DEFENCE CNG SERVICES VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1414 (2006)

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

----Ss.11(2) and 36(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3) & 10(3)---Assessment of Tax---Show-cause notice was issued on 11-1-2005 and the case was decided as on 30-6-2005 long after the expiry of original period of 90 days---Validity---No extension in the time for deciding the case was ever obtained from or granted by the competent authority---Order-in-Original was hit by time limitation as provided in Ss.11(4) and 36(3) of the Sales Tax Act, 1990 and was void and illegal, and was liable to be cancelled---Maladministration was clearly established---Federal Tax Ombudsman recommended that the Revenue Division should direct the competent authority to cancel Order-in-Original in question.

Complaint No.805 of 2003 rel.

PTCL 1983 CL 209 review by.

2000 PTD 2407 overruled.

Muhammad Akbar, Advisor (Dealing Officer).

Waheed Shahzad and M. Irfan Aslam, ITP for the Complainant.

Ms. Muneeza Majeed, D.C. Sales Tax for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN.----Facts of the complaint are that the respondents had, on the basis of an audit report, issued a show-cause notice dated 11-1-2005 calling upon the complainant to show cause as to why an amount of Rs.175275 on account of illegal input tax adjustment and on account of other audit observations be not recovered under sections 11(2) and 36(1) of the Sales Tax Act, 1990, along with additional tax and penalty. The complainant contested the show-cause notice. The hearings were fixed for 4-4-2005 and 20-4-2005. On the aforesaid dates, the AR of the complainant attended the office but the D.C. was not available. Later, the complainant was informed about notice of recovery of the aforesaid amount of sales tax and penalty imposed in the case. The respondents had passed an order of which the complainant was not aware. It, therefore, requested the D.C. (Adjudication) vide letter dated 24-1-2006 to supply a copy thereof. However, the order was received on 18-1-2006, which would show that the address of the complainant was written as S-7, Gulberg-III, Lahore instead of S-7, Gulberg Centre, Gulberg-III, Lahore. The Order-in-Original was served on incorrect address, therefore, the same had not been received by the complainant. The respondents disposed of the case vide Sales Tax Order -in-Original No.137 of 2005 dated 30-6-2005 arbitrarily, upholding charges framed against it. Show-cause notice was barred by time. According to the provisions of sections 11(4) and 36(3) of the Sales Tax Act, 1990, the adjudication order, which was required to be passed within 90 days of the issuance of show-cause notice, was passed after the expiry of limitation period. It was, therefore, hit by time limitation as provided in law. The Order-in-Original was void ab initio and may be declared so. Reliance was placed on FTO's findings in Complaint No.805 of 2003. The acts of respondents amounted to `maladministration'. Nothing is recoverable from the complainant. The Order-in-Original may be cancelled.

2. In reply, the Collector of Sales Tax has submitted that the Honourable FTO had no jurisdiction to investigate into matters in respect of which legal remedies of appeal/review were available under the relevant legislation. As adequate remedy of appeal was available under section 45-B of the Sales Tax Act, 1990, the FTO's jurisdiction was ousted in terms of section 9(2)(b) of the FTO Ordinance, 2000. Show-cause notice was issued on 11-1-2005 and the case was decided on 16-7-2005. The Superior Courts had ruled that even if certain provisions of the Act or instructions were not complied with, duty and taxes were to be paid (PTCL 1983 CL 209). The complainant could not be allowed to evade recoverable duty and taxes. Adequate opportunities of hearing were provided to the complainant to meet' the ends of justice. The appellate Tribunal in appeal of Wali Muhammad had held that provisions of section 36(3) of the Act were directory in nature and not mandatory. Therefore, the objection raised by the complainant that the case was not decided within the time limit as provided in section 36(3) of the Act was untenable. The date of hearing in the subject case was fixed for 20-1-2005 but no one appeared for the complainant. Reply to the show-cause notice was received on 25-1-2005. Proper hearing opportunities were provided to the complainant and the submissions of the complainant were duly considered before deciding the case. Thy time limitation prescribed in sections 11(4) and 36(3) of the Act were not mandatory. In the case of Messrs Sufi Restaurant, Islamabad and others v. The Collector (Appeals), Islamabad, the Appellate Tribunal had given a detailed judgment holding that the time limitation laid down in section 36(3) of the Act was not mandatory. On FTO's recent judgment dated 31-1-2006 in Complaint No.918-K of 2005, the FTO had decided an identical case involving time limitation in section 179(2) of the Customs Act, 1969 but did not declare the case as time-barred. According to section 10(3) of the FTO Ordinance, 2000, the complaint was barred by time as it was filed later than six months from the day on which the person aggrieved first had the notice of the matter alleged in the complaint. The Order-in-Original was issued to the complainant on 16-7-2005 but it approached the FTO on 13-3-2005, eight months after it had the notice of the matter. The complaint was not maintainable.

3. During the hearing, the AR submitted that the complaint was filed in the FTO Secretariat within time because the impugned Order-in-Original was received by the complainant on 18-1-2006 and the complaint was filed on 11-3-2006. He submitted that the respondents supplied a certified copy by stamping the same but without affixing any date. The Order-in-Original would show that address of the complainant in the Order-in-Original itself and on the envelope was written as `S-7, Gulberg-III, Lahore' and not as `S-7, Gulberg Centre, Gulberg-III, Lahore', which complainant's correct address. He further added that a look at various notices, including show-cause notice issued by the respondents to the complainant would show that all of them bore the correct address while the impugned Order-in-Original did not, which proved that the impugned Order-in-Original was not mailed at the correct address. It was, therefore, not received by the complainant.

4. The DR submitted that Order-in-Original was dispatched to the complainant under a registered cover. She placed on record a copy of the postal receipt as well as an extract of the dispatch register showing that the Order-in-Original No.137 of 2005 had indeed been dispatched to the complainant. She admitted that the Order-in-Original was dispatched at S-7, Gulberg-III, Lahore while other communications such as the show-cause notice and the hearing notices were issued at S-7, Gulberg Centre, Gulberg-III, Lahore. She added that since communication addressed to the complainant was never returned to the respondents as undelivered,, it proved that the complainant had received the same. The AR submitted that the Order-in-Original should have been dispatched at the last known address, which was not done. He submitted that the show-cause notice dated 11-1-2005, invoking sections 11(2) and 36(1) of the Sales Tax Act, 1990, was decided, creating liabilities, on 16-7-2005 after 90 days of the period prescribed for deciding the case in aforesaid sections and as such the Order-in-Original was hit by time limitation because 90 days expired on 12-4-2005. He cited Sindh High Court's judgment reported as 2000 PTD 2407 where it was ruled that the order passed in contravention of the mandatory provisions of law was nullity in the eyes of law and no limitation ran against such order. He further added that no notice of hearing was issued for 30-6-2005 nor did anyone appear before Adjudication Officer on behalf of the complainant. The DR admitted that no extension was obtained from or granted by the competent authority under any provisions of law.

5. The arguments of the two sides and records of the case have been considered and examined. The examination of the case record reveals that while the show-cause notice and other hearing notices were all addressed to the complainant at Defence CNG Service, S.7, Gulberg Centre, Gulberg-III, Lahore the impugned Order-in-Original was dispatched to the complainant at Defence CNG Services, S-7, Gulberg-III, Lahore. The AR contends that the complainant was given a copy of the impugned Order-in-Original on 18-1-2006: He placed on record copy thereof, which, according to him, was stamped twice but without bearing any date so as to indicate as to when it was supplied. As a matter of fact, the complainant lead in para (viii) of the complaint contended that it had made a request to the D.C. (Adjudication) for a copy of the impugned Order-in-Original vide its letter dated 24-1-2006 but the order was received on 18-1-2006. In their parawise comments the respondents have not contradicted this contention of the complainant.

Keeping this in view and the fact that the Order-in-Original was admittedly dispatched at a wrong address, as indicated above, it appears that the complainant did not receive the Order-in-Original dispatched at the wrong address and was given a copy thereof on 18-1-2006 as contended. The complaint was filed in the FTO Secretariat on 11-3-2006 within six months of receipt of copy of Order-in-Original. Accordingly, the complaint is entertained.

6. 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) 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 90 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."

Proviso to section 11(4) of the Sales Tax Act, 1990 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 the show-cause notice in the case was issued on 11-1-2005 and the case was decided vide Order-in-Original No.137 of 2005 dated 30-6-2005 (order issued on 16-7-2005) much after the expiry of original period of 90.days as prescribed in sections 11(4) and 36(3) of the Sales Tax Act, 1990. Admittedly, no extension in the time for deciding the case was ever obtained from or granted by the competent authority. The aforesaid Order-in-Original is, therefore, hit by time limitation as provided in sections 11(4) and 36(3) 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 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 tax liability was created against the complainant vide Order-in-Original No.137 of 2005 dated 30-6-2005 (dispatched on 16-7-2005). The aforesaid Order-in-Original was passed after expiry of the mandatory period of time prescribed in law. The respondents contend that the appellate Tribunal had in recent judgments held that the time limit prescribed in the proviso to subsection (3) of section 36 of the Sales Tax Act, 1990 was 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 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. As to the FTO's findings dated 31-1-2006 in Complaint No.918-K of 2005 referred to by the DR, 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 provisions, therefore, the order was void ab initio being withou1t jurisdiction as no Power was vested with the officer to pass any order after 90 days. According to the complainant similar provisions of section 36 of the Sales Tax Act had been interpreted by the President of Pakistan in a 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 ComplaintNo.918-K of 2005 be cancelled/set aside.

11. Respondent's' contention that the FTO's jurisdiction did not extend in the case is misplaced. The FTO is fully competent to investigate cases involving `maladministration'. In view of the foregoing discussion, it is found that the Order-in-Original No.137 of 2005 dated 30-6-2005 (dispatched on 16-7-2005) is hit by time limitation as provided in sections 11(43 and 36(3) of the Act and is, therefore, void and illegal. It is liable to be cancelled. `Maladministration' is clearly established. Accordingly, it is recommended that the Revenue Division direct thecompetent authority to:

(i) Cancel the Order-in-Original No.137 of 2005 dated 30-6-2005 (dispatched on 16-7-2005).

(ii) Compliance be reported within 30 days of the receipt of this order.

C.M.A./116/FTOOrder accordingly.