SIDDIQUI SONS DENIM MILLS (PVT.) LIMITED VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2008 P T D 1379
[Federal Tax Ombudsmen]
Before Justice (Retd.) Munir A. Shaikh, Federal Tax Ombudsman
Messrs SIDDIQUI SONS DENIM MILLS (PVT.) LIMITED through Law Associates, Karachi
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. C-386-K of 2008, decided on 08/04/2008.
(a) Sales Tax Act (VII of 1990)---
----S. 11(4), proviso---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Assessment of tax---Limitation---Extension of time limitation after expiry of 90 days --Complainant contended that show-cause notice was issued on 9-10-2007 and since no order had been passed within 90 days (i.e. by 9-1-2008) in terms of proviso to subsection (4) of S.11 of the Sales Tax Act, 1990, no action could now be taken pursuant to such show-cause notice---Department pleaded that law did not place any bar on Collector's power to grant extension even after the expiry of the first 90 days and that it was not necessary that the extension in time must be granted before the expiry of the first 90 days---Since proposal for extension in time was submitted to Collector on 22-2-2008 which he allowed on 23-2-2008 the proceedings could be completed up to 23-5-2008 by which time an order will be passed after examining the facts of the case---Validity---If the arguments of the Department is accepted then it would amount to giving the Collector unlimited power to cure an inherent defect of jurisdiction---Collector's power would then appear limitless making altogether nugatory the period of 90 days for passing an order prescribed in the statute---Since show-cause notice was issued on 9-10-2007 the order should have been passed by 9-1-2008 unless the Collector had extended the period before the expiry of the original 90 days---Since the period for passing the order had already expired and no extension was allowed by the Collector before the expiry thereof, any further proceedings pursuant to such show-cause notice would be void ab initio and would tantamount to maladministration---Federal Tax Ombudsman recommended that Federal Board of Revenue should direct the concerned Collector to vacate the show-cause notice, dated 9-10-2007 within 30 days of the receipt of present order in accordance with law.
(b) Sales Tax Act (VII of 1990)---
---S. 11(4), proviso---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Assessment of tax---Limitation---Nature and purpose of the provisions of S.11(4), proviso, Sales Tax Act, 1990---Proviso to subsection (4) of S.11 of the Sales Tax Act, 1990 lays down a mandatory condition that the order shall be made within 90 days of the issuance of the show-cause notice or within such extended period as the Collector may fix provided that such extended period shall, in no case, exceed 90 days---Said provision is in the nature of safeguard provided to the citizens---Period of 90 days laid down in the proviso for completion of proceedings was not without purpose; intention of the Legislature is that the matter should not be allowed to linger on and the citizens should not be left at the mercy of the tax officials for an indefinite period---Department is required to complete the proceedings expeditiously and the Adjudication Officers are required to apply their mind to the material placed before them to decide the matter within the period prescribed in law if they intended to proceed with the adjudication.
Asad Arif, Adviser (Dealing Officer).
Muhammad Afzal Awan for the Complainant.
Shafiq Ahmed, Deputy Collector, Sales Tax for Respondent.
FINDINGS/DECISION
JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---The complainant, a private limited company engaged in the manufacture and export of denim cloth, is aggrieved by a show-cause notice issued by the Sales Tax Department.
2. Brief facts of the case are that the complainant received a show-cause notice, dated 9-10-2007 asking it to explain why an amount of 16.19.301 million which was issued to it as a refund earlier may not be recovered as the refund so issued was inadmissible due to non -consumption of stocks during the period January, 2004 to December, 2005 as per the reconciliation statement prepared by the auditors of the respondent. It is stated that as per the record of the complainant, the reconciliation statement so prepared was not correct and was defective inasmuch as it was based on wrong facts and figures. A detailed reply was, therefore, submitted to the respondent vide letter, dated 19-11-2007 along with reconciliation statement prepared by the complainant but till the filing of this complaint on 20-2-2008 the respondent has not passed any order thereon for withdrawal/vacation of the unwarranted show-cause notice. It is contended that the respondent is now stopped under law laid down vide section 45(2) of the Sales Tax Act, 1990 (hereinafter referred as the Act) to pass any adverse order against the complainant and the show-cause notice as well adjudication stands null and void on expiry of limitation period prescribed in law. The complainant has, therefore, prayed that the respondent be directed to withdraw the impugned show-cause notice.
3. Replying to the allegations in the complaint, the Deputy Collector, in his written report, has stated that subsection (2) of section 10 of the Act entitled a registered person for refund of the input tax incurred in connection with export supplies made at the rate of zero per cent. It is stated that such refund was being allowed to manufacture -cum-exporters on stock procured within a tax period without any consideration to consumption thereof in taxable activities. However, on 12-5-2005 the C.B.R. issued S.R.O. 41.5(1)05 wherein it was provided that refund shall now be sanctioned on the basis of actual consumption of stocks in manufacturing/exports. When the C.B.R. zero-rated five major sectors in June, 2005, it was directed d hat all stocks held by the units at the time of zero-rating shall be consumed in export on or before 30-9-2005. It is stated that as incidences of misappropriation in stocks were reported to the Board, therefore, vide letter C.No.3(10)STL&P/03, dated 3-8-2007 the Board directed to conduct reconciliation of stocks of the concerned units. Accordingly, the data as submitted by refund claimants was scrutized and where discrepancies were found, show-cause notices were issued. It is stated that in the case of the complainant as well such show-cause notice was issued along with reconciliation statement attached thereto which relates to the refund claim on consumption of stocks against export supplies of the complainant during the tax period January, 2004 to December, 2005. It is stated that the complainant furnished written reply to the show-cause notice in question along with stock statement of raw-material for the months of February, 2005 to May, 2005 but no documentary evidences were produced in support of the details mentioned therein and, therefore, the complainant has been directed to furnish the supportive documents in relation to purchases of input stocks and export supplies made during the relevant tax period and the matter has been fixed for hearing on 12-3-2008 which will be decided considering the reply and evidence produced by the complainant.
4. In regard to the objection taken by the complainant with reference to the limitation, it is stated that proviso to subsection (4) of section 11 of the Act stipulates time limit for adjudication of the case within 90 days of issuance of show-cause notice or within such extended period as the Collector may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed 90 days. It is urged that the matter was refereed to the Collector who has granted extension in time for further 90 days in 43 cases including the case of the complainant and, therefore, the objection taken by the complainant in this behalf is' not valid and the matter will be decided after considering the reply submitted by the complainant to the show-cause notice.
5. Responding to the above, the A.R. of the complainant has contended that the show-cause notice was issued on 9-10-2007 and since no order has been passed within 90 days (i.e. by 9-1-2008) in terms of the proviso to subsection (4) of section 11, therefore, no action can now be taken in pursuant to the impugned show-cause notice.
6. Replying to the above, the D.R. vehemently contended that the law does not place any bar on the Collector's power to grant extension even after the expiry of the first 90 days and that it is not necessary that the extension in time must be granted before the expiry of the first 90 days. It is stated that since the proposal for extension in time was submitted to the Collector on 22-2-2008 which he allowed on 23-2-2008 therefore, the proceedings can be completed upto 23-5-2008 by which time an order will be passed after examining the facts of the case. In view of this, it is argued that the complaint has no substance which needs to be dismissed.
7. Parties have been heard and the record produced has been examined.
8. Section 11 of the Act relates to assessment of tax and sub-section (4) thereof which is the centre of controversy, is re-produced hereunder for the sake of facility:---
"(4) No order under this section shall be made by an officer of Sales Tax unless a notice to show cause is given to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into, consideration the representation made by such person and provide him with an opportunity of being heard:
Provided that order under this section shall be made within [ninety] days of issuance of show-cause notice or within such extended period as the Collector or, as the case may be, Collector (Adjudication) may, for the reasons to be recorded in writing fix provided that such extended period shall in no case exceed ninety days."
9. It is difficult to agree with the contention raised by the D.R. that the law does not place any bar on the Collector to grant extension in time even after the expiry of original 90 days for passing the order prescribed in the proviso. This is for the reason that the limitation of 90 days laid down in the proviso is the inner limit and not the outer limit. The proviso lays down a mandatory condition that the order shall be made within 90 days of the issuance of the show-cause notice or within such extended period as the Collector may fix provided that such extended periods shall in no case exceed 90 days. This provision is in the nature of a safeguard provided to the citizens. The period of 90 days laid down in the proviso for completion of the proceedings is not without purpose. The intention of the Legislature is that the matter should not be allowed to linger on and the citizens should not be left at the mercy of tax officials for an indefinite period. The Department is required to complete the proceedings expeditiously and the Adjudication Officers are required to apply their mind to the material placed before them to decide the matter within the period prescribed in law if they intend to proceed with the adjudication. If the arguments of the D.R. is accepted then it would amount to giving the Collector unlimited power to cure an inherent defect of jurisdiction. His power would then appear limitless making altogether nugatory the period of 90 days for passing an order prescribed in the statute.
10. Since the show-cause notice was issued on 9-10-2007 the order should have been passed by 9-1-2008 unless the Collector had extended the period before the expiry of the original 90 days. Since the period for passing the order has already expired and no extension was allowed by the Collector before the expiry thereof, therefore, any further proceedings pursuant to the impugned notice would be void ab initio and tantamount to maladministration. In the circumstances, it is recommended that:---
(i) F.B.R. to direct the concerned Collector to vacate the show-cause notice C.No.06/ENF/STOCKS/SCN/07/4455, dated 9-10-2007 within 30 days of the receipt of this order in accordance with law.
(ii) Compliance be reported within 7 days after doing the needful in terms of (i) above.
C.M.A./40/F.T.O.Order accordingly.