DATA COTTON WASTE, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1079 (2003)

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

----S. 25---C.B.R. Circular No.3(54)STP/99, dated 6-9-2001---Qanun-e-Shahadat (10 of 1984), Arts. 117, 118 & 119---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 11-Inclusion of complainant's name in the list of suspected units on grounds of issuing fake/flying invoices, non-making value addition and non-production of records despite notices issued by department---Validity---Department had first. circulated list of suspected units and had thereafter included complainant's name---No prior notice of such unilateral action had been given to complainant---Such notices did not contain grounds of facts justifying inclusion of complainant's name in suspected list---Such procedure adopted by department was violative of principles of natural justice---Attitude of complainant not to respond such notices was not proper, rather he should have availed such opportunity---Burden to prove charge of issuing fake/flying invoices by complainant was on department---No person could be penalized on basis of suspicion---Department had not produced any evidence before Ombudsman to substantiate their allegations, which made impugned action arbitrary, baseless, biased, abuse of power and administrative excess implying mala fide and improper motives---Maladministration stood established---Federal Tax Ombudsman recommended to Revenue to issue proper notice to complainant stating all facts, grounds and reasons for including his name in suspected list and decide case within specified time after affording him opportunity of hearing.

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

----S. 25---Qanaun-e-Shahadat (10 of 1984), Arts. 117, 118 & 119---Inclusion of name of registered person in list of suspected units on charge of issuing fake/flying invoices---Burden of proof---Such was a serious charge---Burden to establish commission of such charge by registered person would lie on department.

(c) Penalty---

----No person can be penalized on basis of suspicion.

Khalid Pervez for the Complainant.

Jamil Nasir Khan, DC Sales Tax, Faisalabad for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Brief fact of the case are that the complainant is engaged in manufacture of cotton waste and is registered under the Sales Tax Act. It is stated that the Collector Sales Tax Faisalabad circulated a list of units suspected of issuing flying/fake invoices including the name of the complainant for which no ground forming basis of the so-called suspicion was given. This brought a bad name to the complainant and his business and goodwill was adversely affected. It is further stated that the unit of the complainant was audited on 25-10-2001 which established the bona fide existence of the unit and no charge of flying/fake invoices was levelled in the audit report. The complainant made several written requests for deletion of its name from the list of fake units but all requests failed, hence this complaint praying that name of the complainant's unit be ordered to be excluded from the list of fake units.

2. In reply the respondent has stated that name of the complainant was included in the list as the complainant was not discharging its sales tax liabilities properly and making no value addition which was evident from his tax profile and a nominal amount of Rs.5,439 was paid as tax. The referred audit covered the period 5 of 2001' to 8 of 2001 whereas the complainant' name was included in the list of suspected units on 25-1-2002. The Collectorate issued notice for production of records wherein it was categorically mentioned that in case the complainant did not respond, the inclusion of its name in, the list of suspected units would be treated as final. But the complainant did not provide sales tax records despite this notice. The contention of the complainant that Collectorate did not respond to the letters of the complainant for deletion of its name from the list of suspected units is denied because despite a number of notices the complainant did not produce records for scrutiny and a contravention case was made against him. Deletion of name from the list of suspected units is subject to proper scrutiny of records which could not be done in the subject case due to non-cooperation of the complainant. It is prayed that the complaint being baseless be filed, and the complainant be directed to provide record of the unit so that decision regarding deletion of its name from the list of fake units be taken.

3. It is an admitted position that the Assistant Collector (Law) issued a notice dated 15-7-2002 to the complainant inviting its attention to the list of suspected units under section 25 of the Sales Tax Act, 1990 and informed that complainant's name was included in the list of suspected units vide Colleetorate's letters dated 2-11-2001 and 25-1-2002. It was further stated that despite that almost eight months have elapsed since the issuance of the said list but the complainant did not turn up to prove its genuineness. The complainant was directed to produce:

(i) Purchase invoices/register

(ii) Supplies invoices/register

(iii) Sales tax returns

(iv) Proof of payment through banking channel

(v) Stock verifications

As no response was made a notice of similar nature was issued on 1-10-2002 for physical inspection and stock taking by Mr. Muhammad Afzal, Auditor in which 9 records were required to be produced before him. It is stated that the complainant did not comply and, notice dated 19-12-2002 was again issued warning him of penal action under section 22(C) of the Sales Tax Act, 1990. It is alleged that again it was not complied and notice was repeated on 10-2-2002 and. 26-2-2002. Finally the auditor submitted his report dated 3-3-2003 stating that despite notice and three reminders for production of record the registered person failed to produce record and therefore contravention report under section 25 of Sales Tax Act, was made and referred to adjudicating authority, From these facts it is clear that the department first circulated the list of suspected units on 2-11-2001 and again on 25-1-2002 which included the complainant's name. It may be noticed that no prior notice of such action was given to the complainant. It was an unilateral action by the department without notice to the complainant which perhaps may be on the basis of their enquiry. In the notice issued by the department from time to time no grounds or facts on the basis of which the complainant name was included in the suspected units were mentioned. It was a plain notice informing about the inclusion of the complainant's name in the suspected list and requiring it to produce records and documents. The procedure adopted by the department was in violation of principles of natural justice. However, it was the duty of complainant to have responded to the notice asking for particulars and details for submitting a proper reply. The complainant chose not to reply or even attend or produce the records for audit by the Auditor. This attitude of the complainant was also not proper as it should have availed the opportunity to place its particular but this opportunity was lost.

4. The learned representative for the complainant has contended that there was no ground for including the complainant in the suspected list: The ground can be found out in the parawise comments submitted by the department. There is no other document from which the grounds and reasons can be found out. The complainant has stated its records were audited for the period May, 2001 to August, 2001 to which the department has replied that the complainant's name was included in the list of suspected units on 25-1-2002 in view of profile of the complainant as it was not making any value addition and a nominal amount of Rs.5439 was deposited in the Government exchequer. The record submitted by the department particularly notice dated 15-7-2002 contradicts this statement as it states that the name of the complainant was included in the list of suspected units by Collectorate letter No.STR/Misc/15/2001/3670 dated 2-11-2001. Therefore, it is wrong on the part of the department to state that the name was included on 25-1-2002. Coming to the reasons of value addition it may be pointed out that Deputy Collector (Sales Tax) in Order-in-Original No.221/2002 passed on 29-4-2002 while dealing with the discrepancies observed during audit for the period May, 2001 to August, 2001 observed that "the auditors have assessed the value arbitrarily without any reasonable cause or providing any evidence to prove the allegation levelled by them... The auditors have not even mentioned the value addition which should primarily area of attention before alleging someone with under valuation. The audit observation is thus vague, arbitrary and without any solid basis." These findings were given on audit for the period May, 2001 to August, 2001. If the complainant's name was included in the suspected list on 2-11-2001 then hardly there would have been any audit report for the period September to October. The department has not indicated during this period what material and discrepancies were found to initiate the action. It is therefore clear that the department had the record and audit report up to August 2001 and not beyond it as the name was included on 2-11-2002. The audit report of May, 2001 to August, 2001 in view of adjudication order does not justify the impugned action.

5. The learned counsel for the complainant has contended that there is no requirement in sales tax that there should always be value addition of each transaction. In this regard he referred to the C.B.R's. Clarification C.No. 3(54)STP/99 dated 6-9-2001 which reads as follows:

"There is no requirement in Sales Tax Act, 1990 that there should always be value addition on each transaction. In fact actual sale value is accepted under section 2(46) ibid, and even, supplies made at loss are acceptable and supported by valid documentary evidence."

This being so the department should have mentioned cogent reasons and grounds before issuing notice to the complainant. It is interesting to note that although notices were issued and not complied by the complainant the fact remains that the Auditor made out a case of contravention of section 25 of the Sales Tax Act, 1990.

The department has alleged that the complainant is suspected to be involved in fake and flying invoices. This is a serious charge and the burden is upon the department to establish that such act has been committed by the complainant. In these circumstances the question whether the department was justified in including the complainant's name in the suspected list and whether complainant's name 'Should be excluded remains undecided. The absence and non-cooperation of the complainant should not have deterred or stopped the concerned officer to pass a speaking order deciding these issues. This has not been done and therefore the concerned officer has failed to exercise his jurisdiction and decide the case. It is a well-settled principle that on the basis of suspicion no person can be penalized. The department has not produced any evidence in this investigation to substantiate their allegation which makes the action arbitrary, baseless, biased, abuse of power and administrative excess implying mala fide and improper motives. Maladministration is therefore established.

7. It is recommended that:

(i) The department to issue a proper notice to the complainant stating all facts, grounds and reasons for including the complainants name in the suspected list within 15 days of the receipt of this order by the Revenue Division.

(ii) After serving the notice on the complainant and affording it proper opportunity of hearing decide the issue within 30 days thereafter.

(iii) Compliance he reported within 60 days.

S.A.K./198/F.T.O.Order accordingly.