Messrs INNOVATIVE IMPEX through Nadeem & Co., Karachi VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1982 (2005)

Sales Tax Act (VII of 1990)---

----Ss. 10. 21(4) & 73---Sales Tax Refund Rules 2000 and 2002---Customs Act (IV of 1969), S.25(15)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Excess amount to be refund that---Claim of refund on zero rated supplies was deferred on the ground that suppliers were included in the list of blacklisted units---Complainant contended that in case of blacklisting of suppliers, action should be taken against them but the refund should not be deferred but on cogent reason was given for withholding the refund---Validity---Deferment of processing of refund claims was contrary to law, departure from established practice without valid reasons, perverse, arbitrary, unjust, based on irrelevant grounds---Present was a case of deliberate withholding of refund---Maladministration against the Department was established---Federal Tax Ombudsman recommended that Central Board of Revenue direct the Collector concerned to process and finalize the refund claims and pay compensation for the withheld amount under S.67 of the Sales Tax Act, 1990.

Messrs Kashmir Edible Limited, Lahore's case Complaint No.950-L, of 2001 ref.

Nadeem Ahmad Mirza Consultant for Petitioner.

S.M. Shoaib Deputy Collector of Sales Tax.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.---The complaint relates to the refund of Rs.2,736,896 on zero-rated supplies during the months of August and September, 2002 under section 10 of the Sales Tax Act read with Sales Tax Refund Rules, 2000 and 2002. The complainants and their consultant made the following submissions:--

(i) On receipt of order for supply of 1001 Cotton White Ahram Towels, Banarsi Lungis, Sarees and Scarf, the order for supply of the goods in export packing was placed to three registered suppliers. The goods were received directly at .the point of shipment and, after completion of customs formalities, were exported from Karachi Port. The duty drawback claims were filed with the Export. Collectorate which were sanctioned and dispatched to the bank for payment.

(ii) Cost of goods inclusive of sales tax was paid in accordance with the provisions of section. 73 of the Sales Tax Act and the claims for refund of sales tax along with supportive documents were filed with the Collector of Sales Tax on 17-10-2002 and 31-12-2002.

(iii) In order to cover up the delay, the respondent forwarded the purchase invoices to the respective Collectorates for verification vide letters, dated 23-10-2002 and 5-11-2002. Collectorates verified the invoices and sent confirmation vide letters, dated 5-11-2002 and 1-12-2002.

(iv) On receipt of the confirmation, the respondent sent a letter, dated 27-12-2002 for supply of bank account number for issuance of cheques to suppliers and the bank credit advices which had already been submitted but were submitted again.

(v) All requirements under the Act and the Rules had been completed, the refund was admissible and ought to have been sanctioned within one month of the submission of the supportive documents. After lapse of considerable time, the Department informed them in March, 2004 that the claims had been deferred as the suppliers were included in the list of blacklisted units.

(vi) It was submitted to the Department that in case of blacklisting of suppliers, action, should be taken against them but the refund should not be deferred but no cogent reason was given for withholding the refund.

(vii) The responsibility of payment of collected sales tax lay on the suppliers and if they had disappeared without depositing the tax, the respondent should pursue recovery from them under section 3 of the Act as held in the decision of this office in the Complaint No.950-L/2001 of Messrs Kashmir Edible Limited Lahore.

(viii) In another complaint of Messrs Sweety Exports, Faisalabad, it was held (by the FTO) that if the payment against the invoice had been made through banking channel to the bank account of the suppliers and the payment had been verified, it should be sufficient evidence to allow the claim of an exporter.

(ix), Sindh High Court in the reported judgments of Messrs Silver Cotton Mills Limited, Karachi (1985), Fazal Shafiq Textile Mills Karachi (1985), and Abbassi Textile Mills Limited Karachi (1983), had enunciated the principle that the transactions made by a party with a licensee could not be questioned unless it was established that the licence (registration) had been cancelled before the date of transaction or non-existence of the registered person was within the knowledge of the exporter.

(x) The Complainants have not received any intimation about the inclusion of their names in the list of suspected units and this information had reached them from the Department's reply to the complaint.

(xi) Supplies had been made in August and September, 2002 whereas the suppliers were blacklisted in 2003 (without any public notice or information). Complainants had no idea at the time of purchases that they were blacklisted, and, even subsequently, that the Department's action had rendered them ineligible for transaction.

(xii) Sales tax authorities have objected to the valuation in their reply to the complaint but notice on this account was sent to them.

(xiii) It was the prerogative of the Customs Department to examine the -value under section 25(15) of the Customs Act. The Customs Authorities did not raise objection to the duty drawback claims on the export of the same consignments and evidence has been produced to sales tax authorities that duty drawback was paid by the Customs.

(xiv) Collector of Sales Tax's order in April, 2004 for blacklisting of the unit was not sent to it. It did not conform to the provisions of subsection (4) of section 21 of the Sales Tax Act, it had no effect on the refund claims filed in 2002, it was in itself mala fide and of no legal effect.

(xv) Complainants were entitled to the refund of zero-rated supplies made more than two years ago which should be paid without any further delay along with compensation for the period the refund was withheld without any notice and any valid reasons whatsoever.

11. The Collector of Sales Tax replied to the complaint as follows:--

(i) The exporter's records for the period 1-7-2002 to 30-6-2003 were audited and it was revealed that the all purchases had been made from 8 suppliers who turned out to be suspected parties, including 4 suppliers relating to this case. This audit was carried out in March, 2004 and the Complainants were declared suspected in April, 2004.

(ii) The 4 suppliers relevant to this complaint were declared suspect in September and October, 2003.

(iii) It has been stated by the complainants that their-subsequent refund claims were sanctioned and paid. There was some reason due to which their subject claims were deferred although, at this .point in time, the Department was not in a position to give the reason. The present reasons for non-payment are two, namely, the suspect status of the suppliers (October, 2003) and suspect status of the Complainant's (April, 2004).

12. From the submissions made by both the sides it transpires that:--

(i) The purchases from registered units and the goods were exported in August and September, 2002 and the supplier's invoices were verified in November and December, 2002.

(ii) Claims for refund of sales--tax on zero-rated supplies along with supportive documents were filed in October, 2002 but processing was deferred.

(iii) According to the respondent the suppliers were blacklisted in September and October, 2003 and, because of the Complainants' transactions with suspected suppliers, they too were declared suspected in April, 2004.

(iv) Even if the suspected status of the suppliers was notified in October, 2003, it would not influence the transactions which took place in August and September, 2002.

(v) Complainants were not notified about their suspect status till receipt of the Respondent's reply to the complaint and the action taken by the Department was entirely arbitrary without observing the due process of law.

(vi) Respondent has not given any evidence that the action to defer the refund claims filed in October, 2002 was valid.

13. It is established that the deferment of processing of refund claims filed in October, 2002 is contrary to law, departure from established practice without valid reasons, perverse, arbitrary, unjust, based on irrelevant grounds; it is a case of deliberate withholding of refund. The maladministration against the respondent is established.

14. It is recommended that C.B.R.

(i) direct the Collector concerned to process and finalize the refund claims;

(ii) pay compensation for the withheld amount under section 67 of the Sales Tax Act;

(iii) action in respect of (i) and (ii) be taken without 15 days; and

(iv) compliance be reported to this office within thirty days.

C.M.A./59/FTOOrder accordingly.