RAZA TRADING COMPANY, PESHAWAR VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 638 (2004)

(a) Sales Tax Act (III of 1951)---

----S.59---Input Tax---Verifiable unsold stock---Registration---Adjustment---Complainant claimed adjustment of input tax paid in 1996 in his return for June, 2000---Complainant was registered under the Sales Tax Act on 31-12-1998---At the time of registration section 59 of the Sales Tax Act was not in the statute book---Condition of claiming input tax for goods acquired 90 days before registration provided in the said section inserted vide Finance Act 1999, did not apply in the case---Adjustment of input tax paid at the time of ex-bonding the goods against the sales tax payable was correctly made.

(b) Sales Tax Act (III of 1951)---

----S.36(2)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(b)---Recovery of tax short-levied--Notice---Maladministration---Adjustment was claimed on 5-7-2000 and show-cause notice was to be issued before 5-7-2003, whereas it was issued on 13-9-2003---Which was beyond limitation time of 3 years as prescribed under section 36(2) of the Sales Tax Act, 1990---Stipulated time for recovery had lapsed and mere issuance of a show-cause notice did not make the matter valid---Notice being time-barred all the proceedings in pursuance thereof by any authority were illegal and void--Issuance of illegal notice was arbitrary, perverse, unjust and oppressive--Competent authority was ordered to withdraw the show-cause notice and drop the proceedings initiated in its consequence.

Muhammad Anwar, Consultant, Dealing Officer.

Syed Mohsin Raza Naqvi, the Complainant along with Isaac Ali Qazi for Petitioner.

Imtiaz Ahmad Sheikh, DC (Sales Tax) for the Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Brief facts of the case are that the complainant was engaged in import and sale of manual typewriters since, 1975-76. He imported 300 pieces of typewriters in February, 1996 which were warehoused vide B/E No.76/96, dated 6-5-1996. Out of these, 50 typewriters were ex-bonded on 12-5-1995 whereas 250 typewriters, the subject-matter of this complaint, were ex-bonded vide ex-bond B/E No.217, dated 17-8-1996 on which sales tax amounting to Rs.380,660 was paid. By Finance Act, 1998, the importers were also made liable to be registered under the Sales Tax Act, 1990. The complainant got himself registered on 31-12-1998 at Registration No.05-01-8469-001-91. At the dine of registration, out of 250 typewriters, 204 were in stock which were declared to the sales tax department and this declaration was duly verified by a senior Auditor of the Collectorate of Sales Tax Peshawar. As the typewriters were swiftly replaced by the computers the complainant was finding it difficult to sell the remaining stock. However, he was able to sell the goods in June, 1999, September, 1999 and June, 2000.

2. In June, 1999, the complainant made his first ever taxable sales. Before filing his return for June, 1999, he approached the Collector of Sales Tax Peshawar vide letter, dated, 18-6-1997 requesting for permission to file special return claiming adjustment of input tax paid at the time of ex-bonding the goods on 17-8-1996. Pending formal disposal of the request he was verbally asked to file return for June, 1999 under protest. The return for June, 1999 was filed on 10th July, 1999 and tax of Rs.75,178 was deposited in cash with a note of protest. As no reply was received from the Collectorate, the complainant approached the Member, Sales Tax, C.B.R. vide his letter, dated 26-8-1999 which was still pending. Return for September, 1999 was also filed with a note of protest on 6-10-1999 and sales tax amounting to Rs.69,802 was paid in cash. However, in the return for June, 2000 filed on 5-7-2000 the complainant adjusted input tax of Rs.310,618 against sales tax payable amounting to Rs.387,787 and the balance of Rs.77,169 was paid in cash.

3. After June, 2000 the complainant has been out of business, hence, filing nil returns. During that period at least 4 audits of the complainant were conducted and no objection was raised either at the time of making adjustment in June, 2000 or in subsequent audits. After more than 3 years of the adjustment, a show-cause notice, dated 13-9-2003 was issued by the Deputy Collector (Adjudication) Sales Tax Peshawar on the basis of audit report demanding back the sales tax of Rs.310,619 adjusted in June, 2000 along with additional tax and penalty.

4. It is stated that the show-cause notice is based on mala fide audit report and is a glaring example of victimization and harassment of a fair taxpayer. The complainant statedly adhered to law and procedure to avail his inalienable right of claim of input tax paid on his import. Therefore, without prejudice, for mere any procedural lapse and no action on the part of department at the right time the complainant cannot be held responsible. The conduct of the respondent-Collectorate attracts principle of estoppel. The show-cause notice at the same time violates legal requirements. As the complainant's case falls in section 36(2) of the Sales Tax Act, 1990 the show-cause notice is time-barred which is prayed to be ordered to be withdrawn.

5. In reply the respondent has stated that the concept of special return does not apply in the instant case. The complainant has neither any documentary evidence nor he had got any permission to file return under protest. The complainant was registered in December, 1998 and the goods were imported and ex-bonded in 1996. The complainant was not entitled to claim input adjustment of sales tax of Rs.310,618 in June, 2000 which had been paid in 1996 on goods imported i.e. almost three years prior to registration. Under section 7 of Sales Tax Act, 1990 a registered person is entitled to claim input tax adjustment only during the relevant tax period which was not done in this case. Under section 8 of the Act, no person other than a registered person can claim input tax. The complainant was not registered at the time of clearance of goods in 1996. Furthermore under section 59 of the Act, 1990 when a person is registered with Sales Tax, he can claim input tax for the stocks acquired 90 days before registration. In the instant case the complainant had acquired the stocks three years prior to registration. The complainant had thus violated the provision of sections 7(1), 8(3), 26(1) and 59 of the Sales Tax Act, 1990.

6. The respondent has further stated that at the time of audit the objection was raised against wrong claim of adjustment and a contravention report was forwarded to the Deputy Collector (Adjudication), Peshawar on 20-8-2003 on the basis of which show-cause notice was issued to the complainant. The contention of the complainant that the audit report was mala fide is strongly repudiated. The show-cause notice falls under section 36(1) as the complainant has intentionally and wilfully tried to get unlawful benefit. At the time of registration of the complainant section 59 was omitted, hence there is no question of taking input tax adjustment on stocks acquired before registration. The amount of sales tax along with additional tax and penalties the Sales Tax Act, 1990 is therefore recoverable from the complainant under sections 33 and 34.

7. The representative of the both sides attended and reiterated their contentions. The counsel for the complainant further submitted that at the time of the complainant's registration i.e. 31-12-1998 section 59 which provides that an importer can claim input tax paid during 90 days before registration did not exist as it was omitted by Finance Act, 1997 and in its present form was inserted vide Finance Act, 1999 which could not be applied retrospectively. He argued that in the absence of section 59 no provision existed which imposed time limitation for claiming adjustment and any input adjustment could not be declared inadmissible if the registered person held the B/E in case of import and Sales Tax Invoice in case of local purchaser in section 7(2) of the Act. He further argued that show-cause notice issued on 13-9-2003 was hit by time limitation and was therefore invalid. In support of his argument he referred to the judgment of the Appellate Tribunal and High Court reported as PTCL 2003 CL 532, PTCL 2002 CL 287 and 2001 PTD 661 wherein it has been held that time-barred demand irrespective of its merit cannot be enforced.

8. The contentions of the both sides have been considered. The complainant claimed adjustment of input tax of Rs.310, 618 paid in 1996 in his return for June, 2000 which was filed on 5-7-2000. The complainant was registered under the Sales Tax Act on 31-12-1998. At the time of registration section 59 was not in existence, so the condition of claiming input tax for goods acquired 90 days before registration provided in the said section inserted vide Finance Act, 1999 does not apply in this case.

9. As regards show-cause notice, dated 13-9-2003, it does not indicate under which section the notice was issued. The case of the complainant clearly falls under section 36(2) of the Sales Tax Act according to which a show-cause notice could be legally issued within three years of the relevant date. In this case the adjustment was claimed on 5-7-2000 and the show-cause notice as such was to be issued before 5-7-2003 whereas it was issued on 13-9-2003 i.e. beyond time limitation of 3 years. In the judgments of the Appellate Tribunal and High Court referred to by the complainant's A.R it was held that demand of customs duty and sales tax raised on the basis of time-barred show-cause notices was not enforceable. The stipulated time for recovery had lapsed and mere issuance of a show-cause notice does not make the matter valid. Notice being time-barred all proceedings in pursuance thereof by any authority is illegal and void. The issuance of illegal notice is arbitrary, perverse, unjust and oppressive which falls in the definition of maladministration under section 2(3)(i) (b) of the Ordinance No. XXXV of 2000 and the provisions of section 9(2) of the said Ordinance are not attracted.

10. It is therefore recommended that:

(i) The competent authority to withdraw the show-cause notice dated 13-9-2003 and the proceeding initiated in consequence of the said notice be dropped.

(ii) Compliance be reported within 30 days.

M.I./284/FTOOrder accordingly.