MILLI TEXTILE (PVT.) LTD., FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2434 (2007)

2007 P T D 2434

2007 P T D 2434

[Federal Tax Ombudsman]

Before Justice (Retd.) Munir A. Shaikh, Federal Tax Ombudsman

Messrs MILLI TEXTILE (PVT.) LTD., FAISALABAD

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 221-L of 2007.

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

----S.56(a)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Finance Act (III of 1998), Preamble---Service of order, decisions, etc.---Courier service---Service through courier was in accordance with law and the Federal Tax Ombudsman did not find the claim acceptable that such service was riot legally valid.

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

----S.56(a)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Finance Act (III of 1998), Preamble---Service of order, decisions, etc.---Courier service---Noting, not containing the mine of the person serving nor the date on which the service was attempted nor the stamp of the Courier Service---Such failures did not fully satisfy the requirement of a valid service.

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

----S. 36---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Recovery of tax not levied or short-levied or erroneously refunded---Show-cause notice---Order passed before the expiry of the date given in the show-cause notice could not be sustained in the eye of law.

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

----Ss. 56(a) & 36---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Finance Act (III of 1998), Preamble---Service of order, decisions, etc.---`Maladministration'---Order-in-originals-were passed before the expiry of the date of hearing; sufficient time was not allowed to explain the claim and though complainant failed to conclusively prove the invalidity of the service of show-cause notice but it was not entirely above doubt---Such was reflective of neglect and inattention on the part of Revenue and fell in the definition of `maladministration' within the meaning of S.2(3)(ii) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Federal Tax Ombudsman observed that the order-in-originals could not be sustained; that the competent authority to cancel the said order-in originals and issue fresh notices to the complainant and provide it proper opportunity to establish its claim; that in view of the defects pointed out in the service of notices and the records maintained; the Central Board of Revenue to issue the instructions to all its subordinate offices to the effect that whenever a notice is refused, the serving authority should note the date on which the service was attempted; the name of the person attempting the service; the name of the person who refused the service and the stamp of the .Courier Service---All letters along with their enclosures, received from taxpayers should be properly acknowledged.

2004 PTD 2434 ref.

Dealing Officer Shamim Ahmad (Advisor)

Muhammad Saleem Malik, A.R. for the Complainant.

Muhammad Azam, D.C., Sales Tax, Faisalabad and Ghulam Shabbir, Senior Auditor and D.Rs. for Respondent.

ORDER

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).----The complains under consideration was filed as a follow up of the decision given in complaint No.378/06 dated 30-6-2006 its brief facts are:---

"(i) The complainant applied for refund amounting to Rs.5,265,653 for eight different periods. All the claims were rejected and the complaint referred to above was filed. After considering the grievances of the Complainant, following recommendations were given: The competent authority to cancel the impugned Order -in-Original No.72/2006 dated 15-3-2006, issue fresh notice to the complainant, provide him proper opportunity of establishing his claim and decide the case within 30 days of the receipt of required data.

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

2. Now the grievances of the instant complaint are taken up.

(a) It was stated that the respondent failed to follow the recommendations reproduced above. Therefore, a petition was filed in this office by the complainant accusing the respondent of contempt. For obtaining their comments, this complaint was forward to the respondent vide this office letter dated 27-1-2007.Before the receipt of their reply; the complaint under consideration was filed on 22-2-2007.

(b) 'The Assistant Collector (Refund) issued a Show-cause Notice (S. C. N.) dated 4-12-2006, served on the Complainant on 9-12-2006; fixing the hearing for 14-12-2006. On the said date the complainant appeared before the Assistant Collector (Refund) but he was not present in his office. According to the complaint, his P. A. informed the complainant that a fresh notice will be issued. Another notice was served fixing the hearing for 23-12-2006. The complainant complied and approached the office with a written reply. In. tact it was a request for the adjournment for a reasonable date. The P.A. refused to accept the application. The complainant finally sent it through a Courier Service.

(c) According to the complaint, no S. C. Ns were served. Instead, seven refund Payment Orders (R.P.Os) were received. Even Orders in Original (O.I.Os) were not received, which were obtained from the office of the respondent at a later date. The position of the R.P.Os, O.I.Os etc; as 'given in the complaint, is as follows:--

TABLE

(d) It was alleged that the O.I.Os. were based on irrelevant grounds and the allegations contained therein were not attributable to the Complainant. Another allegation was that the fake invoices did not relate to the complainant. They related to the suppliers and, if at all, action should be taken against them. Reliance was placed on a number of decisions, one of them was cited as 2004 PTD 2434. The Complainant had fully discharged his duty by paying sales tax to the supplier of raw material which was physically purchased and utilized in the manufacture of exported goods, it was contended.

(e) The provisions of section 67 were invoked. It was prayed that a further sum be allowed for delayed refund.

(f) The validity of the O.I.Os. was challenged, Maintaining its stand that the S.C.Ns. were never received, the argument of the Complainant was that they were never issued. It was claimed that this assertion would be confirmed if the sequence of the dates of institution, hearings and the judgments were taken into account, as borne out from the following schedule:

TABLE

(g) Allegations of humiliating attitude were also made against the respondent. It was prayed that the procedure adopted by the respondent be declared as maladministration. Besides, Orders- in-Original hearing Nos.166, 167, 168, 169, 170, 171, 172 and 174 all of 2007 be declared invalid and the refund claimed be allowed, it was further prayed.

3. The Collector, Sales Tax &Federal Excise, Faisalabad in his written reply made the following submissions:---

(a) The Collectorate immediately implemented the recommendations

of the Hon'ble F.T.O by cancelling the order-in-original bearing

No.72/2006 dated 15-3-2006 after its cancellation, a notice for

furbishing of consumption/consolidated stock statement was

issued vide letter dated 8-8-2006. The refund claims were processed and an amount of Rs.10,39,136 was found admissible .and was sanctioned to the Complainant. Later on another amount of Rs.7,31,373 was sanctioned, the total being Rs.17,70,519..

(b) The remaining amount was withheld on account of various discrepancies acid data pointed out by the STARR system. The Representative of the Complainant, by the name of M. Saeed, was given the Invoice Sheet depicting the objections raised by the STARR system and he was requested for the production of the required documents for removal of the discrepancies. He promised to furnish the same within a week but railed to do so despite the lapse of considerable time. Being left with no alternative, the respondent issued 8 S.C.Ns. These notices were returned undelivered .with the remarks by the Courier Service that the Complainant refused to receive them. It was further alleged by the respondent that the said Mr. Sneed was contacted on telephone and he stated that their Advocate- had directed them not to receive any communication from the Collectorate. Another set of S.C.Ns. fixing the hearing for 9-1-2007 was issued and they were properly served on .the complainant. However, the required documents were not submitted.

(c) The refusal of the P.A. to the Assistant Collector to receive the reply of the Complainant was denied. It was stated that the complainant neither appeared nor furnished any reply on I4-12-2006. No appearance was made even on the next date of hearing fixed for 23-12-2006 either. It was submitted -by the respondent that the recommendations of the Honourable F.T.O were implemented in letter and spirit and all the admissible refunds were issued to the complainant. Only those claims were rejected which were not found acceptable by the STARR system. To provide an opportunity to the complainant to explain his position, the said S.C.Ns. were issued but their service was refused. Therefore, the respondent did not commit any maladministration. It was prayed that the complaint under consideration be rejected.

4. Both A.R and D.R attended and the ease was discussed with them at length spread over three hearings. The A.R emphasized that the claim of the respondent that his client refused to accept the S.C.Ns. was totally false. No attempt was ever made to effect the alleged service, he asserted. Similarly, on the date of hearing fixed by the respondent (14-12-2006), the A.C. was not present. He also pointed out that none of eight O.I.Os. was served on the complainant.. He applied for the issuance of their copies and received them as a result of the said application. He also objected to the procedure of service of notice through Courier Service. He was of the view that it was a handmaiden of the Collectorate and obliged it by carrying out its directions, judicious or otherwise. 'The implication was that the S.C.Ns. and the O.I.Qs, were never issued. Instead the Collectorate obtained the required receipts and the comments of refusal from the Courier Service without these events ever occurring.

4.1. He also challenged the O.I.Os, on merit. He stated that the claims were rejected on irrelevant facts. Secondly, the respondent was hat legally correct in disallowing the claim an account of alleged fake invoices when the complainant had fulfilled the 'legal obligation by paying the sales tax to the suppliers of the raw material.

5. The D.R insisted on the correctness of the service of the S.C.Ns. and the O.I.Os. drawing attention to the amendment brought by finance Act 1998 in clause (a) of section 56 of the Sales Tax Act, 1990 (the Act), he contended. that the service through Courier Service was legally valid and the A.R was not justified in challenging it, Secondly, ho stated that according to the C.P.C, refusal to accept the service of a .notice was tantamount to proper service. He produced the envelope which showed the following remark:---

RW Refused to Accept (Translation)

5.1. It was claimed by the D.R. that the bona fides of the respondent were evident froth the fact that a substantial refund was issued to the complainant. It was emphasized that only those claims were refused for whichno evidence was produced or the evidence produced was rejected by the STARR system. He emphasized that a detailed analysis sheet was provided to the Representative of the complainant, Mr. Saeed, but he failed to produce the evidence to rebut the said objections.

5.2. Regarding the service of the order-in-original 'the D.R, during the first hearing, stated that they were served. It was contradicted by the A.R. According to him, the order-in-original were never served but obtained after submission of application and payment of copying fee.

6. When the O.I.Os. in the possession of the A.R. were examined, it was found that they were the originals and not the copies. They also contained identical: remarks as reproduced in para 5 above. The A.R. was asked to explain that: if the said O.I.Os. were issued to the complainant on his application; how was it that the originals and not the copies carne into his possession.

6.1. The D.R's. stand was that the O.I.Os. were served. The remark appearing on the originals that the complainant refused the servicewas an obvious contradiction, He was asked to Explain.

7. On the next hearing, the D.R changed his standpoint by stating that, the O.I.Os. could not be served because of the complainant's refusal. However, he failed to explain how the originals were issued to the complainant instead of the copies.

8. The case was examined in detail in respect of the matters pertaining to the service of various notices and on the merits of the impugned O.I.Os. First of all the matter regarding the service of notices and O.IOs. is taken up. The claim of the A.R. that the service through Courier was not legally valid was not found acceptable. The service was in accordance with the law, as pointed out by the D.R. and reproduced in para 5 above. It is also noteworthy that the complainant himself used the Courier Service, as stated in para. 2(b) above. This objection is overruled.

8.1 However; 'the manner in which service was attempted is open to a number of questions. The D.R. produced the receipt of the Courier Service pertaining to the service of S.C.Ns. and the O.I.Os. and the A.R. could not disprove the validity of the said documents. However, .the noting of the .person serving notice of the orders, as reproduced in para. 5 above, does not fully satisfy the requirements of a valid service. The said noting does not contain the name of the person serving nor the date on which the service was attempted nor the Stamp of the Courier Service.

8.2. The D.R contradicted his statement regarding the service of the O.I.Os. Initially he maintained that they were served but reversed his stand in the second hearing by stating that their service was refused. Besides, he failed to explain how the originals were issued to the complainant when only .the copies of the O.I.O. ought to have been issued. These facts render the claim of valid service questionable.

9. The O.I.Os were examined on merit. From the preceding discussion and the schedule reproduced in para 2(t) above, two points emerge:,-

(a) Sufficient time was not given to the complainant to come up with the explanation. The S.C.Ns. were issued on 26-12-days were given for lengthy preparations to the complainant.

(b) As admitted by the D.R himself, another set of S.C.Ns. was issued fixing the hearing for 9-1-2007. However, the O.I.Os. were passed on 6-1-2007 i.e. before the expiry of the date given in the said set of notices. On this very ground the O.I.Os. cannot be sustained.

10. The examination of various documents and the discussion with the two parties led to a number of conclusions which are briefly discussed as follows:---

(a) There is no doubt that the refusal of service is tantamount to proper service under the relevant laws. It is, however, observed that in the instant case a number of ambiguities existed which need rectification.

(b) The records maintained by the respondent leave much to be desired. The fact that the original O.I.Os. were delivered to the complainant indicate the collusion between the office staff of the respondent and the complainant. Steps should be taken to rectify the situation.

(c) Whenever a hearing is fixed and the relevant officer is not present, it should be recorded' properly by the relevant office of the respondent and the complainant be informed in writing.

(d) Whenever the complainant submits a letter, a list of enclosures should be given therein. An acknowledgement should be obtained from the respondent's office regarding the receipt of not only the letter but also its enclosures. If any enclosure is missing, note should be made to his effect.

11. The passage of the impugned O.I.Os. falls in the definition of maladministration on 3 counts:---

(a). They were passed' before the expiry of the date of hearing as discussed in 9(b) above, Therefore, this act of the respondent falls in the definition of maladministration within the meaning of section 2(3) (i)(a) of the F.T.O. Ordinance:

(b) Sufficient time was not allowed to the complainant to explain his claim as discussed in para 9(a) supra. This act is also hit by the provision of F.T.Os. Ordinance quoted above.

(c) Though the A.R failed to conclusively prove the invalidity of the service of the S.C.N, it is not entirely above doubt as discussed in para 8.1 supra. This is reflective of neglect and inattention on the part of the respondent and falls in the definition of maladministration within 'the meaning of section 2(3) (ii) of the F.T.O. Ordinance.

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

(i) The Orders-in-Original bearing Nos.166, 167, 168, 169, 170, 171, 172 & 174 all of 2007 cannot be sustained. The competent authority to cancel the said O.I.Os. and issue fresh notices to the complainant-and provide it proper opportunity to establish its claim.

(ii) In view of the defects ponited out in the service of notices and the records maintained, the C.B.R, to issue the following instructions to all its subordinate offices:---

(a) Whenever a notice is refused, the serving authority should note

the following:---

The date on which the service was attempted.

The name of the person attempting the service.

The name of the person who refused the service and

The stamp of the Courier Service.

(b) A11 letters, along with their enclosures,' received from taxpayers should be properly acknowledged, as discussed in para 10(d) supra.

(iii) The compliance report of above-mentioned recommendations should reach this office within 60 days of its receipt by the Secretary Revenue Division:

C.M.A./114/FTOOrder accordingly.