Messrs CHERAT CEMENT CO., NOWSHERA VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1724 (2004)

Sales Tax Act (VII of 1990)---

----Ss. 7, 8 13 & 66---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Determination of tax liability---Stock---Refund---Exemption---Input tax was paid on stock acquired during the period of sales tax exemption---Exemption was withdrawn---Stock was used in taxable supplies---Sales tax paid on existing stock used in taxable supply was claimed as refund---Refund was allowed only for stocks acquired in the 12 months preceding the withdrawal of exemption as admissible under S.66 of the Sales Tax Act, 1990 and remaining amount was deferred for want of clarification from the Central Board of Revenue---Subsequently, senior officers of the Collectorate decided that since the one year limitation contained in S.66 of the Sales Tax Act, 1990 was quite clear there was no need to refer the matter to the Central Board of Revenue---Validity---When in original order clear reference was made to the need for a clarification from the Central Board of Revenue there was no reason why such a clarification should not have been obtained by the Collectorate---Language of S.66 of the Sales Tax Act, 1990 suggested that the one year limitation applied in cases of a refund having not been claimed due to inadvertence, error or misconstruction or input tax deduction not having been claimed where it was otherwise allowable----Input tax could not be claimed at the time of the purchase of the raw material since the end-product was exempt from sales-tax---Whether the limitation in S.66 of the Sales Tax Act,. 1990 would apply in such cases was doubtful---Such issue would probably be involved many cases of manufacturers of cement after the withdrawal of the exemption and a uniform treatment would be desirable---Reference by the Collectorate to the Revenue Division/Central Board of Revenue was considered as necessary by the Federal Tax Ombudsman---Federal Tax Ombudsman recommended that the matter be referred by the Collectorate of Sales Tax to the Central Board of Revenue who would consider the issuance of such clarification as may be considered appropriate.

PTCL 2003 CL 428 and GST 2003 CL 368 irrelivant.

Isaac Ali Qazi for the Complainant.

Imtiaz Shaikh, Deputy Collector for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---The main points in the complaint are as follows:-.

(i) The complainant is a listed public company having a unit in Nowshera District for the manufacture of cement.

(ii) The complaint is being filed because of the mala fide show-cause notice, dated 21-10-2003 issued by the Collectorate of Sales Tax, Peshawar to delay the complainant's legitimate refund of Rs.6,439,608 being the input tax paid on stock acquired during the period of sales tax exemption but subsequently used in taxable supplies.

(iii) Cement was granted exemption under section 13 of Sales Tax Act, 1990 on 13-6-1997 but the exemption was withdrawn on 5-9-2000 and supplies of cement thus became liable to sales tax from that date.

(iv) In the light of section 8(1)(a) of the Sales Tax Act no adjustment of input tax was allowable to the complainant but when the supply of cement became taxable w.e.f. 5-9-2000 the sales tax paid on the existing stock as on 5-9-2000 became refundable as it was to be used in taxable supply.

(v) Soon after the withdrawal of exemption the complainant unit declared its stock to the department which was duly verified.

(vi) The complainant filed former claims for refund of sales tax on 1-9-2001 and 28-9-2001 claiming refund (input tax adjustment) of Rs.9,399,6551 under section 7 read with sections 8 and 66 of the Sales Tax Act.

(vii) After about two years viz on 7-8-2003 an order was passed allowing refund of only Rs.2,959,943 by way of input adjustment. In the order it was stated that refund was being allowed only for stocks acquired in the 12 months preceding the withdrawal of exemption as admissible under section 66 of the Sales Tax Act and the "remaining amount of Rs.6,439,608 had been deferred for want of clarification from Central Board of Revenue".

(viii)The complainant wrote a letter, dated 8-8-2003 to the concerned officer stating that it was entitled to the refund of sales tax paid on stock irrespective of the date of acquisition and it was requested that the balance refund of Rs.6,439,608 also be made.

(ix) Vide a subsequent letter, dated 26-8-2003 attention of the department was also drawn to the decision of the Customs Appellate Tribunal reported as PTCL 2003 CL 428 and GST 2003 CL 368 and another letter, dated 2-10-2003 was also written requesting refund of the remaining amount.

(x) Instead of the refund a show-cause notice, dated 20-9-2003 has been received inter alia stating as follows

"And whereas on examination of the said refund claim, it has been observed that claim of Rs.6,439,648 involved in purchase invoices obtained prior to 6-9-1999. The claim of these invoices has been lodged after one year of purchase of goods which is time barred in terms of provision of section 66 of the Sales Tax Act, 1990."

(xi) The show-cause notice is nothing but an attempt to delay the refund due to the complainant and it is thus a case of maladministration.

(xii) The show-cause notice is based on a misinterpretation of law for mala fide reasons.

It has been prayed that the show-cause notice be ordered to be vacated and the respondent be directed to sanction the complainant's balance refund of Rs.6,439,608.

2. The respondent's reply consists of the comments of the Collector, Sales Tax, Peshawar forwarded by the Revenue Division and it contains the following main points--

(i) The show-cause notice, dated 21-9-2003 fixing the hearing on 31-10-2003 was duly served to provide an opportunity to the complainant to substantiate its claim. No one, however, appeared before the Deputy Collector and a person introducing himself as a junior of the legal advisor of the complainant made a request for extension of date through a letter.

(ii) The next hearing date was fixed for 22-11-2003 and then on 16-12-2003 and thus the delay in the disposal of the refund claim has been caused by the complainant itself and not by the Collectorate.

(iii) The admissibility of the refund claim will be determined in the light of the relevant provisions of law.

(iv) The refund claim lodged by the complainant involved large quantity of stocks which needed physical verification. After verification refund adjustment order for Rs.2,959,943 was issued while for the remaining amount of Rs.6,439,608 a show-cause notice was issued for the reason that the claim pertain to purchase invoices of dates prior to 6-9-1999 and the claim was thus time barred under section 66 of the Sales Tax Act.

(v) Instead of establishing its claim before the Adjudicating Officer the complainant has approached the Federal Tax Ombudsman prematurely in order to obtain undue relief.

(vi) In the case of an adverse decision the complainant would have the right of appeal against the decision.

(vii) The matter being under adjudication the complainant has prematurely approached the Honourable FTO and has been avoiding attendance before the Adjudicating Officer.

It has been prayed that the complainant be directed to substantiate its refund claim before the Adjudicating Officer.

3. During the hearing the representatives of the two sides reiterated their respective contentions. The learned Advocate for the complainant also referred to the decision of the Customs Tribunal mentioned in the complaint but this case was not found to be relevant as it related to section 59A of the Sales Tax Act. reference was also made to the Supreme Court judgment in the Pfizer case but this too was not found to be relevant in the present context. The main contention of the learned Advocate, however, was that in the original order, dated 7-8-2003 allowing partial refund adjustment it had been clearly mentioned that the amount of Rs.6,439,608 had been deferred for want of clarification from the C.B.R. It was pointed out that subsequently the concerned officer failed to obtain any clarification from the Central Board of Revenue in this regard. In this context the contention of the representative of the respondent was that on discussion of the matter with the senior officers of the Collectorate it was decided that since the one year limitation contained in section 66 of the Sales Tax Act was quite clear there was no need to refer the matter to the Board.

4. The contentions of the two sides have been considered and substance has been found in the complainant's contention that when in the original order, dated 7-8-2003 a clear reference was made to the need for a clarification from the C.B.R. there was no reason why such a clarification should not have been obtained by the Peshawar Collectorate. The Deputy Collector (Refunds) has thus acted in an unreasonable manner and the matter is therefore, covered by section 2(3)(i)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. It is added that the language of section 66 of the Sales Tax Act suggests that the one year limitation applies in case of a refund having not been claimed due to inadvertence, error or misconstruction or input tax deduction not having been claimed where it was otherwise allowable. In the instant case, however, the input tax could not have been claimed at the time of the purchase of the raw material since the end-product was exempt from sales tax and it is, therefore, doubtful whether the limitation in section 66 would apply in cases. Obviously this issue would probably be involved in many cases of manufacturers of cement after the withdrawal of the exemption and a uniform treatment would be desirable in the cases. For this reason also a reference by the Collectorate to the Revenue Division/Central Board of Revenue can be considered as necessary.

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

(i) The matter be referred by the Collectorate of Sales Tax, Peshawar to the Central Board of Revenue who may consider the issuance of such clarification as may be considered appropriate.

(ii) Compliance be reported within 60 days.

C.M.A./268/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.