Messrs ARAFATEX INDUSTRIES (PVT.) LTD., FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1705 (2004)

(a) Sales Tax Act (VII of 1990)---

----Ss. 10, 7 & 8---Excess amount to be carried forward or refunded---Refund was withheld on the basis of fake invoices---Federal Tax Ombudsman recommended that refund claimed be processed by concerned officer "restricting the examination to the requirement of the provisions of Ss.7 & 8 of the Sales Tax Act, 1990 to be fulfilled by the complainant"---Show-cause notice was issued on the ground, among others, that only transactions were involved in the case and no physical transfer of goods had taken place---Complainant/assessee contended that issue of physical delivery of goods had already been settled by the Federal Tax Ombudsman and Deputy Collector of Sales Tax could not go beyond the provisions of Ss. 7 & 8 of the Sales Tax Act, 1990---Validity---Federal Tax Ombudsman did not agree with the complainant/ assessee that verification of physical transfer of goods would be outside the scope of Ss. 7 & 8 of the Sales Tax Act, 1990---Federal Tax Ombudsman recommended that the order-in-original be cancelled under S.45A of the Sales Tax Act, 1990 and all relevant aspects of the case such as the payment through cross cheques be re-examined in detail in order to conclusively establish the genuineness or otherwise of the transactions---If any evidence is to be used against the complainant such evidence be made available to it and action to be taken in the light of the verified facts.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 2(3)(i)(a) & (b)---Sales Tax Act (VII of 1990) Ss. 10, 7 & 8---Maladministration---Refund---Request for supply of copies of evidence, that was being relied upon against, was refused on the ground of confidentiality and refund claim was rejected and penalty was levied for furnishing fake invoices---Validity---If any evidence was being utilized against the complainant the Deputy Collector (Refund) was under obligation to allow the complainant access to the said evidence and his refusal to do so was an act of maladministration.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 9(2)(b)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Bar to jurisdiction contained in S. 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 was applicable where it was a matter of plain assessment or valuation etc.

Syed Saghir Tirmizey and Syed Hasan Askari, A.Rs. for the Complainant.

Dr. Moeenuddin Ahmad Wani and Nisar Ahmad, Assistant Collector for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---This is a complaint relating to a sales tax Order-in-Original No.46 of 2003, dated 14-4-2003 passed by the Deputy Collector, Sales Tax (Adjudication), Faisalabad as a consequence of the findings/ decision, dated 10-3-2003 in Complaint No.848 of 2002 filed earlier by the complainant. The said complaint had been filed for the reason that sales tax refund amounting to Rs.1,973,281 had been withheld on the ground that the complainant had claimed the refund on the basis of fake invoices. In the findings it was observed that no valid basis existed for the withholding of the refund and it was recommended that the refund claims be processed by the concerned officer "restricting the examination to the requirement of the provisions of sections 7 and 8 of the Sales Tax Act to be fulfilled by the complainant". In the present complaint it is stat i that the DCST (Refund) then issued a show-cause notice, dated 1-4-2003 inter alia stating that according to report the units from which purchases had been shown by the complainant were included in the list of fake units who had supplied fake invoices to exporters, including the complainant. It was further stated in the notice that according to investigation only paper transactions were involved in the case and no physical transfer of goods had taken place. The complainant was thus asked to show cause in the light of various relevant sections of the Sales Tax Act why the refund claim of Rs.1,973,281 be not rejected. According to the complaint a written reply was furnished A inter alia stating that the issue of physical delivery of goods had already been settled by the Federal Tax Ombudsman and that the allegation was without any basis. It was further added that all documentary evidence had already been furnished. It was also contended in the reply that the DCST could not go beyond the provisions of sections 7 and 8 of the Sales Tax Act in view of the directions of the Federal Tax Ombudsman and that the show-cause notice had also ignored paras. 15 and 16 of the said findings/decision. It is further stated in the complaint that during the course of hearing, the complainant applied for copies of evidence that was being relied upon against it but the request was refused on the ground of confidentiality and the refund claim of Rs.1,973,281 has been rejected and a penalty of Rs.591,984 has also been levied for furnishing fake invoices. It has been contended in the complaint that the order-in-?original was not valid as it went beyond the parameters fixed by the Federal Tax Ombudsman in Complaint No.848 of 2002. It is also contended that no adverse inference could be drawn against the complainant without providing it with the evidence relied upon by the department. It has been further contended that there was no basis for holding that the sales tax invoices were fake and also that the matter of physical transfer of goods had already been settled in the earlier findings/decision. It is also stated that the complainant had made the payments to the suppliers through cross cheques which fact has been ignored in the order-in-original. It has been prayed that the concerned authorities be directed to issue the refund of Rs.1,973,281 and also to remit the penalty imposed on the complainant.

2. In the respondent's reply it has been contended that the complainant should have filed an appeal before the Collector (Appeals). Reference has also been made to a decision of the President in which it was observed that the Federal Tax Ombudsman was not a substitute for legal fora. With regard to the evidence relied upon by the department it is stated that it consisted of copies of investigation reports against the suppliers and were thus confidential documents relating to the said registered persons which could not be made available to some unrelated person as it could vitiate the entire prosecution proceedings against the suppliers/vendors. On merits also the order-in-original has been defended.

3. The contentions of the two sides have been considered and their representatives heard. As regards the respondent's preliminary objection, the President's decision cited in the reply can in no way be construed to mean that the jurisdiction of the Federal Tax Ombudsman is ousted even in the case of perverse departmental actions falling within the definition - of maladministration contained in section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. In fact it appears from certain orders of the President that the bar on jurisdiction contained in section 9(2)(b) of the Ordinance is applicable where it is a matter of plain assessment or valuation etc. In the instant case it was basically a complaint in the context of alleged maladministration involved in the withholding of the complainant's sales tax refund amounting to Rs.1,973,281 allegedly without valid reason, a matter which fell squarely within the ambit of section 2(3)(v) of the Ordinance which relates specifically to deliberate withholding of refunds. In the findings/ decision, dated 10-3-2003 in the complainant's earlier Complaint No.848 of 2002 substance was found in the allegations and it was observed in para. 17 of the findings that maladministration had been proved. It was thus recommended that the refund claims of the complainant be processed restricting the examination to the requirements of sections 7 and 8 of the Sales Tax Act and that the refunds on account of input tax be allowed if the processing of the claim yielded positive results. After these findings/decision, a show-cause notice was issued by the Deputy Collector, Sales Tax (Refund) and after hearing the complainant the order-in-original, dated 14-4-2003 was passed by the Deputy Collector. Since this order is to be considered in the context of the complainant's allegation of maladministration involved in the denial of refund due to inadequate reasons, the matter falls within the jurisdiction of this office. It is seen that in the order-in-original evidence furnished to establish the genuineness of the complainant's transactions e.g. payments through cross cheques has not been considered by the Deputy Collector and in this context it was stated by the representative of the respondent that further investigations could be carried out in order to verify the bank accounts in which the cheques issued by the complainant to the alleged fake suppliers were deposited as this was an important aspect which had not been taken into account in the order-in-original. It is also obvious that if any evidence was being utilized against the Complainant the Deputy Collector (Refund) was under obligation to allow the complainant D access to the said evidence and his refusal to do so was an act of maladministration as defined in section 2(3)(i)(a) & (b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. For the reason too the matter fall within the jurisdiction of this office. As regards Is the verification of the physical transfer of goods it is, E however, not possible to agree with the complainant that such verification would be outside the scope of sections 7 and 8 of the Sales Tax Act.

4. In the light of the above it is recommended that:--

(i) The order-in-original, dated 14-4-2003 be cancelled under section 45A of the Sales Tax Act and all relevant aspects of the case such as the payment through cross cheques be re-examined in detail in order to conclusively establish the genuineness or otherwise of the transactions. Furthermore if any evidence is to be used against the complainant the said evidence be made available to it.

(ii) Further action be taken in the light of the verified facts.

(iii)?????? Compliance report be furnished within 60 days.

C.M.A./266/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.