MUHAMMAD YOUSAF VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2069 (2009)

Sales Tax Act (VII of 1990)---

----S. 3---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9, 10 & 11---Complaint for excessive delay in payment of refund claims---Issue relating to determination of per Kg quantity of bleaching chemical---Central issue involved in complaints related to determination of the per Kg quantity. of bleaching chemical namely Sodium Hypochlorite ;required for bleaching of cotton waste---Three members committee constituted by Sales Tax Authorities in order to resolve dispute with the complainant, got a sample of the cotton waste from the factory of the complainant for laboratory test in the National University of Textiles---Laboratory test of the sample showed consumption of 930 grams of bleaching chemical per Kg of black denim waste---Dissatisfied with that, Sales Tax Authorities drew another sample of black denim cut pieces on Laboratory---Test in the same University, which showed consumption of 870 grams of chemical per Kg denim cut pieces---Complainant-company wanted to make the figure of 900 grams per Kg on the basis of said two tests as the standard measures for their chemical consumption, but Sales Tax Authorities did not accept that---Authorities presented the average figures of consumption worked out from a survey of some other cotton waste factories to the committee which decided a figure of 457 grams of bleaching chemical per Kg of denim cut pieces --On that basis Sales Tax Authorities decided the case of complainant factory allowing consumption of 457 grams per Kg---Aggrieved by that decision,. the complainant company filed appeal before Colle9tor (Appeals) who accepted the contention of the company and allowed 900 grams of chemical per. Kg---Complainant thereafter wanted a general application of that standard of 900 grams of bleaching chemical per Kg of cotton waste, however the Sales Tax Authorities did not accept that standard of 900 grams for the entire production of the company for certain reasons---As factory was using a variety of cotton waste, fixation of 900 grams standard for the entire intake of rags and cut pieces, did not seem justified---In view of that recommendations were made to the effect that Federal Board of Revenue to cross check the consumption ratio of bleaching chemical for recycling different varieties of cotton waste from other cities and prescribe national standards of each category on all Pakistan Basis; that a fool proof system be put in place to forestall chances of abuse and to resolve the dispute on sustainable basis; that each company must be monitored for keeping correct record of sales and purchases etc. as per the requirements of the law and procedure; that time bar involved in the cases be waived to enable the complainant to seek remedy as provided under the Sales Tax Act, 1990 and that compliance be reported within specified period.

Yasin Tahir, Advisor (Dealing Officer)

Rao Tasawur Ali, Authorized Representative.

Saleem Akhtar, A.C., Sales Tax, Departmental Representative.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIE SUDDLE, FEDERAL TAX OMBUDSMAN.---Mr. Muhammad Yousaf, sole proprietor of Messrs Faizan Ramzan, Cotton Waste Factory, Factory Area, Faisalabad have complained against Sales Tax Authorities, Faisalabad, for excessive delay in payment of their refund claims vide identical Petitions Nos.134/2009 to 141/2009 dated 25-2-2009.

2. The complaint was referred to the Revenue Division, which has sent parawise comments rebutting all the charges. levelled against the Sales Tax Authorities. The parties were heard in person on 13-7-2009 and 13-8-2009. During the hearing, Rao Tasavvur Ali, Advocate, represented the Complainant and Mr. Saleem Akhtar, Assistant Collector, Sales Tax, Faisalabad represented the Sales Tax Department. The DR and AR both agreed that the central issue involved in all the complaints under reference related to determination of the per kg quantity of bleaching chemical namely Sodium Hypochlorite required for bleaching of cotton waste.

3. The authorities representative [AR] informed that the company only recycles denim cut pieces bleaching of which required higher quantity of the chemical. The DR contended that there was no conclusive evidence that the company recycles only denim cut pieces. According to .him the Company recycles pall types of cotton waste including coloured denim (blue and black), other woven fabrics as also waste of hosiery industry. Besides, the average consumption of bleaching chemical in recycling cotton waste in general was around 250 grams per kg of cotton waste as per their survey of other cotton waste recycling industries.

4. The DR further informed that the sales tax authorities had constituted a three-member committee in order to resolve their dispute with the complainant, comprising the following:--

(1) One representative of the Complainant Company;

(2) One representative of the Sales Tax Authorities; and

(3) One representative of the Cotton Waste Association.

5. The Committee deliberated upon the contentions of both the parties and decided to get a sample of the cotton waste from their factory for laboratory test in the National University of Textiles, Faisalabad. Although cut pieces and cotton waste other than denim were available in their factory, yet the Company management did not permit the Committee to take samples other than of black denim waste. The laboratory test of the sample showed consumption of 930 grams of bleaching chemical per kg of black denim waste. Dissatisfied with this, the sales tax authorities drew another sample of black denim cut pieces which, on lab test in the same University, showed consumption of 870 grams of chemical per kg of denim cut pieces.

6. Whereas the Company wanted to make the mean figure of 900 grams per kg on the basis of aforesaid two lab tests as the standard measures for their chemical consumption, the sales tax authorities did not accept this. They presented the average figures of consumption worked out from a survey of some other cotton waste factories of the Committee which decided a figure of 457 grams of bleaching chemical per kg of denim cut pieces. On this basis, the sales tax authorities decided the case of complainant factory vide Order-in-Original No. 2865/2008 dated 14-7-2008 allowing consumption of 457 grams per kg. Aggrieved by this decision, the company filed an appeal before Collector (appeals) who accepted the contention of the appellant and allowed 900 grams of chemical per kilogram of black denim cut piece in the specific cases under adjudication vide Order-in-Appeal Nos.248-252/2008, dated 31-3-2009. The complainant thereafter wanted a general application of this standard of 900 grams of bleaching chemical per kg of cotton waste. However, the sales tax authorities did not accept this standard of 900 grams for the entire production of the company for the following reasons: --

(i). The company does not recycle only the\ black denim waste, which was sampled at a particular date i.e. 11-6-2008 for laboratory test. They also recycle blue denim waste which required, on an average, a lower quantity of 337 grams of bleaching chemical per kg of blue denim waste as per the company's own declaration during 2008 and 2009.

(ii) They can recycle cotton waste of woven textile fabrics other than denim waste, blue or black, and cotton waste of other cotton textile and hosiery industries which admittedly consumes only 250 grams of bleaching chemical instead of 900 grams of black denim waste and 337 grams for blue denim waste.

(iii) The consumption ratio declared by the company itself for 2004-05 was 590 grams of chemical per kg of textile waste. In 2005-06 however they declared 1040 grams as ratio of chemical per kg of textile waste.

(iv) The DR also traced history of the complainant factory which has been declaring more purchases than sales since September, 2000.

(v) During the Committee's visit of the factory, on 11-6-2008, a lot of hosiery, fabric and denim cut pieces were found in the factory. However, the owner refused to provide the sample of hosiery and fabric cut pieces which were in light colour. He rather provided samples of his own choice i.e. black denim pieces only which require higher quantity of chemical for bleaching. The owner, Mr. Muhammad Yusuf, also refused to sign resumption memo,. and receiving of sample for his record.

(vi) The Complainant is neither keeping different categories of cotton waste separately in their factory storage to make accurate measurement of their respective quantities possible, nor does he keep record of the purchase Invoices of the various types of cotton wastes being procured by them from the market. The company is also not fully maintaining record of their supplies of recycled textile waste as required by law and procedure.

7. The DR, therefore, contended that it would be highly imprudent to allow the highest consumption ratio for all categories of cotton waste being recycled by the company. Whereas, both the AR and the DR agreed that consumption ratio of 250 grams per kg of cotton waste of textile (other than denim)/hosiery industries and 900 grams for black denim cut pieces was correct and acceptable to both, the AR insisted that they only process black denim cut pieces requiring 900 grams of bleaching chemical. On the other hand, the DR contended that that was not true and that they were also recycling other than black denim cut pieces for Which the Complainant Company have in the past been claiming on an average 337 grams of bleaching chemical in the years 2008 and 2009.

8. The AR showed his unawareness about that. He wanted to see the documents showing lower consumption of bleaching chemical. The DR handed over the documents to the AR for verification. The AR promised to cross check the facts and report back. A few days after the hearing, the AR verbally confirmed that lower consumption of chemical was due to the difference in colour i.e. blue denim as against black denim. He also subsequently handed over an autographic note passingly admitting the difference in consumption due to different colours of denim. He however, insisted that their claim of 900 grams be accepted for their entire intake of textile waste which is tantamount to accepting that they are exclusively recycling black denim cut pieces which is amply belied by their own admission of use of different colours of denim and presence of cotton fabric waste and hosiery waste in their factory during the Committee's visit on 11-6-2008. Therefore, their claim that they only recycle black denim waste is factually incorrect.

9. It is also evident that there is no foolproof system to stop them from using waste of other woven fabrics of cotton and waste of hosiery industry, which were also found lying in their factory when the Committee visited it for taking samples. Besides, there is no guarantee that after fixation of high consumption rate on the basis of black denim, they do not recycle other cotton and hosiery waste. It is, therefore, a genuine concern of the sales tax authorities not to leave the consumption issue open ended. On the other side, the Complainant wishes to get the consumption fixed at a higher, rate. They initially started demanding one kg of chemical per kg of cotton waste for recycling of denim which then came down to 900 grams for denim cut pieces. They have themselves been claiming an average of 337 grams for blue denim waste during 2008 and 2009 and 590 grams in the past years. This means that the factory is obviously using a variety of cotton waste. Therefore, fixation of 900 grams standard for the entire intake of rags and cut pieces does not seem justified.

10. In view of the above, the following recommendations are made:

(i) F.B.R. to cross check the consumption ratios of bleaching chemical for recycling different varieties of cotton waste from other cities like Karachi and Lahore etc. and prescribe national standards for each category on all Pakistan basis;

(ii) A foolproof system be put in place to forestall chances of abuse and to resolve the disputes on sustainable basis.

(iii) Each Company must be monitored for keeping correct record of sales and purchases etc. as per the requirements of the law and procedure.

(iv) Time bar involved in these cases be waived to enable the Complainant to seek appropriate remedy as provided under the Sales Tax Act, 1990.

(v) Compliance be reported within 30 days.

11. This order disposes of Complaint Nos.134/2009 to 141/2009 as all these complaints are on the same issue.

H.B.T./135/FTOOrder accordingly.