INAM ALI BHATTI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1002 (2004)

Customs Act (IV of 1969)---

----Ss. 18-A & 33(I)---S.R.O. No.1198(I)/96, dated 22-10-1996--Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 11---Claim for refund of pre-shipment inspection charges levied unlawfully-Limitation-Superior Courts declared such charges as unlawful---Authority rejected claim for refund of such charges as time-barred without issuing show-cause notice to complainant---Validity---Where amount recovered by authority was not customs duty/charge or its imposition and levy had no sanction under law, then claim for refund of such amount would not be governed by S.33 of Customs Act, 1969---Amount of such charges did not belong to Government, thus, could not be retained by same---Recovery of such charges was not backed by legal sanction and was without jurisdiction---Claim for refund of such charges, if actually paid, would not be governed by S.33 of Customs Act, 1969---Bills of Entry did not indicate deposit of duty, taxes and such charges as completed Bills of Entry would normally carry stamp of deposit in Treasury or Bank---Payment of refund would be contingent upon proof of payment of such charges and further proof including certificate from Chartered Accountant certifying that incidence of such charges had not shifted to consumers---Such claim not being a case of assessment or determination of liability, would not fall in any category of cases enumerated in S.9(2)(b) of Establishment of Office of Federal Tax Ombudsman Ordinance 2000---Rejection of such claim on technical ground of being time-barred was arbitrary, unjust, unfair and discriminatory---Maladministration was established---Federal Tax Ombudsman recommended to Revenue to cancel impugned order, admit such refund claim for processing and decide same subject to verification of payment of such charges and production of evidence as to non-shifting of its incidence to consumers including production of Chartered Accountant's certificate certifying such fact.

PTCL 1999 CL 752 and Ghulam Abbas v. Member Judicial PTCL 1998 CL 350 rel.

Muhammad Akbar, Advisor (Dealing Officer).

Ashraf Ali for the Complainant.

Irfan Javed D.C. Sambrial for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Facts of the case as explained by the complainant are that he had imported two consignments of P.V.C. Resins vide two bills of entry dated 18-11-1996 and paid Pre-shipment Inspection (P.S.I.) service charges at the rate of 2% amounting to Rs.199,335 in addition to customs duty and taxes leviable thereon. Section 18A levying 2% service charges was inserted in the Customs Act, 1969 by Ordinance No.LXXXIV dated 22-10-1996. As a result, Notification S.R.O. No.1198(I)/96 dated 22-10-1996 was issued levying service charges @ 2% ad-val on goods to Pre-Shipment Inspection (P.S.I.). A number of petitions were filed against this levy in the High Courts. The Lahore High Court allowed the writ petitions by ruling that service charges levied under the aforesaid section could not by considered `duty of customs' and, therefore; declared the same as ultra vires the Constitution having no legal effect. On appeal by the C.B.R. and private parties, the Supreme Court of Pakistan by its judgment reported in 1999 SCMR 1402 held the imposition of service charges as ultra vires of the power of federal legislature. The complainant had vide its letter dated 11-10-2001 and 14-11-2001 requested the Assistant Collector Dryport, Sambrial to adjust the amount of service charges paid by it against customs duty of Rs.1,33,435 outstanding as payable against the complainant but neither its request was responded to nor any refund or adjustment was allowed. On the contrary, the Deputy Collector (Refunds) rejected complainant's claim vide his order dated 8-11-2003 on the ground that the claim was time barred by seven years and could not be entertained under section 33(1) of the Customs Act, 1969. The provisions of section 33 of the Customs Act, 1969, which prescribed filing of refund claim within six months are applicable only in cases involving customs duty or charges as might have been paid through inadvertence, error or misconstruction'. In the instant case service charges were held ultra vires by the Supreme Court and as such the payment of these charges were not made through inadvertence, error or misconstruction and, therefore, the provisions of section 33 were not applicable and the amount of service charges paid are refundable. The complainant is facing hardship due to injustice caused by the department. It is prayed that as the complainant's money is being withheld despite apex Court's judgment the respondents may be directed to pay the amount of refund to which the complainant is legally entitled.

2. In reply, the respondents have submitted that the complainant did not pay regulatory duty amounting to Rs.1,331,435 at the time of import. However, the Supreme Court held the regulatory duty as chargeable. Accordingly demand notices were issued to the complainant for its payment. As it did not pay the amount in question recovery proceedings were initiated under section 202 of the Customs Act, 1969 and finally complainant's unit was sealed pending recovery of outstanding dues. It had requested for payment of outstanding dues by instalments which was allowed. In so far as the P.S.I. service charges are concerned the complainant had never applied for refund of any service charges. However, it requested vide its letter dated 2-7-2003 for adjusting income tax of Rs.862,761 against demand of Rs.1,331,435 outstanding against it. It was informed that the income tax authorities had expressed their inability to refund the same. The complainant then requested the AC vide letter dated 140-2003 for adjustment of surcharge (service charges) amounting to Rs.199,355 against the outstanding demand. A scrutiny of subject bills of entry on the basis of which the complainant was seeking adjustment revealed that these bills of entry did not bear any stamp of deposit of duty, tax including surcharges. With reference to its claim the complainant was given the opportunity of hearing by DC (Refunds) to explain its view point and submit documents in support of its claim and explain the nature of `surcharge' being claimed as refund but could not explain whether the refund being sought was of `surcharge' or of P.S.I. service charges nor did the complainant produce any Court orders. The case being seven years old was rejected as time-barred under the provisions of section 33(1) of the Customs Act, 1969. The refund of service charges also required further evidence of whether or not the incidence of these charges had been shifted to the consumers. The complainant's letters dated 11-10-2001 and 14-11-2001 said to have been written to the respondents were never received by them. The complainant cannot produce any evidence to prove the receipt of these letters by the department. The allegation of inattention to these so-called letters is, therefore, misplaced. No maladministration has taken place. The complainant is trying to delay payment of customs dues outstanding against it. The President of Pakistan has held in many a cases that in cases where legal remedy of appeal, revision or review is available under the relevant legislation the F.T.O. has no jurisdiction as the same is hit by the provision of section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. In support of this contention the respondents have cited President of Pakistan's decision in five representations decided by him. Since in the instant case the complainant never filed any appeal against the order of rejection of refund claim the complaint is not tenable.

3. The arguments of the parties and the record of the case have been considered and examined. It is observed that while the complainant contends that it had vide its letters dated 11-10-2001 and 14-11-2001 (on record) requested A.C. Sambrial to adjust the amount of P.S.I. service charges against customs duty payable by it and that letters were not responded to, the respondents on their part deny receipt of these letters. Copies of letters (on record) indicate that these do not bear any receipt or acknowledgment by the respondents. However, complainant's claim for refund of P.S.I. charges was rejected vide refund order dated 8-11-2003 as barred by time under section 33(1) of the Customs Act, 1969 without issuance of any show-cause notice, which is normally done before rejecting refund claims. The 2% P.S.T. charges were declared as ultra vires by the Lahore High Court and were also subsequently confirmed to be ultra vires and unlawful by the Honourable Supreme Court of Pakistan. It has been held by the Honourable Sindh High Court, Karachi in a case reported as PTCL 1998 CL 350 (Ghulam Abbas v. Member Judicial) with reference to section 33 of the Customs Act, 1969 that where the amount recovered by the customs authorities is not customs duty or charge, as its imposition and levy has not been sanctioned under law the claim for refund of such amount would not be governed by section 33 of the Act. P.S.I. charges were declared as ultra vires the Constitution and unlawful by the superior Courts of the country and the money paid by the complainant by way of P.S.I. charges did not belong to the Government and as such cannot be retained by it because the Government has no just claim to it. Since the P.S.I. charges recovered by the customs authorities were held to be unlawful, not having the sanction of law, the claim for refund of such charges, if actually paid, would not be governed by the provisions of section 33(1) of the Customs Act, 1969. The recovery was not backed by legal sanction and was without jurisdiction. That being the position, the order rejecting refund or disallowing adjustment of P.S.I.' charges sought by the complainant on the ground that complainant's claim was time-barred is not sustainable. However, it is observed that the two bills of entry (on record) on the basis of which refund of P.S.I. charges is being claimed do not indicate deposit of duty and taxes nor 2% P.S.I. charges as the completed bills of entry normally do carry stamp of deposit in the Treasury or bank. There is no arguing that the payment of refund will be contingent upon evidence of payment of service charges in the first instance. Both the complainant and the respondents need to establish and verify from different sources/record whether or not the P.S.I. charges the refund or adjustment of which is being sought were deposited into the Treasury by the complainant. If it is proved through verification that these were indeed deposited and paid by the complainant then alone the question raised by the respondents in para 4 of their comments that refund of service charges also required further proof that the incidence of service charges were not shifted to the consumers will become relevant. It is well known and understood that in number of cases involving refund of P.S.I. service charges the Custom House, Karachi and other Collectorates have settled the claim subject to production of proof by the affected parties that the charge had not been transferred to the end consumers, including production/presentation of Chartered Accountant's certificate certifying non-transference of P.S.I. charges to others/public. In this case also a similar process can be adopted by asking the complainant to produce evidence, including certificate from a Chartered Accountant certifying that the charges were not passed on to the consumers for settling the claim on merit. As it is, there is an element of maladministration on the part of the Revenue in that the complainant's claim has been rejected as time-barred without issuance of any show-cause notice and little realizing that the time-barred of six months as stipulated in section 33(1) of the Customs Act, 1969 did not apply in the case as the so-called levy of P.S.I. charges was declared as ultra vires, unlawful and without legal sanction by the superior Courts of the country. Thus the failure to process the case for payment of refund of P.S.I. charges or allowing its adjustment against outstanding liability smacks of arbitrariness. It is also unfair and discriminatory to deny the complainant refund of the subject amount of P.S.I. charges whereas refund claims of a number of other claimants have been processed and settled in the manner as indicated above. This amounts to `maladministration' as defined under section 2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. As respect objection by the Revenue to the jurisdiction of the F.T.O. to entertain the complaint, the same is based on misreading of the provisions of section 9(2) of the F.T.O. Ordinance. Clause (b) of subsection (2) of section 9 relates only to decisions on matters enumerated therein "in respect of which remedies of appeal, review or revision are available in the relevant legislation" itself. In the present case the claim is for refund of P.S.I. charges allegedly paid by the complainant which do not fall in any category of cases enumerated in clause (b) of subsection (2) of section 9 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. The objection is misconceived. It is not a case of assessment or determination of liability. The matter involves payment of refund of service charges unlawfully levied. The decision to reject the refund claim on a technical ground of being time-barred is arbitrary, unfair, unjust and discriminatory. Maladministration is established.

4. In view of the foregoing it is recommended that the C.B.R./ Collector:

(i) Cancel the rejection order dated 8-11-2003.

(ii) Admit complainant's refund claim for processing and deciding it subject to verification of payment of P.S.I. charges in the light of production of evidence by the complainant that service charges were not shifted on to the consumers, including production of Chartered Accountant's certificate certifying this fact.

(iii) Pay the refund if found due.

(iv) Compliance be reported within 30 days.

S.A.K./253/F.T.O.Order accordingly.