Messrs A.K. INTERNATIONAL, RAWALPINDI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1337 (2006)

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

----Ss. 36(3) & 73---Constitution of Pakistan (1973), Art. 254---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---C.B.R. Letter No.6(4)2S/Adj/2005, dated 19-11-2005---Law, Justice and Human Rights Division's Letter No.196-2005-Law(FTO), dated 26-5-2006---Recovery of tax not levied or short-levied or erroneously refunded---Limitation---Extension---Exceptional circumstances---Order-in-Original was barred by time as it was passed after the lapse of two years---Extension of time was granted by the Central Board of Revenue without enumerating any reason for the grant of extension and "exceptional circumstances"-Validity---Central Board of Revenue gave no reason for granting extension of time---Central Board of Revenue failed to fulfil the requirement of law by not recording the reasons of the existence of "exceptional circumstances" which could justify the said extension which reflected the inefficiency and inaptitude on the part of Collectorate---Extension was sought after 653 days of the issuance of show-cause notice, by this time, the limitation provided by S.36(3) of the Sales Tax Act, 1990 had already expired---Power to extend time vesting in the Central Board of Revenue was neither absolute nor uncontrolled and had been made subject to parameters provided by law i.e. existence of exceptional circumstances---Law had provided criteria to avoid exercise of such power by the Central Board of Revenue arbitrarily or whimsically and to provide safeguards against undue harassment to taxpayers---Law having fixed the limitation period for decision of the case in respect of a particular show-cause notice, extension could be made only in exceptional circumstances; therefore, unless those exceptional circumstances were brought on record on the basis of Central Board of Revenue extended the time, its decision could safely be held to be suffering from illegality and mal administration---Revenue Division had failed to give any cogent reason for giving extension of time after the expiry of such a long time, or that it applied its mind in deciding whether the circumstances existed in which such delay took place on the part of the officer of the Revenue Division in not deciding the case and if so, those constituted exceptional circumstances to justify extension of time---Decision of Central Board of Revenue in the absence of any such reasons or findings about existence of exceptional circumstances was not only illegal but also suffered from arbitrariness adversely affecting the rights of the taxpayers to treat the proceedings to have come to an end on the expiry of the period of limitation so far as the said show-cause notice was concerned---Decision of Central Board of Revenue of extending of time suffered from being in violation of law, arbitrary, unreasonable, unjust and oppressive---Federal Tax Ombudsman recommended the competent authority to reopen the impugned Order-in-Original and Order-in-Appeal under the provisions of S.45A of the Sales Tax Act, 1990 and annul the aforesaid Order-in-Original as being hit by time limitation as provided by law as well as annul the Order-in-Appeal for illegally upholding the time-barred Order- in-Original and may proceed in accordance with the provisions of law.

PLD 1963 SC 382 ref.

Complaint No.805 of 2003 Messrs Pace International rel.

Complaint No.335 of 2002 and Complaint No.904 of 2005 distinguished.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

---S. 9(1)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Federal Tax Ombudsman can "investigate any allegation of maladministration on the part of the Revenue Division".

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

---S. 9(1)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Federal Tax Ombudsman is empowered to examine any decision of the Central Board of Revenue and if it is found to have suffered from maladministration, pass decision and make appropriate recommendations with regard thereto.

(d) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

---S. 9(1)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Any superstructure based on illegal or void order has no legs to stand and has to fall on the ground along with the order on which it was based.

PLD 1958 SC 104 rel.

(e) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss. 9(2)(b) & 2(3)(i)(ii)---Jurisdiction, functions and .powers of the Federal Tax Ombudsman---Scope---Provisions of S.9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 had to be read with the provisions of S.2(3)(i)(ii) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Whenever maladministration was committed, the Federal Tax Ombudsman acquired jurisdiction in that case---Definition of maladministration was very wide and inclusive in nature and includes decisions, process, recommendations, act of omission or commission which were contrary to law, rules and regulations and were perverse, arbitrary, unreasonable, unjust, biased, oppressive or discriminatory.

(f) Constitution of Pakistan (1973)---

----Art. 254---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Failure to comply with requirement as to time does not render an act invalid---Limitation---Article 254 of the Constitution, was applicable only to those acts which were required to be done under the Constitution itself within specified time prescribed in the Constitution.

(g) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

9(1)-Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Judgments of the Appellate Tribunal were not binding on the Office of Federal Tax Ombudsman.

(h) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 32-Representation to the President---Finding of the President---Nature---Findings of the President were mandatory in nature and the relevant provision was binding on all the functionaries of the Government as well as the Federal Tax Ombudsman.

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

----S. 36(3)---Provisions of S.36(3) of the Sales Tax Act, 1990 were mandatory.

Mirza Saqib Siddeeq I.T.P. and A.R. for Complainant.

Zulfiqar Hussain Khan D.C. Sales Tax and D.R. for Respondent.

FINDINGS/DECISION

The complaint under consideration was filed to challenge the findings in the Order-in-Original (O.I.O.) bearing No.96 of 2006, dated 31-1-2006 and the Order-in-Appeals Bearing Nos.85 to 86 of 2006, dated 29-4-2006 on various grounds. The facts of the case, as stated by the Complainant, are summarised as follows:--

(a) A show-cause notice (S.C.N.), dated 27-1-2004 was issued stating that the input tax of Rs.276,565 claimed by the Complainant was not admissible because the payments were not made through banking channel, thus violating the provisions of section 73 of the Sales Tax Act, 1990 (the Act). The Complainant was asked as to why the above-mentioned amount along with the additional tax may not be recovered.

(b) The O.I.O. was passed imposing the tax as mentioned above.

(c) The Complainant went into appeal before the Collector (Appeals), Islamabad, agitating the findings in the' O.I.O. on two grounds. Firstly, that it was barred-by-time under section 36(3) and secondly, that the provisions of section 73 of the Act were only procedural. The Colleetor (Appeals) rejected the appeals on both counts.

(d) At this stage the complaint under consideration was filed.

2. The grievances of the Complainant are listed as follows:--

(a) The O.I.O. was barred-by-time within the meaning of section 36(3) of the Act, as it was passed after the lapse of two years.

(b) Extension of time granted by the C.B.R. was illegal because the C.B.R. failed to prove that "exceptional circumstances" existed which could justify the said extension. Copy of C.B.R's letter bearing No.6(4) 2S/Adj/2005, dated 19-11-2005 was placed on record which did not enumerate any reason for the grant of extension.

(c) The Collector (Appeals) erred in law in ignoring the above-mentioned facts and rejecting the Complainant's appeal.

(d) On the merits of the case, it was submitted that the Complainant deposited the amount in question at the head office. The fact that the provisions of section 73 were not followed, did not justify the imposition of tax as they were merely procedural in nature. Reliance was placed on a case quoted as PLD 1963 SC 382.

(e) It was pointed out that the S.C.N. did not mention the subsection of section 36, which rendered it illegal.

(f) The imposition of penalty and additional tax was also challenged because evasion of duty was not wilful.

(g) It was prayed that the O.I.O. be declared void and illegal.

3. The D.C. (Law), Collectorate of Sales Tax and Central Excise, Rawalpindi, in her written reply raised the preliminary objection that the jurisdiction of the honourable F.T.O. was ousted within the meaning of section 9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 (the F.T.O. Ordinance) on the ground that the matter related to the determination of liability of tax for which legal remedies of appeal, review or revision were available under the relevant legislation. The Order-in-Appeals bearing Nos.85 to 86 of 2006 passed by the Collector (Appeals) was appealable before the Customs, Federal Excise and Sales Tax Appellate Tribunal, Islamabad under section 46 of the Act.

4. On the merits of the case following submissions were -made.

(a) The extension in time under section 45 of the Act was sought from the C.B.R. because the Collector of Sales Tax (Adjudication), Rawalpindi was abolished. The C.B.R. granted the said extension vide its letter referred to above in exercise of its legal powers.

(b) The decision of the honourable F.T.O. in Complaint No.805 of 2003 (Messrs Pace International) which held that the time limitation under section 36(3) was mandatory, did not create a precedent because it was not a judicial pronouncement. Each case had to be taken up independently and decided on its merits considering all facts. Another point raised was that in the complaint referred to above extension under section 45 of the Act was not involved.

(c) Relying on the judgment of the honourable President of Pakistan in Complaint No.335 of 2002, it was contended that if the law did not prescribe consequences for not performing a job within the given time, the act done after the expiry of the prescribed time did not become infructuous. It was added that "such an act may, however, be interfered if the circumstances so warrant".

(d) Reliance was also placed on Article 254 of Constitution of Islamic Republic of Pakistan which stated that failure to comply with requirements as to time did not render an act invalid.

(e) The decision taken by the Collector (Appeals) was supported.

(f) Non-mentioning of the subsection of section 36 of the Act in the S.C.N. by mistake did not make the order illegal, it was contended.

5. Both A.R. and D.R. attended and the case was discussed at length. The decision of the honourable President of Pakistan on the representation made by the respondent in Complaint No.904 of 2005 (Messrs Pangraphics (Pvt.) Ltd., Islamabad, as conveyed vide Law, Justice and Human Rights Division's Letter No.196 of 2005-Law (FTO), dated 26-5-2006 was brought on record. In this case the honourable F.T.O. had held that extension of time granted by C.B.R. under section 45 of the Act was without any legal basis because the condition of the existence of "exceptional circumstances" was not fulfilled. This decision did not find favour with the honourable President of Pakistan and it was rejected in the following words:--

"It appears that the Collector made order after obtaining extension of time from the C.B.R. In the F.T.O's opinion the grant of extension by the C.B.R. was riot based on reasonable grounds. Whether the grant of extension by the C.B.R. was based on reasonable grounds or not the Collector who made the order on the basis of the extension could not question the C.B.R.'s decision. Thus so far as the Collector's order was concerned he did not commit any act which amounted to maladministration".

6. The A.R., besides reiterating that the impugned O.I.O. was barred-by-time under section 36(3) of the Act, stated that the provisions of the section 73 of the Act were only procedural.

6.1 Regarding the decision of the honourable President of Pakistan in Complaint No.904 of 2005 quoted above, he submitted that the present case was distinguishable.

7. The D.R. admitted the dates of the issuance of the S.C.N. and the passage of the O.I.O. He, further, stated that after the decision by the Collector (Appeals), the Complainant had only one, option available to him, i.e., to go in appeal to the Tribunal. For this very reason the provisions of section 9(2)(b) of the F.T.O. Ordinance came into play and the jurisdiction of the honourable F.T.O. was ousted.

7.1 He was of the view that the time limit prescribed by section 36(3) of 'the Act was not applicable in this case as the extension was granted by the C.B.R. when enquired as to why the C.B.R. did not give any reason for the extension of time, the D.R. could not give any explanation. He merely pointed out that it was due to the abolition of the Collectorate (Adjudication).

8. I have carefully gone through the decision of the Hon'ble President of Pakistan on a representation made against the decision in Complaint No.904 of 2005 relied upon by the D.R. as reproduced in them in view. It appears that when the case was placed before the Hon'ble President of Pakistan for decision, as the decision shows, it was, not brought to his notice that the C.B.R., which is part of the Revenue Division, was as much within the purview of the jurisdiction of the F.T.O. as any other functionary or officer subordinate to it, within the meaning of section 9(1) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, which deals with the jurisdiction, functions and powers of the F.T.O. Accordingly, the honourable F.T.O. can "investigate any allegation of maladministration on the part of the Revenue Division....". Therefore, it is evident that the case was not placed before the Hon'ble President in its true perspective, for it is based on the assumption or impression as if the C.B.R. was not subject to jurisdiction of the F.T.O. and no decision could be made adverse to the direction or decision of the C.B.R. This office is empowered to examine any decision of the C.B.R. and if it is found to have suffered from maladministration, pass decision and make appropriate recommendations with regard thereto. Since the order of the Collector was based on the administrative decision of the C.B.R. of extension of time which could very well be examined by the F.T.O. to decide whether the same had suffered from "Maladministration". In the instant case it is found that the same falls within the mischief of the term "Maladministration" as defined in the F.T.O. Ordinance. Any order or decision based on such an order suffering from Maladministration passed or made by the subordinate officer of the Revenue Division could also legally be declared to have suffered from maladministration and jurisdictional defect in the same manner as was the order of the C.B.R. on which it was based. It is a firmly settled law that any superstructure based on illegal or void order has no legs to stand and has to fall on the ground along with the order on which it was based. See PLD 1958 SC 104.

9. Now I proceed to examine whether the decision of extension of time of the C.B.R. in this case is valid and did not suffer from maladministration. The C.B.R. gave no reason for granting extension of time in the instant case. Thus, the C.B.R. failed to fulfil the requirement of law by not recording the reasons of the existence of "exceptional circumstances" which could justify the said extension. It only reflects the inefficiency and inaptitude on the part of Faisalabad Collectorate. It may be mentioned that extension was sought after 653 days of the issuance of show-cause notice. By this time, the limitation provided by section 36(3) of the Sales Tax Act, 1990 had already expired. The power to extend time vested in the C.B.R. is neither absolute nor uncontrolled. On the contrary, it has been made subject to parameters provided by law i.e. existence of exceptional circumstances. Law has provided this criteria to avoid exercise of such power by the C.B.R. arbitrarily or whimsically and to provide safeguards against undue harassment to taxpayers. Since the law has fixed the limitation period for decision of the case in respect of a particular show-cause notice and extension could be made in exceptional circumstances, therefore, unless those exceptional circumstances are brought on record on the basis of which the C.B.R. extended the time, its decision could safely be held to have suffered from illegality and maladministration. In this case, the Revenue Division has failed to give any cogent reason for giving extension of time after the expiry of such a long time, or that it applied its mind in deciding whether the circumstances existed in which this delay took place on the part of the officer of the Revenue Division in not deciding the case and if so, those constitute exceptional circumstances to justify extension of time. The decision of the C.B.R. in this case in, the absence of any such reasons or findings about existence of exceptional, circumstances, therefore, was not only illegal but also suffered from arbitrariness adversely affecting the rights of the taxpayers to treat the proceedings to have come to an end on the expiry of the period of limitation so far as the said show-cause notice was concerned.

10. From the preceding discussion, it is quite evident that the decision of C.B.R. of extending of time suffers from being violation of law, arbitrary, unreasonable, unjust and oppressive. As the maladministration of the C.B.R. is being dealt with here, rather than that of the Collector, the instant case is distinguishable from the decision given in C.No.904 of 2005 by the honourable President of Pakistan.

11. The preliminary objection raised by the respondent regarding the ouster of jurisdiction of this office within the meaning of section 9(2)(b) of the F.T.O. Ordinance is taken up. The provisions of the section has to be read with the provisions of section 2(3)(i)(ii). Whenever maladministration is committed, the honourable F.T.O. acquires jurisdiction in that case. The definition of maladministration is very wide and inclusive in nature and includes decisions, processes, recommendations, act of omission or commission which are contrary to law, rules and regulations and are perverse, arbitrary, unreasonable, unjust, biased, oppressive or discriminatory. The C.B.R. while extending the time limit under section 45 committed maladministration as elaborately discussed above.

12. The argument of the respondent on Article 254 of the Constitution of Islamic Republic of Pakistan, 1973 is discussed and disposed of as follows. For facility of reference, this Article is reproduced in extenso.

ARTICLE 254

"Failure to comply with requirement as to time does not render an act invalid.---When any act or thing is required by the Constitution to be done within a particular period and it is not done within that period, the doing of the act or thing shall not be invalid or otherwise ineffective by reason only that it is not done within that period".

A bare reading of the Article makes it clear that it is applicable only to those acts which are required to be done under the Constitution itself within specified time prescribed in the Constitution. The objection raised by the respondent in this regard is overruled.

13. The respondent had relied on the decision of the honourable President of Pakistan in Complaint No.335 of 2002 referred in para. 4(c) above. It was contended that when the consequences of not doing an act within time are not prescribed then act done after the expiry of the prescribed time does not itself become infructuous. The respondent while making this argument lost sight of following two points in this regards--

(a) The provision in the statute for deciding a matter within the time limit with further 'provision of the need of extending the said limit clearly amounts that it is mandatory. A provision for extension for 90 days by the Collector was provided. Another extension was provided in section 45 of the Act in exceptional circumstances. It is, therefore, clearly mandatory. If it is upheld directory, the provision providing extension become redundant.

(b) The last pars of the decision of the honourable President of Pakistan was completely ignored which clearly states that such an act could be interfered with if circumstances so warrant. As has been explained above, the circumstances did warrant such an interference in the instant case.

14. The judgments of the Tribunal are not binding on this forum. It is noted with surprise that the Tribunal had discussed the decision in the case of Messrs Pace International (Complaint No.805 of 2003, dated 28th May, 2004) and its confirmation by the honourable President of Pakistan, yet they decided otherwise. It may be emphasized here that the President, as the highest forum under F.T.O. Ordinance, gave the decision against the representation of the respondent. Therefore, his findings are mandatory in nature and the relevant provision is binding on all the functionaries of the Government as well as this forum.

15. The provisions of section 36(3) of the Act are mandatory as has been discussed in a number of cases including the seminal case of Messrs Pace International (C. No.805 of 2003, dated 28-5-2004) which was upheld by the honourable President of Pakistan.

16. In view of the above discussion, it is recommended that:

(i) The competent authority to reopen the impugned OI.O. bearing No.96 of 2006, dated 31-1-2006 and Order-in-Appeals bearing Nos.85 to 86 of 2006, dated 29-4-2006 under the provisions of section 45A of the Sales Tax Act, 1990 and annul the aforesaid O.I.O. as being hit by time limitation as provided in the law as well as annul the Order-in-Appeal for illegally upholding the time-bared O.I.O. and may proceed in accordance with the provisions of law.

(ii) Compliance report of above-mentioned recommendation should reach this office within 60 days of its receipt by the Secretary Revenue Division.

C.M.A./167/FTOOrder accordingly.