Messrs NEW SOURCE ELECTRONICS COMPANY through Messrs Awan Law Associates VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2007 P T D 1356
[Federal Tax Ombudsman]
Before Justice (Retd.) Munir A. Sheikh, Federal Tax Ombudsman
Messrs NEW SOURCE ELECTRONICS COMPANY through Messrs Awan Law Associates
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.C-741-K of 2006, decided on 17/10/2006.
Sales Tax Act (VII of 1990)---
----S. 21---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---S.R.O. 456(I)/2004, dated 12-6-2004---S.R.O. 26(I)/2005, dated 6-1-2005---S.R.O.(I)/2005, dated 6-6-2005---Cancellation of Survey Certificate on complaint, wherein the in-house facility for manufacture/assembly of TV sets was challenged, without issuing any notice to the unit and affording opportunity of explaining the petitions and submitting the views on personal hearing---Validity---No adverse action should be taken against any individual or person for any purported infringement of law without affording an opportunity of explaining the position and the opportunity of hearing---Basic right of the complainant had been constantly denied and the Department had not provided the legal right to represent their case, rebut the allegations made in the complaint against them and establish the genuineness of their claim---Action taken by the Additional Collector cancelling the Survey Certificate issued by the Central Board of Revenue without due process was arbitrary, unjust, unreasonable, against the established practice without valid reason which constitute maladministration---Federal Tax Ombudsman recommended that Central Board of Revenue to cancel the impugned order of the Additional Collector and direct the Collector of Sales Tax to re-examine the facts and frame charges against the complainants, if any, issue show-cause notice and after affording them the opportunity of hearing, decide the case on merits in accordance with law.
M. Afzal Awan, Advocate. Imran Javed, Consultant.
Imran Iqbal for Respondent.
Muhammad Irfan, Importer.
Wahid Bux Shaikh, Assistant Collector of Sales Tax.
Rizwan Ali Khan, Deputy Superintendent.
FINDINGS/DECISION
The complaint has been filed against the Secretary, Survey and Rebate, C.B.R., and the Collector of Sales Tax and Federal Excise (Enforcement) alleging maladministration on account of cancellation of Survey Certificate, dated 11-4-2005 for manufacture and assembly of 53,400 TV sets under S.R.O. 456(I)/2004, dated 12-6-2004. This certificate was issued by C.B.R. after the issue of provisional certificate, dated 10-12-2003 for 11,250 pieces TVs and another certificate, dated 10-9-2004 for 28,800 pieces. It was alleged that the Additional Collector of Sales Tax and Central Excise (Enforcement) vide order, dated 15-12-2005 cancelled the Survey Certificate with retrospective effect i.e. 11-4-2005 and despite their application, dated 17-12-2005, 19-12-2005 and 8-3-2006, the Survey Certificate was not revived. The Collector vide letter, dated 6-4-2006 informed the Complainants that their case had been referred to the C.B.R. for clarification/advice. In response the C.B.R. vide letter, dated 24-4-2006 advised the Collector to process their case for determination of quantitative entitlement under S.R.O. 565(I)/2005 on merits. However, the Complainants stated, no action was taken by the Department and they felt seriously aggrieved on account of cancellation of the Survey Certificate vide order, dated 15-12-2005 without meeting the ends of justice which amounted to maladministration.
2. It was further stated that no reasons were given in the cancellation order although all conditions of S.R.O. 456(I)/2004 as amended vide S.R.O. 26(I)/2005 had been complied with. If any of the conditions was not complied with, the Department was under legal obligation to inform them before a "direct and mala fide" cancellation of Survey Certificate was ordered.
3. The Complainants stated that three senior officers, Mr. Abdul Nasir Butt, Additional Collector, Mr. S.M. Shoaib, Deputy Collector and Mr. Muhammad Ahmad Khan, Survey Officer inspected their unit and confirmed vide certificate, dated 31-8-2004 that they had in-house facility and recommended their case. It was requested that in the interest of justice the cancellation of the Survey Certificate be declared as an act of maladministration, the order be withdrawn and they be allowed to run their factory and company in accordance with the provisions of law and they should be compensated for the losses sustained by their company under the Sales Tax Act.
4. The Assistant Collector of Sales Tax (Enforcement) Karachi replied to the complaint that "there was no act of omission or commission on the part of the respondents contrary to law, arbitrary or unreasonable or unjust, biased, oppressive or discriminatory" and the complaint did not fall within the purview of section 2(3) of the Federal Tax Ombudsman Ordinance, 2000.
5. It was stated that the process of cancellation of the Survey 'Certificate was started on receipt of a complaint from the Chairman, Pakistan Electronic Manufacturers Association (PEMA), Karachi, wherein the in-house facility for manufacture/assembly of TV sets was challenged. The Chairman PEMA also objected to the concessionary facility availed by the Complainants in respect of PCB Mounted and Controlling Board for manufacture of TV sets as these parts were not specified in S.R.O. 456(I)/2004 as amended vide S.R.O. 26(I)/2005. Assistant Collector stated that the complainants had approached this office with mala fide intention to pressurize the government functionaries without exhausting the avenues of appeal against any decision provided under the Sales Tax Act and as such the complaint was not maintainable under section 9(2)(b) of the Ordinance which may be dismissed.
6. Assistant Collector stated that the competent authority had cancelled the Certificate on receipt of an Information/complaint from Chairman PEMA. The Survey Certificate, dated 11-4-2005 was issued to the Complainants "for manufacturing of 53400 IV sets of different sizes in terms of the components/parts allowed by the Board" in, the Survey Certificate, dated 7-9-2004 for manufacturing of 28,800 TV sets: Subsequently, they applied for enhancement of annual capacity requirement from 28800 to 77500 TV sets. The matter was referred to C.B.R. who directed the Collectorate to allow Survey Certificates in all such cases where C.B.R. had already issued final Survey Certificate.
7. It was stated that the Complainants had no in-house facility to manufacture TV sets from CKD components/parts. The Collector had asked the Complainants to get their in-house facility surveyed for manufacture of TV sets in CKD condition but they avoided the survey for reverification on one pretext or another. The previous survey was conducted when the Complainants had imported SKD condition components/parts for just screw driver assembling and not manufactur ing. They imported components i.e. PCB Mounted and Controlling Board, Picture Tube and Yoke in SKD condition whereas S.R.O. 565(I)/2005 only allowed the concession to CKD parts and components. Therefore, the Collectorate did not restore the facility.
8. It was further stated that on receipt of complaint from Chairman, PEMA, the verification of in-house facility was done by a Deputy Collector and according to his findings the TV manufacturing in-house facility was not available. Another Deputy Collector was deputed who reported that the Complainants could only assemble SKD TV sets. Two components PCB Mounted and Controlling Foard were not specified in S.R.O. 456(I)/2004 and S.R.O. 565(I)/2005 and the complaint of the Chairman PEMA appeared to be rational and logic. It was added that every Survey Certificate was issued with certain conditions and if the conditions have not fulfilled the competent authority would cancel the facility at any time. In this case the competent authority after prudently taking into account all details of the case, cancelled the Survey Certificate which could not be termed as an act of maladministration after it had been established that in-house facility for manufacture of TV sets was not available in the premises of the Complainants.
9. It was argued that the Collector acted in accordance with law, the complainants did not deserve any relief and the concession was immediately withdrawn on receipt of complaint from Chairman PEMA. Therefore, the complaint be dismissed as it is based on untrue facts and has been filed with mala fide intents to pressurize the officers.
10. During the hearing of the complaint, the Consultant representing the complainants reiterated the main issues arising out of the petition. He stated that the order of cancellation of Survey Certificate was endorsed to the Collector of Customs (Appraisement) who had issued a notice to the Complainants that their survey certificate was not revalidated and the securities deposited with the Collectorate for release of kits of the components would be encashed. It was significant that the survey certificate was cancelled without issuing any notice to the unit and affording them the opportunity of explaining their position and submitting their views on personal hearing. However, so far no notice has been given.
11. It was further stated that the basic principle of law that no adverse action should be taken against any individual or person for any purported infringement of law without affording him the opportunity of explaining his position and the opportunity of hearing. The basic right of the complainants has been constantly denied by the respondent and the Department has not provided them the legal right to represent their case, rebut the allegations made in the complaint against them and establish the genuineness of their claim. This action on the part of the respondent amounts to maladministration within the meaning of subsection (3) of section 2 of the Federal Tax Ombudsman Ordinance.
12. The learned Consultant stated that the Survey Certificate was issued to the complainants under the conditions of S.R.O. 456(I)/2004 and they have fully observed and complied with all the conditions of S.R.O. 456(I)/2004. After the issue of the Survey Certificate and its illegal cancellation, it was their legal right that if infringement 'was noticed by the Sales Tax Authority, they should have been confronted with evidence of the infringement through an appropriate notice which has not been done. The unit was surveyed by three officers of the Sales Tax Department i.e. the Additional Collector, Deputy Collector and the survey officer and it was reported that the unit had sufficient in-house facility of assembly of TV sets, the production capacity, and the past performance. He concluded that at no stage did the Sales Tax Department point out where the conditions of the S.R.O. had not been fulfilled. Relying upon the false complaint of another competitor unit the sales tax authorities took unilateral illegal action, they did not respond to their applications and referred the matter to the C.B.R. without giving them the opportunity of replying to the charges against them if any.
13. Another important argument against the respondent was that if there was any truth in the supposed allegation that the unit did not have in-house facility to assemble/manufacture TV sets they should be asked to explain why they have collected sales tax on the TV sets supplied by them every month in the local market.
14. From the facts brought out in the above investigation and the arguments put forward by both the sides, the position emerges as follows:
(i) Provisional Survey Certificate, dated 10-12-2003 was issued for assembly of 11250 pieces TV sets, and another certificate, dated 10-9-2004 was issued for enhanced quantity of 28800 TV sets.
(ii) A survey was earlier carried out by Additional Collector, Deputy Collector and Survey Officer and on the basis of the survey report; dated 31-8-2004, the C.B.R. issued Survey Certificate, dated 11-4-2005 for manufacture and assembly of 53,400 TV sets.
(iii) On receipt of complaint from PEMA the Additional Collector of Sales Tax vide order, dated 5-12-2005 cancelled the Survey Certificate with retrospective effect i.e. 11-4-2005.
15. It has also been brought out that a Deputy Collector vide his report, dated 9-12-2005 reported that the complainants had no in-house facility whereas another Deputy Collector's report, dated 29-12-2005 reported that in-house facility for assembly of SKD components were available. During the second hearing of the complaint the Assistant Collector of Sales Tax stated that the imports made up to 5-6-2006 did not contravene the conditions of S.R.O. 565(I)/2005 issued on 6-6-2006. He added that it has also been verified that now the unit has the necessary machinery and know-how far the assembly of TV sets in CKD condition and a Survey Certificate, dated 25-8-2006 has already been issued to the unit.
16. From the foregoing it is established that the action taken by the Additional Collector cancelling the Survey Certificate issued by the C.B.R. without due process was arbitrary, unjust, unreasonable, against the established practice without valid reasons which constitute maladministration. It is recommended that C.B.R.
(i) cancel the Order No.2-ISR/KR/complaint/135/W/01/2004, dated 15-12-2005 of the Additional Collector; and
(ii) direct the Collector of Sales Tax to re-examine the facts and frame charges against the Complainants, if any, issue show-cause notice and after affording them the opportunity of hearing, decide the case on merits in accordance with law.
(iii) The above action be completed within thirty days; and
(iv) compliance be reported to this office within forty-five days.
C.M.A./201/FTOOrder accordingly.