming the refund of such input tax, which the complainant had already done. The counsel of the complainant contended that the complainant cannot be charged for any contravention in claiming refund on the basis of invoices issued by the said supplier to the complainant.
7.The complainant averred that it was the duty of the Sales Tax Department to invoke provisions applicable to the registered or deemed to be registered supplier or swindlers in the Sales Tax Act to ensure that the Sales Tax Collector from customers on behalf of the State is deposited by them into treasury. But they can neither deny the refund to registered exporters nor can allege any contravention of law, rules or regulation against them under the pre-going circumstances.
8.Since then, it was observed that there had been no progress by the Department with regard to investigation in the alleged fraud committed by Shahnawaz Exports. This delay and inaction had on one hand seriously affected the claimant and on the other hand the Department which could have promptly investigated and attached the balance lying in the Bank had been deprived as Shahnawaz Exports had withdrawn it on 29-11-2002. The Department s entire energy for more than seven months was diverted to the complainant. As no further progress in the matter had been reported either from Faisalabad or from Karachi Sales Tax Department even during investigation of the complaint, it was recommended that it would be unfair to proceed against the complainant.
9.It was further recommended in the decision that the Department should make enquiries against Shahnawaz Exports and submit progress report in the matter every month. As stated by the representative of the Department no proceedings or action shall be taken against the complainant in pursuance of the show-cause notice, dated 1-10-2002 till the completion of investigation against Shahnawaz Exports. The matter of refund will be decided after the investigation in Shahnawaz Exports matter has been completed .
10.The Karachi Collectorate reported vide letter, dated 26-2-2003 that after the Faisalabad Collectorate informed that no such person existed on the given address, the Collector of Sales Tax Karachi had constituted a team to find out the whereabouts of Messrs Shahnawaz Exports. It was further reported on 12-5-2003 that the particulars of the account opened by Mr. S. Nadeem of Messrs Shahnawaz Exports and his introducer Mr. Shahzad H. Iqbal were received from the Manager, Faysal Bank, Jodia Bazar, Karachi. The summons under section 37 of the Sales Tax Act, 1990 was sent to Mr. S. Nadeem of Messrs Shahnazwaz Exports on his permanent residential address directing him to appear in person or through his authorised agent. This summons was received back undelivered. Another summons was dispatched which seemed to have been delivered but Mr. Nadeem of Messrs Shahnawaz Exports failed to appear to join the investigation till date. Mr. Shahzad H. Iqbal, the introducer of Mr. S. Nadeem in bank was also served with notice under section 37 of the Sales Tax Act, 1990. In reply to the notice Mr. Muhammad Ameen on behalf of Mr. Shahzad H. Iqbal stated vide his letter, dated 30-4-2003, that Mr. Shahzad H. Iqbal was out of the city for business dealing, but had assured that Mr. Shahzad will extend his full cooperation in the investigation of the case, as soon as he returned to Karachi.
11.The RespondentfurtheraddedthatinviewofthefactthatMr. S. Nadeem, Director of Messrs Shahnawaz Exports (the accused) was not responding to the notice issued under section 37 of Sales Tax Act, 1990, the Collectorate was considering to institute criminal proceedings as envisaged under section 37(a) of the Sales Tax Act, 1990. The Respondent did not report any further progress despite reminders issued on May 20, June 6 and 23, 2003. Ultimately it was conveyed vide letter, dated July 14, 2003 that the Central Board of Revenue had granted permission on 24-6-2003 to lodge criminal proceedings against S. Nadeem the owner of Messrs Shahnawaz Exports.
12.The Respondent reported, after three reminders, dated August 6, August 7 and September 15, 2003, vide letter, dated 12-9-2003 that F.I.R. against S. Nadeem son of Rehmatullah, Proprietor of Shahnawaz Exports had been lodged in the Court of Special Judge Customs and Taxation, Karachi on20-8-2003 and the interim challan in continuation of that F.I.R. had also been submitted before the Honourable Special Judge Customs and Taxation, Karachi3-9-2003, with the request to grant the warrant of arrest of S. Nadeem son of Rehmatullah, Proprietor of Shahnawaz Exports. The Court hasissued the warrant of arrest against accused (Absconder) on 3-9-2003. The efforts are being made to apprehend the culprits.
13.The Respondent again reported vide letter, dated 30-10-2003 that hectic efforts were made to trace out the main accused. In this connection, different places were visited as the person was not available at the given addresses. In this, special focus was made to trace Mr. Shahzad Iqbal, who was the introducer of Mr. S. Nadeem (owner of Shahnawaz Exports). Despite the best efforts neither Mr. Shahzad Iqbal nor Mr. S. Nadeem were found at available addresses. Further the investigation team is also trying to coordinate with other law enforcement agencies in order to nab the culprits and as soon as the progress is made the same shall be communicated to the Honourable Federal Tax Ombudsman without any delay.
14.The C.B.R. forwarded Collector s letter, dated 19-12-2003 under their covering letter, dated 24-12-2003 in which the Collector, inter alia, stated that all the efforts were made to trace the proprietor of Messrs Shahnawaz Exports, who made supplies to Messrs Welfare Trading Co., but to no avail. The complainant was requested vide letter, dated 2-6-2003, followed by a reminder, to furnish proof of dispatch of goods from Faisalabad to Karachi but he did not respond to it. He concluded from the foregoing facts that no physical transfer of goods had taken place between Messrs Shahnawaz Exports and Messrs Welfare Trading Co., and it was established that the complainant had submitted fake invoices claiming bogus refund which were liable to be rejected under the provisions of section 10(4) of Sales Tax Act, 1990. TheCollector proposed that in case the complainant was adamant to say that the supplier exists, Federal Tax Ombudsman may direct the complainant tointimatethewhereaboutsofthesupplierincludinghiscorrectaddressandtelephonenumbersorcallhimintheofficeoftheFederal Tax Ombudsman. In case he failed to do so, Federal Tax Ombudsman may allow the department to proceed against the exporter under Sales Tax Law for filingfake invoices and claiming bogusrefund.Thecomplainantbyletter, dated7-1-2004submittedreplytothe Collector s above communication controverting the same and prayedthattheDepartmentbedirectedtoapproachtheintroducer,thedelinquentsupplierandotherbuyersandfurtherthatthedepartment be restrained from taking any penal action against the complainant.
15.Counsel of the Complainant and the Respondent s Representative have been heard. Firstly it is noted that the Collectorate at Faisalabad unduly delayed the verification exercise till 31-8-2002 which was referred to them on 10-4-2002. Both the concerned Officers at Karachi Collectorate as well as at Faisalabad Collectorate were negligent in pursuing the matter during April, 10 to August, 2002, when Messrs Shahnawaz Exports made heavy transactions in the Bank Account ibid. The Respondent admitted vide letter, dated 12-5-2003 that both Mr. S. Nadeem, Proprietor of Messrs Shahnawaz Exports and his introducer to the Bank Mr. Shahzad H. Iqbal were genuinely existing persons. They deliberately avoided to receive the summons under section 37 of the Act and later consciously defied the compliance but neither any serious effort was made either to serve the summons properly or to enforce compliance. Invoking provisions of section 37A of the Act at least to arrest the Proprietor Mr. S. Nadeem were not even contemplated. The aforementioned acts of omission and commission reflect delay, negligence, incompetence and ineptitude of the concern Officer in discharge of his duties and responsibilities, which is maladministration per se specifically included in the definition of maladministration under section 2(3)(ii) of FTO Ordinance. Ultimately, the respondents passed the buck to Special Judge, Customs and Taxation to prosecute the alleged supplier Mr. S. Nadeem, Proprietor of Messrs Shahnawaz Exports. If the respondent had any doubts about the very existence of a person by the name of S. Nadeem it meant that case for prosecution was filed against a fake person consciously which proves neglect, inattention, delay, incompetence, inefficiency and ineptitude in the administration and discharge of duties and responsibilities amounting to maladministration.
16.The Collector has totally disregarded the foregoing facts earlier reported by him while concluding in his latest report, dated 19-12-2003 that the complainant had submitted fake invoices claiming bogus refund. Complainant s case, on the other hand, is that he has produced the invoices of input from a person who is accepted by the Respondent as an absconder; that he has submitted documentary evidence in support of the export of goods as shown in the invoices and that he has paid the price of his inputs along with sales tax as per invoices through Pay Orders credited in the Bank Account of Messrs Shahnawaz Exports. The Bank Manager too has averred that Bank account of Mr. S. Nadeem was introduced by another account holder of the bank Mr. Shahzad H. Iqbal. In case the respondent considered that both the account holders purported to be proprietor of Messrs Shahnawaz Exports as well as his introducer were bogus the case for prosecution should have been filed against the Bank Manager as well. The Respondent, otherwise, has to establish in order to justify the conclusion supra that Mr. S. Nadeem, Proprietor of Messrs Shahnawaz Exports was a fake name; that the complainant did not export the goods that he claims as his input and that the Bank Account in the name of Shahnawaz Exports was in fact account of the complainant himself.
17.The acts of omission and commission on the part of the respondent so far have rendered even the bona fide of such actions doubtful. Irrespective of the merits of complainant s refund claim, which is to be decided in accordance with law, it is an important part of respondent s duty not only to protect the registered persons from the swindlers operating in the market but to arrest them and recover the amount for sales tax collected by them in the name of State by posing as a registered person. The department should also investigate and decide according to law the possibility of complainants involvement in this matter.
18.The alleged maladministration on foregoing counts is established. It is recommended:--
(i)That the Member Sales Tax, C.B.R. ensures that the case is specially assigned to a term of at least two competent Assistant Collectors in Karachi and Faisalabad Collectorates with the sole assignment of taking all legal steps and appropriate action, according to law against Mr. S. Nadeem, proprietor of Shahnawaz Exports and Mr. Shahzad H. Iqbal, both account holders of Faisal Bank, Jodia Bazar Branch, Karachi including persons abetting or colluding with them. The Department will be free to make investigation in respect of dealings and transactions relating to the case carried out by the complainant.
(ii)Compliance is reported within 45 days and except as aforestated no action is taken against the complainant till a compliance report is submitted.
M.I./273/FTOOrder accordingly.