Messrs SABIR DAUD EXPORTS, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 430 (2006)

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

---S. 36(3)-Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Customs General Order No.12 of 2002---C.B.R. letter No.6 (6)S/Adj/2005, dated 12-12-2005---Law, Justice and Human Rights Division's letter No.191 of 2005-Law (FTO), dated 22-5-2006---Law, Justice and Human Rights Division's letter No.196 of 2005-Law (FTO), dated 26-5-2006---Recovery of tax not levied or short-levied or erroneously refunded-Limitation-Extension--Exceptional circumstances---Levy of tax on the ground that invoices through which input tax was claimed were declared suspicious by the Central Board of Revenue and also for non-payment of' sales tax on supply of empty bags and paper cones---Order-in-Original was passed late by 382 days after obtaining extension from Central Board of Revenue---Extension was granted by the Central Board of Revenue after the expiry of limitation provided by S.36(3) of the Sales Tax Act, 1990---Validity---Order-in-Original could not be held to have any legal effect because the time granted by the Central Board of Revenue after the expiry of the original time limitation was not legally correct; the reason given for the extension of time by the Central Board of Revenue could not be termed as exceptional circumstances and department had failed to establish that the Order-in-Original was finalized within the time period as extended by the Central Board of Revenue---Federal Tax Ombudsman commended the competent authority to reopen the impugned Order-in-Original and annul the aforesaid Order-in-Original as being hit by time limitation as provided in the law and may proceed in accordance with the provisions of law.

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

----S.36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Customs General Order No.12 of 2002---Recovery of tax not levied or shot-levied or erroneously refunded---Limitation---Extension of time period after expiry of original time limitation---Validity---Question whether the Central Board of Revenue could extend the time for adjudication before the expiry of the statutory period was not a question of interpretation of law---Central Board of Revenue itself issued clear instructions to its subordinate officers that any extension given after the expiry of the original period did not have any force of law on the other hand by extending the time period, contradicted their own instructions---Action of Central Board of Revenue in extending the time period after the expiry of the original limitation could not be upheld.

PTCL 1983 (C.L.) 46 rel.

Complaint No.1133-L of 2005 distinguished.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.9(1)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Central Board of Revenue, which is another name of the Revenue Division, was as much within the purview of the jurisdiction of the Federal Tax Ombudsman as any other .functionary or office subordinate to it, within the meaning of S.9(1) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, which deals with the jurisdiction, functions and powers of the Federal Tax Ombudsman---Federal Tax Ombudsman can "investigate on allegation of maladministration on the part of Revenue Division".

Messrs Pangraphies (Pvt.) Ltd., Islamabad C. No. 904 of 2005 distinguished.

(d) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss. 9 & 2(3)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Maladministration---Federal Tax Ombudsman is empowered to examine any decision of the Central Board of Revenue and if it was found have suffered from maladministration, pass decision and make appropriate recommendations with regard thereto---Order of Collector based on administrative decision of the Central Board of Revenue of extension of time could very well be examined by the Federal Tax Ombudsman to decide whether the same had suffered from maladministration.

(e) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 2(3)---Maladministration---Any order or decision based on such an order suffering from maladministration passed or made by the subordinate officer of the Revenue Division could legally be declared to have suffered from maladministration and jurisdictional defect in the same manner as was the order of the Central Board of Revenue on which it was based.

(f) Sales Tax---

----Void order---Scope---Any superstructure based on illegal or void order has no legs to stand and has to fall on the ground along with the order on which it was based.

PLD 1958 SC 104 rel.

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

----S. 36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Extension of time limitation---Exceptional circumstances---Central Board of Revenue extended time for the reason that "hearings are being conducted regularly, it is expected that the case will be finalized within the requested time"---Such order could not be qualified for the term "exceptional circumstances" by any stretch of imagination; it only reflects on the inefficiency, neglect, inaptitude and delay on the part in of the concerned officers---Central Board of Revenue did not fulfil the requirement of law by failing to prove the existence of "exceptional circumstances" which could justify the extension.

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

----S.36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Extension of time limitation---Extension was sought after 366 days of the issuance of show cause notice; by this time, the limitation provided by S.36(3) of the Sales Tax Act, 1990 had already expired---Power to extend time vested in Central Board of Revenue was neither absolute nor uncontrolled.

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

----S.36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Limitation---Extension---Exceptional circumstances---Decision of Central Board of Revenue, in the absence of any reasons or findings about existence of exceptional circumstances, was not only illegal but also suffered from arbitrariness adversely affecting the rights of the taxpayers to treat the proceedings to have come to and end on the expiry of the period of limitation.

PLD 1958 SC 104 distinguished.

(j) Sales Tax---

----Limitation---An order passed on the file but not communicated to the affected party within the prescribed limit could not be treated as having been passed within the prescribed period.

(k) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S. 9(2)(a)---Jurisdiction, functions and powers of the Federal Tax Ombudsman--Decision of the Customs, Sales Tax and Federal Excise Appellate Tribunal was not binding on the Federal Tax Ombudsman.

Mian Manzoor Ahmad and A.R. for the Complainant.

Muhammad Azam, D.C. Sales Tax and D.R. for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.---The Complainant is a Manufacturer-Exporter and is registered with the Sales Tax Department. The complaint relates to Sales Tax Order-in-Original. (O.I.O.) bearing No.29 of 2006, dated 28-3-2006 which was stated to be barred by time within the meaning of section 36(3) of the Sales Tax Act, 1990 (the Act).

2. The facts of the case, as stated in the complaint, are enumerated as follows:--

(a) A show cause notice (S.C.N.), dated 4-11-2004 was issued which alleged that the invoices through which in it tax was claimed by the Complainant were declared suspicious by the C.B.R. Another violation pointed out was the non-payment of sales tax on supply of empty bags and paper cones. The Complainant was asked to show cause why the sales tax amounting to Rs.1,970,952 may not be recovered from them along with additional tax.

(b) The Order-in-Original bore the date of 28.3-2006. However, it was dispatched on 19-5-2006 and delivered to the Complainant on 20-5-2006.

(c) As the impugned Order-in-Original was late by 382 days, it was clearly hit by the provisions of section 36(3) of the Act. In view of the circumstances stated above, the Respondent had committed the offence which fell in the definition of mal administration. It was, therefore, prayed that the Order-in-Original be declared illegal.

3. The D.C., Sales Tax and Federal Excise, Faisalabad, in his written reply recapitulated the facts of the case. On its merit, following submissions were made:

(a) It was denied that the Order-in-Original in question was barred by time because the C.B.R. vide its letter C. No. 6(6)S/Adj/ 2005, dated 12-12-2005 extended the time limit to 31-3-2006 and the Order-in-Original was passed on 28-3-2006. Therefore, it was not barred by time.

(b) The Customs, Sales Tax and Federal Excise Appellate Tribunal had held that the provisions of section 36(3) of the Act were directory and not mandatory.

(c) The reasons for not adhering to the time limitation under section 36(3) of the Act and seeking extension of time from the C.B.R. were narrated. It was stated that the Adjudication Collectorate was abolished through Finance Act, 2005 and the case of the Complainant was transferred to the Revenue Colleetorate. That explained the delay.

(d) It was pointed out that the Complainant could file an appeal before the Collector (Appeals).

(e) However, the Respondent did not comment on the point raised by the Complainant that the Order-in-Original was served on 20-5-2006.

4. Both A.R. and D.R. attended and the case was discussed with them. The A.R. presented the envelope through which the Order-in-Original was delivered to the Complainant. It clearly showed that it was dispatched on 19-5-2006 and was delivered on 20-5-2006. He contended that the author of the impugned Order-in-Original did not adhere even to the extended time given by the C.B.R. as there was no proof that it was passed by 31-3-2006. He, in particular, referred to para. 2 of C.B.R.'s letter quoted above which clearly stated that the extension was subject to the condition that no further extension will be granted and the case should be decided within the extended period.

4.1. Another issue raised by the A.R. was that the C.B.R. had erred in extending the time period when the original time of 90 days had already expired. Explaining this point he stated that the S.C.N. was issued on 4-11-2004. The time of 90 days expired on 4-2-2005 whereas the extension by the C.B.R. was granted on 12-12-2005. In support of his argument, he presented a case decided by the Indian Supreme Court cited as PTCL 1983 (C.L.) 46. He also presented a Customs General Order bearing No.12 of 2002 in which the C.B.R. clearly instructed its subordinate officers that the extension had to be ordered before the expiry of the original time. If the extension was not granted within that time, it would not have any force of law.

5. The D.R. reiterated the arguments contained in the written reply. Rebutting the arguments of the A.R. that the extension could only be granted before the expiry of the original time limit, he presented a decision of the honourable President of Pakistan in Complaint No. 1133-L of 2005 conveyed vide Law, Justice and Human Rights Division's letter No.191 /2005-Law (FTO), dated 22-5-2006. Discussion the extension granted by the C.B.R. in exercise of its powers under section 45 of the Act, it was stated that the said section empowered the C.B.R. to regulate the system of adjudication including the extension of time in "exceptional circumstances". The question whether the C.B.R. could extend the time limit before the expiry of the statutory period or even thereafter was a question relating to interpretation of law on which the honourable F.T.O. ought not to give any decision. With this observation the decision of the honourable F.T.O. holding the grant of extension by C.B.R. after the expiry of the original time limit illegal was overruled.

6. Another point raised by the D.R. was that the honourable F.T.O. could not question whether the grant of extension by the C.B.R. was based on reasonable grounds or not. In this regard, he quoted a decision of the honourable President of Pakistan in C. No.904 of 2005 (M/s. Pangraphics (Pvt.) Ltd., Islamabad), as conveyed vide Law, Justice and Human Rights Division's letter No.196 of 2005-Law (FTO), dated 26-5-2006.

7. The arguments of the two parties, both written as well as oral, were given due consideration. First of all the point raised by the D.R. and stated in para. 5 above is taken up. It appears that when the case was placed before the honourable President of Pakistan, full facts were not brought to his kind notice. The question whether the C.B.R. could extend the time for adjudication before the expiry of the statutory period is not a question of interpretation of law. It is an established principle of law, not only because of the decisions of the higher Courts but also its acceptance by the C.B.R. As pointed out by the A.R., the C.B.R. itself issued clear instructions to its subordinate officers that any extension given after the expiry of the original period did not have any fore of law. By issuing these instructions they acted in conformity with the accepted principle of law. On the other hand, by extending the time period through their letter, dated 12-12-2005 referred to in para 3(a) above, they contradicted their own instructions issued earlier. It is obvious that this fact was not presented before the honourable President of Pakistan. The action of the C.B.R. in extending the time period after the expiry of the original time. limitation cannot be upheld.

8. Now the objection raised by the D.R. vide para. 6 supra is taken up. I have carefully gone through the decision of the Hon'ble President of Pakistan on a representation made against the decision in complaint No.904 of 2005 relied upon by the D.R. It may be observed here that every case has its own peculiar facts and circumstances, which has to be decided keeping them in view. It appears that when the case was placed before the Hon'ble President of Pakistan for decision, as the decision shows, it was not brought to his notice that the C.B.R., which is another name of the Revenue Division, was as much within the purview of the jurisdiction of the FTO as any other functionary or officer subordinate to it, within the meaning of section 9(1) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, which deals with the jurisdiction, functions and powers of the F.T.O. Accordingly, the honourable FTO can "investigate an allegation of maladministration on the part of the Revenue Division...". Therefore, it is evident that the case was not placed before the Hon'ble President in its true perspective, for it is based on the assumption or impression as if the C.B.R. was not subject to jurisdiction of the FTO and no decision could be made adverse to the direction or decision of the C.B.R. This office is empowered to examine any decision of the C.B.R. and if it is found to have suffered from maladministration, pass decision and make appropriate recommendations with regard thereto. Since the order of the Collector was based on the administrative decision of the C.B.R. of extension of time which could very well be examined by the F.T.O. to decide whether the same had suffered from "Maladministration". In the instant case it is found that the same falls within the mischief of the term "Maladministration" as defined in the F.T.O. Ordinance. Any order or decision based on such an order suffering from maladministration passed or made by the subordinate officer of the Revenue Division could also E legally be declared to have suffered from maladministration and jurisdictional defect in the same manner as was the order of the C.B.R. on which it was based. It is a firmly settled law that any superstructure based on illegal or void order has no legs to stand and has to fall on the ground along with the order on which it was based. See PLD 1958 SC 104, see PLD 1958 SC 104.

9. Now I proceed to examine whether the decision of extension of time of the C.B.R. in this case is valid and did not suffer from maladministration. The C.B.R. gave the following reason for granting extension of time in the instant ease. "Hearings are being conducted regularly. It is expected that the case will be finalized within the requested time." It cannot qualify for the term "exceptional circumstances" by any stretch of imagination. It only reflects on the inefficiency, neglect, inaptitude and delay on the part of the concerned officers. Thus, the C.B.R. filed to fulfil the requirement of law by failing to prove the existence of "exceptional circumstances" which could justify the said extension. It may be mentioned here that extension was sought after 366 days of the issuance of show cause notice. By this time, the limitation provided by section 36(3) of the Sales Tax Act, 1990 H had already expired. The power to extend time vested in the C.B.R. is neither absolute nor uncontrolled. On the contrary, it has been made subject to parameters provided by law i.e. existence of exceptional circumstances. Law has provided this criterion to avoid exercise of such power by the C.B.R. arbitrarily or whimsically and to provide safeguards against undue harassment to taxpayers. Since the law has fixed the limitation period for decision of the case in respect of' a particular show cause notice and extension could be made in exceptional circumstances, therefore, unless those exceptional circumstances are brought on record, its decision could safely be held to have suffered from illegality and maladministration. In this case, the Revenue Division has failed to give any cogent reason for giving extension of time after the expiry of such a long time, or that it applied its mind in deciding whether the circumstances existed in which this delay took place on the part of the officer of the Revenue Division in not deciding the case and if so, did they constitute exceptional circumstances to justify the extension of time. The decision of' the C.B.R. in this case in the absence of any such reasons or findings about existence of exceptional circumstances, therefore, was not only illegal but also suffered from arbitrariness adversely affecting the rights of the taxpayers to treat the proceedings to have come to an end on the expiry of the period of limitation so far as the said show cause notice was concerned.

10. From the preceding discussion, it is quite ,evident that the decision of C.B.R. of extending of time suffers from the violation of law, and is arbitrary, unreasonable, unjust and oppressive. As the maladministration of the C.B.R. is being dealt with here, rather than that of the Collector, the instant case is distinguishable from the decision given in C. No.904 of 2005 by the honourable President of Pakistan.

11. It is a fact undisputed by the D.R. that the impugned Order-in-Original was served on the Complainant on 20-5-2006. He was asked to produce any evidence to prove that the Order-in-Original was passed on 28-3-2006 as noted. The only evidence he could produce was that an Order-in-Original passed in another case bearing No. 37 of 2006 on 28-3-2006 was served on the registered person on 30-3-2006. This fact, according to him, proved that the impugned Order-in-Original bearing an earlier number (29/2006 of the same date) was passed on that date. No other evidence could be produced.

11.1. This explanation of the D.R. was considered. However, it cannot be relied upon. The numbering of the Order-in-Originals was an entirely internal affairs of the Sales Tax department and does not prove that the impugned Order-in-Original was indeed passed on 28-3-2006 on the strength of this evidence only. Besides, the D.R. failed to explain the reason of delay of nearly two months which occurred between the passage and the dispatch of the Order-in-Original. An order passed on the file but not communicated to the affected party within the prescribed limit cannot be treated as having been passed within the prescribed period.

12. The decision of the Customs, Sales Tax and Federal Excise Appellate Tribunal relied by the Respondent (para. 3(b) supra) is not K binding on this forum. This argument is, therefore, overruled.

13. The Complainant surely could file an appeal before the Collector (Appeals) as argued by the Respondent in para. 3(d) above. However, there is no bar for the Complainant to come to this forum for redressal of acts of maladministration committed by the C.B.R. and its officers. The acts of maladministration committed by them have been extensively discussed in the preceding paragraphs. Whenever maladministration is committed, this office acquires jurisdiction.

14. To sum up, the impugned Order-in-Original cannot he held to have any legal effect because:

(a) The time granted by the C.B.R. after the expiry of the original time limitation was not legally correct.

(b) The reason given for the extension of time by the C.B.R. cannot be termed as exceptional circumstances.

(c) More importantly, the D.R. failed to establish that the impugned Order-in-Original was finalized within the time period as L extended by the C.B.R.

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

(i) The competent authority to reopen the impugned Order-in-Original bearing No.29 of 2006, dated 28-3-2006 and annul the aforesaid Order-in-Original as being hit by time limitation as provided in the law and may proceed in accordance with the provisions of law.

(ii) Compliance report of above-mentioned recommendation should reach this office within 30 days of its receipt by the Secretary Revenue Division.

C.M.A./165/FTOOrder accordingly.