METAL CARE PRIVATE LIMITED, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2007 P T D 2502
2007 P T D 2502
[Federal Tax Ombudsman]
Before Justice (Retd.) Munir A. Shaikh, Federal Tax Ombudsman
Messrs METAL CARE PRIVATE LIMITED, LAHORE
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 221-L of 2007.
(a) Sales Tax Act (VII of 1990)---
----Ss. 34, 33(2), 35(2) & 45(2)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Additional Tax (default surcharge)---Show-cause notice did not invoke S. 34 of the Sales Tax Act, 1990 but order did demand additional tax---Validity---Additional tax could not be legally demanded vide Order-in-Original because S.34 of the Sales Tax Act, 1990 was not invoked in the show-cause notice for recovery of the same, nor was the complainant confronted with it---Penalty imposed under S.33(2) of the Sales Tax Act, 1990 was not legally sustainable because the complainant was not confronted with specific clause of subsection (2) of S.3 of the Sales Tax Act, 1990 before such imposition---Maladministration was established on the part. of Revenue in adjudicating the complainant's case---Federal Tax Ombudsman recommended that Revenue Division direct the competent authority to re-open the impugned Order-in-Original under S.45-A of the Sales Tax Act, 1990 and strike off the demand of additional tax and also delete penalty of Rs.25000, which was imposed under S.33 of the Sales Tax Act, 1990---Rest of the impugned Order-in-Original would remain in tact.
(b) Sales Tax Act (VII of 1990)---
----S. 33(2)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Offences and penalties---Invocation of S.33 of the Sales Tax Act, 1990 without invoking the specific subsection and/or relevant clause of S.33 of the Sales Tax Act, 1990---Validity---Section 33(1) of the Sales Tax Act, 1990 and S.33(2) of the Sales Tax Act, 1990 revealed that the two subsections provided for different penalties for different contraventions, yet the Adjudicating Officer, in the present case, jumping subsection (1) of S.33 of the Sales Tax Act, 1990 and its specific clauses proceeded to impose penalty under S.33(2) of the Sales Tax Act, .1990 without invoking it in the show-cause notice---Affected party needs to be confronted with specific provisions of law under which it was intended to be penalized, this having not been done, the penalty imposed under 5.33 of the Sales Tax Act, 1990 was not sustainable.
Dealing Officer Muhammad Akbar (Advisor).
Arshad and Waseem Ahmad for the Complainant.
Ms. Asthma Hameed, A.C., Sales Tax Lahore for the Respondents.
ORDER
JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---Deputy Collector, Sales Tax (Adjudication) issued the complainant a show-cause notice, dated 3-4-1993 alleging that complainant had cleared 3001 pieces of Meter Security Boxes of Steel' without payment of sales tax in contravention of the provisions of Sales Tax Act, 1990. The complainant was asked to show cause why an amount of Rs.102034 be not recovered under section 36 of the Act and why penalties be not imposed. Despite submissions of complainant's reply to the show-cause notice the case remained pending from April, 1993 to December, 2006. The D.C. (Adjudication) passed the impugned Order-in-Original No. 50 of 2006, dated 29-12-2006 upholding the charges levelled against the complainant without considering its arguments. The order in original was bad in law and against the merits of the case. The inordinate delay in deciding the case amounted to `maladministration'. The adjudged liability and imposition of additional tax after more than 12 years of issuance of show-cause notice had unnecessarily burdened the complainant. The impugned order in original may be declared as unlawful and set aside. Suitable action may also be taken against the respondent for `maladministration'.
2. In reply, the Collector of Sales Tax, Lahore has submitted that the complainant was provided ample opportunities to defend its case. The case was pending before the High Court in Writ Petition No.11888 of 1992, which was finally decided by .the Court vide order, dated 22-10-2001. The D.C. passed a legal, speaking, well-reasoned order. The case remained pending with Collectorate of Customs, Sales Tax and Federal Excise (Adjudication), Lahore before it was transferred to Sales Tax Collector on 20-7-2005. The case involved complex issues, including the classification issue, but it was decided within the period prescribed in section. 45(2) of the Act. The complainant had the opportunity to appeal the impugned order in original before Collector (Appeals) and it should have availed that opportunity.
3. During the hearing, then A.R. submitted that although section 34 of the Sales Tax Act, 1990 pertaining to additional sales tax was not invoked in the show-cause notice yet the impugned order in original directed the complainant to make payment of additional tax along with the principal amount of sales tax. Additional tax could not be demanded and the adjudicating officer could not step out of the framework of the show-cause notice. Additionally, the case was decided after a long period of 12 years. The complainant was not responsible to pay exorbitant amount of additional sales tax accumulated over a period of 12 years. The impugned order in original shows that a penalty of Rs.25,000 was imposed under section 33(2) of the Act whereas subsection (2) of section 33 was not invoked in the show-cause notice. If the respondents intended to penalize the complainant under section 33(2) of the Act the show-cause notice should have invoked this specific provision of law. The show-cause notice did not specify whether action was intended to be taken under subsection (1) of section 33 of the Act, which provided a penalty of Rs.5,000 or under a specific clause of subsection (2) of section 33 providing for a penalty of Rs.25,000 or twice the amount of tax involved, whichever was greater. In the complainant's case a penalty of Rs.25,000 was imposed under section 33(2) of the Act without invoking the specific clause and subsection in the show-cause notice under which it could be imposed. Imposition of such a penalty was not sustainable. Again a further penalty of Rs.204068 and redemption fine of Rs.10,000 was imposed under sections 35(1) and 35(2) of the Act despite the fact that the complainant was not registered with the Sales Tax Department at that time. As regards the classification issue the Adjudicating Authority did not consider complainant's arguments on that account. The delay in deciding the case could be judged from the fact that at times hearings of the case were notified by the Adjudicating Authority after a lapse of two to three years that itself, showed respondents' incompetent and inefficiency.
4. The DR submitted that the impugned order in original did discuss and deal with the classification issue. While show-cause notice invoked section 33 of the Act a penalty of Rs.25000 was imposed under section 33(2) of the Act it was admitted that show-cause notice did not invoke section 34 (additional tax) of the Act but the impugned order did demand additional tax wider that section. Asked as to how much amount of additional sales tax, accumulated over a period of 12 years, the complainant was required to pay, the DR stated that it could be around Rs.3.00 Million. The contention that penalty could not be levied under section 35(1) of the Act because -the complainant was not registered with the Sales Tax Department was incorrect. The vehicle carrying non-tax paid goods was intercepted on 18-1-1993 whereas the complainant had got registered with the Sales Tax Department on 17-1-1993. Regarding delay in deciding the case the DR explained that the complainant had filed a writ petition in the High Court and had given it in writing that decision in its case be kept pending till decision by the High Court. The High Court decided Writ Petition No. 11888 of 1992 on 22-10-2001. The D.R. placed on record a statement showing what actually happened on each date of hearing. The D.R. argued that responsibility for delay in deciding the case was on the part of the complainant because in the first place it wanted the case to be kept pending till decision by the High Court and secondly it had been seeking adjournments of hearings.
5. The arguments of the two sides and records of the, case have been considered and examined. The case record shows that the show-cause notice was issued to the complainant on 3-4-1993 and the impugned Order-in-Original No.50 of 2006 was passed on 29-12-2006 after 12 long years. The show-cause notice asked the complainant as to why seized goods be not confiscated, why penal action be not taken and why sales tax amounting to Rs.102034 should not be recovered under section 36 of the Sales Tax Act, 1990. The show-cause notice did not invoke section 34 of the Act for recovery of additional tax. In the impugned order-in-original however, the D.C. (Adjudication) has demanded not only the principal amount of sales tax of Rs.102034 but also additional tax/surcharge (to be calculated at the time of payment) under section 34 of the Sales Tax Act, 1990. He has demanded additional tax vide the impugned order-in-original without invoking section 34 (additional tax) in the show-cause notice, which is not sustainable because the complainant was never confronted with it. Furthermore, the complainant has been saddled with a heavy liability of paying additional sales tax accumulated over a period of 12 long years due to inordinate delay in deciding the case. According to the respondents, the complainant had asked the Adjudicating Authority to keep the case pending till decision by the High Court. Even if it is true, the fact is that the writ petition was finally decided by the Honourable Court on 22-10-2001. What were the respondents doing since 22-10-2001. They could have decided the case after disposal of writ petition by the Honourable Court. Even if the complainant was seeking adjournments, the Adjudicating Authority/authorities had the right to disallow adjournments and decide the case on basis of records of the case. Clearly, long delay in adjudicating the case reflects respondents' inaction and inattention, which also amounts to `maladministration'.
6. It is also observed that in order to penalize the .complainant under the Sales Tax Act for alleged contraventions, the D.C.' (Adjudication) invoked section 33 of the Act without invoking the specific subsection or/and relevant clause of section 33. A reading of section 33(1) and section 33(2) will reveal that the two subsections provide for different penalties for different contraventions, yet the Adjudicating Officer jumping subsection (1) of section 33 and its specific clauses proceeded to impose penalty under section 33(2) of the Act without invoking it in the show-cause notice. The settled principle of law is 'that an affected party needs to be confronted with specific provisions of law under which it is intended to be penalized. Since this was not done, the penalty imposed under section .33 of the Act is not sustainable. In so far as penalty and redemption fine imposed under sections 35(1) and 35(2), of the Act are concerned, these cannot be said to have been wrongly imposed because AR's contention that these could not be imposed because, the complainant was not registered with the Sales Tax Department at that time the truck loaded with goods was seized was belied by the DR by establishing that the complainant was indeed registered on 18-1-1993 whereas the goods loaded on the truck were seized on 18-1-1993. The AR alleged that the adjudication officer failed to deaf with the issue of classification. The impugned order-in-original reveals that the complainant had argued .before the Adjudicating Authority that goods being classifiable under PCT Heading 7326 were exempt from payment of sales tax in terms of S.R.O. 600(I) of 1990, dated 7-6-1990. The Adjudicating Authority held this contention of the complainant to be untenable because the goods in question did not satisfy the conditions of exemption. 'The Adjudicating Officer did, therefore, give its findings on this aspect of the case.
7. In view of the foregoing discussion, it is found that portions of the impugned O-I-O are illegal and improper. The additional tax could not be legally demanded vide the impugned order-in-original because section 34 of the Act was not invoked in the show-cause notice for recovery of the same, nor was the complainant confronted with it, as discussed above. Again penalty imposed under section 33(2) of the Act is not legally sustainable because the complainant was not confronted with specific clause of subsection (2) of section 33 before imposing it. `Maladministration' is established on these accounts as well as on account of inordinate delay on the part of the respondents in adjudicating the complainant's case. Accordingly, it is recommended that the revenue Division direct the competent authority to:--
(i) Re-open the impugned order-in-original No. 50 of 2006, dated 29-12-2006 under section 45A of the Sales Tax Act, 1990 and strike off the demand of additional tax and also delete penalty of Rs.25000 which was (imposed under section 44 of the Act. The rest of the impugned O-I-O will remain in tact.)
(ii) Compliance be reported within 30 days of the receipt of this order.
C.M.A./113/FTOOrder accordingly.