BISMILLAH CARPETS (PVT.) LIMITED VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1844 (2006)

Sales Tax Act (VII of 1990)---

----Ss.36(3) & 73---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Recovery of tax not levied or short levied or erroneously refunded---Issuance of show-cause notice alleging that refund was sanctioned without providing proof of payment made to the supplier as required under S.73 of the Sales Tax Act, 1990 and why such amount be not recovered---Adjudicating officer upheld the charges with the observation that payment involving input tax was made beyond the statutory limit of 180 days---First Appellate Authority upheld the order-in-original---Complainant contended that order-in-original was not passed within 90 days of the issuance of show-cause notice as provided in S.36(3) of the Sales Tax Act, 1990; period for deciding the case was not extended before the expiry of original time of 90 days and order was hit by time limitation and thus was nullity in the eyes of law---Validity---Order-in-original was passed after the expiry of mandatory period of 90 days as prescribed in S.36(3) of the Sales Tax Act, 1990 and was hit by time as provided in law and was liable to be cancelled---First Appellate Authority ignored complainant's plea that order-in-original was hit by time limitation---Order-in-appeal was also not legally sustainable as the same failed to hold the order-in-original as barred by time despite complainant's pleas on that account and to provide justice to the complainant---Maladministration in circumstances was established---Federal Tax Ombudsman recommended that the Revenue Division should direct the competent authority to cancel the order-in-original and order -in-appeal.

PTCL 1983 CL 209 and Wali Muhammad and others v. Sakhi Muhammad and others PLD 1974 SC 106 ref.

Appeal Nos.154/ST/IB/05 and 155/ST/IB/05 held not binding.

Complaint No.805 of 2003 rel.

Muhammad Akbar (Advisor) Dealing Officer.

Waseem Ahmad for the Complainant.

Azhar Iftikhar, Collector (Appeals) and Muneeza Majeed, D.C., Sales Tax for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---Facts of the complaint are that the Deputy Collector (Adjudication) issued a show-cause notice dated 16-8-2003 to the complainant alleging that in the sales tax return for the month of September, 2000 it had claimed refund of Rs.665490 and Rs.661890 (sanctioned vide two refund payment orders) without providing proof of payment made to the supplier in respect of amount exceeding Rs.50,000 as required under section 73 of the Sales Tax Act, 1990 and asking it to show cause as to why the amount of Rs.661890 be not recovered. The complainant contested the show-cause notice. Without applying her judicial mind, the D.C. (Adjudication), Lahore upheld the charges framed in the show-cause notice with the observation that "payment of Rs.3726000 involving input tax of Rs.486000 was made beyond the statutory limit of 180 days....". The D.C. (Adjudication), therefore, ordered the complainant to deposit the aforesaid amount plus penalty adjudged vide Order-in-Original No.206 of 2005, dated 30-7-2005. The complainant appealed against the aforesaid order before the Collector of Appeals who, without appreciating the merits of the case, upheld the order-in-original vide Order-in-Appeal No.81 of 2005 in an arbitrary, unreasonable and unjust manner, which amounted to `maladministration'. The order-in-original as well as order-in-appeal were liable to be cancelled because (i) the order-in-original was not passed by the D.C. within 90 days of the issuance of show-cause notice as provided in section 36(3) of the Sales Tax Act, 1990 (ii) the period for deciding the case was not extended before the expiry of original time of 90 days. The order hit by time limitation was nullity in the eyes of law. The F.T.O. had already held in Complaints Nos.805 of 2003, 940 of 2005 and 1133-L of 2005 that passing orders after expiry of limitation period was an act of `maladministration'. The President of Pakistan rejected department's representation filed by it against F.T.O's. findings in Complaint No.805 of 2003. The D.C. (Adjudication) did not appreciate the provisions of section 73 of the Act. Till 30-6-2001, no time period was prescribed under section 73 of the Act for buyers to make payments to the suppliers. It was only after 1-7-2001 that the buyers were legally bound to make payments to the suppliers through banking channels within a period of 120 days. The complainant had made purchases from its suppliers vide invoices dated 2-9-2000, 4-9-2000 and 5-9-2000. The total amount of these sales tax invoices, inclusive of sales tax, along with certain other payments, aggregated to Rs.4829800, which was paid to the supplier during the period from 28-2-2001 to 31-5-2001. Thus at the relevant point in time i.e. September 2000, the buyers were not bound by section 73 of the Act to make .payments to the suppliers within 120 or 180 days. The respondents admitted in the impugned order that the complainant had made payment to the supplier through banking channels yet it was held that since the payment was made after 180 days, the provisions of section 73 of the Act were violated. The fact was that in September, 2000, the legislature had not prescribed any time limit for the buyers for making payments. The Order-in-Original No.206 of 2005 dated 30-7-2005 and Order-in-Appeal No.81 of 2005, dated 23-12-2005 may be declared as illegal and unlawful. Suitable disciplinary action may also be recommended against respondents for committing `maladministration'.

2. While comments of the Collector of Appeals were received, no comments were received from the Collectorate of Sales Tax despite grant of extension in time for submission of parawise comments/reply sought by the Revenue Division. The department had sufficient time at its disposal to submit parawise comments but unfortunately it did not do so. The AR submitted that he was prepared to argue the case even in the absence of reply/parawise comments for D.C. (Adjudication) or Collector of Sales Tax provided the D.R., representing the adjudication authority, was prepared for it. The D.R. submitted that the Collectorate, had forwarded reply/parawise comments to the Revenue Division. The Revenue Division did not send the comments officially. She placed on record a copy of parawise comments submitted by the Collector to the CBR, which need not be reproduced as the arguments contained therein were voiced by the D.R. representing the adjudicating authority during the hearing and are recorded in the appropriate section of this order.

3. In his comments, the Collector of Appeals has submitted that the complainant had approached the Honourable F.T.O. prematurely. It should have availed the remedy of filing appeal before the appellate Tribunal or before the A.D.R.C. (Alternate Dispute Resolution Committee). Though time limit was not specifically fixed in section 73 of the Act during the period from 1-7-2000 to 5-9-2000, the complainant was entitled to claim input tax adjustment/refund only against those purchases payments in respect of which were made along with the amount of tax during the relevant tax period as required under section 7 of the Sales Tax Act, 1990. The complainant during tax period i.e. September 2000, adjusted input tax which was not paid during the relevant tax period. Payment along with amount of tax was made late in violation of the provisions of sections 7 and 73 of the Act. It had also claimed inadmissible input tax in violation of the aforesaid sections. The case was properly and legally decided. The Collectorate of Appeals received the appeal on 9-8-2005 and decided the case on 22-10-2005 within 54 days. As to the time limitation prescribed under section 36(3) of the Act, complainant's contention was not tenable. Liability to pay tax did not quash if time limitation in deciding the case was not adhered to. 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 Wali 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 time 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 Customs, Central Excise and Sales Tax Appellate, Tribunal, Islamabad Bench-II had recently decided a case in respect of Messrs Sufi Restaurant v. Collector of Customs Sales Tax and Central Excise (Appeals) in Appeal Nos. 154/ST/IB/05 and 155/ST/IB/05 involving similar questions of law holding that time limitation in deciding the case was directory and not mandatory. The order-in-appeal may be declared as lawful.

4. During the hearing, the A.R. reiterated the arguments advanced in the written complaint. He explained that the complainant had filed appeal against the Collector of Appeals' order in the appellate Tribunal, Lahore on 20-1-2006 whereas the complaint was filed in the F.T.O. Secretariat on 30-12-2005, prior to filing of appeal in tribunal. He emphasized that the order-in-original was hit by time limitation as provided in section 36(3), of the Sales Tax Act, 1990 and the time limitation as laid down in section 73 of the Act did not apply to the complainant's case because at the relevant time the section was not amended to provide for a time limit within which a buyer had to make payment to the supplier. He submitted that even otherwise, the adjudicating authority had not invoked section 7 of the Act in the show-cause notice issued to the complainant and, therefore, it could not take recourse to the provisions of aforesaid section.

5. The D.R. admitted that the show-cause notice in the case was issued, 16-8-2003 and the order-in-original was passed on 30-7-2005. No extension in the time for deciding the case was obtained. She added that as regards the question of time limitation her arguments were the same as those of the Collector of Appeals. She too relied on appellate Tribunal's orders, quoted by the Collector of Appeals, wherein it was held that the time limit provided in section 36(3) of the Sales Tax Act was directory and not mandatory. She added that the provisions of section 73 were meant to be read with section 7 of the Sales Tax Act. Proof of payment had to be given within the tax period. The payments made beyond the tax period or the proof provided beyond the tax period could not be treated as legitimate. The complainant did not provide proof of payment and violated sections 7 and 73 of the Act. The provisions of section 36(3) were directory and not mandatory. The complainant should have availed the remedy of appeal available under section 46 of the Act. The objection of time limitation was raised by the complainant at appeal stage which was rejected. Even if certain provisions of the Act or instructions were not complied with the duty and taxes had to be paid. Proper opportunities of defence were provided to both the parties to meet ends of justice. Section 9(2)(b) of the F.T.O. Ordinance, 2000 barred jurisdiction of the F.T.O. from inquiring or investigating into a matter involving determination of liability and in respect of which legal remedies of appeal/review/revision were available under the relevant legislation.

6. The Collector of Appeals reiterated the arguments advanced in his reply/comments emphasizing that the appellate Tribunal had held that the time limit laid down in section 36(3) of the Act was only directory and not mandatory. He also added that the complainant had not adhered to the provisions of section 73 of the Sales Tax Act, 1990 read with section 7 ibid.

7. The arguments of the two sides and records of the case have been considered and examined. In the show-cause notice dated 16-8-2003 the DC had, among other provisions of law, also invoked sections 11(2) and 36(1) of the Sales Tax Act, 1990 for recovery of an amount of Rs.661890 along with additional tax under section 34 of the Act, besides penal action under section 33(2)(cc) of the Act the Order-in-Original No.206 of 2004 was passed by the Deputy Collector on 30-7-2005 directing the complainant to deposit tax of Rs.486000 and a penalty of Rs.14580. It is observed that while show-cause notice was issued on 16-8-2003, the order-in-original was passed on 30-7-2005 long after the expiry of the limitation period of 90 days as provided in section 36(3) of the Sales Tax Act, 1990.

8. Section 36(3) of the Act says that "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". The complainant contends that the adjudication authority did not decide tile case within 90 days as prescribed in the aforesaid section and as such the order-in-original was hit by time-bar as provided by law. Clearly, as per the provisions of section 36(3) of the Act, the case had to be decided within a period of 90 days of the issuance of show-cause notice but it was not decided within the aforesaid period; hence the order-in-original passed in the case is hit by time limitation. A perusal of the order-in-appeal shows that the complainant had agitated before the Collector of Appeals that the impugned order was hit by time limitation and cited before him F.T.O's. finding in Complaint No.805 of 2003 and also referred to rejection by the President of Pakistan of department's representation filed against it, upholding F.T.O's. aforesaid findings but the Collector of Appeals did not accept the plea of time limitation on the ground that even if certain provisions of the Act were not complied with, duty and taxes were to be paid.

9. Whether or not the provisions of section 36(3) of the Act are mandatory, this is to point out that the F.T.O. in Complaint No.805 of 2003, involving sales tax liability, had held 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 F.T.O., therefore, recommended in that case that the competent authority should cancel the order-in-original. The department represented against the aforesaid F.T.O's. decision before the Honourable 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 F.T.O's. decision must be sustained.

(4) Accordingly, the President has been pleased to reject the representation of the department".

The respondents have cited appellate Tribunal's decision in Appeals Nos.154/ST/IB/05 and 15/ST/IB/05 saying that the Tribunal had 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 F.T.O. Ordinance XXXV of 2000. His decision is, therefore, 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 F.T.O's findings in Complaint No.805 of 2003, 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.

10. In view of the position explained above, it is held that the impugned Order-in-Original No.206 of 2005 dated 30-7-2005, passed as it was after the expiry of mandatory period of 90 days as prescribed in section 36(3) of the Act, is hit by time-bar as provided in law and is liable to be cancelled. Respondents' objection to F.T.O's jurisdiction in terms of section 9(2)(b) of the F.T.O. Ordinance, 2000 is misplaced. The F.T.O. is competent to investigate cases involving maladministration. The Collector of Appeals before whom the complainant had agitated the issue of time limitation ignored complainant's plea that the order-in-original was hit by time limitation. Clearly, the order-in-original passed in this case is hit by time-bar and is, therefore, void and illegal. Accordingly, the Order-in-Appeal No.81 of 2005 dated 23-12-2005 is also not legally sustainable as it failed to (i) hold the order-in-original as barred by time despite complainant's pleas on that account and (ii) provide justice to, the complainant. Maladministration is established. Accordingly, it is recommended that the Revenue Division direct the competent authority to:

(i) Cancel the Order-in-Original No.206 of 2005 dated 30-7-2005 and Order-in-Appeal No.81 of 2005, dated 23-12-2005.

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

C.M.A./64/FTOOrder accordingl