Messrs ALLIED IMPEX VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1023 (2004)

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

----Ss.73 & 21(4)---S.R.O. 2(I)/2003, dated 1-1-2003---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Certain transaction not admissible--Complainant a commercial exporter---Withholding of refund claim despite fulfilling requirements of S.73 of the Sales Tax Act, 1990 and new condition of providing Bank Credit Invoice for settling the refund claim on the ground that right to claim refund was not established unless and until the suppliers fulfilled responsibility of depositing the due tax in the treasury and claim became inadmissible if the input tax against which refund had been claimed was not verifiable---Complainant's unit blacklisted on grounds that major share/portion of purchases were made from the blacklisted units, being suspected of issuing fake/flying invoices without actual transfer of goods/supplies---Validity---No further supportive document was required to be filed by the complainant---Suppliers of the complainant were alleged to be suspected units issuing fake/flying invoices and to be non/nil filers out of which one had been deleted from the blacklist and other had been blacklisted after the tax period involved---Department had not established that the transactions with the suppliers, which were duly backed by the supportive documents, did not take place---Complainant was being harassed for failure of the department to enforce compliance on non filers or nil filers despite the fact that those units were registered by them---Notion that a refund claim could not be allowed unless the supplier deposited the tax collected by law on the supplies into treasury, was misconceived because it was contrary to law and rules---Once the document of refund had been filed as required under the law it was the obligation of the department to ensure that registered supplier fulfilled his obligation under the law and rules---Maladministration was proved for failing to examine such business record and commercial documents of the other persons (suppliers) concerned with the refund claim of the complainant in any manner it was necessary to satisfy themselves about the genuineness and admissibility of the claims and proceeded not only to reject his claim but to blacklist him as well without issuing any show-cause notice---Maladministration proved due to inadequate training and knowledge of the auditors and Officers in Charge which amounted to the trait identified as incompetence---Said persons also lacked aptitude required to discharge their duties in accordance with law, rules and regulations---Proper understanding of law, rules and regulation, knowledge of binding decisions, willingness and patience to listen to the presentation of case and to give careful consideration to relevant facts as well as the provisions of law, rules and regulation and above all the commitment to do justice was required---Federal Tax Ombudsman recommended that the Collector considers the advantage of proceeding according to the remand "order of the Collector (Appeal) that the refund claim be considered/sanctioned, if the claimant fulfills the requirements of S.R.O. 417(I)/2000 (Refund Rules) according to the prevalent practices for sanctioning of refund in the Collectorate and withdraws the appeal instituted at the Tribunal which is an exercise in futility and the Officer in Charge examines or causes to be examined such business record and commercial documents of the other persons (suppliers), concerned with the refund claim of the complainant, in any manner as is necessary to satisfy him about the genuineness and admissibility of complainant's claims.

(b) Sales Tax Refund Rules, 2002---

----R. 9(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Commercial exporter---Brief comments/explanation in respect of issuance of refund.

Shoaib A. Faridi and Muhammad Aslam Shaikh for the Complainant.

S.M. Shoaib, Deputy Collector for Respondent.

DECISION/FINDINGS

Maladministration is alleged in the instant complaint on the part of Collector (Enforcement) Sales Tax and Central Excise, Karachi for unlawfully withholding complainant's refund claim for the period March, 2002, March, 2003 to June, 2003, January, 2004 and February, 2004 amounting to Rs.22,030,311.16 without assigning any reason.

2. The complainant is registered as Commercial Exporter under Sales Tax Act vide Registration No.12-00-1190-391-73. The requirement of section 73 of the Sales Tax Act, 1990 (the Act) that the payment be made through the banking channel were fulfilled and the new condition of providing Bank Credit Invoice for settling the refund claim recently imposed by C.B.R. vide S.R.O. 2(1)/2003 of 1-1-2003 was also fulfilled and Bank Credit Advices in respect of all the claims pending with the department were filed.

3. It is further averred that after the decision in C.No.145-K of 2003, dated 7-5-2003 a substantial amount of refund claim was paid and the remaining was rejected vide their Orders-in-Original Nos. 1 and 2 both, dated 12-7-2003. The Collector (Appeals) on appeals Nos. 29 and 30 of 2004 filed against the Orders-in-Original ibid, set aside those orders vide combined decision, dated 5-5-2004 directing to pay the refunds claimed by the appellant/complainant; still the following claims have not been paid till filing of the instant complaint on 22-6-2004:

(1) Deferred amounts of claims

(2) Routine claims

(3) Claims allowed

4. It is alleged that instead of issuing the refunds, the respondent has passed order C.No.814/Reg/STH/Suspected/3/1036, dated 28-2-2003 for including complainant's name among the blacklisted units resulting in cancellation of complainant's Sales Tax Registration. The action/order is contrary to provisions of section 21(4) of Sales Tax Act, 1990. Further the order has been passed without serving any show-cause notice which is contravention of the principle of natural justice.

5. The complainant filed C.P.D. No.600 of 2004 before the High Court of Sindh. The Division Bench declared the impugned order illegal on 19-5-2004 and set aside the same remanding the case to the Collector for fresh decision of the case after providing proper opportunity.

6. The complainant has alleged that the respondent has thus committed repeated maladministration, by making decisions, which have been held contrary to law and thus indulging in withholding of refunds, specifically included in the definition of maladministration under section 2(3)(i)(a) and (v) of Ordinance XXXV of 2000 (the FTO Ordinance).

7. It is averred by the respondent in the Parawise comments offered on the complaint that complainant's unit had been blacklisted by the Collectorate on grounds that the major share/portion of purchases were made from the blacklisted units, being suspected of issuing fake/flying invoices without actual transfer of goods/supplies. The profile of all such suppliers reflected heavy business transactions with insignificant tax deposits to Government treasury.

8. It is further averred that the pending claims were processed in accordance with the findings/orders of the learned FTO in complaint No.C.145K/03. The input found admissible was sanctioned whereas the remaining inadmissible claim was rejected after observing due legal provisions but the Orders-in-Original were set aside by the Collector Appeal. However, Appeals have been filed on 8-7-2004 before the Appellate Tribunal against the orders of Collector Appeal. It is added that `right to claim refund is not established unless and until the suppliers fulfil responsibility of depositing the due tax in the treasury'. Basically, such refund relates to tax already paid into the treasury against purchase utilized for making zero rated supplies/exports.

9. The Hon'ble High Court of Sindh has remanded the issue to the Collector Headquarters to pass a fresh speaking order under section 21(4) of the Sales Tax Act, 1990 after allowing hearing opportunity in the case, whereas, the former order was based on audit findings reported by the audit Collectorate.

10. It is averred that the issue of withholding of refund in cases where depositing of tax cannot be ascertained or is dubious has often been agitated by exporters. However `a claim becomes inadmissible if the input tax against which refund has been claimed is not verifiable'. Dismissal of complaint is pleaded as the matter is already sub judice before the Appellate Tribunal and will be disposed of in due course of time in accordance with the legal provisions.

11. Mr. Shoaid A. Faridi and Mr. Muhammad Aslam Shaikh, Advocates, representing the complainant and Mr. S.M. Shoaib, Deputy Collector representing the respondent have attended and assisted in the investigation process. Since the instant complaint has been filed on 22-6-2004 while the appeals were filed before the Tribunal by the respondent on 8-7-2004 the bar on jurisdiction envisaged under section 9(2)(a) of the Federal Tax Ombudsman Ordinance is inapplicable. The objection is overruled.

12. It is observed that following claims have been rejected vide two Orders-in-Original ibid:-

13. The respondent, however, has submitted a statement showing the latest position of claims filed by the complainant and action taken by the respondent so far. The aggregate of claims filed amounts to Rs.85,263.263 out of which refund amounting to Rs.45,312,360 has been paid. The statement is annexed to this decision. It includes claims in 21 tax periods comprising 01 for January, 2003, 11 for March, 2003, 01 for May of 2003, 01 for July, 2003, 02 for September, 2003, 01 for March, 2004, 01 for April, 2004 and 03 for July, 2004.

14. The Collector (Appeals) has recorded in his order on Appeal No.30 of 2004, dated May 5, 2004 that none appeared on behalf of the Department. The comments offered by the Department to the Federal Tax Ombudsman on complaint No. 145-K of 2003 ibid, therefore, have been adopted by him as Department's version of facts wherein it is submitted that the Collector takes maximum efforts to facilitate its taxpayer. Sales Tax Refund procedure has been completely automated recently to make the process more transparent and speedy. The sales tax refund claims are being processed much faster now than before.

15. The delay in. processing of sales tax refund claim of the complainant from January, 2002 to November, 2002 has been caused because the complainant did not provide complete supportive document such as BCA, proof of payment etc. Further, the suppliers of the complainant viz. Messrs Al-Hajveri Textile and Messrs Creative Looms were found to be suspect units issuing fake/flaying invoices. Besides, Messrs Ayaz Trading, Messrs Bashir Printing Industries, Messrs Fatima Enterprises and Messrs Shah Traders were found to be non/nil filers. Therefore, detailed audit of the complainant was carried out to ascertain the factual position and investigate the aspect of the dubious suppliers. An amount of Rs.49,207,711 has been sanctioned and balance claims of Rs.15,294,028 are deferred on 24-3-2003 in the light of the findings of audit after receiving all supportive documents from the complainant. Another amount of Rs.12,712,490 have been carried forward as the purchase was not found to be consumed in export. It further averred by the respondent that an amount of Rs.15,294,028 is to be charged either from the suspect unit or non-nil filer units.

16. The Collector (Appeals), on the other hand, has recorded following findings:--

"(a) The refund claim was scrutinized tinder section 10(4) of the Sales Tax Act, 1990 and it was found that exports have been effected and payment have been made by the appellants through banking channels to all the three suppliers.

(b) Letter No. C.No. IV-ST/Fake Invoice/Audit-11/2001/605, dated 15-1-2002 clearly mentioned that one of the suppliers Messrs Creative Loom Industry, bearing Registration No.03-0205205-016-37 has been deleted from the blacklist therefore the objection of the department regarding this supplier has been removed.

(c) Even if the purchases are made from the blacklisted supplier the norms of justice require probe as to whether the purchaser was aware of the fact that the supplier was blacklisted at the time when the purchase was made. If the supplier is declared blacklisted after the date of purchases then the notification declaring him as blacklisted can only be operative from the date of its issuance and not retrospective, as it is well settled by the Honourable Supreme Court of Pakistan in case of Messrs MY. Electronics Industries (Pvt.) Ltd. that a notification operates only prospectively and not retrospectively.

(d) The claim against the purchase invoices of Messrs Shah Traders which was rejected on the grounds that the suppliers did not file returns for the tax period January, 2002, cannot deprive the legitimate tax payer from his legal right. Moreover their name has never been included in any list of suspect units issued by the C.B.R.

(e) Last but not the least the good faith of the appellant is substantiated from the fact that they have not filed any claim against the payment of the transaction made with Messrs Fatima Enterprises because as soon as it comes to their knowledge that the suppliers have not paid the amount of tax in the national exchequer they withheld the amount of sales tax involved in the transaction. Since they did not pay the amount of the supplier against such transaction they themselves abstained to claim the refund which otherwise they could have claimed if they were not sincere to the Department.

(f) The Order-in-Original passed is, therefore, not correct in law and on fact.

Having considered all aspects, I set aside the Order-in-Original No.1 of 2003, dated 12-7-2003 as it suffers factual and legal infirmities and order that the 'refund claim be considered/ sanctioned, if the claimant fulfils the requirements of S.R.O. 417(I)/2000 (Refund Rules) according to the prevalent practices of sanctioning of refund in the Collectorate."

17. Since the maladministration alleged in the instant complaint is, "unlawfully withholding complainant's refund claim without assigning any reason", which is frequently alleged, an insight into the Sales Tax Refund Rules, 2002 notified vide S.R.O. 575(I)/2002, dated 31st August, 2002 is required.

18. Briefly, according to the rules, monthly sales tax return filed by a claimant shall be treated as -refund claim once all the supportive documents in the manner specified in the rule 9 or otherwise prescribed by the Board, have been received. Rule 9(3) specifies that a commercial exporter shall submit bank credit advice duly issued by the concerned bank in addition to documents specified in clauses (a), (b), (c), (d), (e), (f) and (g) of sub-rule (1) which are as under:--

(a) input tax invoice or as the case may be, bill of entry;

(b) tax invoice of intermediary processes, if applicable;

(c) output tax invoices in case of domestic supplies;

(d) Zero-rated invoices in case of export;

(e) Bills of export (quadruplicate copy) indicating Mate Receipt number with date or airway bill or railway receipt or postal receipt besides the examination report recorded by custom officer;

(f) Bill of lading or airway bill or as the case may be, railway receipt or postal receipt indicating transportation of goods out of Pakistan; and

(g) A statement showing value and input tax on stocks in balance and the position of stock of major input and output carried over from the previous tax period, additions in such stocks, stocks consumed or supplied during such period and stocks in balance, if any.

19. Where such supportive documents have not been received, the officer-in-charge may require the claimant through telephone, facsimile, email or by post. The Processing Officer shall assign a file or claim-number and carry out necessary examination and scrutiny to check the accuracy of' declaration and calculation, etc. and satisfy himself that the amount so claimed as refund is properly supported by the documents. He shall also satisfy himself that the refund claimed is as per input output ratio, if any, duly approved by the Board in this behalf. He shall submit a written comprehensive refund examination report, within seven days of receipt of supportive documents, to the concerned senior auditor or superintendent who shall give his conclusive recommendation thereon and pass it on to the officer-in-charge within three days of receipt of the case.

20. If on the basis of supportive document, refund examination report, recommendations, inquiry or audit report as the case may be, the officer-in-charge is fully satisfied about the genuineness and admissibility of the claim, he shall subject to the provision of subsection (3) of section 10 of the Act, sanction the claim and send the original copy of the sanction order to the treasury officer for issuance of a cheque to the claimant.

21. Refund claim to a commercial exporter shall be sanctioned and paid within one month of the submission of supportive documents to the extent of input tax shown in Sales Tax invoice issued by registered local manufactures or suppliers of goods actually exported. But sub-rule (3) provides that the time limit given in this rule shall not apply to cases subjected to further inquiry or audit under sub-rules (3) to (5) of rule 5. Sub-rule (3) of rule 5 is not relevant to commercial exporters and where sub-rules (4) and (5) supra are invoked, the officer-in-charge shall inform the claimant about the subjection of his refund claim to inquiry or audit, as the case may be.

22. However, where the officer-in-charge is of the opinion that any further inquiry or audit is required to establish the genuineness and admissibility of claim, he may make or cause to be made such inquiry or audit after approval from the Additional Collector under intimation to the refund claimant. An officer not below the rank of Senior Auditor may examine such business records and commercial documents of the claimant or of any person concerned with the refund claim in any manner as is necessary to satisfy himself about the genuineness and admissibility of the claim.

23. Where any refund claim or the part thereof is found not genuine and not admissible under the law, the officer-in-charge after seeking prior approval of appropriate authority under the law by recording in writing on the relevant file the reasons for issuing the notice, wherever required, shall issue a notice and serve on the claimant requiring him to show cause in writing within fourteen days, as to why the claim or part thereof, as the case may be, should not be rejected and as to why the claimant should not be proceeded against under the relevant provisions of law. The officer-in-charge shall issue the show-cause notice to such claimant and after affording a reasonable opportunity of hearing to the claimant pass an adjudication order specifying reason therein. In case the claimant does not respond to the show-cause notice or does not appear himself, or through his authorized representative, to defend his position on three dates of hearing, the officer-in-charge may decide the case ex parte on the basis of facts and evidence available on record.

24. The position at the time of filing the instant complaint is that it is not the case 'of the respondent that any further supportive document is required to be filed by the complainant; that suppliers of the complainant viz. Messrs Al-Hajveri Textile and Messrs Creative Looms are alleged to be suspect units issuing fake/flying invoices and Messrs Ayaz Trading, Messrs Bashir Printing Industries, Messrs Fatima Enterprises and Messrs Shah Traders have been alleged to be non/nil filers, out of which name of Messrs Creative Looms has been already deleted from the blacklist; that others have been blacklisted after the tax period involved in complainant's case. Further the respondent has not established that the transactions with the said suppliers, which are duly backed by the supportive documents, did not take place. Thus, the complainant is being harassed for failure of the respondent Department to enforce compliance on non-filers or nil filers despite the fact that those units are registered by them. The notion that a refund claim cannot be allowed unless the supplier deposits the tax collected by law on the supplies into treasury is misconceived because it is contrary to law and the rules considered Supra. Once the document of refund has supportive been claims required under the law and the return it is the obligation to an owns of the respondent Department to ensure that a registered suppliers fulfil his obligation under the law and rules. This is why the rule provides that where the Officer-in-charge is of the opinion that any further inquiry or audit is required to establish the genuineness and admissibility of claim, he may make or cause to be made such inquiry or audit after approval from the Additional Collector under intimation to the refund claimant. An officer not below the rank of Senior Auditor may examine such business records and commercial documents of the claimant or of any person concerned with the refund claim in any manner as is necessary to satisfy himself about the genuineness and admissibility of the claim.

25. Maladministration on the part of the auditors and Officers Incharge is proved for failing to examine such business record and commercial documents of the other persons (suppliers) concerned with the refund claim of the complainant in any manner as was necessary to satisfy themselves about the genuineness and admissibility of the claims and proceeded not only to reject his claim but to blacklist him as well without issuing any show-cause notice. They did not realize their lapse even after the decision of Collector (Appeals). Instead, the respondent proceeded to file appeal against the order of Collector (Appeals).

26. The maladministration alleged and proved in the instant complaint persists due to the inadequate training and knowledge of the auditors and Officers-in-charge which amounts to the trait identified as incompetence in the inclusive definition of maladministration in section 2(3)(ii) of the FTO Ordinance. They also lack aptitude required to discharge their duties in accordance with law, rules and regulations. It requires proper understanding of law, rules and regulation, knowledge of binding decisions, willingness and patience to listen to the presentation of case and to give careful consideration to relevant facts as well as the provisions of law, rules and regulation and above all the commitment to do justice.

27. It is recommended that:

(a) The Collector considers the advantage of proceedings according to the remand "order of the Collector (Appeals) that the refund claim be considered/sanctioned, if the claimant fulfils the requirements of S.R.O. 417(I)/2000 (Refund Rules) according to the prevalent practices for sanctioning of refund in the Collectorate" and withdraws the appeal instituted at the Tribunal which is an exercise in futility.

(b) The Officer-in-charge examines or causes to be examined such business record and commercial documents of the other persons (suppliers), concerned with he refund claim of the complainant, in any manner as is necessary to satisfy him about the genuineness and admissibility of complainant's refund claims.

(c) The complainant is treated in accordance with relevant law and rules.

(d) Compliance is reported within 45 days considering the fact that inordinate delay has already been caused due to-non-observance of rules and failure of the respondent to discharge their onus.

C.M.A./297/FTOOrder accordingly.