MURIDKE REFINE OIL MILLS (PVT.) LTD., MURIDKE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 910 (2008)

Sales Tax Act (VII of 1990)---

----Ss.10, 36(1) & 72---S.R.O. 1014(I)/06 dated 29-9-2006---Circular C. No.1(2) STAS/2004 dated 23-9-2004---Finance Act (VII of 2005), Preamble---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.3---Excess amount to be refunded---Show-cause notice was issued, on the basis of inquiry report issued by the Collectorate of Sales Tax, on the ground that complainant failed to declare the value addition as per agreement between Central Board of Revenue and Pakistan Vanaspati Manufacturing Association on monthly basis in revised returns of two years---Refund was obtained in violation of provisions of law and such agreement---Complainant contended that department calculated, the value-addition on the basis of monthly inventory statement, which was neither prescribed under sales tax law nor was it required under such agreement---Such agreement required 15% value-addition for the two years whereas the value-addition was 17.36% which was more than that for the said period---Validity---Department calculated the value-addition on the basis of monthly inventory statement, which was neither prescribed under sales tax law nor required as per agreement---Agreement required 15% value-addition for the two years---Complainant's value addition was 17.36% which was more than that for the said period and agreement was not violated---At the time of agreement there was a provision of "carry-forward" under S.10 of the Sales Tax Act, 1990, which was converted into compulsory refund by amendment in S. 10 of the Sales Tax Act, 1990 by Finance Act, 2005 and refund was processed and sanctioned under S. 10 of the Sales Tax Act, 1990 which was in vogue at the time of proceeding of refund---Refund was raised due to high rate of tax at import/purchase stage and low rate of tax at the supply stage and it was the legal right of the complainant to claim refund of excess input tax paid, which could not be adjusted due to low rate of output tax---Additional Collector (Adjudication) did not record in the Order-in-Original his findings on such legal and factual arguments advanced by the complainant before him---Adjudicating Officer passed a lopsided, sketchy and non-speaking Order-in-Original without taking into consideration all of complainant's arguments made before him---Such being against the principles of natural justice amounted to -maladministration---Federal Tax Ombudsman recommended that Revenue Division might direct the competent authority to re-open the Order in Original under the provisions of S.45A of the Sales Tax Act, 1990, set aside the same and decide complainant's case afresh by passing a detailed speaking order on its merits in accordance with the provisions of law after taking into consideration all the written and oral arguments of the complainant, including the superior Court's judgments cited in support of his contentions.

Messrs Ihsan Yousaf Textile Mills Ltd. v. Assistant Collector, Sales Tax G.S.T. 2003 CL 338; Food Consultant (Pvt.) Limited v. Collector of Central Exercise and Sales Tax. Messrs NP Water Proof Textile Mills v. Federation of Pakistan; F.T.O. in C. No. 675-K/07; C. No. 229-L/07; Complaint No.591/02 and Complaint Nos. 846,817 and 825-L/04 ref.

Muhammad Mehtab Chughtai for the Complainant.

Malik Fazal-ur-Rehman, A.C., Sales Tax LTU, Lahore for Respondents.

ORDER

MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---The complainant had claimed refund under section 10 of the Sales Tax Act, 1990 for the tax period June, 2002 to June, 2004, which was processed and sanctioned to it as per the provisions of law. The sales tax registration of the complainant was transferred from the Collectorate of Sales Tax, Lahore to L.T.U., Lahore vide Notification. S.R.O. 1014(I)/06 dated 29-9-2006. The Deputy Collector Sales Tax, Lahore conducted an illegal, unauthorized exercise due to ulterior motives much after the transfer of registration of the company in L.T.U. Lahore and issued an unlawful contravention report dated 24-1-2007 based on baseless objections. The Additional Collector (Adjudication), L.T.U. issued a show-cause notice on 11-8-2007 on the basis of the aforesaid contravention report. The Adjudicating Officer vide Order-in-Original No. 31 of 2007 dated 25-10-2007 intentionally created an undue demand amounting to Rs.14365922 along with additional tax against the complainant and imposed a penalty of Rs.14365922.

The respondents committed 'maladministration'. Implementation of pre-amended section 10 of the Sales Tax Act, 1990 was violative of the provisions of section 72 of the Act. Show-cause notice was based on an illegal contravention report and an illegal, sketchy order-in-original was passed. The Adjudicating Officer was swayed by prosecution side's version of the issues involved and ignored complainant's arguments and did not comply with the judgments passed by higher forums. Even on merit, the case was not maintainable because after transfer of jurisdiction of the complainant to L.T.U, the staff of the Collectorate of Sales Tax had no authority to initiate or conduct any exercise. No show-cause notice could be issued on the basis of illegal and unauthorized proceedings. In a similar situation the superior Courts and the appellate Tribunal had declared action of the department void and without jurisdiction. In view of the Honourable High Court's judgment in the case of Messrs Ihsan Yousaf Textile Mills Ltd. v. Assistant Collector, Sales Tax (G.S.T. 2003 CL 338) no case could be instituted against the complainant. Complainant's contention was further supported by High Court's judgment in the case of Food Consultant (Pvt.) Limited v. Collector of Central Exercise and Sales Tax, Lahore where all proceedings of consequent action were, adjudged as unlawful. The Sindh High Court Karachi in the case of Messrs NP Water Proof Textile Mills v. Federation of Pakistan ruled that the Board of Revenue should take serious and immediate measures to show that the action taken by the tax functionaries were strictly in accordance with law and then only the evasion of tax could be controlled. The appellate Tribunal, Lahore rejected Appeals Nos. 181-185/03 and 127-03 ruling that the A.C. at the relevant time was not competent to file the appeal on behalf of the Sales Tax Department and, therefore, held the appeal to have been filed by an unauthorized person, which was not maintainable. All these judgments were brought to the notice of the Adjudication Authority but he failed to comply with them. The complainant submitted comprehensive reply to the show-cause notice and argued its case verbally also but the Adjudicating Officer passed a brief and sketchy order. He failed to follow the legal principles settled by various judgments. The F.T.O. in C.No. 675-K/07 had ruled that this forum was competent to investigate or inquire into allegations that the department was refusing to follow the legal principles settled by the Lahore High Court. The respondents calculated the value addition on the basis of monthly inventory statement which was not prescribed under law nor required as per agreement with the Pakistan Vanaspati Manufacturers Association (PVMA). The agreement required 15% value-addition for the two years ending on 06/04. Complainant's value addition was of the order of 17.36% which was more than 15% for the said period. The complainant did not commit any violation of the agreement. The agreement provided that if there was excess of input/output tax for the year 2004 it would be carried forward and adjusted as per existing rules and conditions. At the time of agreement, there was a provision of `carry forward' under section 10 of the Sales Tax Act, 1990. Refund was processed and sanctioned under, the aforesaid section. In C. No.299-L/07 the F.T.O. had ruled on the issue of non-speaking and sketchy orders by observing that the Adjudicating Officer had failed to pass a detailed, well-reasoned-out order, which amounted to `maladministration'. The Adjudicating Officer failed to examine the available evidence and to comply with judgments passed by superior Courts. Liabilities created against the complainant were illegal as the refund was legally sanctioned. The Order-in-Original No.31 of 2007 dated 25-10-2007 may be set aside.

2. In reply, the Collector of Sales Tax, Lahore has submitted that the complainant could not invoke F.T.O's jurisdiction in terms of the provisions of section 9(2)(b) of the F.T.O. Ordinance, 2000 as the matter related to the determination of liability of tax and interpretation of law, rules and regulations. The complainant claimed inadmissible refund and received the same by fraud and deliberate act in violation of the provisions of law. It had approached the F.T.O. prematurely as the remedy of appeal was available to the complainant before the Appellate Tribunal. As per minutes of the meeting between PVMA and the C.B.R. held on 9-9-2004 and circulated vide C. No. 1(2)STAS/2004 dated 23-9-2004, it was principally decided that sales price should be fixed on the basis of 15% value addition upon the purchase price for a period of 2 years ending June, 2004 and refund for the year 2002-03 would be processed accordingly and the excess input tax (if any) for the year 2003-04 shall be carried forward and adjusted subsequently as per existing rules. However, in the instant case refund for two years ending June, 2004 was sanctioned in contravention of the above-referred minutes of meeting. The complainant remained registered with the Collector of Sales Tax, Lahore till 28-9-2006. During the said period it claimed and obtained inadmissible refund in violation of the C.B.R.'s agreement with the PVMA and wrongly obtained refund for two years 2002-03 and 2003-04 instead of one year. Besides obtaining inadmissible refund it also adjusted the claimed amount against output tax in the succeeding month after June, 2004. It failed to fulfil the minimum bench-mark of 15% value addition along with the condition of filing of revised return for July, 2002 to June, 2004 as the value addition for the year 2002-03 came to 13788% instead of 15%. Complainant's contention about contravention report being without jurisdiction was baseless. Post-refund' scrutiny of the complaint was initiated on 2-9-2006 by the Collectorate of Sales Tax, which was later on finalized and the findings of the scrutiny were communicated to the LTV, Lahore. Contravention report was an internal document, which recorded evidence. It could not be termed as any action or proceedings against the complainant. Show-cause notice was issued under section 36(1) of the Sales Tax Act, 1990 by respondent No.1, having jurisdiction under law. It did not suffer from jurisdictional deficiency. No `maladministration' was committed. The respondent No.2 had not initiated any action against the complainant after transfer of jurisdiction of the complainant to LTV, There was no violation of section 72 of the Sales Tax Act, 1990 during the proceedings. The department had the right to recover the amount, which the complainant got illegally as refund. The judgment cited by the complainant had no relevance to the instant case. In the referred judgment the premises of complainant were raided by the Sales Tax Department. In the instant case the complainant had illegally claimed and obtained refund for the year 2002-03 and 2003-04 instead of one year in violation of Board's minutes incorporating agreement with PVMA that they would file claim for only one year ending June, 2003. Show-cause notice was issued by the officer having complete jurisdiction and the case was decided accordingly. The complainant was misinterpreting clause (i) of the Board's minutes dated 23-9-2004 wherein it was clearly mentioned that "15% value addition based upon taxable purchase shall be the basis of fixing sales price of PVMA member sales declaration for tax purpose for two years ending June, 2004". The minimum value of each year should be 15%. The complainant had shown less value during the relevant period. It, therefore, failed to comply with the said clause of the minutes. Refund in question was recoverable. As held by the superior Courts of the country no relief could be granted in exercise of constitutional jurisdiction to a person to retain ill-gotten gains. The complaint may be dismissed as the impugned order-in-original was passed legally.

3. During the hearing, the AR submitted that the complainant's unit was registered with the Sales Tax Department till 28-9-2006 when it was transferred to L.T.U. After transfer of jurisdiction, the Collectorate of Sales Tax Lahore conducted post-refund scrutiny and prepared a contravention report on 24-1-2007 four months after transfer of jurisdiction. Show-cause notice was issued by the Additional Collector, L.T.U., Lahore on 11-8-2007 and the order was passed on 25-10-2007 seeking recovery of Rs.14.36 Million (refund) plus additional tax and the penalty imposed in the case. During the hearing of the case the complainant had raised the issue that the Collectorate did not have jurisdiction to undertake audit and to prepare contravention report transfer of jurisdiction. It had also quoted various judgments of the Courts to show that the action taken by the respondents was without jurisdiction and therefore, not sustainable. The Adjudication Officer did not give any finding on these judgments. The F.T.O. in his findings in C. No. 299-L/07 had held that proper reasons should be recorded why the complainant's version was not accepted. The AR also cited F.T.O.'s findings in C. No.675-K/07 in support of his contention. A non-peaking and sketchy order was passed. The F.T.O. in Complaint No.591/02 ruled that deciding the case without taking into consideration the arguments of the defence was an act of 'maladministration'. In Complaint Nos. 846,817 and 825-L/04, the F.T.O. had ruled that non consideration of the judgments of the Courts cited by the complainant in support of its contention amounted to `maladministration'.

4. The DR reiterated the arguments advanced in the written comments. He added that show-cause notice was issued on 11-8-2007 by the Additional Collector, L.T.U. who was fully competent to do so. The contravention report was, merely an inquiry report submitted to the Adjudicating Officer. The complainant's arguments on the point of jurisdiction had been discussed in para.6(1) of the impugned order where the objection raised by the complainant was fully dealt with. Various judgments cited by the complainant before the Adjudicating Authority were considered and found irrelevant as they related to the question of search and seizure. The complainant had violated the agreement between the PVMA and the C.B.R. The complainant had obtained refund in violation of the provisions of law and the aforesaid agreement.

5. The AR, however, submitted that the Collectorate of Sales Tax could not conduct any inquiry or investigation without having jurisdiction over the unit. He also submitted that the arguments of the complainant regarding value addition were not properly rebutted. The PVMA said that the related period was two years ending June, 2004 and not one year. Refund was obtained under section 10 of the Sales Tax Act, 1990, which entitled the complainant to obtain it.

6. The arguments of the two sides and records of the case have been considered and examined. As regards respondents objection to F.T.O.'s jurisdiction in terms of section 9(2)(b) of the F.T.O. Ordinance, 2000 this is to point out that the F.T.O. is fully competent to investigate complaints involving `maladministration'. The main contentions of the complainant are that (i) it had obtained refund in accordance with the provisions of law, (ii) the Collectorate of Sales Tax did not have the jurisdiction to undertake and complete post-refund audit of the complainant after transfer of registration of complainant's unit to the L.T.U. Lahore and as such the Additional Collector (Adjudication) issued an. illegal order based on unauthorized contravention report, (iii) since the Additional Collector (Adjudication) issued show-cause notice dated 18-11-2007 based on unauthorized audit report the show-cause notice as well as the Order-in-Original No. 31/07 dated 2-10-2007 passed in the case were illegal, (iv) the Adjudicating Officer was swayed by the prosecution side's version of the issues and ignored complainant's arguments and judgments of the superior Courts on the point of jurisdiction cited by the complainant before him, (v) the respondents calculated the value-addition on the basis of monthly inventory statement, which was neither prescribed under the sales tax law nor was it required under C.B.R.'s agreement with PVMA. The agreement required 15% value addition for the two years ending June, 2004 whereas the value addition of the complainant was of the order of 17.36%, which was more than that for the said period. The Additional Collector (Adjudication) ignored the aforesaid arguments and did not record any finding on these issues in the impugned order.

7. The respondents, on the other hand, contend that (i) the complainant obtained refund fraudulently in violation of the provisions of law and the arguments between the C.B.R. and the PVMA, (ii) the contravention report submitted by the Collectorate .of Sales Tax was actually an inquiry report issued by the concerned Collectorate and the audit so conducted related to the period when the unit was in the jurisdiction of the Collectorate of Sales Tax, hence the case was made out well within the ambit of the Sales Tax Act, 1990 and Notification S.R.O. No.1014(I)/06 dated 29-9-2006, (iii) the complainant failed to declare the value addition as per agreement between the PVMA and the C.B.R. on monthly basis in their revised returns of two years, (iv) refund claimed by the complainant was not admissible as per rules and PVMA's understanding with the C.B.R. as contained in C.B.R.'s minutes on the subject.

8. A scrutiny of the case records reveals that the complainant's unit was located in the jurisdiction of the Collectorate of Sales Tax till 29-9-2007 when it was transferred to the L.T.U. The refund in question had been sanctioned by the Collectorate of Sales Tax before the complainant's unit was transferred to L.T.U. on 29-9-2006. The Collectorate had initiated post-refund audit of the complainant on 2-9-2006. The post-refund audit initiated on 2-9-2006 was, however, completed later. The Additional Collector, L.T.U. issued the show-cause notice on 11-8-2007 and decided the case on 25-10-2007 vide Order-in-Original No.31 of 2007 dated 25-10-2007 after issuing a show-cause notice. The complainant replied to the show-cause notice and argued its case before the Additional Collector (Adjudication). As regards the question of jurisdiction of the Collectorate of Sales Tax to conduct post-refund audit/inquiry the Additional Collector did observe in para. 6 of the impugned order that "the contravention report is actually an inquiry report issued by the concerned Collectorate the audit relates to the period when the unit was operating in the jurisdiction of the Collectorate. Hence, objection is not valid and the case was made out well within the provisions of Sales Tax Act, 1990 as well as within the jurisdiction In accordance with S.R.O. 1014(I)/06 dated 29-9-2006". It is, however, observed that the Adjudicating Officer did not consider or deal in the impugned order with various judgments of the Courts cited by the complainant before him in support of its contention that the Collectorate of Sales Tax had acted without jurisdiction and prepared an illegal contravention report on the basis of which the show-cause notice was issued and illegal impugned order was passed. The Adjudicating Officer failed to determine whether any of the Courts decisions/judgments cited by the complainant before him had any bearing on complainant's case. While in the parawise comments filed by them the respondents contend that the judgments cited by the complainant were found irrelevant, the impugned order-in-original itself is silent about it. The Adjudicating Officer should have examined the relevancy or otherwise of the judgments cited by the complainant and given his definite findings on the issue of jurisdiction. Similarly, it is observed that the complainant in its reply to the show-cause notice had argued---which is also incorporated in the body of the order-in-original---before the Adjudicating Authority that (i) the departmental staff calculated the value-addition on the basis of monthly inventory statement, which was neither prescribed under the Sales Tax Law nor required as per agreement, (ii) the agreement required 15% value addition for the two years ending on June, 2004 the complainant's value-addition was of the order of 17.36%, which was more than that for the said period and as such the C.B.R.'s agreement with the PVMA was not violated, (iii) at the time of agreement there was a provision of `carry-forward' under section 10 of the Sales Tax Act, 1990, which was converted into compulsory refund by the amendment in the section 10 of the Act by Finance Bill 2005-06 and refund was processed and sanctioned under section 10 which was in vogue, at the time of processing of refund and (iv) the refund was raised due to high rate of tax at the import/purchase stage and low rate of tax at the supply stage and it was the legal right of the complainant to claim refund of excess input tax paid, which could not be adjusted due to the low rate of output tax. A scrutiny of the impugned order-in-original reveals that the Additional Collector (Adjudication) did not record in the impugned Order-in-Original No.31 of 2007 dated 25-10-2007 his findings on the aforementioned legal and factual arguments advanced by the complainant before him. The Adjudicating Officer, therefore, passed a, lopsided, sketchy and non-speaking order-in-original without taking into consideration all of complainant's arguments made before him. That being against the principles of natural Justice amount to `maladministration'. Accordingly, it is recommended that the Revenue Division direct the competent authority to:-

(i) Re-open the impugned Order-in-Original No. 31 of 2007, dated 25-10-2007 under the provisions of section 45A of the Sales Tax Act, 1990 set aside the same and decide complainant's case afresh by passing a detailed speaking order on its merits in accordance with the provisions of law after taking into consideration all the written and oral arguments of the complainant, including the superior Court's judgments cited by it in support of its contentions.

(ii) Compliance be reported within 30 days of the receipt of this order.

C.M.A./23/F.T.O.Order accordingly.