RELIANCE WEAVING MILLS LTD., MULTAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 784 (2003)

Sales Tax Act (VII of 1990)---

----Ss. 2(34), 11, 33, 34 & 48(1)(a)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Deduction of additional tax from sanctioned refund claim without determining additional tax liability through process of adjudication---Validity---Additional tax could be imposed under Ss.33 & 35 of Sales Tax Act, 1990 only after issuance of show-cause notice and providing opportunity of hearing to assessee---Expression "tax" included additional tax---Ends of justice would have been met, if assessee was issued proper show-cause notice for recovery of additional tax as per prescribed procedure to enable him to prepare and enter his defence before adjudicating Authority---Impugned deduction was, held, to be premature and improper, especially when assessee had not consented to such deduction.

Muhammad Akbar, Advisor (Dealing Officer).

Rana Muhammad Afzal for the Complainant.

Fazal-ur-Rehman for Respondent.

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---This is a complaint of maladministration on the part of Revenue Authorities for arbitrary adjustment/deduction of Rs.152,440 from out of the amount of sales tax refundable to it.

2. The facts of the complaint are that the complainant had claimed refund of input tax amounting to Rs. 11,934,095 for the period 12/02 out of which the respondents sanctioned a refund of Rs.6,150,590. However, they instead of making full payment of the sanctioned amount deducted/ adjusted by Refund Payment Order No.851/03 dated 14-14-2003 an amount of Rs.152,440 against sales tax liabilities outstanding against the complainant under different heads (balance amount of Rs.145,193 for short filing for the month of February 2003, Rs.7000 payable against cotton lint for January 2003 along with additional tax of Rs.247). It has been pleaded that the refund payment order dated 14-4-2003 deducting Rs.152,440 together with imposition of Rs.247 as additional tax, may be declared illegal and arbitrary. The respondents could not impose additional tax without first determining its payability through process of adjudication and also because complainant's refund for 12/02 has been lying with the department during the periods of January and February 2003 i.e. much before the passing of impugned refund payment order dated 14-4-2003.

3. In reply the respondents have stated that the complainant made short filing during the month of February 2003' for which Rs.145,193 was recovered from the refundable amount in terms of provisions of section 11A of the Sales Tax Act,1990 which authorizes recovery of short paid amounts without notice. The deduction was made solely at the will and request of the complainant. There was no dispute between the department and the complainant regarding non-payment of sales tax and subsequent deduction. It appears that the complainant has not informed his counsel that it was on his request that the amount was adjusted for short filing during the month of February 2003 to recover Rs.145,193 from, the refundable amount in terms of provisions of section 11A of the Act. The refund claim for the month December 2002 was submitted with supporting documents on 22-3-2003. The complainant lacks merit.

4. During the hearing the A.R. confined his complaint to arbitrary deduction of additional tax amounting to Rs.247 only, which, he contended, was determined without resource to due process of adjudication. Neither any show-cause notice was issued nor was an opportunity of hearing given before determining additional tax liability. Again the complainant did not commit any wilful default to attract imposition of additional tax.

5. The D.R., however, stated that the additional tax is also a tax as per section 2(34) of the Sales Tax Act, 1990. Additional tax of Rs.247 was levied on account of non-payment of tax due from it for January 2003, which was adjusted in April 2003 with the consent of the complainant. It could be adjusted because no refund was available, as contended by the complainant, during January and February 2003 as the relevant supporting documents for refund were filed with the department on 22-3-2003. As such the claim had not assumed the status of `refund claim' nor could it be treated as such. Therefore, the complainant's contention that additional tax could not be imposed because his refund money was already lying with the department was not sustainable. The D.R. confirmed that normally additional tax is determined/made under section 11 of the Sales Tax Act, 1990 but in this case deduction was made from out of the admissible refund on complainant's own request. He also referred to S.R.O. 1178(I)/92 dated 23-11-1992 and section 48(1)(a) of the Sales Tax Act, which empower them to make deduction from refunds (money lying with the department) to realize the outstanding liabilities.

6. The arguments of the parties and the record of the case have been considered and examined. Clearly, it was complainant's liability to pay up the recoverable amounts of sales tax and the A.R. admitted that liability. He, however, challenged the deduction/adjustment of amount of additional sales tax (Rs.247) on the grounds that amount in question could not be adjusted because (i) refund due to the complainant had been lying with the department and (i) the additional tax could not be imposed without first determining it, in the first place, through a process of proper adjudication, especially when it had not committed any wilful default. Asked what would have been the normal course of action to recover additional tax if the complainant had not consented to its payment the D.R. admitted that in that event the matter would have been decided under section 11 of the Sales Tax Act, 1990. According to section 11 additional tax and penalty can be imposed under sections 33 and 34 of the Sales Tax Act respectively but only after issuance of show-cause notice and. providing the complainant the opportunity of being heard. No doubt the expression `tax' includes additional tax but the ends of justice would be met if the complainant is issued a proper show-cause notice for recovery of additional tax as per the prescribed procedure to enable it to prepare and enter its defence before the adjudicating authority. As it is, 'the decision to deduct the amount of additional tax vide the impugned 'refund order dated 14-4-2003 is premature and improper, especially when the complainant insists that it gave a consent (letter on record) only for adjustment of sales tax due from it and not for deduction of additional tax. Accordingly, it is recommended that the C.B.R. direct the Collector Sales Tax concerned:---

(i) To determine through due process of law whether or not the amount of additional tax, being challenged by the complainant, was legally payable/recoverable after considering its representation and affording it the opportunity of being heard and then adjust the amount or refund the same, as the case may be, depending on findings of the competent adjudicating authority.

(ii) Compliance be reported within 30 days.

S. A.K./190/F. T.O.Order accordingly.