Rana ARIF HUSSAIN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1412 (2004)

Customs Act (IV of 1969)---

----S. 33---Income Tax Ordinance (XXXI of 1979), S. 96---S.R.O. 648(I)/96 dated 4-8-1996---C.B.R. Circular No. 2(14) WT/98 dated 20-5-1999---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3) & 9(2)(b)---Refund---Deduction of tax at source---Tax paid in advance---Capital Value Tax---Exemption---Complainant was aggrieved of non-payment of Capital Value Tax refund---Tax was paid by Importer and complainant was end user---Importer claimed exemption as per S.R.O. 648(I)/96 dated 4-8-1996 whereby Federal Government had exempted motor vehicles plying for hire from charge of Capital Value Tax---Refund was refused on the ground that Importer was not himself to ply the vehicle for hire; Exemption from Capital Value Tax would not be available due to clarification letter C. No.1(12) WT/97 dated 20-7-98 and taxpayer had not applied himself and complaint related to determination of refund by interpretation of law which was beyond the jurisdiction of Federal Tax Ombudsman in the light of section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Validity---Plain reading of S.R.O. was contrary to the Department's contention---No interpretation of law was involved in the matter---Department's refusal to refund the Capital Value Tax which was not actually chargeable was an act of maladministration---Federal Tax Ombudsman recommended that the amount of Capital Value Tax as claimed by the complainant be refunded to him.

Imtiaz-ul-Hassan Abid, A.R. for the Complainant.

S. Inamur Rehman, DCIT for Respondent.

FINDINGS/DECISION

This is a complaint relating to non-payment of capital value tax (CVT) refund claimed by the complainant. The main points in the complaint are as follows:--

(i) The complainant is an existing tax payer of Circle 30, Faisalabad.

(ii) He purchased a wagon for plying for hire from Messrs Shah Nawaz Ltd. Importers, Karachi.

(iii) At the time of import, CVT amounting to Rs.105,019 was deducted on 2-4-1999.

(iv) Messrs Shah Nawaz Ltd. issued an NOC to the complainant regarding refund claim of CVT (copy attached with complaint).

(v) As per S.R.O. 648(I)/96, dated 4-8-1996 motor vehicles plying for hire are exempt from CVT. Vide C.B.R. Circular No.2(14)WT/98, dated 20-5-1999 it was decided by the Board that Customs authorities may release public transport vehicle intended to ply for hire without charging CVT at the import stage subject to the condition that at the time of release the importer would furnish a bank draft of the assessed CVT which would be held by the Customs Authorities for 45 days. If within this period the importer furnished proof of registration of the vehicle as public transport for hire by the buyer (transporter) the bank draft would be released by the Customs Authorities.

(vi) The complainant filed a petition before the Lahore High Court on the issue and the Court vide its order, dated 31-7-2001 directed the Deputy Commissioner of Income Tax to resolve the issue.

(vii) It is settled law that every amendment which is in favour of the assessee has retrospective effect but the Department has not followed this principle.

(viii) The complainant has approached the DCTI, Faisalabad, the RCIT, Multan and C.B.R. which issued certain instructions to the RCIT but so far the complainant has not received any response.

(ix) It is clear that the complainant is entitled to a refund of Rs.105,019 which has not yet been issued by the Tax Department.

It has been prayed that the matter be looked into and the concerned officials directed to issue the CVT refund to the complainant.

2. The respondent's reply has been received which contains the following points-

Preliminary objections:--

(1) The issue raised in the complaint relates to determination of refund by interpreting the law which is beyond' the jurisdiction of the Federal Tax Ombudsman in the light of section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

On merit

(1) The complainant has provided copy of a letter, dated 17-7-2001 written by Messrs Shah Nawaz Ltd. to C.B.R. which reproduces the clarification in C. No.1(12)WT/97, dated 20-7-1998 issued by C.B.R. that "where the importer is not himself to ply the vehicle for hire, exemption from CVT would not be available."

(2) The importer of the vehicle viz Shah Nawaz Limited was not to ply it for hire. CVT was, therefore, collected in respect of the c vehicle and there is no question of refunding the CVT to the end-user.

It has been prayed that the complaint be rejected being without jurisdiction and being devoid of merit.

3. The two sides were heard and the facts of the case considered. Motor vehicles plying for hire were exempted from CVT through S.R.O., dated 4-8-1996 which reads as under:

"S.R.O. 648(I)/96, dated 4-8-1996.---In exercise of the powers conferred by subsection (10) of section 7 of the Finance Act, 1989, the Federal Government is pleased to exempt motor vehicles plying for hire from charge of Capital Value Tax."

It is evident that the S.R.O. allowed general exemption from CVT in respect of all motor vehicles plying for hire and it did not make any distinction whatsoever between the importer and the end user. Thus if a motor vehicle was actually to ply for hire there was to be no CVT in respect of that vehicle. It was, however, C.B.R. which later gave its own interpretation of the exemption contained in the S.R.O., dated 4-8-1996 vide a letter C. No. 1(12) WT/97, dated 20-7-1998 addressed to all Collectors of Customs. The relevant paras. 1 and.2 of the said letter read as under:--

"Subject: COLLECTION OF CVT ON IMPORTED MOTOR VEHICLES INTENDED TO PLY FOR HIRE.

In terms of CVT S.R.O. No.648(I)/98, dated 4th August, 1998, motor vehicles plying for hire are exempt from charge of CVT. Since CVT on imported vehicles (both old and new) is to be collected at the import stage and Customs Authorities may be unable to ascertain whether the vehicles in question would or would not ply for hire, a question has arisen as to the tax treatment of vehicles in such cases.

2. The matter has been considered in the Board and it has been decided that:--

(i) where importer is himself the end-user and undertakes to register the vehicle as a public carrier plying for hire, the Collector of Customs may release the vehicle against an indemnity bond to his satisfaction, or a bank guarantee valid for a period of at least six months, and redeem the same if valid motor registration papers in respect of such vehicles are produced within a period of six weeks, Alternatively, the vehicle may be released against full payment of CVT in which case, the importer may claim refund from the Deputy Commissioner of Income Tax holding jurisdiction over his case.

(ii) where the importer is not himself to ply the vehicle for hire, exemption from CVT would not be available."

3. Subsequently C.B.R. statedly received representations that the importer may not himself be the end-user and in this connection the following circular letter, dated 20-5-1999 was issued to all Collectors of Customs-

"Subject: COLLECTION OF CVT ON IMPORTED MOTOR VEHICLES INTENDED TO PLY FOR HIRE

I am directed to state that representations have been received in the Board that how the facility of CVT exemption, in respect of motor vehicles plying for public transport, would be availed where the CVT is charged on import stage and importer is not himself the end-user.

(2) The matter has been considered and in partial modification of Board's C. No. 1(12)WT/97, dated 20-7-1998, it has been decided that the Customs Authorities may release such public transport vehicles intended for plying for hire, without charging CVT at the import stage, subject to the condition that at the time of release the importer will furnish to the Customs Authorities a bank draft of the assessed CVT amount which would be held by them for a period of 45 days. If within such period the importer furnishes proof of registration of the vehicle as public transport for hire by the buyer (transporter), the bank draft will be released by the Customs Authorities, otherwise Customs Authorities shall realize the proceeds of bank draft and deposit the same in CVT head of account.

(3) I am further directed to state that this facility would be available with effect from 1st July, 1999.

(Sd.)

Secretary (Wealth Tax)"

4. During the hearing it was contended by the representative of the respondent that in the instant case CVT was not paid by the complainant but by the importer Messrs Shah Nawaz Ltd. and that the payment challan was, therefore, in the name of the importer. It was stated that in view of this fact and also the directions contained in C.B.R.'s circular letter, dated 20-5-1998 the complainant's claim was rightly rejected by the Assessing Officers vide their letters, dated 30-9-2001 and 4-10-2002.

It was further argued that the subsequent C.B.R.'s letter, dated 20-5-1999 (effective from 1-7-1999) was issued after the import of the complainant's vehicle on 2-4-1999 and was, therefore, not applicable in the complainant's case. The complainant on the other hand, argued that it had not been denied by the respondent that the vehicle in question was meant for plying for hire and was actually so plied. It was contended that this being the factual position, the vehicle was exempt from CVT under the S.R.O., dated 4-8-1996. It was further pointed out that though Messrs Shah Nawaz Ltd. paid the CVT and then charge it from the complainant, they gave an NOC to the complainant for obtaining refund of the CVT wrongly paid. It was further contended that in the presence of the clear exemption provisions in the S.R.O., dated 4-8-1996 the refund of CVT which was due in respect of the vehicle could either be paid to Messrs Shah Nawaz Ltd. or to the complainant. It was stated that since Messrs Shah Nawaz Ltd. had given their no objection to the refund being paid directly to the complainant instead of being routed through them, the refund in question be directed to be paid to the complainant.

5. The contentions of the two sides have been considered and it is evident that the exemption S.R.O., dated 4-8-1996 is very broadly worded and its only provision is that in case of motor vehicles plying for hire there would be no charge of capital value tax. In view of the clear provisions of the S.R.O., dated 4-8-1996 the C.B.R. letter to Collector of Customs, dated 20-7-1998 containing a distinction between the importers and end-users was quite uncalled for and it tended to negate the exemption provided by the S.R.O., dated 4-8-1996. In this context it was rightly pointed out by the complainant that in most cases the transporters imported their vehicles through regular importers such as Messrs Shah Nawaz Ltd. and it was only rarely that the importer was also the end-user. This factual position was obviously realized by the C.B.R. when it issued its circular letter, dated 20-5-1999 reproduced above. This letter clearly accepted the fact that CVT would not payable is respect of motor vehicles which were imported for being plied for hire y the end-user. Certain procedure was laid down in the circular letter to ensure that for the CVT 'exemption to become available, the vehicle would be promptly registered by the transporter as a vehicle plying for hire, but it otherwise reflected the correct legal position that no CVT as payable on a vehicle which was to be plied for hire by the end-user. Since the vehicle in the present case was admittedly registered as a isle plying for hire, no CVT was chargeable on it in the light of the emption contained in the S.R.O., dated 4-8-1996. This is evident from plain reading of the S.R.O. and contrary to the respondent's contention, no interpretation of law is involved in the matter. The apartment's refusal to refund the CVT which was not actually chargeable is an act of maladministration as defined in section 2(3)(i)(a) and (b) and (v) of the Ordinance No. XXXV of 2000. The CVT can be refunded to Messrs Shah Nawaz Ltd. or to the complainant but since it was passed on to the complainant by the importer who has authorized the complainant to obtain the refund, it is recommended that:--

(i) The amount of CVT as claimed by the complainant be refunded to him.

(ii) Compliance be reported within 30 days.

M.I./354/FTO????????????????????????????????????????????????????????????????????????????????????? Order accordingly.