Messrs PAKISTAN FRUIT JUICE CO. (PVT.) LTD., LAHORE VS SECRETARY, REVENUE DIVISION ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 415 (2006)

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

----Ss. 11(4), 33(2)(cc), 36(3), 45A, 45B & 46---Federal Excise Act (VII of 2005), S.35---Central Excise Act (1 of 1944), S.33(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Assessment of tax---Limitation---Complainant contended that show cause notice was issued on 24-9-2005 and the order was passed on 20-3-2006, (177 days after issuance of show cause notice) whereas the prescribed period for deciding the case had expired on 23-12-2005 and that order was hit by time limitation as provided in law and was null and void---Validity---Order-in-Original needed to he reopened under S.35 of the Federal Excise Act, 2005 and S. `45A of the Sales Tax Act, 1990 to quash demand of central excise duty/additional duty and penalty imposed because the Collector allowed extension in the period for deciding the case under S.33(3) of the Central Excise Act, 1944, without having jurisdiction to do so and remit penalty levied under the Sales Tax Act, 1990 because the show cause notice did not confront the intention to impose penalty under S.33(2)(cc) of the Sales Tax Act, 1990 before it was imposed in the Order-in-Original---No proceedings could be undertaken or initiated for reopening a decision or order passed under Sales Tax Act, 1990 in a case where appeal under Ss.45B and 46 of the Sales Tax Act, 1990 was pending and an appeal was indeed pending before the Collector of Appeals---Complainant, for its part, shall have to withdraw the appeal---Federal Tax Ombudsman recommended that the Revenue Division direct the competent authority to reopen the impugned Order-in-Original, dated 20-3-2006 under S.35 of the Federal Excise Act, 2005 and S.45A of the Sales Tax Act, 1990 so as to quash demand of central excise duty/additional duty and penalty created in the impugned order hit by time limitation, remit penalty imposed under the Sales Tax Act, 1990 for failure to confront the complainant with specific provision of S.33(2)(cc) of the Sales Tax Act, 1990 and may proceed in accordance with the provisions of law---Complainant, on its part, shall have to withdraw the Appeal filed before the Collector of Customs, Excise and Sales Tax (Appeals).

Complaint Nos. 805 of 2003; 940 of 2005; 113-L of 2005 and No.1 19-L of 2006 rel.

(b) Central Excise Act (I of 1944)---

----S. 33(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Power of adjudication---Limitation---Extension allowed under the provisions of S.33(3) of the Central Excise Act, 1944 after repeal of the same as on 1-7-2005 was void ab initio.

(b) Central Excise Act (I of 1944)---

----S. 33(3)---Sales Tax Act (VII of 1990), S.36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Power of adjudication---Under the provisions of S.33(3) of Sales Tax Act, 1990, it was only the Central Board of Revenue, and not the Collector, who was competent to extend the time limit under `exceptional circumstances'---Collector did ,,not extend the period prescribed for deciding the ease under S.31(3) of the Federal Excise Act, 2005---Collector Under S.36(3) of the Sales Tax Act, 1990, was empowered to allow extension in time for another 90 days but only after recording reasons for such extension in writing.

(d) Central Excise Act (I of 1944)---

----S.33(3)---Sales Tax Act (VII of 1990), S.36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Power of adjudication---Limitation---Extension by Collector---Validity---Period prescribed for deciding the case was extended for further 90 days by the Collector under S.33(3) of the Central Excise Act, 1944 and S.36(3) of the Sales Tax Act, 1990---Collector allowed extension of 90 days under Central Excise Act, 1944 on 5-12-2005---Central Excise Act, 1944 was repealed on 1-7-2005 and was replaced by Federal Excise Act, 2005---Firstly the extension was allowed under the defunct Central Excise Act, 1944 and secondly, as per the provisions of S.33(3) of Central Excise Act, 1944, only the C.B.R. under Central Excise Act, 1944 was competent to grant extension and not the Collector---Extension granted by the Collector in terms of the provisions of Central Excise Act, 1944 was not legally sustainable---Order-in-Original related to determination of liability of excise duties and imposition of penalty under Excise Law was hit by time limitation.

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

----S. 33(2)(cc)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Offences and penalties---Penalties without confrontation---Show cause notice showed that complainant was charged with evasion of both excise duty and sales tax which were shown as recoverable---Show cause notice did not disclose department's intention to levy penalty under the Sales Tax Act, 1990---Order-in-Original also imposes penalty, since complainant was not confronted with the specific penal provision of the Sales Tax Act, 1990 the imposition of penalty vide Order-in-Original could not legally stand.

Omar Arshad Hakeem and Waseem Ahmad for the Complainant.

Muteen Alam, A.C., Sales Tax, Multan for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.---This complaint of `maladministration' is directed against the respondent for passing Order-in-Original No.191 of 2006, dated 20-3-2006 after the expiry of limitation period prescribed under the Federal Excise Act, 2005 and Sales Tax Act, 1990. Based on audit, the Deputy Collector (Adjudication) issued the complainant a show-cause notice, dated 24-92005 alleging that it had during the period 2003-04 sold 250 ML bottles at a lower/lesser rate as compared to the same variety of goods manufactured by other manufacturers. It was also alleged that the complainant fixed assessable value of the aforesaid bottles at Rs.6.26 and 9.91 per bottle instead of 7.04 per. bottle resulting in evasion of excise duty of Rs.166570 and sales tax of Rs.208212. The complainant contested the show cause notice. The Additional Collector (Adjudication) ignored the case law cited before him and passed the impugned Order-in-Original, upholding the charges framed against the complainant. Show cause notice was issued under the erstwhile Central Excise Act, 1994 and the rules made thereunder,. Under subsection (3) of section 33 of the Central Excise Act, 1944, the respondent was required to decide the case within 45 days of the issuance of show cause notice. This Act was, however, repealed through section 48 of the Federal Excise Act, 2005. In the new legislation a parallel provision was incorporated in subsection (3) of section 31 of the Federal Excise Act, 2005 binding the adjudication officer to decide the case within 90 days of the issuance of show cause, extendable by another 90 days by the Collector for reasons to be recoded in writing. Show-cause notice was issued on 24-9-2005, he order was passed on 20-3-2006, 177 days after issuance of show cause notice whereas the prescribed period for deciding A the case had expired on 23-12-2005. The order was hit by time limitation as provided in law and was null and void. Similarly, as per the mandatory provisions of section 36(3) of the Sales Tax Act, 1990, the case had to be decided within 90 days of the issuance of show cause notice, extendable by another 90 days by the Collector for reasons to be recorded in writing. It has been recorded in paragraph 8 of the impugned Order-in-Original that the time period for deciding the case had been extended by the Collector by another 90 days under section 33(3) of the Central Excise Act, 1944 and section 36(3) of the Sales Tax Act, 1990. The complainant was not provided copy of Collector's order granting extension. Extension was unlawful because the Collector allowed extension under the provisions of section 33(3) of the Central Excise Act, 1944, which was repealed on 1-7-2005. The provisions of repealed Act could not be invoked for granting extension; hence the extension was void ab initio. As per the provisions of section 33(3) of the Act it was only the C.B.R., and not the Collector, who was competent to extend the time limit under `exceptional circumstances'. The Collector did not extend the period prescribed for deciding the case under section 31(3) of the Federal Excise Act, 2005. However, under section 36(3) of the Sales C Tax Act, 1990, the Collector was empowered to allow extension in time for another 90 days but only after recording reasons for such extension in writing. He did not record any reasons and as such did not observe the mandatory provisions of section 36(3) of the Sales Tax Act, 1990. The impugned Order-in-Original was nullity in the eyes of law. Reliance was placed on FTO's findings in complaint Nos. 805/03, 940/05 and 1133-L/05, which held that passing orders after expiry of the limitation period as provided in law was act of `maladministration'. The President of Pakistan rejected departmental representation tiled against FTO's findings in complaint No.805/03. The impugned Order-in-Original may be declared as illegal.

2. In reply, the Collector of Customs, Sales Tax and Federal Excise, Multan has submitted that show cause notice was issued for evasion of excise duty and sales tax on 24-9-2005. The complainant sought multiple adjournments and filed written reply to the show cause notice on 3-12-2006 after 70 days of the issuance of show cause notice. The complainant was responsible for delay. More time was required for the department to file comments and argue the case. As the case was not going to be finalized within the periods prescribed in section 36(3) of the Sales Tax Act, 1990 and section 33(3) of the Central Excise Act, 1944 (parallel provisions in section 31(3) of the Federal Excise Act, 2005), the Collector extended the time periods prescribed for deciding the case for another 90 days. The Order-in-Original was passed within the extended time. Although the Central Excise Act, 1944 had been repealed on 1-7-2005 there was a parallel provision in section 31(3) of the Federal Excise Act, 2005. The Collector was competent to grant extension for another 90 days under section 36(3) of the Sales Tax Act, 1990. Show cause notice was validly issued. The FTO's findings cited by the complainant were irrelevant. The present case was decided after the Collector had extended the period to decide the case. No `maladministration' was committed. The complaint may be rejected as baseless and the complainant may be advised to prefer appeal before the competent appellate authority.

3. During the hearing, the AR intimated that the complainant had filed appeal against the impugned Order-in-Original before Collector of Appeals on 15-4-2006 whereas the complaint was filed in the FTO's Secretariat on 8-4-2006, prior to tiling of appeal. He reiterated the arguments advanced in the written complaint, emphasizing that (i) the Collector was not competent under section 33(3) of the Central Excise Act, 1944 to grant extension because the power to grant extension vested. in the C.B.R., (ii) extension was not granted under section 31(3) of the Federal Excise Act, 2005 and (iii) extension on the sales tax side was granted by the Collector without recording reasons in writing as stipulated in the aforesaid section. He argued that someone else recorded the so-called reasons on the order sheet and the Collector dittoed by writing "as proposed". He should have himself recorded the reasons. As such, the extension on the sales tax side also was void ab initio. Even if 70 days had expired because the complainant had submitted reply after 70 days, as alleged, the respondents still had 20 days to decide the case. The show cause notice was also defective as it failed to invoke sections 36 and 33(2)(cc) of the Sales Act, 1990. The AR cited FTO's findings in complaint No.119-L/06 in support of his contention that the Order-in-Original was hit by time limitation.

4. The D.R. submitted that the show-cause notice was issued on 24-9-2005, reply was received on 1-12-2005. First 90 days expired on 23-12-2005. The Collector, however, allowed extension on 5-12-2005 before expiry of first 90 days of the issuance of the show cause notice.

The case was decided on 20-3-2006 before expiry of the extended period. Show cause notice was issued under the provisions of Central Excise Act, 1944, Federal Excise Act, 2005 and Sales Tax Act, 1990. The subordinate officer, while seeking extension from the Collector inadvertently sought it under Central Excise Act, 1944. The reasons were recorded in writing by the Additional Collector and the Collector confirmed the same by ordering `as proposed'. Thus the extension so allowed was in order. Provisions of section 33(2)(cc) of the Sales Tax Act, 1990 was not invoked in the show cause inadvertently.

5. The arguments of the two sides and records of the case have been considered and examined. Proviso to section 36(3) of the Sales Tax Act, 1990 reads as under:

"Provided that order under this section shall be made within ninety days of issuance of show cause notice or within such extended period as the Collector or as the case may be Collector (Adjudication) may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days."

Subsection (3) of section 33 (Power of Adjudication) of the Central Excise Act, 1944, as it existed before 1-7-2005, is also reproduced as under:

"A Collector, an Additional Collector or a Deputy Collector shall decide the case within forty-five days of the issuance of show cause notice:

Provided that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances."

Section 31(3) of the Federal Excise Act, 2005 (effective 1st July, 2005) is reproduced as under:--

"A Federal Excise Officer invested with the powers to adjudicate shall decide the case within ninety days of the issuance of show cause notice or within such extended period as he may for reasons to be recoded in writing fix provided that such extended period shall in no case exceed ninety days:

Provided that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances."

6. In this case, the show cause notice was issued on 24-9-2005. The case was decided by the Additional Collector (Adjudication) on 20-3-2006. The adjudication authority has observed in paragraph 8 of the impugned Order-in-Original that the period prescribed for deciding the case was extended for further 90 days by the Collector under section 33(3) of the Central Excise Ant, 1944 and section 36(3) of the Sales Tax Act, 1990. It is observed that the Collector allowed extension of 90 days under Central Excise Act, 1944 on 5-12-2005. The Central Excise Act, 1944 was repealed on 1-7-2005 and was replaced by Federal D Excise Act, 2005. Thus firstly the- so-called extension was allowed under the defunct Central Excise Act, 1944 (defunct from 1st July, 2005) and secondly, as per the provisions of section 33(3) of the Central Excise Act, 1944, only the C.B.R. was competent to grant extension and not the Collector. Therefore, the extension granted by the Collector in terms of the provisions of aforesaid section of Central Excise Act, 1944 is not legally sustainable. Accordingly, the Order-in-Original in so far as it relates to the determination of liability of excise duties and imposition of penalty under Excise Law is hit by time limitation as provided in law.

7. On the sales tax side, the Collector allowed extension of 90 days in terms of section 36(3) of the Sales Tax Act, 1990 on 5-12-2005 before the expiry of prescribed period of 90 clays of the issuance of show cause notice (90 days expired on 23-12-2005) on the ground that the complainant had filed written reply to the show cause notice late by 70 days of the issuance of show cause notice. As per the provisions of section 36(3) of tile Sales Tax Act, 1990, the Collector was competent to extend the time limit by 90 days for reasons to be recorded in writing. The AR argued that the Collector did not record on the order sheet the reasons for granting extension. It is observed that the Additional Collector (Adjudication) vide his note, dated 5-12-2005 'copy of order sheet on record) sought extension in the time for deciding the ease under the provisions of section 36(3) of the Sales Tax Act, 1990 and section 33(3) of the Central Excise Act, 1944 in respect of five cases, including that of the complainant, by giving different reasons. In the case of the complainant, he gave late filing of written reply after 70 days of the issuance of show cause notice as the reason for seeking extension and the Collector ordered the extension `as proposed'. The Collector held the reason cited by the Additional Collector as valid enough and granted extension under section 36(3) of the Sales Tax Act, 1990 before the expiry of period of 90 days as prescribed. While extension granted by the Collector under section 33(3) of the defunct Central Excise Act 1944 was illegal and out of jurisdiction, as explained in paragraph 6 supra, the extension allowed on the sales tax side was within Collector's competence and he granted the same for the reason referred to above.

8. The body of the show-cause notice, dated 24-9-2005 shows that the complainant was charged with evasion of both excise duty and sales tax, which were shown as recoverable. However, the show-cause notice does not disclose respondent's intention to levy penalty under the sales Tax Act, 1990. The Order-in-Original, however, also imposes penalty under section 33(2)(cc) of the Sales Tax Act, 1990. Since the complainant was not confronted with the specific penal provision i.e. 33(2)(cc) of the Sales Tax Act, 1990, the imposition of penalty vide impugned Order-in-Original under this section cannot legally stand.

9. It was held by the FTO in complaint No.805/03, involving sales tax liability, that "in the instant case show cause notice was issued on 16-6-2002 and Order-in-Original was passed on 13-5-2003 after about 11 months of the issuance of notice which is clearly hit by time limitation as provided in law. Maladministration is therefore established". The FTO had, therefore, recommended in that case the cancellation of impugned Order-in-Original. The department represented against the aforesaid decision of the FTO before the President of Pakistan. The President was pleased to reject the departmental representation vide order, dated 7-5-2005, paragraphs 3 and 4 of which are reproduced below:

(3) "The department contends that the time limit under section 36(3) ibid was merely directory and not mandatory. The contention does not seem to be valid. Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory but where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory. The FTO's decision must be sustained.

(4) Accordingly, the President has been pleased to reject the representation of the department."

10. FTO's findings in C. No.805/2003, as sustained by Presidential order referred to above, were made in the context of relevant provisions, of sales tax law. However, the Presidential order lays down the principle that "where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory". As in the impugned order passed in the instant case the respondent had created liabilities both the sales tax, along with additional tax and central excise duty, along with additional duty and the penalties adjudged herein but failed to pass the order in so far as it related to liabilities relating to central excise within the prescribed time limit, the ruling contained in the above-mentioned judicial precedent applies to central excise also. `Maladministration' is established.

11. In view of the foregoing discussion, the impugned Order-in-Original needs to be reopened under section 35 of the Federal Excise Act, 2005 and section 45A of the Sales Tax Act, 1990 to (i) quash demand of central excise duty/additional duty and penalty imposed in theimpugned Order-in-Original because the Collector allowed extension in the period of deciding the case under section 33(3) of the Central Excise Act, 1944, without having jurisdiction to do so, as explained above and (ii) remit penalty levied under the Sales Tax Act, 1990 because the show cause notice did not confront the complainant with the intention to impose penalty under section 33(2)(cc) of the Sales Tax Act, 1990 before it was imposed in the impugned Order-in-Original. According to subsection (2) of section 45A of the Sales Tax Act, 1990, no proceedings can be undertaken or initiated for reopening a decision or order passed under the Sales Tax Act, 1990 in a case where appeal under sections 45B and 46 of the act is pending and an appeal in this case is indeed pending before the Collector of Appeals the complainant, for its part, shall have to withdraw the appeal. Accordingly, it is recommended that the Revenue Division direct the competent authority to:--

(i) Reopen the impugned Order-in-Original No.191 of 2006, dated 20-3-2006?? under?? section 35 of the Federal Excise. Act, 2005 and section 45A of the Sales Tax Act, 1990 so as to quash demand of central excise duty/additional duty and penalty created in the impugned order hit by time limitation, as discussed above, remit penalty imposed under the Sales Tax Act, 1990 for failure to confront the complainant with specific provision of section 33(2)(cc) of the Sales Tax Act and may proceed in accordance with the provisions of law. On its part, the complainant shall have to withdraw the appeal filed before the Collector of Customs, Excise and Sales Tax (Appeals), Multan.

(ii) Compliance be reported within 30 days of the receipt of this order.

C. M. A./139/FTO?????? ???????????????????????????????????????????????????????????????????????????? Order accordingly.