MUHAMMAD SHARIF VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1019 (2004)

Sales Tax Act (VII of 1990)---

----Ss.2(7)(47) & 14---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3), 9 & 11---Registration of complainant as "Distributor" instead of "Retailer" as applied for on prescribed form by ticking box meant for "Retailer" in column of business activity---Plea of complainant was that box ticked therein as "Retailer" had been tampered with by crossing same and instead box meant for "Distributor" had been tick-marked---Plea of authority was that such action had been taken on basis of certificate issued by an industry showing complainant as their authorized dealer; and that he had applied for registration as "Distributor" and not for "Retailer"---Validity---Complainant's version about tampering with his form, prima facie, was correct as alterations made therein did not bear his signatures/ initials---Benefit of doubt in this regard, thus, would go to complainant--On basis of certificate of industry showing complainant to be their authorized dealer, authority could, subject to physical verification, register him as a "wholesaler", which includes a dealer, but not a "Distributor"---Authority had wrongly presumed complainant to be a "Distributor" without being in possession of any concrete evidence to do so---Impugned action was unjust, arbitrary, contrary to law, which amounted to maladministration---Federal Tax Ombudsman recommended to C.B.R. to direct concerned authority to cancel complainant's registration as "Distributor" and process his application afresh by taking into consideration actual facts, certificate by principal and providing him opportunity to produce evidence in support of his plea and register him after due verification in whatever category he may fall; and also appoint a Senior Sales Tax Officer belonging to another Collectorate to investigate complainant's allegation of tampering with his application and initiate appropriate disciplinary proceedings against officials found to be responsible for same.

Muhammad Akbar, Advisor (Dealing Officer).

Malik Z.H. Khawar for the Complainant.

Ms. Sameera Sheikh, A.C., Sales Tax for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Facts of the complaint as narrated by the complainant are that he had submitted an application dated 3-7-2003 on the prescribed form to the Assistant Collector, Sales Tax, Gujrat for registration as `retailer' but he was instead registered as `distributor' by the A.C. (Registration), Gujranwala as per Registration Certificate dated 28-7-2003. He then requested Collector, Sales Tax, Gujranwala to issue him. certificate of registration as `retailer' as originally applied for but his request was rejected by the A.C., Sales Tax vide letter dated 29-12-2003 on the ground that in the application submitted by him on the prescribed form he had ticked `Distributor' in the column of business activity. A.C.'s contention is baseless as the complainant had applied for registration as `retailer' and had clearly ticked the box earmarked for `retailer'. Respondents act of registering him as a `distributor' rather than a retailer amounts to maladministration.

2. In reply the respondents have submitted that the complainant had applied for registration on a form prescribed for registration of `Distributor' and not for `retailer'. He had also produced a certificate dated 23-7-2003 from Messrs United Refrigerator Industries certifying that he was their authorized dealer in Karianwala. Accordingly the complainant was registered as distributor after, due verification by the Deputy Superintendent who after physical verification recommended issuance of Sales Tax Registration Certificate as distributor. The verification certificate bears the stamp of the complainant. It was only vide complainant's letter dated 17-12-2003 that he requested for registration as retailer. The complainant has now submitted an application for registration as `retailer' on the prescribed form vide letter dated 23-1-2004. As he was registered as `retailer' as per his own request and after due verification as aforesaid the complaint is baseless.

3. During the hearing the A.R. reiterated the points made in the written complaint emphasizing that the complainant had clearly applied for registration as `retailer' and not as `Distributor' as is evident from the covering letter dated 3-7-2003 and the form of application (on record) which clearly show that he had tick-marked the boxes meant for `retailer'. Messrs United Refrigeration Industries have not certified him to be a `distributor'. The A.R. further argued that the complainant is a dealer in the sense that he deals in goods. He was never appointed as distributor by Messrs United Refrigeration Industries. The fresh application dated 23-1-2004 for registration as `retailer' was submitted on the advice tendered by the Assistant Collector vide letter dated 29-12-2003. The complainant is located in a village, works on small scale and retails his goods to the end consumers. He does not sell goods by wholesale and is, therefore, not a distributor as per the definition of the term `distributor' in the Sales Tax Act, 1990.

4. The D.R. submitted that the application form (copy provided by the respondents) shows that the complainant had tick-marked `distributor' in the column of activity. The A.R. denied it and argued that the application in question was tampered with by the department because he had originally tick-marked the boxes meant for `retailer' which were converted by the respondents into crosses and instead boxes earmarked for `Distributor' were ticked. The original application, the A.R. stated, was tampered with by the respondents after he had lodged his complaint before the Honourable F.T.O. Even if Messrs United Refrigeration Industries had certified the complainant to be their authorized dealer he could not be assumed to be a `Distributor'. The A.R. also explained that a person who is registered as `distributor' is charged 3% further tax on sale to non-registered persons. The department may be directed to register him as a `retailer' from the date of application i.e. from 3-7-2003. It is also pleaded that the person responsible for tampering with the application form may be proceeded against. The D.R. denied tampering of application dated 3-7-2003 and submitted that the complainant's fresh application dated 23-1-2004 for registration as `retailer' would be processed independently. The definition of `retailer' in the Sales Tax Act does not stipulate appointment of a retailer but a distributor is appointed by an importer or the manufacturer or any other person.

5. The arguments of the parties and the record of the case have been considered and examined. It is observed that the copy of application form dated 3-7-2003 produced by the complainant (on record) shows that the appropriate boxes earmarked for `retailer' were tick-marked. The respondents have also produced copy of the application form (annex-A to their comments) allegedly submitted by the complainant. While copy of application form produced by the complainant shows that the boxes meant for registration as `retailer' were tick-marked, the one produced by the respondents shows that boxes meant for `distributor' have been tick-marked. However, a close scrutiny of the form in question (put on record by the respondents themselves) shows that initially the boxes meant for `retailer' were tick-marked but were then converted into crosses and instead boxes meant for `distributor' were tick-marked. The D.R. was asked to comment on the complainant's allegation of forgery. The D.R. explained that sometimes, following submission of applications for registration, the applicants visit the officers for changing entries made initially. In the instant case the original ticks for `retailer' were crossed out by the complainant himself opting for registration as a `distributor' by tick-marking the appropriate boxes. The D.R. admitted that the someone in the office committed a mistake by failing to obtain complainant's signature/initials authenticating the correction (cutting etc.) made in the form in question.

6. It is observed that respondents' act of registering the complainant as a distributor suffers from different flaws. In the first place complainant's version about tampering the original application form seems prima facie correct as the application form in question shows that originally the boxes meant for `retailer' were tick-marked which were later crossed out and the boxes meant for `distributor' were tick-marked. The D.R. contended that the cutting or the change for registration as `distributor' was effected by the complainant. The A.R. denied it. Complainant's version seems valid as the corrections/ alterations made in the application form dated 3-7-2003 do not bear any signatures/initials of the complainant or his authorized agent to show that the changes/corrections were made by the complainant. The benefit of doubt in this regard, therefore, goes to the complainant because if the entries were corrected or submitted by the complainant or his authorized agent the respondents should have got these authenticated by obtaining complainant's signatures or initials which was not done. Furthermore, the so-called verification report dated 23-7-2003 submitted by the Deputy Superintendent (on record) declaring the complainant as `distributor' does not disclose the criterion on the basis of which it was determined by him that the complainant was indeed a `distributor'. The report does not contain any information/evidence to that effect. However, it has been claimed in the parawise comments that Messrs United Refrigeration Industries Limited certified vide their letter dated 23-7-2003 (on record) that the complainant was their authorized dealer. The question then is why the complainant was registered as a `distributor' and not as a `wholesaler' for which a separate box was provided for in the application form. Section 14 (Requirement of Registration of the Sales Tax Act, 1990) requires, subject to fulfilment of conditions laid therein, various persons such as a manufacturer, retailer, importer and a wholesaler (includes dealer) and distributor to be registered under the Act. Thus if the certificate from Messrs United Refrigeration Industries Limited showed the complainant to be their authorized dealer the department could, subject to physical verification, consider him for registration as a `wholesaler' which includes a dealer as defined in law. Section 2 of the Sales Tax Act, 1990 defines the terms `distributor' and wholesaler as under:

Section 2(7):

"distributor" means a person appointed by a manufacturer, importer or any other person for a specified area to purchase goods from him for further supply and includes a person who in addition to being a distributor is also engaged in supply of goods as a wholesaler or a retailer.

Section 2(47)

"wholesaler" [includes a dealer and] means any person who carries on, whether regularly or otherwise, the business of buying and selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by wholesale for cash or deferred payment or for commission or other valuable consideration or stores such goods belonging to others as an agent for the purpose of sale; and includes a person supplying taxable goods to person deducting advance tax under sub-section (4) of section 50 of the Income Tax Ordinance, 1979 (XXXI of 1979), and a person who in addition to making retail supplies is engaged in wholesale business.

7. In view of express definitions of terms `distributor' and `wholesaler' the respondents could not stretch the principal's certificate certifying the complainant to be a `dealer' so as to declare and register him as a `distributor'. The respondents, therefore, wrongly presumed the complainant to be a `distributor' without being in possession of any concrete evidence to do so. Again the contention that the complainant did not submit the application for registration on a form prescribed for `retailer' is not tenable for two reasons: (i) the covering letter dated 3-7-2003 (on record) under which the complainant forwarded his application form shows that he had applied for registration as retailer, (ii) if the application was not on the form prescribed for registration as `retailer' the complainant could have been advised to submit the application on the prescribed form. Clearly, respondents' hasty action of registering the complainant as `distributor' as against his application for registration as `retailer' and certification by Messrs United Refrigeration Industries Limited that he was their dealer is unjust, arbitrary and contrary to law and, therefore, amounts to maladministration as defined under section 2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. Accordingly, it is recommended that the C.B.R. direct the concerned authority to:

(i) Cancel complainant's registration as `distributor' and process his application dated 3-7-2003 afresh by taking into consideration the actual facts of the case as well as the certification by the principal on whose behalf the complainant acts as a dealer in accordance with the provisions of relevant law to register him, after due verification, in whatsoever category he may fall but with effect from 28-7-2003 (previous date of registration). Needless to say that the complainant would be allowed the opportunity to provide evidence to establish his claim that he was a `retailer'.

(ii) Appoint a Senior Sales Tax Officer belonging to a Collectorate of Sales Tax other than the Collectorate of Sales Tax, Gujranwala to investigate complainant's allegation of B tampering/fudging his application for registration as a `retailer' to identify the official responsible for such tampering so as to initiate appropriate disciplinary action against him, if the inquiry finds him guilty.

(iii) Compliance be reported within 30 days.

S.A.K./254/F.T.O.Order accordingly.