Messrs SIMPSON WIRES (PVT.) LTD' through Director, Karachi VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1695 (2004)

Sales Tax Act (VII of 1990)---

----S. 11-A---Central Excises Act (I of 1944), Ss. 3(b) & 4(2)---Central Excise Rules, 1944, Rr. 10 & 210---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3), 9 & 11---Demand of sales tax as consequential and contingent liability on the strength of Order-in-Original passed in pursuance of show-cause notice determining Excise Duty, additional duty and penalty under Central Excises Act, 1944 and Central Excise Rules, 1944---Validity---Central Excises Act, 1944 and Sales , Tax Act, 1990 were two separate enactments having independent provisions for levy and recovery of duty or tax---Show-cause notice had not proposed invoking of provisions of Sales Tax Act, 1990 for recovery of escaped sales tax and its related dues---Order-in-Original had not created liability for sales tax etc., for which separate show-cause notice was a mandatory requirement under Sales Tax Act, 1990---No law existed authorizing automatic or consequential imposition of sales tax (etc.) in wake of Order-in-Original in respect of Central Excise Duty---Demand of undetermined and un adjudicated sales tax liability on strength of such Order-in-Original would tantamount to harassment---Such acts of omission and commission of authority would fall in category of maladministration---Impugned demand was clearly arbitrary, illegal and ab initio void---Federal Tax Ombudsman recommended for cancellation of impugned demand.

Shamshad Younas, AR for the Complainant.

Dr. Nasir Khan (Assistant Collector, Sales Tax) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---This complaint alleges harassment caused by illegally initiated Recovery proceedings by the Collector of Sales Tax and Central Excise (East) Karachi vide No.205/ST/RII/SW/2001/2775, dated 30-4-2003.

2. The facts leading to the complaint are that Simpson Wires are manufacturer of Enameled Wire, which is classified under "Paint and Varnishes" for levy of Central Excise Duty at 10% of the retail price. However, the Complainant made sales at wholesale price which was lower than the retail price thus resulting in short payment of Excise Duty. When the discrepancy was pointed out in an Audit Note, show-cause notice was issued on 10-7-1999 calling upon the Complainant as to why penal action for violating the provisions of section 4(2) of the Central Excise Act, 1944 (hereinafter called the Act) be not taken against them beside recovery of the evaded Duty at Rs.1,177,528. After giving consideration to the reply by the Complainant, the Collector of Customs, Sales Tax and Central Excise Duty (Adjudication) passed an Order-in-Original No.105 of 2000 on 28-9-2000 holding that the show-cause notice was in conformity with the Audit observation and within the scope of section 4(2) read with the First Schedule thereof. It was finally ordered that deliberately short-paid amount of Central Excise Duty at Rs.1,177,528 be recovered under the authority of Rule 10 of the Central Excise Rules along with Additional Duty under section 3(b) of the Act. Further penalty of Rs.2,50,000 was imposed under Rule 210 of the Central Excise Rules for willful contravention of sections 3 and 4(2) of the Act. In the wake of this Order-in-Original, recovery proceedings have been initiated vide notice, dated 22-4-2002 by the Special Recovery Circle-II, Collectorate of Sales Tax and Central Excise (East) Karachi followed by reminders, dated 21-10-2002 and 30-4-2003. This is the cause of grievance.

2. The Respondents have forwarded parawise comments by the Collector of Sales Tax and Central Excise (Enforcement) Karachi which deny "maladministration" and report that the Order-in-Original was issued on the basis of Audit observations made by the Auditor (RAA) who were authorized to conduct audit of Registered Persons to check any evasion of Government Receipts. It is prayed that the Complainant having committed evasion of Central Excise Duty and Sales Tax had "not paid a single penny in sales tax head". The Collector further explains that after the determination of short-paid amount of sales tax, there was no need of a separate Order-in-Original and the demand is simply consequential.

3. Mr. Shamshad Younas (AR) appearing for the Complainant explained that the demand created at Rs.1,177,528. + Rs.2,50,000 vide Order-in-Original, dated 28-9-2000 has been challenged before the High Court and is still pending there. The learned AR brought on record a notice, dated 21-10-2002 demanding further payment of amounts due at Rs.1,942,922 in respect of which no previous notice was ever served on the Complainant. Attention was drawn to a letter of 30-4-2003 conveying that creation of Sales Tax liability was contingent to the levy of Central Excise Duty and, therefore, no separate order was necessary hence the consolidated demand should be paid by the prescribed date. The learned AR protested against continuation of recovery proceedings despite Complainant's comprehensive reply filed on 23-9-2003.

4. Dr. Nasir Khan (Assistant Collector, Sales Tax) appearing for the Revenue submitted that Sales Tax is levied under section 11A of the Sales Tax Act on the value of supplies and recovery is being rightfully perused on the basis of valid order, dated 21-10-2002 by the Superintendent who was fully competent to raise a consequential demand for a contingent liability.

5. A consideration of arguments by the contending parties and examination of record brings out that a show-cause notice was issued on 10-7-1999 to the Complainant framing charges for breach of the provisions of the Central Excise Act and Rules, 1944, calling upon them to show why penal action for violating the legal provisions, besides recovery of Duty and additional Duty, be not taken. A perusal of the Order-in-Original No.105 of 2000, dated 28-9-2000 reveals that the Adjudication Authority, in line with the show-cause notice, ordered recovery of short-paid amount of Duty under the authority of Rule 10 of Central Excise Rules, along with additional Duty under section 3(b) of the Act. The penalty, as provided by law, was also imposed. Demand Notices (on record) for payment of Sales Tax and additional Tax were served in pursuance of Order-in-Original No.105 of 2000, dated 28-9-2000. Complainant's contention that these Demand Notices are not enforceable because the Order-in-Original had determined; (i) the Excise Duty, (ii) the additional Duty and (iii) Penalty under the provisions of Central Excise Act and Rules, carries weight. The Department's plea that since the Adjudicating Authority, vide its Order-in-Original No.105 of 2000, dated 28-9-2000, upheld the objection by the Audit, levy of Sales Tax automatically followed and that no separate adjudication proceedings were necessary for levy of Sales Tax, is legally untenable. It cannot be overlooked that the Central Excise Act, 1944 and the Sales Tax Act, 1990 are two separate enactments having independent provisions for levy and recovery of Duty or Tax. In the Order-in-Original under discussion, the Adjudicating Authority exercising powers A under the Central Excise Act/Rules ordered recovery of (a) deliberately short-paid amount of Central Excise Duty, along with (b) additional Duty, and (c) imposed Penalty. Neither the show-cause notice proposed the invoking of the provisions of the Sales Tax Act for recovery of escaped Sales Tax and additional Tax nor proposed penalty thereunder. The Order-in-Original thus created no liability for Sales Tax, additional Tax or Penalty under the Sales Tax Act. If due Sales Tax had not been paid and was required to be recovered along with additional Tax, and Penalty also was intended to be imposed, a proper separate show-cause notice was a mandatory requirement under the relevant provisions of the Sales Tax Act warranting separate adjudication. The Department has failed to cite any provision of law authorizing automatic (or consequential) imposition of, Sale Tax, additional Tax (etc.) in the wake of an ,Order-in-Original in respect of Central Excise Duty (etc.). Therefore, the demand for recovery of Sales Tax (etc.) on the basis of Order-in-Original, dated 28-9-2000 which only determined liabilities under the provisions of the Central Excise Act is clearly arbitrary, illegal and ab initio void. Thus an attempt to recovery Sales Tax (and related dues) on the strength of the aforementioned Order-in-Original tantamounts to harassment inasmuch the Complainant is being called upon to pay an undetermined and unadjudicated tax liability. Therefore, Respondents' acts of omission and commission fall in the category of "maladministration" as defined in sub-clause (i)(a)/(b) and (vi) of Clause (3) of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. As such Demand Notices issued for recovery of unadjudged Sales Tax, additional Sales Tax and Penalty clearly expose perverse and arbitrary conduct. In case the Department intend to recover Sales Tax (and related dues) relevant provisions of the Sales Tax may be invoked adhering to law. On this visualization it is Recommended that "the C.B.R./ Collector cancel the demand notices for recovery of Sales Tax (etc.) issued in pursuance of Order-in-Original No.105 of 2000, dated 28-9-2000.

6. Compliance be reported within 30 days of the receipt of this Order.

S.A.K./227/FTOOrder accordingly.