NEW HOME AND LIFE, HUSSAIN AGHA ROAD, MULTAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1329 (2004)

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

----S. 19---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Compulsory registration---Complainant was compulsorily and wrongly registered by the tax authorities---Request was made for correction of name and change of registration as a `retailer' instead of `wholesaler-cum-retailer'---Department issued a registration certificate correcting the name but without changing its status as wholesaler-cum-retailer---Validity---Complainant's contention that he was not a wholesaler was not considered nor was an attempt made to find whether he qualified as a retailer or a wholesaler in view of the express provisions of the two terms---Objection that complainant had also been discriminated against other parties in regard to the out-of-tax-period adjustment had substance inasmuch as the decision given in other cases by the same Adjudicating Authority was at variance with decision given in the complainant's case---Order-in-Original was tainted with `maladministration'---Justice demanded that complainant's case be considered and examined de novo for passing a fresh adjudication order, covering all aspects and facts of the case, on its merits in accordance with the provisions of law after extending the opportunity of defence/hearing to the complainant---Federal Tax Ombudsman recommended Central Board of Revenue/ Collector that case be reopened and impugned Order-in-Original be set aside for de novo examination/consideration for passing a fair and speaking order covering all aspects of the case on its merits in accordance with the provisions of law after giving the complainant the opportunity of being heard and if re-adjudication of the case determines beyond doubt that the complainant had indeed taken out-of-tax period adjustment, he should then be extended the same treatment as allowed in other cases discussed above to remove discrimination.

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

----Ss.73, 66 & 7---S.R.O. 7(1)/2, dated 5-1-2002---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Certain transactions not admissible---Complainant was burdened for violation of S.73 of the Sales Tax Act, 1990 for not making payments through banking channels for purchases made inspite of providing proof of payment to the Adjudicating Authority but the same was ignored---Validity---Complainant claimed that he made payment to the suppliers for purchases made from them through banking channels in conformity with the provisions of S.73 of the Sales Tax Act, 1990 but despite submissions of a statement as evidence of payment in accordance with the provisions of S.73 of the Sales Tax Act, 1990 the Adjudicating Officer did not consider the same---Complainant had during the proceedings submitted only a self-prepared statement showing that he had fulfilled the conditions of S.73 of the Sales Tax Act, 1990 and the document so submitted did reveal that payments were made to various suppliers but failed to establish, according to the Department, that he had made payments to the suppliers from his business account as required under S.73 of the Sales Tax Act, 1990---Complainant had stated during the hearing that he was prepared to submit details of relevant invoices, bank statements, counterfoils of cheques/drafts in support of his contention that payments were made in accordance with the provisions of S.73 of the Sales Tax Act, 1990--Such aspect of the case would also need fresh examination on its merit.

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

----Preamble---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Jurisdiction functions and powers of the Federal Tax Ombudsman---Process employed in the conduct of assessment or related proceedings---No remedy had been provided in respect of a process employed in the conduct of assessment or related proceedings---Since the matter related to the process employed by the Department, against which no appeal was provided in Sales Tax Act, 1990, the provisions of S.9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 did not stand, in the way of investigation by the Federal Tax Ombudsman.

Aslam Babar and Iqtidar Alam for the Complainant.

Shafqat Hayat, D.C. (Adjudication) for Respondents.

DECISION/FINDINGS

This complaint of `maladministration' is directed against Order -in-Original No.696 of 2003, dated 9-10-2003 passed by Additional Collector Sales Tax (Adjudication), Multan. It is alleged that the aforesaid O-I-O is mala fide, arbitrary and discriminatory because it creates illegal liabilities against the complainant.

2. Brief facts of the complaint are that the complainant was compulsorily and wrongly registered by Tax Authorities in the name of Home and Life instead of his correct name New Horne and Life. It had also requested the Authorities vide its letter, dated 29-6-1999 for correction of the name of the unit and change of registration as a `retailer' instead of `wholesaler-cum-retailer'. On 2-7-1999, the respondents issued a registration certificate correcting the name but without changing its status as wholesaler-cum-retailer. Subsequently another request, dated 14-7-1999 made for change in status, followed by reminders, was ignored. As a result of audit certain charges were framed against the complainant, which pertained to the issue whether or not the complainant was a wholesaler or retailer and whether or not the complainant had made payments to his suppliers through banking instruments in terms of section 73 of the Sales Tax Act, 1990. Certificates issued by Messrs L.G., Toshiba, PEL, Luminar Television and Philips (on record) show that the complainant had been working as authorized retailer of their products. Being a retailer the complainant had been filing returns on quarterly basis (instead of monthly basis). Alleging that the complainant had made out-of-tax-period input adjustments, which were not admissible under section 7 of the Sales Tax Act, 1990, an amount of Rs.1,980,234 has been held to be recoverable. Even otherwise the issue of out-of-tax-period adjustment stands settled at the level of Appellate Tribunal in the case of Messrs Trade Links International, Lahore versus Collectorate of Sales Tax, Lahore. In an identical case the Additional Collector (Adjudication) has vacated a demand of tax on the basis of principle laid down by the Appellate Tribunal. Creation of demand against the complainant on this account is, therefore, arbitrary and discriminatory. Furthermore, an amount of Rs.1,163,810 has been held as recoverable from the complainant for violation of section 73 of the Sales Tax Act, 1990 for not making payments through banking channels for purchases made by the complainant. At the time of hearing the proof of payment in adherence to the provisions of section 73 of the Sales Tax Act, 1990 was provided to the Adjudicating Authority but he ignored it. The demand of tax along with additional tax and penalty adjudged vide the impugned. Order-in-Original is, therefore, not sustainable. The respondents may also be directed not to enforce recovery.

3. In reply, the Additional Collector (Adjudication) has submitted that the complainant should have filed an appeal against this order before the Appellate Tribunal, Lahore as provided under section 46 of the Sales Tax Act, 1990. The Honourable FTO's jurisdiction does not extend to cases where legal remedies of appeal are available as envisaged in section 9(2) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000. The complainant was registered with Sales Tax Department as a `wholesaler-cum-retailer'. He was non-filer for the months of May, June, July, August, October and November, 1999 and January, February, April and May, 2000. Despite that he adjusted tax for aforesaid months in the irrelevant period, which was hit by limitation laid down in sections 7 and 66 of the Sales Tax Act. The complainant also violated the provisions of section 73 of the Act by not making payments to suppliers through banking channels. During audit the audit team detected wholesaling activities on his part. Invoices resumed indicated that the complainant made supplies to Messrs Pak Traders, Multan. These supplies were not made to the end consumers. This proved that the complainant was rightly registered as `wholesaler -cum-retailer'. The name of the complainant was changed on receipt of his application dated 29-6-1999---In this application no request was made for change in category/status from `wholesaler-cum-retailer' to `retailer' only. He was willing to retain his status as `wholesaler-cum-retailer' by supplying the quantity in bulk. The complainant falls in the category of `wholesaler' as proved by invoices detected during audit. He concealed his actual status of business. Being wholesaler-cum-retailer he could claim and adjust input tax during the relevant period only. It is correct that the Appellate Tribunal, Lahore has allowed input tax adjustment made in the out of tax-period in subsequent months vide Order-in-Appeal No.748 of 2001 on the ground that nor revenue loss had occurred and because out-of-tax-period adjustment could be termed as a procedural lapse. However, the Peshawar Bench of the Appellate Tribunal tins decided that out-of-tax-period input adjustment was not admissible in view of the express provisions of law. In the Order-in-Original passed by the Additional Collector the complainant was allowed the opportunity to apply for refund of input tax under section 66 of the Sales Tax Act, 1990. Input tax adjustment during irrelevant period has remained disputed among Collectorate who hold different opinions. The present case was finalized on 10-5-2003 and the Order-in-Original was passed in accordance with the provisions of prevailing law. In another case input tax adjustment relating to out-of-tax-period was allowed because the respondents had produced copy of Order-in-Original No.377/03, dated 19-6-2003 passed by the Collector (Adjudication), Multan in which out tax-period adjustment was allowed for sake of uniform policy. The documents submitted by the complainant revealed that payments were made to various suppliers without providing evidence that these payments were made to suppliers from complainant's business account as required under section 73 of the Sales Tax Act, 1990. No `maladministration' has, occurred. The complaint may be rejected.

4. In his reply Collector Sales Tax, Multan has submitted that the complainant requested the A.C. vide application, dated 29-6-1999 to change his name which was done. No request was made in the application regarding change of category from wholesaler-cum-retailer to retailer only, which showed that the complainant was willing to retain his status as wholesale-cum-retailer. Audit showed that the complainant indulged in wholesaler activity which is clear from invoices and supply register showing supplies made to Messrs Pak Traders and two others. The invoices prove that the complainant concealed his activity as a wholesaler. He was to file returns-cum-payment challans on monthly basis but he failed to do so in the relevant months, so he was a non-filer. He also adjusted input tax in violation of section 7 of the Sales Tax Act, 1990 by claiming input tax adjustment in irrelevant period and violated the provisions of section 73 of the Sales Tax Act failing to produce counterfoils of cheques/drafts issued for payments to the suppliers or photocopies of banking instruments used for payments against purchases or bank statements of his suppliers for ascertaining whether transfers of payment had been made from his own business account to suppliers business account as required under section 73 of the Act.

5. During the hearing, the AR reiterated the arguments as detailed in the written complaints emphasizing that he was merely a retailer and not a wholesaler as is evident from the certificates issued by the companies appointing him as their retailer. Accordingly he filed returns on quarterly basis and not on monthly basis. When he applied for change in the name he had also attached with the application the requisite form of registration tick-marking in the relevant box the word `retailer'. His application, dated 14-7-1999 for change in status was ignored. The Adjudicating Authority also ignored documentary evidence supplied by the complainant in proof of payments made through banking channels as prescribed under section 73 of the Sales Tax Act, 1990.

6. The DR submitted that insofar as the contravention for non-filing of returns is concerned the Adjudication Officer did not decide the matter as decision in this regard fell within the jurisdiction of Executive Collectorate under S.R.O. 7(1)/02, dated 5-1-2002. The complainant neither produced any concrete evidence in support of his claim that payments to suppliers were made in accordance with the prescribed procedure nor did he supply counterfoils of cheques/drafts in support of his contention. Some invoices (on record) show that he did not supply the goods to end consumers but to traders/shopkeepers in wholesale. For example, he supplied TV sets to Messrs Pak Traders. The AR, however, submitted that tax invoices referred to by the respondents are nothing but bills of sales to individuals. No bulk supplies were made in wholesale. These bills/invoices were merely memos issued in the name of a trader making purchase on behalf of individual customers. The DR denied receipt of complainant's application, dated 14-7-1999 for change of status.

7. A scrutiny of the arguments of the parties to the dispute and record of the case reveals that the impugned Order-in-Original does not deal with complainant's assertion that he was a `retailer' and not a `wholesaler-cum-retailer', as made out by the Department. The complainant has placed on record certificates of various companies appointing him as their retailer. The Adjudicating Officer also did not take into consideration complainant's submission made during the proceedings that .he had as far back as on 14-7-1999 applied to the department for change in his status from `wholesaler-cum-retailer' to `retailer' only. While the DR contended that the aforesaid letter was not received by the Department, the copy of the aforesaid letter (on record) shows its receipt by someone. Respondents' contention also becomes doubtful in view of prosecution comments filed before the Adjudicating Officer (para. 4(ii) of Order-in-Original) stating "it is clear that the registered person submitted application on 14-7-1999 after issuance of certificate on 2-7-1999". If application, dated 14-7-1999 was received it should have been decided upon even if it was submitted subsequent to issuance of certificate on 2-7-1999 effecting change in the name. This matter was specifically raised by the complainant and was commented upon by the respondents during proceedings before the Adjudicating Officer. The Adjudicating Officer should have given a finding on this critical aspect of the case because on the determination of this issue depended the resolution of the question whether or not the complainant was a `retailer' or a `wholesaler-cum-retailer' and whether or not he had made any out-of-tax-period adjustment. The determination of this issue was also important because the impugned order shows that the prosecution had also contended that the complainant was a wholesaler because he had issued a few invoices to Messrs Pak Traders, Multan which proved that he was a wholesaler. The question is whether on the basis of these few invoices, each one showing sale of one TV, the complainant could be declared as a wholesaler or could such quantity be termed as supply of quantity in bulk or by wholesale. Section 2(28) of the Sales Tax Act, 1990 defined retailer as under:

"retailer means a person not being a manufacturer or producer or an importer supplying goods to general public for the purpose of consumption".

On the other hand, the term 'wholesaler' has been defined in section 2(47) of the Sales Tax Act, 1990 as:

"Wholesaler (includes a dealer and) means any person who carried on, whether regularly or otherwise, the business of buying and selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by wholesale for cash or deferred payment or for commission or other valuable consideration or stores such goods belonging .to others as an agent for the purpose of sale; and includes (a person supplying taxable goods to persons deducting advance tax under sub-section (4) of section 50 of the Income Tax Ordinance, 1979 (XXXI of 1979), and) a person who in addition to making retail supplies is engaged in wholesale business;".

In view of the above quoted definition of `wholesaler' it remains to be determined whether the sale of one TV/Refrigerator per invoice (only three or four invoices) could be termed as supply or distribution of goods by wholesale as defined. The Order-in-Original is deficient in that it did not record any findings on this critical issue. It was essential to determine whether or not the complainant indulged in wholesale supplies or whether or not he was a retailer. It is not enough to say that he was a retailer-cum-wholesaler because he was compulsorily registered and because the above-mentioned invoices showed sale of goods by wholesaler. Again the question whether or not the complainant took out of-tax-period adjustment would arise only if he is held in adjudication to be a wholesaler otherwise the complainant contends that he being a retailer filed quarterly returns (rather than monthly returns) and claimed adjustment lawfully. If, however, it is held by the Adjudicating Officer that the complainant was indeed as wholesaler it would then give rise to yet more questions i.e. the questions of admissibility or otherwise of out of-tax-period adjustment and complainant's allegations of discrimination made against him vis-a-vis other cases where the benefit of out-of-tax period adjustment was allowed. The Additional Collector (Adjudication) has admitted in parawise comments filed by him that in another case out of-tax-period adjustment had been allowed the relevant portion of which is reproduced below:--

"However in other case where the input tax adjustment relating to out-of-tax-period was allowed, the basis were that in that case the respondent produced a copy of Order-in-Original No.377 of 2003, dated 19-6-2003 passed by the learned Collector, Customs, Sales Tax and Central Excise (Adjudication), Multan in which out of tax period adjustment was allowed therefore, adopting the uniform policy, input case, adjustment of input tax relating to out of tax period was allowed."

The complainant has also placed on record Order-in-Original No.746 of 2003, dated 24-12-2002 passed by the same Adjudicating Officer i.e. Mr. Ghulam Sarwar Qaisarani under which the charge of wrong input adjustment made in out-of-tax-period was dropped from the charges framed against the concerned party.

8. The complainant also claims that he made payment to the suppliers for purchases made from them through banking channels in conformity with the provisions of section 73 of the Sales Tax Act, 1990 but despite submissions of a statement as evidence of payment in accordance with the provisions of section 73 of the Act the Adjudicating Officer did not consider the evidence. No doubt, the complainant had during the proceedings submitted only a self-prepared statement showing that he had fulfilled the conditions of section 73 of the Act and the document so submitted did reveal that payments were made to various suppliers but failed to establish, according to the respondents, that he had made payments to the suppliers from his business account as required under section 73 of the Act. However, during the hearing of this complaint the complainant stated that he was prepared to submit details of relevant invoices, bank statements, counterfoils of cheques/ drafts in support of his contention that payments were made in accordance with the provisions of section 73 of the Act. This aspect of the case would also need fresh examination on its merit.

9. As respects objection by the Revenue to the jurisdiction of the FTO to entertain the complaint, the same is based on misreading of the provisions of section 9(2) of the FTO Ordinance. Clause (b) of subsection (2) of section 9 relates only to decisions on matters enumerated therein "in respect of which remedies of appeal, review or revision are available in the relevant legislation" itself. On the other hand, no such remedy has been provided in respect of a process employed in the conduct of assessment or related proceedings. Since the matter in the complaint-in-hand relates to the process employed by the Respondent, against which no appeal (etc.) is provided in the Sales Tax Act, 1990, the provisions of section 9(2) of the FTO Ordinance do not stand in the way of investigation by the FTO. The present case is not a simple case of assessment or determination of liability. The process adopted to finalize adjudication is tainted with arbitrariness inasmuch as the complainant's contention that he- was not a wholesaler was not considered nor was an attempt made to find whether he qualified as a retailer or a wholesaler in view of the express provisions of the two terms. It is also observed that the complainant's contention that he has been discriminated against vis-a-vis other parties in regard to the out-of tax-period adjustment has substance inasmuch as the decision given in other cases referred to above by the same Adjudicating Authority is at variance with decision given in the complainant's case. Thus the impugned Order-in-Original is tainted with `maladministration' as defined under sections 2(3)(i)(b) and 2(3)(ii) of the Establishment of Office of the Federal Tax Ombudsman Ordinance, 2000. In view of the foregoing discussion justice demands that the complainant's case be considered and examined de novo for passing a fresh adjudication order, covering all aspects and facts of the case, on its merits in accordance with the provisions of law after extending the opportunity of defence/hearing to the complainant. Accordingly, it is recommended that the C.B.R./ Collector:

(i) Reopen and set aside the impugned Order-in-Original No.696 of 2003, dated 9-10-2003 for de novo examination/consideration of the complainant's case for passing a fair and speaking order covering all aspects of the case on its merit in accordance with the provisions of law after giving the complainant the opportunity of being heard.

(ii) If re-adjudication of the case determines beyond doubt that the complainant had indeed taken out-of-tax-period adjustment, he should then be extended the same treatment as allowed in other cases discussed above to remove discrimination.

(iii) Compliance be reported within 30 days.

C.M.A./225/FTOOrder accordingly.