DANDOT CEMENT COMPANY LTD., LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 609 (2005)

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

----S. 36(3)---Central Excise Act (I of 1944), S.33(3)---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---Limitation---Combined show-cause notice, dated 26-10-2002 pertaining to sales tax and excise duty was issued---Department was required to pass the order within 135 days and 45 days respectively, of the issuance of show-cause notice while the order-in-original showed the date of judgment as 11-1-2005 which was dispatched on 14-7-2005---Order creating sales tax and central excise liability along with additional tax and penalty was defective in that the mandatory provisions of Sales Tax Act, 1990 and Central Excise Act, 1944 were not observed; that Additional Collector lacked jurisdiction to decide the case because the show-cause notice was issued by Collector (Adjudication) and that Order-in-Original showed the date of judgment as 11-1-2005 and. the order was dispatched on 14-7-2005 more than six months after the date of judgment---Validity---Case was decided on 11-1-2005 much beyond the prescribed time limits --Presidential order sustaining the order of the Federal Tax Ombudsman, laid down the principle that "where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory"---Department had created liabilities both of sales tax, along with additional tax and central excise duty and penalties but failed to pass the order within the prescribed time limits---Ruling contained in Presidential order will apply not only to sales tax but also to central excise---Order, as a whole, was hit by time limitation as provided in law---Department violated the provisions of law and mal administration stood established--'-Order-in-Original was not sustainable because it was clearly hit by time limitations as provided in law---Federal Tax Ombudsman recommended that Revenue Division direct the competent authority to cancel the Order-in-Original.

Complaint No.805 of 2003 and decision No.85 of 2004-F.T.O.-Law, dated 7-5-2005 rel.

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

----S. 36(3)-Central Excise Act (I of 1944), S.33(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Recovery of tax not levied or short-levied erroneously refunded--Limitation---Extension of time---Reason advanced for seeking extension of time limits was reconciliation of evaded figures-Reason recorded was "case transferred by the Collector (Adjudication), Rawalpindi which needs further hearing and reconciliation"---Show-cause notice had been issued as far back as on 26-10-2002 reconciliation should have been completed well within the prescribed time limits---Failure to do so did not constitute `special circumstance'---Transfer of a case by one officer to another did not constitute `exceptional circumstances', especially when the department was aware of the operative time limits within which the cases had to be decided.

Complaint No.653 of 2005, dated 9-9-2005 rel.

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

----S. 36(3)---Central Excise Act (I of 1944), S.33(3)-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---Limitation---Communication of order---Order passed on the file but not communicated to the affected party within the prescribed time limits or within the extended period of time, could not be treated as having been passed within the prescribed time limits.

Shahid Pervaiz Jami for the Complainant.

Moin-ud-Din Ahmad Wani, DC Sales Tax, Rawalpindi for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---This complaint of `maladministration' is directed against Order-In-Original No.57/05 dated 14-7-2005 passed by Additional Collector (Adjudication), Rawalpindi without lawful juris diction after the expiry of time limitations laid down in sections 36(3) of the, Sales Tax Act, 1990 and 33(3) of the Central Excise Act, 1944. The respondents had issued the complainant a combined show-cause notice dated 26-10-2002 pertaining to sales tax and excise duty for the period from April, 2000 to June, 2000. The complainant contested the show-cause notice on multiple legal and factual grounds. As per proviso to section 36(3) of the Sales Tax Act, 1990 and subsection (3) of section 33 of the Central Excise Act, 1944 the respondents were required to pass the order within 135 days and 45 days, respectively, of the issuance of show-cause notice. While the O-I-O showed the date of judgment as 11-1-2005 it was dispatched on 14-7-2005. The aforesaid order created sales tax and central excise liability along with additional tax and penalty. The O-I-O was defective in that (i) the mandatory provisions of the above-mentioned sections of Sales Tax Act, 1990 and Central Excise Act, 1944 were not observed, (ii) the Additional Collector lacked jurisdiction to decide the case because the show-cause notice was issued by Collector (Adjudication) and (iii) while O-I-O showed the date of judgment as 11-1-2005 the order was dispatched on 14-7-2005 more than six months after the date of judgment. The Honourable F.T.O. had declared vide findings in complaint No.805/03 the passing of O-I-O after expiry of the prescribed time limitation as an act of 'maladministration'. The departmental representation filed against F.T.O's. order in the aforesaid complaint was rejected by the President of Pakistan vide decision No.85/04-F.T.O.-Law dated 7-5-2005. It is pleaded that the O-I-O passed by the Additional Collector be declared as without jurisdiction and also hit by time limitation as laid down in law. The respondents may be directed to cancel the impugned O-I-O No.57/05.

2. In reply, the Collectorate of Sales Tax and Central Excise, Rawalpindi has submitted that in exercise of the powers vested in it under section proviso to section 45 of the Sales Tax Act, 1990 and under section 33(3) of the Central Excise Act, 1944---having the power to regulate the system of adjudication, including transfer of cases and extension of time limit---the C.B.R. had vide its order C.No.5(10)-CEJ-2000 dated 11-6-2005 extended the time limit in the case upto 30-6-2005. The impugned O-I-O No.57/05 was, however, issued on 14-7-2005 because of the facts that (i) the concerned adjudication officer had been transferred to Quetta, which hampered service of order and (ii) the Federal Government had asked the Rawalpindi Collectorate to vacate its office for housing University of Information & Technology on the premises. The Collectorate had to acquire a new building, which took time to furnish and make alterations to accommodate offices, record rooms etc. The Honourable F.T.O's. jurisdiction did not extend in the case in view of clause (b) of subsection (2) of section 9 of the F.T.O.. Ordinance, 2000.

3. During the hearing, the A.R. accented on one main point: respondents issued combined notice both for excise and sales tax on 26-10-2002 adjudged the case on 11-1-2005 (dispatched on 14-7-2005) long after expiry of time limitation as laid down in section 36(3) of the Sales Tax Act, which, at the time, was 135 days (45 days extendable by 90 days by the competent authority) from the date of issue of show-cause notice. Likewise, section 33(3) of the Central Excise Act, 1944 laid down a time limit of 45 days of the issuance of show-.cause notice within which the case had to be decided. As the respondents had failed to abide by the aforesaid time limitations prescribed in law and passed the impugned O-I-O much beyond these time limits, the complainant may be given the same relief/dispensation as was allowed by the F.T.O. in complaint No.805/03, as sustained by the President of Pakistan vide order dated 7-5-2005. The impugned O-I-O may be declared void.

4. To begin with, the D.R. clarified that the respondents in para wise comments submitted by the Collectorate had inadvertently reported that the C.B.R. had extended the time limit for deciding the case vide its letter dated 11-6-.2005 upto 30-6-2005. The factual position, he stated, was that extension in the instant case was sought from the C.B.R. by the Collectorate on 11-1-2005 and the C.B.R. vide its letter dated 19-1-2005 allowed extension upto 31-3-2005 under sections 33(3) of the Central Excise Act and 45 of the Sales Tax Act. As per the provisions of the sections 45 of the Sales Tax Act and 33(3) of the Central Excise Act extension of time limit for deciding adjudication cases could be allowed by the C.B.R. in `exceptional circumstances'. The D.R. was asked to specify as to what exactly were the `exceptional circumstances' warranting extension of time limits and whether the Collectorate, while seeking extension of time, had spelled out 'exceptional circumstances' for the C.B.R. to consider before granting extension, the D.R. submitted that initially the Collectorate had addressed a letter dated 28-10-2004 to the C.B.R., listing out five cases, including complainant's case requesting the C.B.R. to grant extension due to 'technical reasons'. The C.B.R. had vide its letter dated 20-11-2004 asked the Collectorate to communicate `cogent reasons' for pendency of reported cases to enable them to examine the request for extension of time limit in the light of law on subject. Asked whether the `cogent reasons' called for by the C.B.R. were ever conveyed to it, the D.R. submitted that C.B.R's. query was not answered. Instead, a new letter dated 11-1-2005 was addressed to the C.B.R., reporting `technical reasons' for pendency and seeking extension of time limits. The C.B.R., he submitted, allowed extension upto 31-3-2005.

5. The arguments of the two sides and record of the case have been considered and examined. According to subsection (3) of section 36 of the Sales Tax Act, 1990---as it then existed ---the competent authority after considering the objections of the person served with a notice to show cause under subsection (1) or (2) of section 36 of the Act could determine the amount of tax or charge payable. However, proviso to section 36(3) read as under:---

"Provided that order under this section shall be made within forty-five 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"

Second proviso to section 45 of the Sales Tax Act, 1990 (Power of Adjudication) is also reproduced below:---

"Provided further that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances".

6. Subsection (3) of section 33 (Power of Adjudication) of the Central Excise Act, 1944 as it existed at the time, is also reproduced as under:

"A Collector, an Additional Collector or a Deputy Collector shall decide the case within forty-five days of the issuance of show-cause notice:

Provided that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances".

It will, therefore, be observed that the relevant sections of both the Central Excise Act and Sales Tax Act laid down time limitations within which the cases had to be decided. The respondents contend that the C.B.R. could grant extension in time for adjudication of cases vide powers vested in it under the provisions of section 45 of the Sales Tax Act, 1990 and section 33(3) of the Central Excise Act, 1944.

7. The complainant was issued a combined show-cause notice on 26-10-2002 intending to create excise and sales tax liabilities, together with additional tax, and impose penalties for violation of the provisions of law. Admittedly, the case was decided on 11-1-2005. However, the impugned order was dispatched on 14-7-2005. The respondents argue that they had sought extension of time limit for deciding the case from the C.B.R. and the C.B.R., being the competent authority, had allowed extension, vide its letter dated 19-1-2005 both under sections 33 of the Central Excise Act and 45 of the Sales Tax Act, upto 31-3-2005. They contend that as the case was decided on 11-1-2005 it was not hit by time limitation in view of extension of time limit upto 31-3-2005. They explain delay in dispatching the O-I-O (it was dispatched on 14-7-2005) as owing to adjudicating officer's transfer to Quetta and disturbance caused by vacation of Rawalpindi office for housing University of Information and Technology and consequent establishment of new office.

8. A close scrutiny of the case reveals that the Additional Collector (Adjudication) bunched a number of cases (five), including complainant's case, and approached the C.B.R. initially vide letter dated 28-10-2004 for seeking extension in the prescribed time limits laid down in law for deciding various cases. As per the provisions of law, the C.B.R. could grant extension of time limits only in 'exceptional circumstances'. The C.B.R. vide its letter dated 20-11-2004 asked the Collectorate to communicate 'cogent reasons' for seeking extension of time limits. This letter of the C.B.R. was not responded to. However, the Collectorate of Adjudication vide a letter dated 11-1-2005 addressed to the C.B.R., explained that the cases could not be decided due to technical reasons. In the list of five cases attached with the aforesaid letter the reason advanced for seeking extension of time limits wa8 reconciliation of evaded figures. In the specific case of this complainant the reason recorded at serial 4 of the appended list was "case transferred by the Collector (Adjudication), Rawalpindi which needs further hearing and reconciliation". As the show-cause notice had been issued as far back as on 26-10-2002 the reconciliation should have been completed well within the prescribed time limits. Failure to do so did not constitute 'special circumstances'. Similarly, transference of a case by one officer to another did not constitute 'exceptional circumstances' especially when the respondents were aware of the operative time limits within which the cases had to be decided. It appears that time limits were extended in certain cases without existence of 'exceptional circumstances' only to cover long periods of delay to circumvent the law. In a recent judgment in complaint No.653/05 dated 9-9-2005 where C.B.R. had extended in 496 cases, pending adjudication, the mandatory period of 45 days within which cases registered under the Sales Tax Act had to be decided, the F. T.O. observed that whereas according to Proviso to section 45 of the Sales Tax Act, 1990 extension could be granted only in `exceptional circumstances', there did not exist `exceptional circumstances' justifying extension in so many cases. The extensions were allowed en masse without application of judicial mind to the fact, and circumstances of each case in a manner that such extension affected the valuable rights of the assessee. The same situation is noticed in the instant complaint also. Here too various cases, including that of the complainant, were bunched together for seeking extension and the extension was allowed without existence of `exceptional circumstances' in the case, as discussed above.

9. In the present complaint, it is observed, that the case had actually become barred by time way back in December, 2002 (as per time limitation prescribed under section 33(3) of the Central Excise Act) and in second week of March, 2003 (as per time limitation prescribed under section 36(3) of the Sales Tax Act, even if the initial period of 45 days had been extended by the competent authority by another 90 days, though no evidence of such extension was made available). The Collectorate of Adjudication moved the C.B.R. for extension of time limit on 11-1-2005 approximately after a period of about two years and one year and 10 months of the expiry of time limitation prescribed under sections 33(3) of the Central Excise Act and 36(3) of the Sales Tax Act respectively. It is also observed that the Additional Collector approached the C.B.R. for grant of extension of time limits on the very day the case was decided i.e. on 11-1-2005 (see O-I-O). The extension of time limits was thus sought from the C.B.R. after deciding the case. The case had already become time barred, as aforesaid, because the respondents had failed to decide it within the stipulated time limits. The C.B.R. extended the time limit vide its letter dated 19-1-2005 (after the date of judgment) upto 31-3-2005. Even if, for the sake of argument only, it is considered that the C.B.R. had allowed extension in the case upto 31-3-2005 the record shows that even then the concerned authority failed to dispatch the order by the extended date i.e. by 31-3-2005 and let it sit in the file right upto 14-7-2005 when it was finally dispatched. An order passed on the file but not communicated to the affected party within the prescribed time limits or within the extended period of time cannot be treated as c having been passed within the prescribed time limits. Whatever way one may look at it, impugned O-I-O No.57/05 dated 11-1-2005 is hit by time limitation as laid in law.

10. It was held by the F.T.O. in complaint No.805/03, 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 F.T.O. had, therefore, recommended in that case the cancellation of impugned O-I-O. The department represented against the aforesaid decision of the F.T.O. before the President of Pakistan. The President was pleased to reject the departmental representation 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".

11. In the present complaint charges against the complainant were framed both for infringement of the provisions of Sales Tax Act and Central Excise Act vide show-cause notice dated 26-10-2002. The case was decided on 11-1-2005 much beyond the prescribed time limits. F.T.O's. findings in C.No.805/03, as sustained by Presidential order referred to above, were made in 'the context of relevant provisions of sales tax law. However, the Presidential order lays down the principle that "where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory". As in the combined impugned order passed in the instant case the respondents had created liabilities both of sales tax, along with additional tax and central excise duty and penalties but failed to pass the order within the prescribed time limits, the ruling contained in the above-mentioned judicial precedent will apply not only to sales tax but also to central excise. Thus the impugned order, as a whole, is hit by time limitation as provided in law. Respondents' objection to F.T.O's. jurisdiction to investigate the complaint is misconceived. They have violated the provisions of law. `Maladministration' stands clearly established. In view of the foregoing position and F.T.O's. decision in complaint No.805/03, as sustained by the Presidential order dated 7-5-2005 it is held that the impugned O-I-O is not sustainable because it is clearly hit by time limitations as laid down in law. Accordingly, it is recommended that the Revenue Division direct the competent authority to:

(i) Cancel the O-I-O No.57/05 dated 11-1-2005 (dispatched on 14-7-2005).

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

C.M.A./545/F.T.O.Order accordingly.