AZAM TEXTILE MILLS LTD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1762 (2006)

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

----Ss.34, 36(1), 33 (2)(cc) & 57---Special Procedure for Ginning Industry Rules, 1996--S.R.O.1271(I) of 1996 dated 10-1-1996---S.R.O.134(I) of 2002 dated 6-3-2002--Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Additional tax--Issuance of corrigendum of order-in-original by holding that principal amount had been paid late, demanded additional tax and imposed penalty---Order was passed in another case and applied the same to the complainant/assessee---Complainant contended that order-in -original passed along with corrigendum amounted to `maladministration' on the ground that order-in-original was passed in a stereotyped manner, without consulting the record because of which the corrigendum had to be issued; that it was without providing opportunity of hearing, militating against the principles of natural justice and that the principal amount had already been deposited, adjudicating officer was obliged to issue a fresh show-cause notice by calculating the amount of additional tax and penalty instead of issuing a corrigendum-Validity--Adjudicating authority had invoked only S.33(2)(cc) of the Sales Tax Act, 1990 for taking penal action and recovery of penalty vide un- amended order-in-original---Authority had neither invoked S.34 nor S.36 of the Sales Tax Act, 1990 in show-cause notice for recovery of sales tax/additional tax---After four months from the issuance of order-in- original, it issued a corrigendum ordering recovery of additional tax and penalty and applied this order, among others, to the complainant also---In a bid to determine the tax liability the adjudicating officer invoked in Order-in-Original the provisions of Ss.34 and 36(1) of the Sales Tax Act, 1990, which provisions were not invoked by him in the show-cause notice-As relevant sections were not invoked in the show-cause notice; as required under law, for determination/recovery of additional tax, the show-cause notice was defective and without lawful foundation---Applicable provisions of law having not been invoked in the first instance in the show-cause notice, the same could not be introduced and applied via the corrigendum to cover a legal flaw in the show-cause notice---Demand for payment of additional tax made in the corrigendum was without lawful authority and of no legal effect---Un-amended Order-in-Original is so far as it related to imposition/recovery of penalty, would stand---Corrigendum constituted `maladministration' at that same had been issued illegally, unjustly, arbitrarily and without jurisdiction and was legally not maintainable--Federal Tax Ombudsman recommended that Revenue Division should direct the competent authority to cancel corrigendum dated 27-7-2005 in so far as it related to the complainant only in the present complaint.

2001 SCMR 838 and Complaint No.805 of 2003 rel.

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

----Ss. 57, 34 & 36---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Correction of clerical errors, etc.---Issuance of corrigendum order imposing additional tax and penalty under the provision of S.57 of the Sales Tax Act, 1990---Validity---Corrigendum had affected a substantial amendment in order -in-original essentially to cover up the failure to invoke Ss.34 and 36(1) of the Sales Tax Act, 1990 in the show-cause notice---Amendment affected via the corrigendum could, by no stretch of imagination be, regarded as rectification of clerical/arithmetical errors---Show-cause notice also did not disclose the real intention of the adjudicating officer as it only said that some clerical errors in writing were to be rectified requiring issuance of corrigendum and that if no one appeared on that date, the corrigendum would be issued---Case was not that of removal of clerical errors because corrigendum affected major amendment in order -in-original without, invoking in the first instance applicable provisions of law in the show-cause notice---If any tax was required to be paid, the Department should have issued a separate show-cause notice to determine the liability under the applicable provisions of law---Corrigendum was out of the scope of the show-cause notice issued and was void, without jurisdiction and no legal effect.

Muhammad Akbar (Advisor) Dealing Officer.

Rana Muhammad Afzal for the Complainant.

Dr. Muhammad Nadeem Memon, D.C. Sales Tax, Hyderabad for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---This complaint of `maladministration' is directed against the respondents for passing Order-in-Original No.21 of 2005 dated 24-3-2005 against Messrs Regent Textile Mills Limited, Karachi and applying the same to the complainant without considering the facts of the complainant's own case. Subsequently, the adjudicating officer issued on 27-7-2005 a corrigendum of the aforesaid order-in-original vide which he, while holding that the complainant had paid the principal amount late demanded additional tax and imposed penalty. The order-in- original passed in the complaint's case along with subsequent corrigendum amounted to `maladministration' on the grounds that (i) the order-in-original was passed in a stereotyped manner, without consulting the record because of which the corrigendum had to be issued, (ii) without providing opportunity of hearing to the complainant, militating against the principles of natural justice, (iii) if the complainant had already deposited the principal amount, the D.C. (Adjudication) was obliged to issue a fresh show-cause notice by calculating the amount of additional tax and penalty, instead of issuing a corrigendum as he did. Both the Order-in-Original No.21 dated 24-3-2005 and the corrigendum dated 27-7-2005 may be declared null and void, being result of 'maladministration'.

2. In reply, the Collector of Sales Tax (Appeals), Hyderabad has forwarded D.C. (Adjudication)'s comments on the complaint. According to the D.C., as per the relevant Special Procedure for Ginning Industry Rules, 1996 read with S.R.O.1271(I) of 1996 dated 10-11-1996 and S.R.O.134(I) of 2002 dated 6-3-2002 the spinning units or exporters of ginned cotton were supposed to pay sales tax within the stipulated period and manner. If a ginner failed to discharge its liability it was liable to pay additional tax under section 34, in addition to penalty that may be imposed under section 33 of the Sales Tax' Act, 1990. Since the complainant had paid the principal amount late, the additional tax and penalty were recoverable. Instead of passing an order for recovery of additional tax and penalty from the complainant and others, the adjudicating officer, due to clerical error in writing/typing, passed the order-in-original for penalty only. On detection of clerical errors occurring in paras. 7 and 8 of the order-in-original, the order-in-original was rectified through a corrigendum under the provisions of section 57 of the Sales Tax Act, 1990 after providing the opportunity of hearing to all affected parties, including the complainant. While the complainant did not bother to appear before the D.C. (Adjudication) the representatives of seven other units appeared. The corrigendum was, therefore, issued legally. The complaint may be set aside.

3. In his comments, the Collector of Sales Tax, Hyderabad has advanced more or less the same arguments. According to him, it was the responsibility of the purchaser to make payment of sales tax due in respect of such purchases on behalf of the supplier. The complainant had failed to make payment of sales tax amounting to Rs.423733. Late/non payment of sales tax attracted levy of additional tax in terms of section 34 of the Sales Tax Act, 1990. The complainant was also liable to pay additional tax amounting to Rs.334008. Show-cause notice was issued asking it for payment of the aforesaid amount of tax besides imposition of penalty under section 33(2) of the Act. Opportunities of hearings were provided. The order-in-original held the complainant liable to pay the aforesaid amount of sales tax along with additional tax due to non-payment. Penalty under section 33(2) of the Act was also imposed. As the charges levelled in the show-cause notice issued to the complainant were identical in nature to some other spinning units, the adjudication authority applied the impugned order to the complainant also. Later, a corrigendum was issued to rectify clerical errors in paras. 7 and 8 of the impugned order in terms of the provisions of section 57 of the Sales Tax Act, 1990. Before rectification of errors/ omissions a notice was issued to the respondents (affected parties), including the complainant for hearing on 18-7-2005. The adjudication authority after hearing the points of view of the respondents who attended the hearing made the necessary correction/rectification. The complainant did not attend the hearing. The order-in-original as corrected/rectified through corrigendum, dated 27-7-2005 established the charges framed in the show-cause notice. The recovery of additional tax and penalty was ordered under sections. 34, 33(2)(cc) and 36(1) of the Sales Tax Act, 1990. As rectification was lawfully made, it could not be termed 'as an act of 'maladministration'. The rectification order passed under section 57 of the Act was also appealable. The complainant should have calculated and deposited the additional tax in terms 'of section 34 of the Act. No fresh notice was required to be issued prior to correction/ rectification in terms of section 57 of the Act. Instead, only an opportunity of hearing had to be given before making correction/ rectification provided it affected the tax liability, which was provided. The complainant did not avail it. It had also not availed the remedy of appeal provided under the law. The complaint may be rejected as not maintainable.

4. During the hearing, the AR clarified that the complainant had not filed any appeal against the impugned order-in-original. The show-cause notice was issued on 12-6-2003. The Order-in-Original No.21 of 2005 dated 24-3-2005 was not passed with reference to charges framed in the show-cause notice issued to the complainant. On 27-7-2005 the adjudication authority issued a corrigendum of Order-in-Original No.21 of 2005. If the order-in-original was legally passed there was no justification for issuing the corrigendum. The order did not specify any principal amount and additional tax. The show-cause notice did not invoke sections 11, 34 and 36(1) of the Sales Tax Act, 1990. Therefore, no recovery could be made. It was issued only for penal action under section 33(2) of the Act. Even otherwise, the order-in-original had to be passed within 90 days of the issuance of the show-cause notice. The initial period of 90 days had expired on 12-9-2003. The respondents did not obtain any extension in the time limit for deciding the case as prescribed in section 36 of the Act. Both the order-in-original and the so-called corrigendum were hit by time limitation as provided in law. The F.T.O. had already decided in a number of cases that a decision made after the expiry of the period for deciding a case as prescribed under section 36 of the Act was hit by time limitation and was liable to be cancelled. In one such case the F.T.O's. decision was upheld by the President of Pakistan. The impugned order was ab initio void. Recovery of enhanced liability could not be made unless a proper show-cause notice was issued to the affected person. The AR submitted that even if the C.B.R. were to reopen a case under the provisions of section 45-A of the Act with the intent to enhance the liability, it could not do so without issuing a show-cause notice. Even if a clerical error had occurred the respondents should have issued a show-cause notice to the complainant specifically asking it as to why the additional tax be not recovered. The order and the corrigendum were passed without jurisdiction. As show-cause notice was defective so was the order. The impugned order-in- original together with its, corrigendum may be cancelled.

5. The DR representing the Collector of Sales Tax appeared on the appointed date of hearing to argue the case. He intimated that after the abolition of the Collectorate of Adjudication the Sales Tax Collectorate had received all the adjudication files. The D.C. (Adjudication) sought adjournment on account of his pre-occupation with a training program. As the respondents had not appeared on 14-12-2005, the date was re-fixed for 26-12-2005 and the Collector of Sales Tax had deputed a DR to represent department's case along with the relevant files, which he did. As the D.C. (Adjudication)'s comments were already on files there was no need to adjourn the case. The D.R. representing the Revenue submitted that the complainant had purchased cotton bales against four invoices from a unit located in Hyderabad Collectorate. It had paid sales tax on two invoices but did not pay on the remaining two; hence the show-cause notice. Although the complainant was provided a number of opportunities of hearing before passing the order the complainant did not avail any of them. A hearing was also provided to the complainant vide call notice dated 4-7-2005 before issuing the corrigendum. The corrigendum mentioned sections 33(2), 34 and 36(1) of the Act. Since the order-in-original was appealable, the complainant may be advised to appeal against it. Asked to intimate whether any extension in the time for deciding the case as prescribed at law was obtained as required under section 36(3) of the Act, the D.R. consulted the adjudication file and submitted that the file did not show that it was. He added that the complainant should pay all outstanding liabilities.

6. The arguments of the two sides and records of the case have been considered and examined. Show-cause notice was issued to the complainant on 12-6-2003 charging that it had, in contravention of the provisions of law, rules and notifications, failed to remit sales tax amounting to Rs.423733 in favour of the Collectorate of Sales Tax within the time and manner as prescribed under sub-rule (6) of the Special Procedure for Ginning Industry Rules, 1996. The complainant was asked to show cause why penal action as prescribed under section 33(2)(cc) of the Sales Tax Act, 1990 be not taken against it for violation of the provisions of law and the rules made thereunder. To begin with an Order-in-Original No.21 of 2005 dated 24-3-2005 was passed, the operative portion of which read:--

"Hence the charges mentioned in the show-cause notice are established in the light of statement submitted by departmental representative as registered person paid the principal amount along with additional tax under section 34 of the Sales Tax Act, 1990. So order for recovery of penalty under section 33(2)(cc) of the Sales Tax Act, 1990."

Subsequently, according to the respondents, the D.C. (Adjudication) in order to rectify certain clerical errors in writing noticed in para. "7" in line "3" and in para "8" in line "i" of the impugned order-in-original issued a corrigendum dated 27-7-2005, the relevant portions of which are reproduced below:--

"Consequent upon the hearing the line 3 of para. 7 and line (i) of Para (8) is amended in exercise of powers under section 57 of the Sales Tax Act, 1990; Now the paras. 7 and 8 with ending paragraph may be read as follows;

Hence the charges mentioned in show-cause notice No.36(1596)Adj/ST/CC/2003 are established in the light of statement submitted by departmental representative as registered person paid the principal amount late, I, therefore, order for recovery of additional tax and penalty under sections 34, 33(2)(cc) and 36(1) of the Sales Tax Act,1990.

This order shall apply mutatis mutandis in following cases of' identical nature and involving the same law point, having supplied/purchased goods; These cases also stand disposed of accordingly."

7. A plain reading of the show-cause notice issued to the complainant reveals that the adjudication authority had invoked in the show-cause notice dated 12-6-2003 only section 33(2)(cc) of the Sales Tax Act, 1990 for taking penal action and ordered vide the un-amended order-in-original the recovery of penalty under the aforesaid section. The authority had invoked neither section 34 nor section 36 of the Sales Tax Act in the show-cause notice for recovery of sales tax/additional tax. However, on 27-7-2005 i.e. four months after the issuance of the order -in-original dated 24-3-2005, it issued a corrigendum ordering recovery of additional tax and penalty under the provisions of sections 33(2)(cc), 34, and 36(1) of the Act and applied this order, among others, to the complainant also. It is observed that in a bid to determine the tax liability the adjudicating officer invoked in the impugned order-in-original the provisions of sections 34 and 36(1) of the Act, which provisions were not invoked by him in the show-cause notice issued to the complainant. As the aforesaid relevant sections i.e. sections 34 and 36(1) of the Act were not invoked in the show-cause notice, as required under law, for determination/recovery of additional tax, the show-cause notice was defective and without lawful foundation. "It is well-settled position of law that a thing required by law to be done in certain manner must be done in the same manner as prescribed by law or not at all", as held vide 2001 SCMR 838. As applicable provisions of law were not invoked in the first instance in the show-cause notice, the same could not be introduced and applied via the corrigendum to cover a legal flaw in the show-cause notice; hence the demand for payment of additional tax made in the so-called corrigendum dated 27-7-2005 is without lawful authority and of no legal effect. The respondents claim that the so-called corrigendum was issued to rectify clerical or arithmetical errors as permitted in section 57 of the Sales Tax Act. In actual fact, however, the so-called corrigendum has affected a substantial amendment in the order -in-original dated 24-3-2005 essentially to cover up, as an afterthought, the failure to invoke the relevant sections namely sections 34 and 36(1) of the Act in the show-cause notice. Given this position the amendment affected via the corrigendum can by no, stretch of imagination be regarded as rectification of clerical/arithmetical errors i.e. errors of writing, typing, copying, editing .etc. Department's contention that a notice dated 4-7-2005 was given to the complainant before passing the corrigendum dated 27-7-2005 is also not convincing as even the so-called notice, dated 4-7-2005 (on record) reveals that it did not disclose to the complainant the real intention of the adjudicating officer. It only said that some clerical errors in writing were to be rectified requiring issuance of corrigendum and that if no one appeared on that date, the corrigendum would be issued. Clearly, it was not a case of removal of clerical errors, as pointed out earlier, because the so-called corrigendum affected major amendment in the order-in-original, dated 24-3-2005 without in the first instance invoking applicable provisions of law in the show-cause notice. The complainant is justified in arguing that if any tax was required to be paid by the complainant the respondents should have issued a separate show-cause notice to determine the liability under the applicable provisions of law. If, for example, action was intended to be taken under section 36(1) of the Act the action to determine the liability had to be preceded by issuance of show-cause notice as laid down in the section itself before the case was decided. Hence the corrigendum dated 27-7-2005 in so far as it relates to the complainant is out of scope of the show-cause notice issued in the case and is, therefore, void, without jurisdiction and of no legal effect.

8. The complainant's AR has also argued that if the respondents claim that the order was passed under section 36(1) of the Act, then again the order-in-original and its corrigendum passed by the adjudicating authority were barred by time passed as these were long after the expiry of the period prescribed in section 36(3) of the Act for passing the orders. In support of his contention, he cited PTO's decision in complaint No.805 of 2003, which was upheld by the President of Pakistan vide Presidential Order dated 7-5-2005. A.R's. contention is correct. He has already been held by the FTO vide findings in Complaint No.805 of 2003 the order passed beyond the period prescribed in law for passing it was not legally sustainable. The aforesaid decision of the FTO was upheld by the President of Pakistan vide Presidential order, dated 7-5-2005.

9. The show-cause notice, however, reveals that the adjudication officer has invoked in the show-cause notice dated 12-6-2003 section 33(2)(cc) of the Act penal action on account of complainant's failure to pay tax on the date and the manner as prescribed in law and ordered recovery of penalty as prescribed under section 33(2)(cc) of the Act vide original/un-amended order-in-original dated 24-3-2005. The un amended order-in-original (without corrigendum) in so far as it relates to imposition/recovery of penalty will, therefore, stand. The corrigendum dated 27-7-2005 constitutes 'maladministration' is that it has been issued illegally unjustly, arbitrarily and without jurisdiction, as discussed in paragraph supra and is, therefore, legally not maintainable. Accordingly, it recommended that the Revenue Division direct the competent authority to:

(i) Cancel corrigendum dated 27-7-2005 in so far as it relates to the complainant only in the present complaint.

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

C.M.A./16/FTOOrder accordingly.