Messrs QASIM COTTON GINNERS VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2007 PTD1317
[Federal Tax Ombudsman]
Before Justice (Retd.) Munir A. Sheikh, Federal Tax Ombudsman
Messrs QASIM COTTON GINNERS
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.612 of 2006, decided on 15/08/2006.
(a) Sales Tax Act (VII of 1990)---
----Ss. 36(3) & 11(4)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Recovery of tax not levied or short-levied or erroneously refunded---Limitation---Show-cause notice was issued on 11-5-2005 and order was passed on 23-11-2005 after six months and 12 days---No extension in time for deciding the casewas ever obtained/granted---No finding was given by the First Appellate Authority on the plea of time limitation---Validity---Case had to be decided within 90 days of the issuance of show-cause notice---Plea that case was decided within 90 days of the receipt of the file following abolition of the Adjudication Collectorate was not tenable because the law required the case to be decided within 90 days of the issuance of show-cause notice---Since Order-in-Original creating liabilities was passed after the expiry of time limit prescribed in S.11(4) and 36(3) of the Sales Tax Act, 1990, same was hit by time limitation---Maladministration was established---Department should annul both the Order-in-Original and Order-in-Appeal---Since appeal had been filed before the Appellate Tribunal to challenge the order on merits, the complainant in the event that department reopened the case and annulled the Order-in-Original and Order-in-Appeal under S.45-A of the Sales Tax Act, 1990, as was being recommended, will withdraw its appeal from the Appellate Tribunal---Federal Tax Ombudsman recommended that Revenue Division should direct the competent authority to annul both the impugned Orders being time-barred, void orders, under S.45A of the Sales Tax Act, 1990---Department, however, should proceed further in the matter in accordance with the provision of law.
Complaint No.805 of 2003 rel.
PLD 1956 SC 104 ref.
(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---
----S. 9(2)(a)---Jurisdiction, functions and powers of the Federal Tax Ombudsman-Scope---Filing of appeal before the Appellate Tribunal after filing of complaint before Federal Tax Ombudsman---Validity---Complaint, which was presented in the Federal Tax Ombudsman Secretariat on 13-6-2006, was not subjudice on the day of presentation in terms of the provisions of S.9(2)(a) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 because the appeal was filed before the Appellate Tribunal on 2-8-2006---Affected parties had a right .to file complaint before the Federal Tax Ombudsman in cases involving `maladministration' and to safeguard their remedy on merits, may also file appeals before appellate forums to get decision on merits in case they failed to establish "maladministration"---Only condition was that on the date of filing of complaint, the matter should not be sub judice before any Tribunal etc.---Scope of complaint was limited to the question of 'maladministration', which was within administrative sphere, whereas Appellate Tribunal could adjudicate the case on pure merits---Federal Tax Ombudsman was competent to investigate complaints falling within the definition of `maladministration', in terms of the provisions of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.
(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---
----S. 2(3)---Maladministration---Time limit---Failure to decide a case within the mandatory time limit prescribed in law, besides being illegal and unlawful, is purely an administrative issue; it constitutes an administrative lapse that falls well within the definition of. `maladministration', which covers not only the acts of omission and commission and acts contrary to law but also neglect, inattention, delay and inefficiency in the administration of tax laws.
Rana Muhammad Ishaq Khan for the Complainant.
Muteen Alam A.C. Sales Tax for Respondent.
DECISION/FINDINGS
The complainant, along with another ginner, got Al-Murtaza Cotton Ginning (Pvt.) Ltd. on lease and ginned cotton according to the contract. The department issued it a show-cause notice, dated 11-5-2005 alleging that (i) the complainant had under-valued cotton waste (complainant sold it at Rs.0.22 per Kg. whereas the Auditor fixed the price at Rs.0.32 per Kg.) and (ii) it failed to pay sales tax and additional tax on conversion charges amounting to Rs.1536920 on 5489 bales of cotton @ Rs.280 per bale. The complainant contested the show-cause notice on the ground that it paid sales tax on the price of waste which was actually received. If the respondents were not satisfied they could have got the price fixed from the Valuation Committee, which was not done. The respondents acted illegally. As for the conversion charges, the complainant did not receive any conversion charges. The department did not have any evidence to show that it really received them. Show-cause notice was based on presumption. The D.C., who was dealing with the case earlier, gave verbal order to drop the charges but actually did not. The complainant urged before the A.C. that the case being decided by her was hit by time limitation. The appeal filed before Collector (Appeals) was rejected by him. In the memo of appeal presented before the Collector (Appeals), the complainant had urged that A.C's order was hit by time limitation as the order was not passed within 45 days or within 90 days as provided in law. F.T.O. had held that passing order after the expiry of time limitation provided in law was an act of `maladministration'. The departmental representation against FTO's findings was also rejected by the President of Pakistan. All this was brought to the notice of Collector (Appeals) but he ignored the same. Collector (Appeals) also did not consider or appreciate the history of complainant's case. Both O-I-O No.11/RYK/05, dated 23-11-2005 and Order-in-Appeal 324 of 2006, dated 31-5-2006 may be annulled.
2. In reply, the Collector, Sales Tax, Multan has submitted that as per lease agreement made between Messrs Al-Murtaza Cotton Ginning (Pvt.) Ltd. and the complainant there was no evidence that Mr. Allah Malik Cotton Ginners was also a partner. The complainant tried to evade sales tax leviable and payable on ginning charges received by it by showing a bogus lease agreement. Lease agreement was between one lessee and other. Cotton waste was also taxable. The respondents took minimum price of cotton waste prevailing in the industry. In identical units, the price was taken at Rs.0.50 per Kg., more than the price adopted in the complainant's case. As regards the time limitation referred to by the complainant, due to changes in adjudication pattern and distribution of cases according to pecuniary jurisdiction, the office had received the said file on 15-8-2005 and decided the case within 90 days. The complainant was required to file appeal before the Appellate Tribunal, Lahore, which was not done. It did not avail the remedy provided in law. It may approach proper forum for redress of its grievance. No `maladministration' was committed. The complaint may be dismissed.
3. In his reply, Collector (Appeals) has submitted that the contention regarding non-finalization of the case within the stipulated period was considered by his forum. However, the argument was not entertainable as no government revenue could be waived off on procedural omissions. Appeal was decided after considering the arguments advanced by the complainant. The complainant should file appeal before the Appellate Tribunal, Lahore. The complaint may be dismissed.
4. During the hearing, the AR submitted that the complainant had filed appeal against Collector (Appeals)'s order on 2-8-2006 before the Appellate Tribunal but later in point of time to the filing of complaint in the F.T.O. Secretariat, which was filed on 13-6-2006. He reiterated the arguments advanced in the written complaint, emphasizing that neither waste was undervalued nor were conversion charges received; hence the complainant did not indulge in any tax evasion. The respondents could ' not dispute complainant's books of account. Show-cause notice was issued on 11-5-2005. The A.C. passed O-I-O on 23-11-2005 after six months and 12 days. It was hit by time limitation, as provided in sections 11(4) and 36(3) of the Sales Tax Act, 1990. No extension in the time for deciding the case was ever obtained/granted. The plea of time limitation was taken before Collector (Appeals) but he failed to give any finding on that account.
5. The DR submitted that the case was one of `assessment' and not of `maladministration'. The price of cotton waste declared by identical mills was Rs.0.5 per kg whereas the complainant was charged at Rs.0.32 per kg. The complainant also failed to pay sales tax on conversion charges. As to complainant's plea of time limitation, the Collectorate (Adjudication) was abolished on 31-7-2005; the cases were transferred to Executive Collectorate. The A.C. decided the case within 90 days after giving a hearing notice. The A.C. had valid reasons for deciding the case late. The AR rebutted Collector (Appeals)' argument at paragraphs 5 and 6 of his comments that Revenue could not be waived off due to procedural omission by saying that the time limitation ifs provided in law was mandatory and not procedural.
6. The arguments of the two sides and records of the case have been considered and examined. The adjudication authority issued a show-cause notice, dated 11-5-2005 to the complainant framing various charges against the complainant for violation of different provisions of law, asking it to show cause as to why the evaded sales tax along with additional tax be not recovered under the provisions of sections 11(2), 36(1) and 34 of the Sales Tax Act, 1990 and why penalty be not imposed under section 33 ibid. The Assistant Collector (Adjudication) finally decided the case vide Order-in-Original No. 11/RYK/05, dated 23-11-2005. Complainant's main contention is that the A.C. passed a time-barred order in violation of the provisions of section 11(4) and 36(3) of the Act by failing to pass the order within a mandatory period of 90 days, as provided in sections 11(4) and 36(3) of the Act and the Collector (Appeals) ignored its plea hat Assistant Collector's order was time-barred.
7. In the present case, the show-cause notice was issued on 11-5-2005 invoking, among other provisions of law, sections 11(2) and 36(1) of the Sales Tax Act, 1990. The case was to be decided within 90 days of the issuance of show-cause notice. Collector, Sales Tax, Multan's argument that the A.C. decided the case within 90 days of the receipt of the file following abolition of the Adjudication Collectorate is not tenable because the law required the case to be decided within 90 days of the issuance of show-cause notice. In its appeal filed before Collector of Appeals, which had since been decided; the complainant had also argued (see paragraph 4(b) of the O-I-O) that the show-cause notice issued on 11-5-2005 was to be decided within 45 days of the issuance of show-cause notice, pointing out before the Collector that the F.T.O. had held that an order passed after expiry of the mandatory time period was hit by time limitation and that the President of Pakistan had also rejected an appeal filed against F.T.O's findings. It is observed that the O-I-O in this case was passed after 6 months and 12 days of the issuance of show-cause notice. Although the plea of time limitation was taken before Collector (Appeals) and the Collector (Appeals) vide paragraph 5 of his comments admits that complainant's contention was considered but was not entertained as government revenue could not be waived off on procedural omission yet one finds that the Order-in-Appeal passed in the case is totally silent on the issue. The Collector did not care to give any finding on that account and upheld a time-barred order. The proviso to subsection (4) of section 11 of the Sales Tax Act, 1990 reads as under:
"Provided that order under this section shall be made within ninety days of issuance of show-cause notice or within such extended period as the Collector or, as the case may be, Collector (Adjudication) may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days".
According to subsection (3) of section 36 of the Sales Tax Act, 1990 the competent authority after considering the objections of the person served with a notice to show cause under subsections (1) and (2) of section 36 of the Act could determine the amount of tax or charge payable. However, proviso to section 36(3) reads as under:
"Provided that order under this section shall be made within ninety days of issuance of show-cause notice or within such extended period as the Collector or as the case may be Collector (Adjudication) may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days."
8. It was held by the F.T.O in Complaint No.805 of 2003, involving sales tax liability, that "in the instant case show-cause notice was issued on 16-6-2002 and Order-in-Original was passed on 13-5-2003 after about 11 months of the issuance of notice which is clearly hit by time limitation as provided in law. Maladministration is therefore established. The F.T.O. had, therefore, recommended in that case the cancellation of impugned 0-I-O. The department represented against the aforesaid decision of the F.T.O. before the President of Pakistan. The President was pleased to reject the departmental representation vide order, dated 7-5-2005, paragraphs 3 and 4 of which are reproduced below:
(3) "The department contends that the time limit under section 36(3) ibid was merely directory and not mandatory. The contention does not seem to be valid. Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory but where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory. The FTO's decision must be sustained.
(4) Accordingly, the President has been pleased to reject the representation of the department".
9. Since the impugned 0-1-0 creating liabilities was passed by the A.C. after the expiry of time limit prescribed in sections 11(4) and 36(3) of the Act, which prescribes that the order under the section should be passed within 90 days of the issuance of show-cause notice, extendable for another 90 days for reasons to be recorded in writing by the Collector, the A.C's order is hit by time limitation as prescribed in sections 11(4) and 36(3) of the Sales Tax Act, 1990.
10. No doubt, the complainant had filed appeal before the Collector of Appeals but the same had been disposed of vide Order-in-Appeal, dated 31-5-2006. Against the aforesaid Order-in-Appeal, the complainant has filed an appeal before the Appellate Tribunal on 2-8-2006. However, the complainant filed this complaint in FTO's Secretariat on 13-6-2006. According to the provisions of F.T.O. Ordinance, 2000, the F.T.O. is competent to diagnose, investigate, redress and rectify any injustice done to a person through `maladministration' by functionaries administering tax laws. The definition of `maladministration' as provided in sec tion 2(3) of the F.T.O. Ordinance, 2000 includes, inter alia, a decision, process, recommendation, act of omission and commission, which is contrary to law, rules and regulations or is a departure from established practice or procedure unless it is bona fide and for valid reason and also includes neglect, inattention, delay, inefficiency and inaptitude, in the administration or discharge of duties and responsibilities. Both sections 11(4) and 36(3) of the Act lay down that the orders under these sections are to be passed within 90 days of the issuance of show-cause notice or within such extended period as the Collector, or, as the case may be, the Collector (Adjudication) may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed 90 days. Surely, the period prescribed in the aforesaid sections of the Act for deciding a case, where liability is created, is mandatory, as already held by the Honourable President of Pakistan in representation filed against F.T.O.'s findings in Complaint No.805/03, reproduced above.
11. The Collector of Appeals has in his parawise comments argued that if the complainant was aggrieved by the orders passed by him, it had the remedy of filing appeal before the Appellate Tribunal under section 46 of the Sales Tax Act, 1990. It is observed that the complainant has filed an appeal, against Collector of Appeals' order before the Appellate Tribunal. However, the present complaint was filed in this forum on 13-6-2006 whereas the appeal before the Appellate Tribunal was filed on 2-8-2006, later than filing the complaint in the F.T.O. Secretariat. Section 9(2)(a) of F.T.O. Ordinance, 2000 is reproduced below:--
"(2) The Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into matters which:
(a) are sub judice before a Court of competent jurisdiction or Tribunal or Board or Authority on the date of the receipt of a complaint, reference or motion by him".
The present complaint, which was presented in the F.T.O. Secretariat on 13-6-2006 was not sub judice on the day of presentation in terms of the provisions of section 9(2)(a) of the F.T.O. Ordinance, 2000, because the appeal in the case was filed before the Appellate Tribunal on 2-8-2006. The affected parties have a right to file complaints before the F.T.O. in cases involving `maladministration' and to safeguard their remedy on merits, may also file appeals before appellate forums to get decision on merits in case they failed to establish `maladministration'. The only condition is that on the date of filing of complaint, the matter should not be sub judice before any Tribunal etc. Scope of complaint is limited to the question of `maladministration', which is within administrative sphere, whereas Appellate Tribunal can adjudicate the case on pure merits. The F.T.O. is competent to investigate complaints falling within the definition of `maladministration' in terms of the provisions of F.T.O. Ordinance, 2000. The failure to decide a case within the mandatory time limit prescribed in law, besides being illegal and unlawful, is purely an administrative issue. It constitutes an administrative lapse that falls well within the definition of `maladministration,', which covers not only the acts of omission and commission and acts contrary to law but also neglect, inattention, delay and inefficiency in the administration of tax laws. The F.T.O. Ordinance aims to provide relief to case involving `maladministration'. This forum is, therefore, competent to investigate complaints involving `maladministration'. In this case `maladministration' is established in that the A.C. (Adjudication) passed an order, which was hit by time limitation as provided in section 11(4) and 36(3) of the Sales Tax Act, 1990 and the Collector (Appeals) did not give any finding on complainant's plea of time limitation taken by the complainant before him and failed to hold the order passed by the A.C. as time-barred. In view of the foregoing discussion, and in view of the Presidential decision, dated 7-5-2005 holding that " but where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory....", it .is held that the impugned 0-I-0 No.11/RYK/05, dated 23-11-2005 is hit by time limitation as provided in law. The Order-in-Appeal No.324/06, dated 31-5-2006 is also not legally sustainable as it has upheld an order which ab-initio void as such should fall on the ground as being a superstructure based on a void order. (PLD 1956 SC 104 may be referred). `Maladministration' is established. The respondents should, therefore, annul both the impugned Order-in-Original and the Order-in-Appeal under section 45A of the Sales Tax Act, 1990. Since appeal has also been filed before the Appellate Tribunal to challenge the order on merits, therefore, the complainant, in the event that the respondents reopen the case and annul the impugned 0-1-0 and the Order-in-Appeal under section 45A of Sales Tax Act, 1990, as is being recommended in this case, will withdraw its appeal from the Appellate Tribunal. Accordingly, it is recommended that the Revenue Division direct the competent authority to:-
(i) Annul both the impugned Order-in-Original No. 11 /RYK/05, F dated 23-11-2005, being time-barred, and the Order-in-Appeal 324/06, dated 31-5-2006 for upholding a time-barred/void order, under section 45A of the Sales Tax Act, 1990. The respondents may, however, proceed further in the matter in accordance with the provisions of law.
(ii) Compliance be reported within 30 days of the receipt of this order.
C.M.A./163/FTOOrder accordingly.