Messrs WEAVING AND WEAVING, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1065 (2004)

Sales Tax Act (VII of 1990)---

----S.21---Blacklisting of unit by Sales Tax Department---Complaint was filed by proprietor of firm that his unit had been blacklisted by Sales Tax Department without intimating and without issuing any show-cause notice to him---Since no illegalities had been committed by complainant and no charges were framed by Sales Tax Department against complainant, there was no justification to blacklist his unit---Besides unjust blacklisting, Department had raised several objections to prolong its illegality instead of providing relief to complainant who was put to hardship and his business had suffered because of alleged illegal blacklisting of his unit---Officer empowered under S.21(4) of Sales Tax Act, 1990, was supposed to observe due process of issuing a notice and giving opportunity of hearing before blacklisting a registered person or suspending his registration---Action taken by Sales Tax authorities, was arbitrary, perverse unjust, oppressive and based on irrelevant grounds--Present case was a one of maladministration as defined under sub-section (3) of S.21 of Sales Tax Act, 1990, it was recommended that C.B.R. should direct Collector of Sales Tax to cancel blacklisting of complainant within fifteen days and compliance report be sent within thirty days.

Mr. Zakari Hussain, Proprietor, S.M. Imran Saleem, Authorized Representative of Osmani and Afzal Associates for the Complainant.

Shahab Imam, Assistant Collector of Sales Tax for Respondent.

FINDINGS/DECISION

The complaint has been filed against the blacklisting of the unit by the Sales Tax Department. The Complainants have stated that their office is located at 202, Saima Arcade, Bahadurabad, Karachi, and the sales tax auditors have been regularly conducting audit at this office and have also visited their warehouse for physical inspection of stock. They have been tiling sales tax returns regularly and have never received any show-cause notice of order disallowing sales tax input or for (their) de-registration.

2. In December, 2003, they received information from the customs that the Sales Tax Department had sent objection memos. showing that Messrs Weaving and Weaving (the Complainants) did not exist and the sales tax amount was deducted from their refund claims although they had deposited the same in the Government treasury. They immediately approached the sales tax officials and inquired about the reason of blacklisting but received no reply.

3. They stated that the audit team has examined the record of each year and the audit of the current year was also in progress. The Deputy Collector (Audit) had sent them a ]utter, dated 1-11-2003 for conduct of audit, and sent another letter, dated 6-11-2003 in response to which they had submitted all the details vide letter, dated 17-12-2003. The correspondence showed that their unit was an existing taxpayer. They complained that instead of unlawfully showing their name as blacklisted in objection memos. to their customers, the Department should have first issued them a show-cause notice.

4. The Complainants stated that they received a letter, dated 21-1-2004 from the Assistant Collector (Investigation) for submission of details/documents which had already been submitted to his office on 2-1-2004. The Proprietor of the firm stated that instead of doing his business he has been attending the sales tax office since December, 2003 but all his efforts to resolve the unlawful action have proved fruitless. He has been working from the same premises continuously and corresponding with the sales tax and income-tax offices and up to December, 2003 the Sales Tax Department was regularly allowing credit of sales tax, but the aforesaid adverse action has damaged their goodwill and caused serious problems in daily transaction of business. He complained that the Department had acted beyond its power and jurisdiction which amounted to maladministration and requested name of his firm be excluded from the list of blacklisted units.

5. The Assistant Collector of Sales Tax, Investigative Audit, Karachi, replied to the complaint that in pursuance of an inquiry about the fake/flying invoices, the Assistant Collector, SITE Division, checked the availability of the Complainant at their address and reported that it was residential flat, no person was present in the flat, it was found closed and the notice could not be served on them. As a result of this report the name of the Complainants was placed on the list of blacklisted persons under section 21(4) of the Sales Tax Act. Later on, they approached the Department and informed that they were available at the given address. On scrutiny of their record it was found that they were registered as a wholesaler only whereas they were showing purchase of Yarn and getting intermediary process done from unregistered persons. They were selling to the exporters who were claiming refund against invoices issued to them.

6. The Assistant Collector stated that matter was referred to C.B.R., which clarified vide letter, dated 4-4-2004, that a person could be a manufacturer-cum-wholesaler but he should intimate about the manufacturing activity to the Collecorate and lapse on this account could be condoned on payment of penalty. He further stated that since the Complainants were showing low value addition, the invoices had been sent to upcountry Collectorates for verification and letters were also issued to the Karachi-based suppliers for verification. Some confirmation has been received but the Karachi suppliers have not yet replied and the question of low value addition was still unresolved.

7. He admitted that the scrutiny of the documents has been completed but the verification of invoices and explanation of low value addition had yet to be given. He submitted that no maladministration had been committed and the case would be finalized as soon as the reports about the verification of invoices were received and the Complainants submitted satisfactory explanation about the value addition. They requested that the Complainants be advised to assist the Department for verification of invoices from the Karachi based suppliers.

8. The Authorized Representative (AR) stated during the hearing that there was no reason for the appropriate officer to blacklist the firm as it had complied with the sales tax rules and regulation. He produced copies of the letters, 1-11-2003 and 6-11-2003 under which the Deputy Collector (Audit) had deputed officers to carry out audit of their records which showed that the unit was indeed in existence and was carrying out its business in the normal fashion and there was no justification for blacklisting them.

9. The Assistant Collector replied that detailed audit of the record of the Complainants has given rise to several objections which were being examined and further action would be taken after completion of investigation. He stated that verification of invoices of Karachi Collectorate has been done but verification from Lahore and Gujranwala Collectorate was still awaited.

10. The Proprietor of the firm vehemently protested that while he had submitted complete documents for each invoice, the verified documents from Lahore and Gujranwala Collectorates have been received, (and his representative was personally visiting Lahore and Gujranwala for the last 45 days), no result was forthcoming. Since December, 2003 he has been visiting the sales tax office almost on a daily basis but, due to inaction on the part of the Department, his time was mostly consumed in the unproductive work of meeting the officials.

11. From the submissions made by the Proprietor of the firm, his Authorized Representative and the Assistant Collector of Sales Tax it is established that the unit was blacklisted by the Department on the basis of a report that their office was in a residential flat which was found locked when visited by the Department's representative. No intimation was given to the unit about the adverse action taken without due process and even when the Proprietor and AR approached the sales tax officials, they did not get any satisfactory reply. When called upon to reply to the complaint, the Respondent has come up with its objections about low value addition, the manufacturing process got done from other units without permission and incomplete verification of invoices.

12. The Sales Tax Department should have no objection if an enterprising entrepreneur purchases yarn from the market, get the same processed from outside units and supplies the same to other parties at low profit. They may carry out necessary verification about the value addition and invoices in pursuance of their function. However, since no illegalities have been committed and no charges framed against the unit, there was no justification to blacklist the unit. Besides the unjust blacklisting, the Department has raised several objections to prolong the illegality instead of providing relief. The Proprietor has been put to hardship and his business had suffered because of alleged illegal blacklisting of his unit.

13. The officer empowered under section 21(4) of the Sales Tax Act has to observe the due process of issuing a notice and giving opportunity of hearing before blacklisting a registered person or suspending his registration. The action taken by the sales tax authorities was arbitrary, perverse, unjust, oppressive and based on irrelevant grounds. It is case of maladministration as defined under subsection (3) of section 21 of Sales Tax Act.

14. It is recommended that C.B.R. direct the Collector of Sales Tax to:

(i) cancel the blacklisting of the Complainants within fifteen days; and

(ii) compliance be reported to this office within thirty days.

H.B.T./349/FTOOrder accordingly.