BAYER CROPSCIENCE (PVT.) LTD., KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 941 (2003)

(a) Income Tax Ordinance (XXXI of 1979)---

----S.104---Income Tax Ordinance (XLIX of 2001), S.170(3)(b)---Sales Tax Act (VII of 1990), Ss.6(2) & 26(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Adjustment of refund against tax---Income tax assessment was finalized and refund was created---Request was made by the complainant/assessee to issue the refund or to allow them to adjust the amount against the sales tax liability under S.104 of the Income Tax Ordinance, 1979---Neither refund was issued nor adjustment of monthly sales tax liability against income tax refund was allowed and a show-cause notice was issued for non-payment of the principal amount of sales tax along with additional tax---Validity---Authorities decided to punish the complainant/assessee by refusing to adjust their refund long over-due for sales tax payment---Department should not have ignored the simple fact that the complainant/assessee might be facing a cash flow problem---Such was a clear case of maladministration on account of inaction, deliberate delay in refund and harassment on the part of Large Taxpayer Unit officials----Adjudication proceedings initiated against the complainant/assessee were mala fide, without justification and legal validity---Federal Tax Ombudsman recommended that Central Board of Revenue direct the DG Large Taxpayer Unit to allow full refund of income tax which became due in January, 2000 (if not already done); allow adjustment thereof against sales tax liability which became due on 15-1-2003; remit the liability of additional tax and penalty against the complainant and withdraw the show-cause notice issued by the Collector (Adjudication).

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss.2(6) & 9---Income Tax Ordinance (XLIX of 2001), S.170(3)(b)---Relevant Legislation---Non-issuance/adjustment of refund---Complaint against---Department contended that Income Tax Ordinance, 2001 was not included in the list under sub-S.(6) of S.2 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, therefore, the jurisdiction of Federal Tax Ombudsman was barred---Validity---In order to redress grievances of the complainant/assessee Federal Tax Ombudsman had the authority 'to take cognizance of and investigate into the cases where maladministration had been alleged; otherwise the very purpose of enacting the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 would be defeated---Section 9 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 clearly provided that the Federal, Tax Ombudsman may, on a complaint by any aggrieved person, investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee---Objection raised was irrelevant.

M. Mubeen Ahsan, Advisor (Dealing Officer).

Athar Saeed, Advocate.

Moshin Waheed, ACA.

Misri Ladhani, Additional Commissioner of Income Tax L.T.U.

Abdul Hameed Memon, Deputy Collector of Sales Tax L.T.U.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The complaint has been filed against the refusal of the respondents to adjust the determined income tax refund against current liability of sales tax and the show-cause notice issued by the Collector of Sales Tax. The complainants have stated that their income tax assessment for the year 2000-2001 was finalized by the Deputy Commissioner of Income Tax L.T.U. vide assessment order dated 7-1-2002 and a refund of Rs.41,707,469 was created. Their authorized representative (A.R.) requested the D.C.I.T. vide letters dated 10-1-2002, 15-2-2002 and 29-5-2002 to issue the refund or to allow them to adjust the amount against the sales tax liability under section 104 of the Income Tax Ordinance, 1979.

2. The complainants stated that when (the new Ordinance came into operation and) the case was transferred to the L.T.U. w.e.f. 1-7-2002, A.R. sent a letter dated 1-8-2002 to the C.I.T. L.T.U. for an opportunity to discuss the matter, and on 5-9-2002 A.R. once again requested the C.I.T. to issue the refund. A.R. pursued the matter as follows:-

(1) He requested the D.G. vide letter dated 13-9-2002 to direct the concerned officer to issue the refund.

(2) He submitted the original tax payment receipts and requested C.I.T. vide letter dated 23-9-2002 to issue the refund at an early date.

(3) He sent letters dated 5-9-2002, 13-9-2002, 23-9-2002 and 26-9-2002, 9-10-2002, 25-10-2002, 21-11-2002 and 26-12-2002 to D.G. and C.I.T. to pay the refund.

(4) A.R. suggested (letter dated 26-12-2002) that, as an alternative, D.G. may direct the concerned officer to adjust the income tax refund against the sales tax liability of Rs.35 million for the month of December 2002 due on 15-1-2003.

(5) The same request was reiterated in his letter to issue the refund or adjust it against sales tax liability dated 9-1-2003 to D.G.

(6) On 10-1-2003 he communicated the complainant's No Objection for adjusting sales tax liabilities against income tax refund.

3. Since no reply to these letters was received, the complainants adjusted the sales tax liabilities amounting to Rs 30,510,072 due for payment on 15-1-2003 against the income tax refund created on 7-1-2002. Intimation to this effect was communicated by A.R. to D.G. vide letter dated 15-1-2003 to direct the concerned officials to adjust the sales tax liability against the income tax refund, and another letter sent on the same date to C.I.T. to issue the refund of the aforesaid amount in favour of the Collector of Sales Tax. The Collector was also informed to make adjustment in his record accordingly. The complainants stated that the matter pertaining to the adjustment of the sales tax liability for December, 2002 against income tax refund created on 7-1-2002 was pursued with C.I.T. vide letter dated 18-1-2003, 31-1-2003, 8-2-2003 and 22-2-2003, and a letter was also sent to D.G. on 22-2-2003.

4. The complainants stated that they received a demand notice dated 20-2-2003 under section 11A of the Sales Tax Act from the Deputy Collector (Processing and Assessment Division) L.T.U. asking them to deposit Rs.30,510,072 within 10 days failing which she threatened to refer the case to the adjudicating authority for legal action. A.R. sent an exhaustive reply vide letter dated 26-2-2003 to the D.C. and requested her to drop the proceedings. The Additional C.I.T. informed vide letter dated 22-2-2003 that their request for adjustment of income tax refund against the sales tax liabilities could not be accepted as the Collector of Sales Tax had not made any requisition and cash refund would be processed on submission of original copies of challans.

5. A.R. replied vide letter dated 25-2-2003 thoroughly explaining their contention and the request to issue cheque of Rs.30,510,072 in favour of the Collector of Sales Tax, that original challans had been submitted to the C.I.T. in September 2002 and it was wrong to state that the refund would be processed after submission of the original challans. A.R. also informed D.G. on 10-4-2003 that neither the refund had been issued nor sales tax liabilities adjusted against the refundable amount.

6. The Collector of Sales Tax issued a show-cause notice dated 19-4-2003 for recovery of sales tax and additional tax asking the complainants to show cause why penalty under section 33 of the Sales Tax Act not be imposed on them. An interim reply dated 23-4-2003 was filed by the A.R. and the position was also brought to the notice of the D.G. again requesting him to ask the C.I.T. to issue cheque in favour of the Collector. A.R. also attended the hearing on 3-5-2003 before the Collector of Sales Tax to explain the matter but his arguments did not apparently find favour. He also met D.G. and explained the complainant's view point but he refused to accede to their request. The Department had also refused to implement the order of the Federal Tax Ombudsman in an identical matter in Complaint No.1490/2002.

7. The complainants stated that the contention of the respondent that the income tax refund was not adjustable against due sales tax and non-payment of income tax refund amounted to maladministration. The income tax refund had already been created in their favour on 7-1-2002. They had applied for its payment or against the sales tax liability for December 2002. The concept of L.T.U. was meant to provide all services in a one-window operation. C.I.T. and the Collector both worked under D.G. and there was no justification for their refusal to adjust the income tax refund against the sales tax liability. Clause (b) of subsection (3) of section 170 of the Income Tax Ordinance, 2001, provided for adjustment of income tax refund against the liability of other taxes. Therefore, the contention of the respondents that there was no provision in the new Income Tax Ordinance pari materia with the provisions of section 104 of the old Income Tax Ordinance was incorrect.

8. They stated that in other cases adjustment of sales tax has been made against refund of income tax and cheques had been directly issued in the name of the Collector. Since a determined refund was available which was adjusted against the sales tax liability, there was no basis for levy of additional tax or penalty for alleged non-payment of sales tax. The complainants requested that the show-cause notice issued by the Collector of Sales Tax be quashed and it may be declared that the complainants have properly discharged their sales tax liability by adjusting the same against determined income tax refund and were not liable to additional tax and penalties for the alleged non-payment.

9. The Director General, L.T.U., Karachi, replied to the complaint that the request of the complainants for adjustment of monthly sales tax liability against income tax refund was not accepted and a show-cause notice was issued for non-payment of the principal amount along with additional tax. The issue related to a legal dispute between the complainants and L.T.U., which was now under adjudication before the Collector of Sales Tax. He stated that the jurisdiction of the Federal Tax Ombudsman was barred under section 9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000.

10. D.G. stated that payment of income tax and sales tax was monitored under separate statutes which did not provide to adjust the amount of refund against the current admitted liability of other taxes. Section 10 of the Sales Tax Act provided only adjustment of the outstanding amount of any tax prior to allowing refund. Section 170 (3)(b) of the Income Tax Ordinance also provides that income tax refund could be adjusted against outstanding liabilities of other taxes.

11. D.G. stated that after promulgation of the new Income Tax Ordinance, 2000, the procedure for issue of refund under section 100 of the repealed Income Tax Ordinance ceased to operate as it was inconsistent with the new Ordinance. It was mandatory upon the assessee to submit an application for refund in prescribed format under section 170(2) of the Income Tax Ordinance, 2001 immediately or after 1-7-2002 but the assessee failed to file an application till 20-5-2003. The application for issue of refund was filed on 21-5-2003 which would be processed in accordance with subsection (4) of section 170 of the Income Tax Ordinance, 2001. He added that the proposed adjustment was in violation of sections 6(2) and 26(1) of the Sales Tax Act under which payment of the tax was the responsibility of the suppliers, in this case the complainants.

12. He stated that the act of arbitrary adjustment for income tax refund against sales tax was not permissible under the Sales Tax Act. Refunds could be adjusted against the outstanding arrears on the requests of the officer of the sales tax. Every registered person was required to charge sales tax on its supplies. The tax collected on behalf of the Federal Government was to be deposited after adjustment of input tax. The registered persons should comply with the role of trustees in charging the tax and depositing the same in the Government exchequer and delay in deposit of tax on any pretext was not only a violation of law but also a breach of trust. With, regard to the adjudication proceedings, he stated, there was no ground to drop the proceedings as requested by the A.R. The Collector had no option but to proceed under the law and the payment of additional tax was mandatory requirement.

13. With regard to the decision of the office in Complaint No.1490/2002, he stated, the respondent had submitted a representation against the same to the President of Pakistan. He asserted that the respondent followed a course as provided under law and the complainants followed a path which was not based on legal premises. Their prime interest was to get income tax refund. He admitted that L.T.U. was established to facilitate the taxpayer and to provide services relating to the income tax and sales tax under one roof which could not go against the express provisions of law. He stated that it was a conscious decision to maintain accounts of all the taxes in their respective head of account. The concept of L.T.U. to locate all officials dealing with different taxes in one premises for convenience of the taxpayer did not provide for merger of taxes.

14. He stated that the contention that the provision of section 104 of the repealed Income Tax Ordinance was pari materia with the provision of section 170(3)(b) of the new Ordinance was incorrect. The outstanding liability mentioned in the new section referred to determined or assessed liability which could not be equated with the current admitted liability. C.B.R. has also clarified in its letters dated 31-8-2002 and 20-11-2002 that no one sided and arbitrary adjustment could be made by the taxpayer and no refunds of income tax could be adjusted against monthly sales tax liability. He asserted that the complainants had failed to give any legal ground for the complaint and since it had no merit and it did not fall within the purview of the office of the Federal Tax Ombudsman, it may be dismissed.

15. During the hearing of the complaint Mr. Athar Saeed, Advocate, stated that the income tax refund was created on 7-1-2002 when I.T. Ordinance, 1979 was still in force and under section 100 thereof the complainants were not required to file any application and had acquired the vested right to obtain the refund without application. The department should have granted refund in response to the persistent efforts made in this behalf. They filed an application under section 170 of the new Ordinance without pre judice to their right and only to comply with the direction of the respondent. He stated that when refund of Rs.20 million was received vide cheque dated 31-5-2003 the amount was paid to the Collector vide cheque dated 4-6-2003.

16. The Additional Commissioner of Income Tax reiterated the argument that complaint had been made for maladministration in respect of Income Tax Ordinance, 2001 which was not included in the list of relevant legislation under subsection (6) of section 2 of the Ordinance No.XXXV of 2000 and therefore it did not come within the jurisdiction of the Federal Tax Ombudsman. He stated that when a sales tax return was filed by a registered person, the amount of sales tax liability was considered to be an admitted liability. The registered person was required to deposit the amount of sales tax collected from his purchaser during the tax period; he had no right to ask the Sales Tax Department to adjust the tax liability against the refund of any other tax.

17. Both the Additional Commissioner of Income Tax and Deputy Collector of Sales Tax reiterated the arguments advanced in the L.T.U's. reply at considerate length and repeated their firm view that there was no justification to allow the adjustment of income tax refund against sales tax liability. The Deputy Collector stated that the complainants had adopted an unconventional procedure not prescribed anywhere in the sales tax law. They had defaulted in payment of sales tax, cause of action arisen against them, and a show-cause notice issued. He stated that if a procedure was to be devised for adjustment in the context of the L.T.U., it would amount to shifting the responsibility of payment of sales tax from the taxpayers to the tax collector which would not be feasible under the present tax laws. The Additional Commissioner stated that the complainants were incorporated in the name of Agrovo Pakistan (Pvt.) Limited which was changed in the income tax record to Aventis Cropscience (Pvt.) Limited on 14-2-2000. Subsequently the name was again changed to Bayer Cropscience (Pvt.) Limited vide letter dated 19-11-2002. Thus during 2000 to 2002 the name of the complainants was changed twice. When the new name came into existence in November 2002, the new Ordinance had come into force and the complainants application for refund was to be proceeded under the provisions of the new Ordinance.

18. The respondent has challenged the jurisdiction of this office on' the ground that the matter was under adjudication before the Collector of Sales Tax. Additional Commissioner of Income Tax has argued that the Income Tax Ordinance, 2001 was not included in the list under subsection (6) of section 2 of the Federal Tax Ombudsman Ordinance and, therefore, the jurisdiction of this office was barred. It is a well settled law that in order to redress grievances of the complainants this office has the authority to take cognizance of and investigate into the cases where maladministration has been alleged; otherwise the very purpose of the issue of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, would be defeated. Additionally, section 9 of this Ordinance clearly provides that the Federal Tax Ombudsman may, on a complaint by any aggrieved person, investigate any allegation of maladministration on the part of the Revenue Division or any Tax Employee. Therefore the objection raised by the Additional Commissioner too is irrelevant.

19. From the detailed submissions made in the complaint, the reply of respondent, and the arguments advanced at the time of hearing of the complaint, it transpires that a refund of income tax amounting to Rs.41.7 million was created in favour of the complainants on 7-1-2002 and their A.R. approached the D.C.I.T., C.I.T. and D.G. through a large number of letters and personal visits to obtain the refund. When the case was transferred to L.T.U., A.R. again sent several letters to C.I.T. and D.G. and also submitted original tax payment receipts to C.I.T. to obtain refund but received no response. When the refund was not paid for a year, A.R. requested the D.G. to adjust the amount of income tax refund against sales tax liability of Rs.35 million for December 2002 due on 15-1-2003. It should be realized that the amount of refund was substantial and its blockage would create a financial crisis for any business concern.

20. L.T.U. authorities did not take any action on the innumerable letters and personal requests made at all levels of the hierarchy to grant their genuine request. They should have applied either of the two following simple solutions:‑

(i) The due income tax refund should have paid to the taxpayer after completion of formalities.

(ii) Collector of Sales Tax should have requested his counterpart C.I.T. to issue cheques out of the refund amount in favour of Sales Tax Department to meet the sales tax liability (of December 2002) in January 2003.

However, it seems that L.T.U. officials were determined not to allow a simple request of the complainants. The taxpayer therefore decided to adjust the sales tax liability of Rs.30.15 million against the income tax refund due for the last one year. The entire conduct of the department was motivated to delay and deprive the complainant of the refund due and determined in favour of the Complainant. This proved mala fide intention in exercise of the authority vested with the concerned officer. The situation was further agravated by non-response and complete silence adopted which calls for proper explanation and amounts to maladministration.

21. L.T.U. awakened to the problem in February 2003 when they declined the request for adjustment on the plea that Collector of Sales Tax had not made any such requisition and issued a demand notice. L.T.U. authorities have waxed eloquence on the legal niceties that separate accounts are maintained for income tax and. sales tax, the new Ordinance had a provision for payment of other taxes different from the provision of the repealed Ordinance, the C.B.R. had declined the request of the complainants, no procedure has been devised to carry out the requested adjustment, under the new Ordinance a specific request for refund has to he made on the prescribed format, the original receipt had not been submitted (already submitted by the complainants) etc., since show-cause notice has been issued for non-payment of the sales tax and additional tax, the matter was sub judice and the jurisdiction of this office was barred.

22. It is common practice in the Department under the Revenue Division that where one Collectorate wants to make recovery from a taxpayer he raised demand against the taxpayer's money in another Collectorate. When a Collector of Customs can issue a cheque in favour of the Collector of Sales Tax against a tax liability it is not understandable why C.I.T. could not issue a similar cheque in favour of the Collector Sales Tax working by his side in the L.T.U.

23. It is unfortunate that instead of adopting out of the aforesaid methods which did not involve any merger of accounts nor would it have caused any accounting confusion, the authorities decided to punish the complainants by refusing to adjust their refund long over due for sales tax payment. The respondent should not have ignored the simple fact that the complainants might be facing a cash flow problem as it involved a sum of Rs.41.7 million in January 2002, a liability of Rs.35 million had occurred in January 2003, and they were justifiably keen to meet this liability from the refund due to them. It is a clear case of maladministration on account of inaction, deliberate delay in refund and harassment on the part of the L.T.U. officials. The adjudication proceedings initiated against the complainants are mala fide, without justification and legal validity.

24. It is recommended that C.B.R. direct the D.G. L.T.U. to-‑

(i) allow full refund of income tax which became due in January 2000 (if not already done);

(ii) allow adjustment thereof against sales tax liability which become due on 15-1-2003;

(iii) remit the liability of additional tax and penalty against the complainants;

(iv) withdraw the show cause notice issued by the Collector (Adjudication); and

(v) report compliance within forty-five days.

C.M.A./94/F.T.O.Order accordingly.

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