KHANCO INDUSTRIES VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2008 P T D 1303
[Federal Tax Ombudsman]
Before Justice (Retd.) Munir A. Shaikh, Federal Tax Ombudsman
Messrs KHANCO INDUSTRIES
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.393-L of 2006, decided on 03/06/2006.
Sales Tax Act (VII of 1990)---
----Ss.36(3), 11(4), Proviso. & 45B(2)---Recovery of tax not levied or short-levied or erroneously refunded---Limitation---Show-cause notice was issued on 30-6-2000 and the case was decided on 2-8-2002 after the expiry of original period of 45 days or even 90 days as prescribed in Ss.11(4) and 36(3) of the Sales Tax Act, 1990---No extension in the period for deciding the case was ever obtained/granted---Order was hit by time limitation and was void and illegal---Order-in-appeal was also not legally sustainable as it failed to hold the order-in-original passed by the D.C. as barred by time despite complainant's plea on that account and failed to provide justice to the complainant---Maladministration was established---Federal Tax Ombudsman recommended that competent authority be directed to reopen impugned order-in-original dated 2-8-2002 and order-in-appeal dated 30-3-2006 under the provisions of section 45-A of the Sales Tax Act, 1990 and annual the aforesaid order -in-original, as being hit by time limitation as provided in law, as well annual the order-in-appeal for illegally upholding the aforesaid time-barred order-in-original and may proceed in accordance with the provisions of law.
Complaint No. 802 of 2003 rel.
Complaint No.918-K of 2005 reviewed.
Messrs Janjua Welfare Trust (registered Kotly Azad Kashmir) v. Secretary Revenue Division distinguished.
Complaint No.940 of 2005; Complaint No.1133-L of 2005; PTCL 1983 CL 209; Messrs Sufi Restaurant v. Collector of Customs and Sales Tax (Appeals) and others; Sandal Dye Stuff Industries (Pvt.) Ltd v. Collector of Sales Tax, Faisalabad; Khalid Modern Industries (Pvt.) Ltd v. Collector of Customs, Sales Tax and Central Excise (Adjudication), Multan; Messrs Sufi Restaurant v. Collector of Customs, Sales Tax and Central Excise (Appeals); Messrs Innovative Trading Co.; Messrs Falcon Corporation; Messrs Moon Enterprises and Messrs Bull Agencies; Wali Muhammad and others v. Sakhi Muhammad and others PLD 1974 SC 106 and Complaint No. 34-L of 2006 dated 20-3-2006 ref.
Muhammad Akbar, Advisor (Dealing Officer).
Akhtar Javed, Omar Arshad Hakeem and Waseem Ahmad for the Complainant.
Ms. Muneeza Majeed, D.C. Sales Tax, Lahore for Respondents.
DECISION/FINDINGS
JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.---Facts of the complaint are that Deputy Collector, Sales Tax (Adjudication) issued a show-cause notice dated 30-6-2000 to the complainant alleging that it had received refund of Rs.2138299, which was inadmissible and was, therefore, recoverable under section 36 of the Sales Tax Act, 1990. The complainant contested the show-cause notice but the D.C. without applying his judicial mind and without going into the merits of the case, upheld the charges framed in the show-cause notice. The complainant filed appeal against the impugned order before Collector (Appeals), Lahore but he too, without considering the merits of the case and complainant's arguments, decided it through Order-in-Appeal No.85-ST of 2006 in a mechanical manner. Both Order-in-Original and Order-in-Appeal am6unted to `maladministration' within the meaning of section 2(3) of the FTO Ordinance, 2000. As per the mandatory provisions contained in proviso to section 36(3) of the Sales Tax Act, 1990, the Order-in-Original had to be passed within 45 days of the issuance of show-cause notice, extendable by the Collector for reasons to be recorded in writing but the Order-in-Original was silent whether the limitation period was extended by the Collector. Show-cause notice was issued on 30-6-2000 and Order-in-Original No.59 of 2002 was passed on 2-8-2002 after 763 days of the issuance of show-cause notice. It was, therefore, hit by time limitation as provided in law and was null and void. No extension in time for deciding the case was given before the expiry of original limitation period nor were there `exceptional circumstances' warranting it. The FTO had already held in Complaint. Nos.805 of 2003, 940 of 2005 and 1133-L of 2005 that pass ing of order after expiry of the prescribed period of limitation was an act of `maladministration'. The department's representation against FTO's findings in Complaint No.805 of 2003 was rejected by the President of Pakistan. The Collector of Appeals, whose attention was drawn to `maladministration' committed, by D.C. (Adjudication) failed to take any action. He too was guilty of `maladministration'. As per proviso to section 45-B(2) of the Sales Tax Act, 1990 the Order-in-Appeal had also to be passed within 90 days from the date of filing of appeal. The period could be extended by another 90 days for reasons to be recorded in writing. The Order-in-Appeal was silent whether the limitation period was extended by the Collector of Appeals in writing. The appeal was filed on 19-8-2002 and Order-in-Appeal was passed on 30-3-2006 after expiry of limitation period. The Order-in-Appeal was also time-barred. Both the impugned Order-in-Original and Order-in-Appeal may be declared as illegal and set aside. Suitable disciplinary action may be taken against the respondents for committing 'maladministration'. They may not be allowed to function as adjudication officers in future.
2. In his reply, the Collector of Sales Tax, Lahore has submitted that the complaint was not maintainable under section 9(2) of the FTO Ordinance, 2000. FTO's jurisdiction was barred in case where the complainant had legal remedy of filing appeal before competent appellate authority. Show-cause notice was issued on 30-6-2000, which was decided vide Order-in-Original No.59 of 2002 dated 2-8-2002. The provisions of section 36(3) of the Sales Tax Act, 1990 were directory for expediting adjudication and condonable under law. Even if certain provisions of Act were not complied with, duty and taxes were to be paid (PTCL 1983 CL 209). A registered person could not be allowed to evade duty and taxes. Proper opportunities of being heard were provided to the complainant. A number of hearings were given to the complainant but in the course of proceedings it sought three adjournments in writing.. Superior Courts had held that provisions of sections 36(3) and 11(4) of the Act were directory and not mandatory. In the case of Messrs Sufi Restaurant v. Collector of Customs and Sales Tax (Appeals) and others the Tribunal ruled that the time limitation laid down in section 36(3) of the Act was not mandatory. In Complaint No.918-K of 2005, where among other issues, the complainant had sought relief on the basis of time limitation as prescribed in section 179(2) of the Custom Act, 1969, the Honourable FTO held that the complainant was not able to establish any `maladministration'. There was no extension from the C.B.R. in the period for deciding the case. However, proceedings were delayed as ample opportunities of defence were provided to the complainant to meet ends of justice. As per section 10(3) of the FTO Ordinance, 2000, the complaint was barred by time as it was made after six months of the date on which the person aggrieved first had notice of the matter alleged in the complaint. The Order-in-Original was issued on 2-8-2002 and the complainant approached FTO Secretariat on 21-4-2006 much after the expiry of six months specified in section 10(3) of the FTO Ordinance.
3. In his reply, the Collector of Appeals has submitted that the case was decided, on the basis of evidence and merit. Law was to be implemented from the date of its promulgation and issuance of Notification. The proviso to section 45-B(2) of the Act that order shall be passed not later than ninety days from the date of filing of appeal was added through Finance Ordinance, 2005. The appeal in this case was filed on 19-8-2002 prior to the date of introduction of said proviso; hence the provisions of section 45-B(2) were not attracted. No maladministration was committed. The complainant never raised the issue of non-observance of time limitation in terms of section 36(3) of the Sales Tax Act, 1990 either before the lower forum or before the outgoing appellate authority. Even before the present Collector of Appeals, the complainant tried to seek relief through different irrelevant and wrong pleas and tried to justify refunds which were claimed and received fraudulently by showing fabricated consumption of chemicals which were never used in production. The complainant also failed to substantiate abnormally high consumption of 172072 Kgs chemical in production of only 466 Kgs of leather garments. It also tried to seek relief through wrong interpretation of law, taking advantage of section 36(3) of the Sales Tax Act, 1990. It was equally responsible for causing delay in deciding the case before the Adjudication Authority and the appellate authority. Seventeen hearings were accorded. Nobody bothered to reply to the show-cause notice. The complainant did not appear to attend hearings and sought repeated adjournments. It was within the power of the appellate authority to decline requests for adjournments but the same were allowed on compassionate grounds. The case involved various issues requiring detailed inquiries and verification. The decision could not be made within the stipulated time period which was condonable in the light of circumstances of the instant case in accordance with the view held by the Honourable FTO in judgment dated 20-4-2006 in the case of Messrs Janjua Welfare Trust (Registered Kotly Azad Kashmir) v. Secretary Revenue Division. Even otherwise, the provisions for time limit in deciding the' cases were directory in nature. Reliance was placed on Appellate Tribunal's decisions in Sandal Dye Stuff Industries (Pvt.) Ltd. v. Collector of Sales Tax, Faisalabad, Khalid Modern Industries (Pvt.) Ltd. v. Collector of Customs, Sales Tax and Central Excise (Adjudication), Multan; Messrs Sufi Restaurant v. Collector of Custom Sales Tax and Central Excise Appeals), Messrs Innovative Trading Co., Messrs Falcon Corporation; Messrs Moon Enterprises and Messrs Bull Agencies. The Superior Court (PTCL 1983 CL 209---Lahore High Court) gave relief to an affected person subject to deposit of duty and taxes payable on goods despite the fact that the department had failed to issue show-cause notice within the time prescribed under section 180 of the Customs Act, 1969. In Wall Muhammad and others v. Sakhi Muhammad and others (PLD 1974 SC 106), it was laid down that relief could not be allowed on the strength of technical pleas and duty and taxes would be chargeable on release of prohibited goods. Even if the order was not made within the stipulated period under section 36(3) of the Sales Tax Act, 1990, the complainant could not be permitted to claim and adjust input tax, which was not permissible. The Order-in-Appeal may be declared as lawful.
4. During the hearing the AR clarified that the complainant had not filed appeal against the Collector of Appeals order. The respondents sanctioned refund of Rs.1.2 million during the period from September, 1999. The DR argued that the complainant had obtained refund fraudulently as it did not have the in-house facility for running and processing raw hides. The AR refuted it by saying that the complainant brought raw hides from market and stitched them into leather made-ups and applied for rebate of chemicals after exporting the same. He argued that foreign remittances were also received. The DR submitted that the complainant had not declared to the department that it would get the job done from outside. Refund claim was abnormally high on account of exaggerated consumption of chemicals. The AR submitted that the Order-in-Original was time-barred. The issue of time limitation was raised before Collector of Appeals but he did not give any relief. Even the C.B.R. had ruled way back in December, 2000 that the time limitation laid down in section 33 of the Central Excise Act, 1944 was mandatory. Same applied to Sales Tax cases also. In support of his contention, the AR also cited FTO's decision in Complaint No.34-L of 2006 dated 20-3-2006. He added that the period of 45 days as prescribed in sections 36(3) and 11(4) of the Act expired on 15-8-2000 and 90 days expired on 30-9-2000. As to respondents' objection that the present complaint was barred by time, he submitted that the complaint was filed basically against Collector of Appeals order dated 30-3-2006. Since it was filed on 10-4-2006; it was within six months time. The time limitation of 45 days was introduced on 18-6-2000 vide Finance Ordinance, 2000, which came into effect at once. He argued that the department had admitted that the complainant did have stitching machines on its premises. The Collector (Appeals) failed to declare the order passed by the D.C. as time-barred though he was bound to give that finding in terms of President of Pakistan's order dated 7-5-2005. The AR argued that out of 17 hearings notified by the D.C. the complainant sought only 3 adjournments. The delay was, therefore, on the part of the respondents and the complainant could not be blamed for it.
5. The DR, reiterating the arguments advanced in the written complaint, submitted that the provisions of sections 36(3) and 11(4) of the Act were not mandatory. Superior Courts had held that technical lapses did not affect the levability of duty and taxes, which were payable. The complainant sought three adjournments in writing and delayed the proceedings. She cited FTO's decision in Complaint No.918-L of 2005 dated 31-1-2006 arguing that in that case the Order-in-Original was not held as time-barred. She admitted that no extension was obtained from the C.B.R.
6. The arguments of the two sides and records of the 'case have been considered and examined. The complaint has been filed against Collector of Appeals' order upholding a time-barred order passed by the Deputy Collector. The Order-in-Appeal is dated 30-3-2006. The complaint was filed in the FTO Secretariat on 10-4-2006. As such it does not attract the provisions of section 10(3) of the FTO Ordinance, 2000. According to subsection (3) of section 36 of the Sales Tax Act, 1990, the competent authority after considering the objections of the person served with a notice to show-cause notice under subsections (1) and (2) of section 36 of the Act can determine the amount of tax or charge payable. However, Proviso to section 36(3) as introduced vide Finance Ordinance, 2000 read as under:
"Provided that order under this section shall be made within forty-five days of issuance of show-cause notice or within such extended period as an officer of Sales Tax may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days."
The Proviso of the aforesaid section as amended vide Finance Ordinance, 2003 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 [Collector or as the case may be the Collector (Adjudication)] may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days."
Proviso to subsection (4) section 11 of the Sales Tax Act as introduced through Finance Ordinance, 2000 as under:
"Provided that order under this section shall be made within forty-five days of issuance of show-cause notice or within such extended period as an officer of Sales Tax, may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days."
The Proviso of the aforesaid section as amended vide Finance Ordinance, 2003 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 an officer of Sales Tax may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days".
7. It is observed that in the present case show-cause notice was issued on 30-6-2000, the case was decided on 2-8-2002 after the expiry of original periods of 45 days or even 90 days as prescribed in sections 11(4) and 36(3) of the Sales Tax Act, 1990. Admittedly, no extension in the period for deciding the case was ever obtained/granted. The D.C's order is, therefore, hit by time limitation as provided in the aforesaid section of the Act.
8. It was held by the FTO in Complaint No.805 of 2003, 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, therefore, recommended in that case that the competent authority should cancel the Order-in-Original. The department represented against the aforesaid FTO's decision before the President of Pakistan. The President was pleased to reject the representation of the department 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 directly and not mandatory. The contention does not seem to be valid. Where inaction on the party 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".
9. In the present case also the complainant has been directed to deposit sales along with additional tax and penalty vide Order-in-Original No.59 of 2002 dated 2-8-2002. The aforesaid Order-in-Original was passed after expiry of the mandatory periods of 45 days or even 90 days of the issuance of the show-cause notice and was hit by time limitation as provided in sections 11(4) and 36(3) of the Act. The respondents contended that the appellate Tribunal had in various judgments held that the time limit prescribed in the proviso to subsection (3) of section 36 of the Sales Tax Act, 1990 is not mandatory. With due deference to the decision of the Honourable appellate Tribunal, this is to point out that the President of Pakistan is the highest authority under the FTO Ordinance XXXV of 2000. His decision is binding in all proceedings under the aforesaid Ordinance. The President has already held vide Presidential order dated 7-5-2005, passed on departmental representation against FTO's findings in Complaint No.805 of 2003, referred to above, that the time limit in case where a public functionary is empowered to create liability against the citizen only within the prescribed time limit, is mandatory. Adjudication Officer's failure to decide the case within the time prescribed in law amounts to maladministration.
10. Respondents' argument that the complainant delayed the proceedings in deciding the case by not appearing at hearing and by seeking three written adjournments is not tenable. The Order-in-Original discloses that the adjudication officer has also mentioned at para 5 that the complainant delayed the proceedings. The complainant's AR contended that out of seventeen hearings the complainant had sought only three adjournments whereas the D.C. failed to decide the case even within a period of two years. It is noted that the provisions of law were quite clear: the adjudication of the case had to be finalized within the prescribed time limitation. The Adjudication Authority should have abided by it. If the complainant was delaying the proceedings, as alleged by the respondents, the authority could have neutralized the so-called delaying tactics by disallowing adjournment's sought by the complainant or in the event of non-appearance at hearings the Adjudication Authority could have easily decided the case on the basis of available records so as to enable itself to adhere to the prescribed time limit within which the case had to be decided and thus to remain on the right side of law.
11. As to the FTO's findings dated 31-1-2006 in Complaint No.918-K of 2005 referred to by the respondents, it is pointed out that the said decision has since been reviewed by Order-in-Review No.21 of 2006 dated 4-4-2006. In the review application filed by the complainant against the aforesaid decision dated 31-1-2006, he had argued, among other things, that the case was not decided by the Adjudication Officer within period of 90 days prescribed by and provided in section 179 and there being no extension given as envisaged by the said provision, therefore, the order was void ab initio being without jurisdiction as no power was vested with the officer to pass any order after 90 days. According to the complainant similar provision of section 36 of the Sales Tax Act had been interpreted by the President of Pakistan in the representation upholding the decision of FTO that the requirement of the disposal of the matter within prescribed period was mandatory. It was held in the aforesaid Order-in-Review that complainant's contentions carried considerable force. The Adjudicating Officer after lapse of 90 days in the absence of extension of time was not vested with any power to proceed further in the matter and pass an adverse order against the complainant. The decision dated 31-1-2006 under review was thus found to be suffering from mistake apparent on the face of record.
The review petition was accepted with the recommendation that decision dated 31-1-2006 in Complaint No. 918-K of 2005 be cancelled/set aside.
12. The respondents have cited FTO's findings in Complaint No.122 of 2006 (Messrs Janjua Welfare Trust) saying that if decision could not be made within the stipulated time period it was condonable in the light of circumstances of the instant case in accordance with the view held by the Honourable FTO in aforesaid Complaint No.122 of 2006 dated 20-4-2006. Regarding this, it is pointed out that in the cited case, the competent authority, while exercising the powers under section 179(4) of the Customs Act, 1969, extended the time of limitation upto 28-2-2006 after considering all the circumstances. The case required detailed investigation involving verification of age, model, specification of the vehicles, verification of registration by referring cases to the registration authority in U.K. The competent authority acted within the ambit of law to grant extension in view of the `exceptional circumstances' of the case. Thus in the cited case, as brought out in the aforesaid decision, exceptional circumstances existed for grant of extension as per the parameters laid down in the relevant law. In the present case, the respondents have admitted that no extension in the period for deciding the case was ever obtained or granted. This complaint cannot, therefore, by any stretch of imagination, be compared with the cited complaint.
13. The Collector of Appeals before whom the complainant had agitated the issue of time limitation failed to consider complainant's plea of time limitation as laid down in section 36(3) of the Sales Tax Act, 199.0 and also did not consider FTO's findings in Complaint No.805 of 2003 sustained by Presidential order dated 7-5-2005. Clearly, the Order -in-Original passed in this case is hit by time-barred as provided in law and is, therefore, void and illegal. Accordingly, the Order-in-Appeal No.85/ST of 2006 dated 30-3-2006 is also not legally sustainable as it failed to (i) hold the Order-in-Original passed by the D.C. as barred by time despite complainant's pleas on that account and (ii) provide justice to the complainant. Respondents' contention that the FTO's jurisdiction did not extend in the case is misplaced. The FTO is fully competent to investigate cases involving `maladministration'. Maladministration is established. Accordingly, it is recommended that the Revenue Division direct the competent authority to:
(i) Re-open impugned Order-in-Original No. 59 of 2002 dated 2-8-2002 and Order-in-Appeal No. 85-ST of 2006 dated 30-3-2006 under the provisions of section 45-A of the Sales Tax Act, 1990 and annul the aforesaid Order-in-Original, as being hit by time limitation as provided in law, as well as annul the Order-in-Appeal for illegally upholding the aforesaid time-barred Order-in-Original and may proceed in accordance with the provisions of law.
(ii) Compliance be reported within 30 days of the receipt of this order.
C.M.A./136/FTOOrder accordingly.