Messrs PRINCE AND SONS, QUALITY MART, MULTAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1546 (2004)

Sales Tax Act (VII of 1990)---

----Ss. 7, 33 & 34---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Determination of tax liability---Suppression of production/supplies---Direction to pay certain amounts of sales tax, additional tax and penalty adjudged for suppression of production/supplies of finished goods and for making supplies of taxable wastage without payment of sales tax in violation of Federal Tax Ombudsman's recommendation to examine the parties from whom the Department had obtained quotations on the basis of which the weight of complainant's end product was originally determined and who had subsequently dissociated themselves from the quotations relied upon in the Order-in-Original---Validity---Collector did not comply with Federal Tax Ombudsman's recommendations in letter and spirit---Department had not complied with Federal Tax Ombudsman's recommendations, including the specific recommendation for examining the ' firms concerned to ascertain whether or not the quotations obtained from them (which had originally formed the basis for determination of weight of complainant's end products) were authentic---Collector had passed the Order-in-Original in violation of the recommendations of the Federal Tax Ombudsman, ignoring also the point of view of the complainant both in regard to the ratio of production and wastage---Collector's decision, was arbitrary, illegal, unjust, improper and unreasonable within the meaning of definition of `maladministration'---Federal Tax Ombudsman recommended that the Central Board of Revenue should reopen the Order-in-Original No.185 of 2004, dated 16-7-2004 under S.45A of the Sales Tax Act, 1990, set aside the same and decide complainant's case afresh on its merit in accordance with the provisions of law after; that taking into consideration all the points raised by the complainant both in regard to the finished product and the wastage, including examination of the firms who had submitted affidavits dissociating themselves from the quotations relied upon in the D.C's impugned order and allowing the complainant the opportunity of hearing/defence.

Muhammad Arif Amin for the Complainant.

Shafqat Hayat D.C. (Adjudication) for the Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN).---Facts of the complaint are that the complainant, a manufacturer of washels, nuts etc. (registered with the Sales Tax Department), had filed Complaint No.1618-L of 2003 before the Honourable FTO against Deputy Collector, Sales Tax, Multan's Order?-in-Original No.747 of 2003, dated 30-10-2003 under which the complainant was directed to pay certain amounts of sales tax, additional tax and penalty adjudged for suppression of production/supplies of finished goods and for making supplies of taxable wastage without payment of sales tax. The FTO decided the complaint vide his findings, dated 19-3-2004 recommending that the C.B.R./Collector

"Reopen the Order-in-Original No.747 of 2003, dated 30-10-2003 under section 45A of the Sales Tax Act, 1990, set aside the same and decide complainant's case afresh on its merit in accordance with the provisions of law after (i) taking into consideration all the points raised by the complainant both in regard to the finished product and the wastage, including examination of the parties who have submitted affidavits dissociating themselves from the quotations relied upon in the impugned order and (ii) allowing the complainant the opportunity of hearing/defence."

Since the complainant had also filed an appeal against the above said impugned order before Collector of Appeals it moved an application for its withdrawal, which was accepted by the Appellate Authority. On receipt of a hearing notice issued by Collector of Appeals fixing 15-5-2004 as the date of hearing of appeal the complainant pointed it out to the Collector (Appeals) that the appeal had been withdrawn but it was informed that the case would be heard by Collector (Adjudication). During hearing of the case the Collector (Adjudication) advised the complainant to provide stock register for the period in question and adjourned the case to 16-7-2004. Subsequently, however, the Collector passed Order-in-Original No.185 of 2003, dated 16-7-2004 (impugned order) hastily without applying his mind to the merits of the case and without taking into consideration FTO's recommendations, dated 19-3-2004. The Collector decided the case on the basis of withdrawn appeal memo. If the Collector had re-opened the Deputy Collector Adjudication's order in terms of FTO's recommendations in Complaint No.1618-L of 2003, then he, while deciding the case, shot .d not have ignored the aforesaid recommendations. It is further alleged that the respondents did not supply the complainant the copy of Auditor Sales Tax's comments reproduced by the Collector at para. 5 of the impugned order. There was a discrepancy between figures of alleged suppressed production'. Earlier the Collector Sales Tax, Multan, had, in his comments submitted in connection with Complaint No.1618-L of 2003, put the quantity of suppressed production at 171469 kgs while the quantity of suppressed production as per Auditor's version reproduced in para. 5 of the impugned order (Original-in-Order No.185 of 2004) stood at 110211 kgs yet the Collector determined the tax demand at Rs.1,983,798 as was originally determined vide Original-in-Order No.747 of 2003, passed by the Deputy Collector. The respondents did not confront the complainant with any evidence supporting their allegations. The Collector had failed to find out as to how the tax officials had worked out fictitious production percentage of 27.4% as against 44.25% claimed by the complainant. The Collector had acted against the principles of natural justice. He should have appointed a commission to authenticate the veracity of departmental representative's contention regarding ratio of production. He had also failed to disclose as to who the value of wastage (1025642 kgs) was calculated. The stock of wastage was still lying on the complainant's premises. It is pleaded that the impugned Order No. 185 of 2004, dated 16-7-2004 may be cancelled being nullity at law and void ab initio.

2. In reply, the respondents have submitted that the case was re-opened as per direction of the Honourable FTO. FTO's recommendations were strictly followed while passing Original-in-Order No.185 of 2004 dated 20-7-2004. The complainant had advanced the same arguments before the Adjudicating Collector as were advanced by it in the appeal memo. The complainant was provided hearing opportunities on 1-7-2004, 15-7-2004 and finally on 16-7-2004 and the arguments advanced by it during the proceedings were duly considered. The Sales Tax Department was asked to submit their comments on complainant's version. The Department informed the Adjudicating Authority that since it had already offered its comments in appeal proceedings the same comments may be considered by the Collector (Adjudication) also. The case against the complainant was instituted on the basis of record provided by the complainant itself. It had violated the provisions of Sales Tax Act as mentioned in the show-cause notice. The production recovery percentage was determined on the basis of complainant's record together with physical weighment of end product (production units). The case was decided after due consideration of the relevant points of view of both the complainant and the prosecution. There was no need to appoint any commission as proposed by the complainant. The complainant did not produce any documentary evidence showing availability of wastage lying on their premises. The complainant, if aggrieved, may be advised to file an appeal against Original-in-Order No.185 of 2004, dated 20-7-2004 before the appropriate appellate forum. This complaint may be dismissed being devoid of merit.

3. During the hearing the AR reiterated the arguments as advanced in the written complaint emphasizing that while deciding the case the Collector ignored FTO's recommendations inasmuch as he did not consider complainant's point of view, nor did he summon, as recommended by the FTO, the representatives of the Messrs Micro Engineering Works and Messrs A.M. Parts Company to verify whether the so-called quotations that the Auditor had obtained regarding weight of each product and on the basis of which the weight of complainant's product was worked out were genuine or not, especially when the companies in question had submitted affidavits disowning altogether submissions of quotations which were initially relied upon by the Deputy Collector. The Collector, therefore, acted in violation of Honourable FTO's recommendations. The AR further submitted that the complainant had presented record of production for verification to the Collector on 17-7-2004, which too was ignored. The DR pointed out. that the complainant did not present production record on 16-7-2004 (the date of hearing). The AR submitted that 16th July being Friday, the complainantcould not retrieve the relevant record from the computer. He, however, added that he (complainant's AR) did visit Collector's office at 2-30 PM on 16-7-2004 to attend the hearing but he found the office closed. The DR divulged that on Fridays the office closed at 12.00. The AR, however, argued that he had visited the Collector's office the next day and left with him the relevant record of production for verification and the Collector promised to consult the same before deciding the case but he did not consult it before passing the impugned Original-in-Order No.185 of 2004, dated 16-7-2004. The DR rebutted that note sheet of the relevant file did not indicate submission of any record by the complainant on 17-7-2004. As regards the wastage, the AR explained, that it was present on the premises at the time of auditor's visit. Had it not been present the auditor would have entered the shortage of wastage in some register/document, got it witnessed from the complainant or his authorized agent or could have at least left a written note to that effect but he did nothing of the sort. This by itself showed that the charge of `suppressed supply' of wastage against the complainant was fabricated. The AR further added that during the proceedings the Collector had asked the Auditor to furnish proof/documentary evidence to establish that the wastage was indeed missing on the day of his visit to the complainant's premises but the Auditor could not produce any such evidence.

4. The DR submitted that the case was decided in accordance with Honourable FTO's recommendations in Complaint No.1618-L/2003. Although it was mutually agreed between the complainant and the Auditor that the complainant would submit its sales tax record on 16-7-2004, the date of hearing fixed in the case, to prove its contention regarding ratio of production etc. but the complainant did not present the record on the aforesaid date of hearing. The Auditor, on the other hand, physically presented parts of the subject products the weight' of which was determined before the Collector. Although the complainant was provided opportunity of defence but it failed to furnish a single document to justify its claim regarding production ratio and wastage. The DR further added that the complainant maintained record of raw material in kilograms, while showing the end product i.e. washels, nuts etc. in units (number) thus claiming production at 44.25% of raw material which was totally illogical and absurd as illustrated below:

Total raw material in kgs:????????? 625956 Number of end products in units: 276965

Production percentage:276965/625956x 100=44.246 %

On the contrary, the auditor took weight of 276965 units weighing each unit and then divided the weight by total weight of raw material and proved that the average production worked out to merely 27.4% and not to 44.25% as claimed by the complainant. The complainant had, therefore, failed to support its claim of ratio of production at 44.25%. It may be directed to appeal against the impugned order before the Customs, Sales Tax and Central Excise Appellate Tribunal where it could present evidence to prove its case. Asked as to why the representatives of the companies from whom quotations of products similar to those being manufactured by the complainant were obtained were not called and examined by the Adjudication Officer, especially when they had subsequently disowned submission of quotations on the basis of which the weight of the complainant's end product was worked out by the respondents, the DR stated that as parts/units of the product manufactured by the complainant were physically weighed in the presence of the Collector on 16-7-2004 there was no need to issue call notices to the companies in question from whom the quotations were originally obtained.

5. The arguments of the parties and the record of the case have been considered and examined. The complainant had earlier filed Complaint No.1618-L of 2003 which was disposed of by FTO's findings, dated 19-3-2004 recommending that the case be re-opened and the order passed by the D.C. be set aside for fresh consideration of complainant's case on its merit by taking into consideration its point of view both in regard to the finished products and the wastage and after examination of the parties which dissociated themselves from the `quotations' relied upon in the then impugned Original-in-Order No.747 of 2003 and after providing the complainant the opportunity of defence. Re-opening the aforesaid Original-in-Order passed by D.C., Sales Tax, Multan in consequence of FTO's recommendations, the Collector, Customs, Sales Tax and Central Excise, Faisalabad (Camp Multan), has passed a fresh Order-in-Original No.185 of 2004, dated' 16-7-2004 once against rejecting the complainant's case, hence this complaint. The operative portion of the impugned Original-in-Order ,reveals that the basic question for determination by the Collector was whether the percentage of production of complainant's end product was 44.25% or 27.4% as alleged by the respondents. The impugned order indicates that the complainant was asked to provide proof of yield percentage of 44.25% as claimed but it failed to furnish any conclusive evidence in support of its claim. According to the impugned order the complainant neither submitted the verified production record nor statement of inventory while the Auditor argued that the production yield was only of the order of 27.4% meaning thereby that the complainant had suppressed the production. The Collector, therefore, upheld the Auditor's contention directing the complainant to deposit the amount of tax along with additional tax and penalty so adjudged. As for the wastage, the Collector has once again accepted the point of view of the Auditor by observing that the complainant could not submit any evidence to establish that the wastage was present on the premises at the time of auditor's visit and upheld the charge framed against the complainant on this count also. The complainant did not appear before the Collector on 16-7-2004, one of the dates fixed for hearing, which was admitted by the AR with the reservation that he had appeared the next day on 17-7-2004 and presented the relevant production record to the Collector who promised to examine it before deciding the case but did not. However, the fact is that the complainant did not appear before the Collector on 16-7-2004, the last date of hearing. The AR's contention that the record was produced to the Collector the next day is also. not tenable, especially when the DR denied receipt of any such record. The complainant has, therefore, himself to blame for missing out on the opportunity to present the relevant record. However, it is also observed that the Collector, while deciding the case afresh, did not comply with FTO's recommendation to examine the parties from whom the respondents had B obtained quotations on the basis of which the weight of complainant's end product was originally determined and who had subsequently dissociated themselves from the quotations relied upon in the D.C.'s Original-in-Order. The Collector should have called the representatives of the companies concerned to ascertain the correct position but he failed to do so. Although during hearing of the complaint the DR pointed out that the components parts of subject end products were presented and weighed before the Collector and the percentage of production worked out at 27.4% only yet the impugned Original-in-Order passed by the Collector does not show whether any such weighing exercise was conducted in his presence. If the respondents were to weigh the end products it should have been weighed in the presence of the complainant or its authorized representative and not at its back. As for the presence or otherwise of wastage on the premises of the complainant at the time of Auditor's visit the complainant's AR made a valid point that if at the time of Auditor's visit to the complainant's premises certain quantity of wastage was found unaccounted for the Auditor should have noted that fact on some relevant register/document or at least left behind a written paper/document duly witnessed by the complainant or its authorized agent so that it could subsequently serve as evidence of shortage of wastage. The Collector could have confronted the departmental representative with this aspect of the case to ascertain the correct position but unfortunately he appears to have ignored this aspect. As it ' is, it is the Auditor's word about `wastage' vis-a-vis the complainant's version of what happened. While the complainant may be partially blamed for not appearing before the Collector with its relevant production record on 16-7-2004, the date of hearing fixed in the case, the fact remains that the Collector did not comply with FTO's recommendations in letter and spirit. Clearly, the respondents have not complied with FTO's recommendations in Complaint No.1618-L of 2003, including the specific recommendation for examining the firms concerned to ascertain whether or not the quotations obtained from them (which had originally formed the basis for determination of weight of complainant's end products) were authentic. The Collector has passed the Original-in-Order in violation of the recommendations of the FTO, ignoring also the point of view of the complainant both in regard to the ratio of production and wastage. The Collector's decision, therefore, is arbitrary, illegal, unjust, improper and unreasonable within the meaning of definition of `maladministration' as defined in section '2(3) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, C 2000. Accordingly, this forum has no option but to reiterate the same recommendation as made in Complaint No.1618-L of 2003 recommending that this time the C.B.R.:

(i) Reopen the Original-in-Order No.185 of 2004, dated 16-7-2004 under section 45A of the Sales Tax Act, 1990, set aside the same and decided complainant's case afresh on its merit in accordance with the provisions of law after (i) taking into consideration all the points raised by the complainant both in regard to the finished product and the wastage, including examination of the firms who had submitted affidavits dissociating themselves from the quotations relied upon in the D.C.'s impugned order and (ii) allowing the complainant the opportunity of hearing/defence.

(ii) Compliance be reported within 30 days.

C.M.A./412/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.