Messrs PAK DUTCH CORPN., SIALKOT VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1644 (2004)

Sales Tax Act (VII of 1990)---

----Ss. 45A(1)(4), 36(1) & 11(2)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV , of 2000), S.2(3)---Power of adjudication---Recovery of tax not levied or short levied or erroneously refunded---Assessment of tax---Refund was sanctioned---Later on, department observed that refund was not admissible due to the fact that suppliers of the complainant were declared as suspected units involved in issuing fake/flying invoices and deposit of tax by the suppliers remained unverifiable---Ex parte order-in-original was passed holding that the refund claimed on the basis of fake invoices was inadmissible and directed the complainant to deposit the amount of tax along with penalty---Complainant contested that Collector of Sales Tax had no jurisdiction to issue show-cause notice and to disallow refund already sanctioned as S.45 of the Sales Tax Act, 1990 was substituted by Finance Ordinance, 2000 and powers of adjudication in cases falling under Ss.11(2) and 36 of the Sales Tax Act, 1990 covering cases of erroneous refunds were given to Collectorate (Adjudication)---Validity---Collector, Sales Tax was not competent to take action under S.45 of the Sales Tax Act, 1990 as decided by the Appellate Tribunal and order passed by the Collector being contrary to law fell in the definition of maladministration---Federal Tax Ombudsman recommended that Central Board of Revenue vacate the order-in-original of the Collector, Sales Tax and the case be sent to the competent authority for adjudication under the law.

Muhammad Ashraf Hashmi for the Complainant.

Javed Zafar Malik, AC (Sales Tax, Faisalabad) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---Brief facts of the case are that sales tax refund claims filed by the complainant during the period September, 2000 to August, 2001 amounting to Rs.3,284,076 were sanctioned by the Deputy Collector, Sales Tax, Gujranwala vide different orders mentioned in the complaint. Later on the department observed that the refund was not admissible due to the fact that the suppliers of the complainant were declared as suspected units involved in issuing fake/flying invoices by the Collectorate of Sales Tax, Lahore, vide letter, dated 11-6-2002. Hence the deposit of tax by the suppliers remained unverifiable and the refund of Rs.3,284,076 sanctioned to the complainant was recoverable under section 11(2) and 36(1) of the Sales Tax Act, 1990 along with additional tax and penalty under the law.

2. On receipt of report from the Assistant Collector (PRAD), Sales Tax, Gujranwala that refunds were erroneously sanctioned to the complainant the Collector of Sales Tax, Gujranwala issued a show-cause notice, dated 27-5-2003 and the case was fixed for hearing on 7-6-2003. The complainant vide letter, dated 5-6-2003 sought adjournment till August, 2003 on the plea that managing partner of the firm was out of country and there was no other authorized person to deal with the sales tax department. The Collector, however, passed an ex parte order-in?original, dated 25-6-2003 holding that the refund claimed on the basis of fake invoices was inadmissible and directed the complainant to deposit the amount of Rs.3,284,076 along with penalty of Rs.985,223.

3. The complainant contest that the Collector of Sales Tax, Gujranwala had no jurisdiction to issue show-cause notice and pass order-in-original to disallow refund already sanctioned. It is stated that vide Finance Ordinance, 2000, section 45 of Sales Tax Act C was substituted and powers of adjudication in cases falling under section 11(2) and 36 of the Act covering cases of erroneous refunds were given to the Collectorate (Adjudication). The show-cause notice issued and order-in-original passed by the Collector are prayed to be vacated as the same were passed without jurisdiction and fall within the definition of maladministration.

4. In reply the respondent after reiterating the facts of the case as mentioned in the complaint has defended the reopening of the case and passing of order-in-original, dated 25-6-2003 to be judicious and correct as per law in terms of subsections (1) and (4) of section 45A of the Act. Subsection (1) provides that "The Board may, of its own motion, call for and examine the record of any departmental proceedings under this Act or the rules made there under for the purpose of satisfying itself as to the legality or propriety of any decision or order passed therein by an Officer of Sales Tax, it may pass such order as it may think fit". Subsection (4) of section 45A provides that "The Collector may, in respect of any case decided by an Officer subordinate to him exercise all or any of the powers of the Board specified in subsection (1)". In the light of above, it is stated that the Collector was fully empowered to reopen the refund orders passed by the Deputy Collector (Refund) and to pass such order as he deemed fit. The complaint is prayed to be rejected.

5. Representatives of the both sides attended and reiterated their contentions which were considered and relevant record was examined. The case of the complainant is parallel to the cases namely (i) Messrs Phonex Metal Ware Industries, Sialkot, (ii) Messrs Ballon De-Sports, Sialkot and (iii) Messrs Daiko Enterprises (Pvt.) Ltd., Sialikot. In these cases the Assistant Collector (PRAD) Sales Tax, Gujranwala had reported to the Collector, Sales Tax, Gujranwala that post refund audit revealed that suppliers of the said parties were suspicious and the refunds had been issued on the basis of fake/flying tax invoices issued by the suppliers. The Collector, Sales Tax, Gujranwala in exercise of his powers under subsection (4) of section 45 of the Sales Tax Act, 1990 reopened these cases and issued separate cause notice to each party proposing recovery of the amounts earlier sanctioned/paid to them along with additional tax and passed order-in-original in each case directing each party for deposit of amounts already received by way of refunds along with additional tax and penalty. The issuance of show-cause notice and the consequent orders-in-original were contested in appeal before the Appellate Tribunal Lahore in Appeals No.961,975, 1272/LB of '2003. The Appellate Tribunal vide its judgment, dated 11-9-2003 set aside the orders-in-original in all these three cases holding that the respondent Collector was free to investigate these cases and then to forward the same to the competent adjudication officer for disposed of the cases on merits on account of refund against alleged fake/flying invoices.

6. In view of the facts of the case and the legal position as stated above the Collector, Sales Tax, Gujranwala was not competent to take action under section 45 of the Sales Tax Act, 1990 as decided by the Appellate Tribunal in its judgment referred to above and the order passed by the Collector being contrary to law falls in the definition of maladministration.????????

7. It is recommended that the C.B.R:

(i) Vacate the order-in-original of the Collector, Sales Tax, dated 25-6-2003 and the case be sent to the competent authority for adjudication under the law.

(ii) Compliance be reported within 30 days.

C.M.A./271/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.