ZIA ULLAH VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 675 (2004)

Sales Tax Act (III of 1951)---

----Ss.18 & 19---Sales Tax Registration Rules, 1996, Rr.5 & 6---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Registration under section 18 of the Sales Tax Act---Rules, Regulations and instructions---Circular letter issued by Secretary Sales Tax (L & P) showed that it sought to materially modify the Sales Tax Registration Rules, 1996---Containing new requirements for registration and showed that it was issued to overcome perceived deficiencies in the rules---Substantive changes in law or rules could not be brought through circular instructions---Central Board of Revenue had no power to add conditions which were not contained in rules---Letter dated 16-8-2003 issued by the Central Board of Revenue amounted to act of maladministration defined in section 2(3)(i)(a) & (b) of the Ordinance No. XXXV of 2000---Federal Tax Ombudsman ordered for withdrawal of circular instructions issued vide C.No.3(2)STP/99 (Pt-I) dated 16-8-2003.

Muhammad Anwar, Consultant, Dealing Officer.

Muhammad Saleem Malik for the Complainant.

Kamal Afzal, A.C., Sales Tax, for the Complainant.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The main points in the complaint are as follows:

(i) The complainant applied for registration under section 18 of Sales Tax Act vide application, dated 18-10-2003 and fulfilled all the prescribed requirements.

(ii) The Inspector of Sales Tax visited the unit in this connection.

(iii) The Assistant Collector, however, then verbally asked for the personal appearance of the applicant before him at Faisalabad which is not only immoral, illegal, arbitrary but also against the principles of practice and procedure.

(iv) The registration certificate was issued on 13-12-2003 i.e. with delay of 55 days which is against the provision of law, rules and regulations and departure from established practice and procedure.

(v) All extra legal conditions are being imposed for ulterior motives and often registration is allowed after undue delay for want of illegal gratification to those who resist the harassment as in this case. On the other hand the certificate is issued as soon as the applicant fulfils the demand of gratification in lieu of waiver of requirements.

(vi) Mala fide practice of registration has been established at Faisalabad Collectorate of Sales Tax because registration of any unit depends upon the desire of the Assistant Collector. He may register unit under section 18 even without application for registration and other legal documentary requirements or even on blank application as in the case of Madina/Iqra Garments where a bogus registration was made.

(vii) The circumstances mentioned above have created an atmosphere of harassment amongst the taxpayers and resultantly tax violations are on increase leading to further increase in the harassment of tax payers by the tax authorities.

2. The complainant has posed the following questions:

(a) Whether the extra conditions other than required under law for registration are arbitrary, illegal, biased and departure from established practice or procedure fall within the definition of maladministration or not?

(b) Whether unnecessary delay of 55 days without any logic when all the prescribed as well as arbitrary requirements were fulfilled is contrary to law, oppressive and discriminatory and falls within the definition of maladministration or not?

It is prayed that the extra legal requirements imposed by the department as well as the required personal appearance of applicant may be' declared illegal and arbitrary. It is further prayed that action under efficiency and disciplinary rules may also be recommended against the Registration Authority.

3. The respondent's reply contains the following main points:

(i) An incomplete application under section 18 of the Sales Tax Act, 1990 was received on 18-10-2003. The applicant was required to provide documents as per C.B.R's. instruction, dated 16-8-2003 i.e. NTN certificate, telephone and electricity bill.

(ii) In order to ward off the misuse of the system individual applicants are required to appear in person before the Registration Authority for verification of their personal identity as per said instructions of the C.B.R. Therefore, the applicant was only asked to fulfil a requirement under the law. It was not a deviation from the legal, moral and well-established principles of practice and procedure.

(iii) The registration certificate was, however, issued on 13-12-2003 in spite of the fact that NTN certificate and telephone bill were not provided by the applicant and the verification of N.I.C. was not received from NADRA.

(iv) No extra condition was imposed with ulterior motives. The applicant tried to avoid personal appearance on one pretext or the other while the same is mandatory. The applicant appeared in person on 10-12-2003 and sales tax certificate was issued on 13-12-2003. The delay of 55 days as alleged by the complainant did not occur.

(v) Compulsory registration under section 19 does not require a formal application for registration. The Collectorate of Sales follows the statutory requirements as contained in Chapter-III of Sales Tax Act, 1990 for registration of new taxpayers. Measures are taken to facilitate the taxpayers and guidance is provided to them in the matter of registration and other allied problems.

4. The representatives of the two sides attended and during the hearing reiterated their contentions which were considered and relevant record was examined. The complainant has already received the registration certificate which was issued on 13-12-2003. He has, however, not provided any evidence of alleged corrupt motives and it is evident that the Assistant Collector was only following C.B.R's. instructions contained in its circular letter dated 16-8-2003 issued to all Collectors of Sales Tax. The complainant has, however, also pointed out that the said circular was against the provisions of law and the rules made there-under and was thus illegal and void. For ready reference the said circular letter, dated 16-8-2001 issued to Collectors of Sales Tax is reproduced below:

"SUBJECT: NEW SALES TAX REGISTRATIONS.

As the existing rules/procedure for sales tax registration do not provide sufficient check to ward off the applicants who want to abuse the system and in order to provide safe guard against possible abuse of the system, the Collectorate of Sales Tax and Central Excise (East), Karachi carried out on exercise of processing of new application for sales tax registration.

2. After considering the outcome of the exercise, the following instructions are laid for new registrations:

(i) All individual applicants (persons other than manufacturer/companies) for new registration be asked to appear in person before the Registration Authority for verification of their person identity, along with supportive documents, as indicated at annexure-A:

(ii) Apart from declaration of business address, (including addresses of head office, manufacturing/business premises, branch office(s), godowns etc.) in the application form, it shall be made mandatory for the applicants to declare home address and provide details of the property in their names;

(iii) All applicants shall be required to submit a certificate from their banks, certifying the financial worth of the business concern;

(iv) Authenticity of applicant's I.D. Card shall be checked by getting it verified from NADRA's record;

(v) The survey or verification of premises declared by the applicant shall be undertaken by a team compromising one Deputy Superintendent and one Inspector. The Superintendent, Registration Division may get counter-verification done in at least 20% of newly-registered cases; and

(vi) The telephone numbers, cell numbers declared in the application form shall be got verified from the concerned department/company.

Note: It shall be the personal responsibility of Sales Tax Registration Authority to ensure that all the columns of the application are properly filled in and duly verified and feeded in the computer by the responsible sales tax functionaries. In case, it is found at any subsequent stage that the particulars/statements as furnished by the applicant were false/ fabricated and have been wrongly verified, the Assistant Collector who had issued the registration will be held responsible.

(Sd.)

(Dr. Kamal Azhar Minhas)

Secretary (ST-L&P)"

5. The perusal of above circular letter shows that it seeks to materially modify the Sales Tax Registration Rules, 1996 and contains new requirements for registration which are not even remotely envisaged in the law or rules. In fact the opening words of the circular letter shows that it was issued to overcome perceived deficiencies in the rules. The very purpose of the letter was thus obviously invalid because substantive changes in law or rules cannot be brought about through circular instructions. If the rules were considered deficient, these should have been amended by following the correct legal procedure. The C.B.R. has no power to add any conditions which are not contained in the rules. The C.B.R. letter dated 16-8-2003 thus amounts to an act of maladministration as defined in section 2(3)(i)(a) and (b) of Ordinance No.XXXV of 2000.

6. In view of the above it is recommended that:

(i) C.B.R. to withdraw the circular instructions issued vide C-No.3(2) STP/99(Pt-I) dated 16-8-2003.

(ii) Compliance be reported within 30 days.

M.I./292/FTOOrder accordingly.