Messrs POLY FLEX SERVICES, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1630 (2004)

Sales Tax Act (VII of 1990)---

----Ss. 21 & 37---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---De-registration, blacklisting and suspension of registration---Name of the complainant was included in the list of suspected units without due process of law due to non-providing record within stipulated time---Validity---Audit of four months' record submitted had not been done, which was a clear case of act of omission in exercise of powers conferred on the officers of the Department under the Sales Tax Act, 1990---Retention of complainant's name on the list of suspected units and consequent lack of decision in respect of the refund claims of their customers was a case of delay, inefficiency and oppressive action which constituted maladministration---Federal Tax Ombudsman recommended that Central Board of Revenue may direct the Collector of Sales Tax to carry out verification/audit of the records of the complainants and, if their contention is found justified, action should be taken for deletion of their name from the list of suspected unit and in case the allegation of issuing fake/flying invoices is established, a proper show-cause notice should be issued by the officer of the competent jurisdiction for adjudication proceedings.

Abdul Ghani for the Complainant.

Shafqat M. Sagar for Respondent.

Shahab Imam, Assistant Collector of Sales Tax, Karachi

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---The complaint has been filed against the allegedly arbitrary manner in which the name of the Complainants has been included in the list of suspected units without due process of law. The Complainants stated in the complaint that they received a letter, dated 7-3-2003 from the Deputy Collector of Sales Tax, Revenue Analysis Cell, requiring them, under section 25 of the Sales Tax Act, to produce sales tax records for October, 2002 to January, 2003 within a week of receipt of the letter failing which they would be liable to penalties and their name would be included in the suspicious unit's list. The Complainants submitted the records on 7-5-2003. However, they received a letter from the Deputy Collector of Sales Tax, Investigative Audit, that since they had failed to comply the directive to provide record within stipulated time, their name had been recommended to the C.B.R. to be included in the suspected list.

2. The Complainants stated that they replied to the Deputy Collector, vide letter, dated 16-5-2003, that the sales tax records had already been submitted and received in his office on 7-5-2003. On the same date they wrote another letter to the Audit Officer under which they supplied copies of the bank statements, the customer' ledgers etc. for the period, 2001-2002 for routine Audit. The auditor carried out detailed audit and, after being fully satisfied about the genuineness of the records and the admissibility of the input tax claims, he signed and stamped the record on 15-4-2003. They stated that while the records had been audited and cleared by the audit, C.B.R. included their name in the list of suspected units issued vide letter, dated 9-5-2003 on the recommendation of the Collector without providing them opportunity of hearing. They made representation to the Deputy Collector, the Additional Collector and the Collector that they were being penalized without violating any sales tax law and the audit of their record had been completed by the Auditor.

3. The Complainants stated that the Collector sent to C,B.R., vide letter, dated 15-7-2003, the names of the units including the Complainants who had submitted the records and requested to delete their names from the list of suspected units. Thereafter, the C.B.R, issued letter, dated 10-7-2003 to all the Collectorates directing that the inclusion and deletion of the name of any person from the list of suspected units should be decided by the Collectors themselves. The Complainants wrote another letter, dated 26-8-2003 to the Collector that they have been filing tax returns and maintaining sales tax record and requested him to exclude his name from the suspected units. The same request was reiterated vide letter, dated 22-10-2003.

4. They stated that they were completely unaware of any adverse observation due to which their goodwill had been damaged by the Department by black listing them and- denying legitimate input tax refunds to their customers. They reiterated that their name had been included in the list of suspected units without any prior intimation or giving them opportunity of hearing and it was again included in the list issued by the Collectorate on 18-9-2003. They contended that the inclusion of their name in the new list was nothing but totally due to maladministration on the part of the Department. They further alleged that their customers were being penalized and harrased by rejection of their legitimate refund claims relating to the invoices issued before the black listing as the claims were being treated as illegal and without lawful authority.

5. They requested that (i) the inclusion of their name in the suspected list be declared as baseless and detrimental to their goodwill, (ii) the Collectorate be held responsible for failure to exclude their name from the list despite having been satisfied about the genuineness of their sales tax records, (iii) genuine refund claims of their customers blocked by the Department on account of inclusion of their name in the list be allowed; and (iv) to make such recommendations as considered just and expedient on costs and waste of valuable time of the Complainants.

6. The Assistant Collector of Sales Tax replied to the complaint that the Complainants did not provide the record of four months October, 2002 to January, 2003 as required by the Department and its audit has not been conducted. As regards the audit for the period 2001-2002, this was only desk/test audit and not investigative audit. He further stated that a new provision has been inserted in section 21 of the Sales Tax Act which authorized the Collector to decide cases of tax evasion or tax fraud or fake Invoices at his own level. The case of the Complainants was therefore, referred back by the C.B.R. to the Collector for decision at his end and all such cases were being examined afresh.

7. The Assistant Collector stated that the Department was ready to examine the case if all sales tax records were provided. He stated that the Department had reasons to believe that the Complainants were not involved in any (genuine) business of purchases and supply of goods but got themselves registered only for the purpose of issuing fake/flying invoices to facilitate filing of' fraudulent refund claims by the exporters. Therefore, the refund claims on the basis 'of their invoices have been withheld. He stated that they be directed to provide the above record to examine the case.

8. During the hearing of the complaint, the Advocate representing the Complainants stated that their only mistake was that the records demanded by the Respondent within a week of their letter, dated 7-3-2003 were submitted after about two months on 7-5-2003. They had made several representations to the Collector and the C.B.R. for deletion of their name from the list of the suspected units but no action has been taken. The Collector had recommended to C.B.R. in July, 2003 to delete their name from the list, but when he issued a list himself in September, 2003, their name was still mentioned on the suspected list.

9. The Assistant Collector of Sales Tax replied that although the record was produced by the Complainants but the Collector had sent the list of the suspected units to C.B.R. vide letter, dated 9-5-2003. Further action on the request of the Complainants could not be taken because the Department was undergoing restructuring and the relocation of records took considerable time. Since 9-5-2003, the Complainants firm has been under the process of investigation under section 21(4) of the Sales Tax Act. The Department has issued notice, dated 5-11-2003 to them under section 37 of the Sales Tax Act for submission of documents which, according to their counsel have been deposited on 11-11-2003. He assured that the records would be examined and a fair decision would be taken within fifteen days.

10. The Proprietor of the firm stated that after May, 2003 when its name was placed on the suspected list, all claims of refund filed by the purchasers prior to this date have been withheld by the Sales Tax Department. He has not been able to make any sales/supplies to the purchasers because of blacklisting of his firm. He stated that in some cases the refund applications of the purchasers for the entire tax period have been detained by the sales tax authorities on account of a few supplies made by his firm.

11. From the submissions made by both the sides it has been brought out that the Complainants' name was included in the list of suspected units on account of considerable delay in submission of the records for four months October, 2002 to January, 2003. However, when the records were received, the Collector recommended to C.B.R. to delete the name from the list after a lapse of two months. (In the Department's reply to the complaint it has again been stated that the records have not been supplied). Despite his own recommendation, the Collector retained the name of the Complainants in the suspected list issued by him in September, 2003.

12. It has been contended by the Assistant Collector that there were reasons to believe that the Complainants were involved in issuing fake/ flying invoices. In such a situation it is not understandable why the Revenue Analysis Unit or the Investigative Audit Section did not carry out thorough verification of the suspected invoices submitted by their customers, why show-cause notices were not issued to them, why the Department was content with retaining their name on the list of suspected units, and not deciding the refund claims of the purchasers. If the allegation of invoices being fake has substance, appropriate action should have been taken against the purchasers also for submitting allegedly fraudulent refund claims.

13. It has been admitted by the Assistant Collector that audit of the four months' record submitted in May, 2003 has not been done, which is a clear case of act of omission in exercise of powers conferred on the officers of the Department under the Sales Tax Act. The retention of the Complainants name on the list of suspected units and consequent lack of decision in respect of the refund claims of their customers is a case of delay, inefficiency and oppressive action which constitute maladministration under clauses (i)(b), (d) and (ii) of subsection (3) of section 2 of the Ordinance XXXV of 2000.

14. It is recommended that C.B.R. direct the Collector of Sales Tax.

(i) to carry out verification/audit of the records of the Complainants and, if their contention is found justified, action should be taken for deletion of their name from the list of suspected unit;

(ii) in case the allegation of issuing fake/flying invoices is established, a proper show-cause notice should be issued by the officer of the competent jurisdiction for adjudication proceedings; and

(iii) action on (i) and (ii) be completed within thirty days.

(iv) Compliance be reported within forty-five days.

C.M.A./223/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.