GULAB INDUSTRIES (PVT.) LTD. VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2008 P T D 1388
[Federal Tax Ombudsman]
Before Justice (Retd.) Munir A. Shaikh, Federal Tax Ombudsman
Messrs GULAB INDUSTRIES (PVT.) LTD.
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.296-L of 2006, decided on 31/05/2006.
(a) Sales Tax Act (VII of 1990)---
----Ss.36(2)(3), 33, 34 & 11(4)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---S.R.O.698(I)/96 dated 22-8-1996---Recovery of tax not levied or short-levied or erroneously refunded---Refund was claimed on the use of electricity unit and the same was issued by the Department---Order was passed for recovery of sanctioned excess refund erroneously along with additional tax and penalty on the ground that input tax was not apportioned---Complainant contended that show-cause notice was time-barred as it was given after a period of three years and order-in-original was time-barred as it was passed after 14 months of the issuance of show-cause notice---Department contended that show-cause notice was not time-barred as it was issued within three years of the relevant date---Case could not be decided within time limitation because of abolition of Adjudication Collectorate and because the complainant did not attend the hearing---Validity---Show-cause notice was issued on 26-7-2004 and the case was decided on 29-9-2005 after the expiry of original period of 90 days as prescribed in S.36(3) of the Sales Tax Act, 1990---Admittedly, no extension in time for deciding the case was obtained/granted---Order was hit by time limitation and was liable to be annulled---Argument that case could not be finalized within time because of abolition of the Collectorate of adjudication and because the complainant did not attend the hearing in response to case notice, was not tenable----Adjudication of the case had to be finalized within the prescribed time limitation----If the complainant did not appear for hearing; the case could have been decided on the basis of record on merit---Department could have easily adhered to the time limitation prescribed in law---Federal Tax Ombudsman recommended that Revenue Division direct the competent authority to reopen impugned order-in-original under the provisions of section 45-A of the Sales Tax Act, 1990 and annul it as being hit by time limitation as provided in section 36(3) of the Sales Tax Act, 1990 and proceed in accordance with the provisions of law.
Complaint No.1197 of 2005; Complaint No.66 of 2006 filed by Messrs Rashid Model Industries, D.G. Khan and Sales Tax Appeal No.2149-LB of 2002 dated 5-3-2003 ref.
(b) Complaint No.805 of 2003 rel. (b) Sales Tax Act (VII of 1990)---
----S.34--Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Additional tax/default surcharge could not be demanded under S.34 of the Sales Tax Act, 1990 on erroneously paid refund as the same was not due to the default of the taxpayer.
Muhammad Akbar, Advisor (Dealing Officer).
Abdul Sattar, FCA for the Complainant.
Mutten Alam, A.C., Sales Tax, Multan for Respondents.
DECISION/FINDINGS
JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.----The complainant operates a single cotton ginning unit with one registration number, one electric meter and combined production system. It did not consume electricity unit for making exempt supplies. The complainant was issued a show-cause notice dated 26-7-2004 alleging that the department did not apportion input tax according to para 2(b) of S.R.O.698(I)/96 dated 22-8-1996 and had sanctioned excess refund amounting to Rs.121680 erroneously, which was recoverable from the complainant under the provisions of section 36(2) along with additional tax under section 34 and penalty imposable under section 33(2) of the Act. The Order-in-Original No.01-Bwp/05 dated 29-9-2005 was passed by the A.C., Sales Tax beyond his jurisdiction as the time limit prescribed under section 36(3) of the Sales Tax Act, 1990 was not adhered to. Show-cause notice was also barred by time as the time involved in the case was from October, 20001 to March, 2001. The impugned order was, therefore, liable to set aside. The respondents had wrongfully applied in the complainant's case a clarification dated 18-2-2003 issued by the C.B.R. directing them to sanction refund on maximum 18 units of electricity per bale, which meant only input tax involved in electricity consumed in ginning section for making taxable and exempt supplies was to be apportioned. The complainant had claimed refund for the year 2000-01, therefore, the aforesaid clarification did not apply in the complainant's case. In addition, additional tax under section 34 was not sustainable as there was no deliberate attempt on the part of the complainant to obtain undue refund. This aspect was decided in Complaint No.1197 of 2005 dated 3-1-2006. The Adjudicating Authority finalized the proceedings without giving the complainant the opportunity of being heard. The Order-in-Original may be set aside.
2. In reply, the Collector of Sales Tax, Multan has submitted that the complainant applied for refund of input tax against raw-material (electricity), which was used wholly for making exempt supplies to the extent of oil mill portion. As per para-2(b) of S.R.O.698(I)/96 dated 22-8-1996 (Apportionment of Input Tax Rules, 1996), a registered person was not entitled to claim refund of input tax against taxable goods used wholly for making exempt supplies. Moreover, these rules only applied to registered persons who made taxable and exempt supplies simultaneously. The refund branch of the Sales Tax Collectorate sanctioned the excess refund erroneously. They were required to apportion input tax against taxable goods used in the ginning section where taxable goods (cotton) and exempt goods (cotton seed) were being simultaneously produced. But the oil section of the composite ginning unit where wholly exempt supplies were produced was not required to apportion input tax against taxable goods used in the oil section. But the department apportioned the oil mill section also erroneously due to misconstruction. Identity cases had been decided against registered persons and the Collector (Appeals) as well as the Appellate Tribunal had upheld the decision of the Adjudicating Officer. The Honourable FTO also accepted department's point of view to the extent of principal amount of tax, deciding that input tax adjustment was not admissible against taxable raw-material consumed in wholly exempt supplies vide FTO's findings in Complaint No.1197 of 2005 filed by Messrs Hajvery Cotton Factory, Burewala and in Complaint No.66 of 2006 filed by Messrs Rashid Model Industries, D.G. Khan. It was a case of assessment of tax which did not fall within the jurisdiction of the FTO. If the complainant was aggrieved by the impugned Order-in-Original he should have appealed against it before Collector of Appeals. The Order-in-Original was legally passed. The complainant was given reasonable opportunity of hearing. Adjudication of the case was finalized after due process of law. The appellate Tribunal while deciding Sales Tax Appeal No.2149-LB of 2002 dated 5-3-2003 held that time limitation provided in section 36(3) was desirable and not mandatory. Show-cause notice was issued within three years as the time limitation started from the date of refund which was made on 9-8-2001. The complainant claimed full amount of input tax against consumption of electricity in oil mill portion where wholly exempt supplies were produced. The department relied on section 8(1)(a) of the Sales Tax Act, 1990 read with Apportionment Rules issued vide S.R.O.698(I)/96 dated 22-8-1996 and did not rely on C.B.R's. ruling dated 18-2-2003. The complainant deliberately claimed full amount of input tax whereas it should have claimed input tax as per Apportionment Rules; hence additional tax was imposed. The FTO had remitted the amount of additional tax. The department accepted FTO's decision and accordingly remitted the amount of sales tax in the case of Messrs Hajvery Cotton. This complaint lacked merit and may be rejected.
3. During the hearing, the AR clarified that the complainant had not filed any appeal before the Collector of Appeals. He reiterated the arguments advanced in the written complaint, emphasizing that the refund was claimed on the use of electricity unit for an amount of Rs.313680 and the department issued refund voucher for Rs.250444 on 9-8-2001. Department's contention that an amount of Rs.121680 was paid in excess is incorrect. Show-cause notice was time-barred as it was given after a period of three years as provided in section 36(2) of the Act. The Order-in-Original was time-barred as it was passed after 14 months of the issuance of show-cause notice. The period of 90 days as prescribed in section 36(3) of the Act expired on 26-10-2004. There was no extension in the period for deciding the case. The superior Courts have held that when a thing was required to be done in particular manner it should be done in the same manner or not at all. One A.C. issued refund, the second A.C. issued show-cause notice and the third one finally decided the case without approval from the higher authority, which was mala fide.
4. The DR submitted that show-cause notice was not time-barred, it was issued within three years of the relevant date. The relevant date was 9-8-2001 when refund was issued. The case could not be decided within time limitation as provided in section 36(3) of the Sales Tax Act, 1990 because of abolition of Adjudication Collectorate and because the complainant did not attend the hearing. No extension was obtained from the Collector or the C.B.R.
5. The arguments of the two sides and record of the case have been considered and examined. Insofar as the allegation that the show-cause notice was time-barred, it was clarified by the DR that the time limit in terms of subsection (4) of section 36 of the Act was to be computed from `the relevant date' and the relevant date being 9-8-2001, when refund was made, the show-cause notice was issued within three years. Since refund was paid erroneously buy the department and it was not the fault of the complainant, additional tax/default surcharge could not be demanded under section 34 of the Act as was done by the Adjudicating Officer vide the impugned Order-in-Original. That is why in Complaint No.1197 of 2005 also it was recommended by this forum to remit additional tax to the complainant in that case also.
6. The present complainant has argued that Order-in-Original No.1-Bwp/05 dated 29-9-2005 passed in its case is hit by time limitation and is, therefore, ab intio void. 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 under subsections (1) or (2) of section 36 of the Act could determine the amount of tax or charge payable. However, Proviso to section 36(3) 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 the Collector or as the case may be Collector (Adjudication) 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 the show-cause notice in the case was issued on 26-7-2004, the case was decided on 29-9-2005 after the expiry of original period of 90 days as prescribed in section 36(3) of the Sales Tax Act, 1990. Admittedly, no extension in the time for deciding the case was obtained/granted. The A.C's. order is, therefore, hit by time limitation as provided in section 36(3) of the Act and is liable to be annulled.
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 notice the issuance of 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 directory and not mandatory. The contention does not seem to be valid. Where inaction on the part 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 was asked to show cause as to why sales tax amounting to Rs.121689 along with additional tax be not recovered under section 36(2) of the Sales Tax Act, 1990 (misconstruction) and why penal action be not taken. The impugned Order-in-Original No.01-Bwp/2005 dated 29-9-2005 creates liability against the complainant. It was, however, passed after expiry of the mandatory period of 90 days. The respondents contended that the Appellate Tribunal had in a recent judgment 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 filed against FTO's findings in Complaint No.805 of 2003, referred to above, that the time limit in cases 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 case could not be finalized within time because of abolition of the Collectorate of Adjudication and because the complainant did not attend the hearing in response to a call notice is not tenable. 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 did not appear for hearing the case could have been decided on the basis of record on merit. The respondents could have easily adhered to the time limitation prescribed in law. The adjudication of the case was delayed in violation of the provisions of law, as discussed above.
11. Respondents' objection to FTO's jurisdiction is misplaced. This forum is fully competent to investigate complaints involving 'maladministration'. Clearly, the Order-in-Original passed in this case is hit by time-bar as provided in law. The same being void and illegal is, therefore, liable to be annulled. Accordingly, it is recommended that the Revenue Division direct the competent authority to:
(i) Reopen impugned Order-in-Original No. 01-Bwp/2005 dated 29-9-2005 under the provisions of section 45-A of the Sales Tax Act, 1990 and annul it as being hit by time limitation as provided in section 36(3) of the Act and proceed in accordance with the provisions of law.
(ii) Compliance be reported within 30 days of the receipt of this order.
C.M.A./134/FTOOrder accordingly.