PAKISTAN MINERAL DEVELOPMENT CORPORATION, HYDERABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 93 (2004)

(a) Sales Tax Act (VII of 1990)---

----Ss. 7(2) & 36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Determination of tax liability---Audit observation against entitlement to claim input tax by the Revenue Receipt Audit staff---Complainant stated that they had disposed of scrap/assets machinery through open auction and deposited advance sales tax on estimated weight---On actual weightment, weight was short and more amount of tax had been deposited than the actual tax payable---Such amount was adjusted instead of applying for refund---Sales tax had been paid and excess amount was adjusted through a bona fide mistake causing no loss to revenue---Validity---Whole exercise of issue of demand, show-cause notice and adjudication order was contrary to law, it was perverse in character, it was unjust and oppressive, based on irrelevant grounds, it was a case of inordinate delay, incompetence, inefficiency and miscarriage of administrative justice---No evasion of sales tax had occurred and no shortfall was in its recovery, and the demand for additional tax and penalty had no justification---Charge of maladministration was established against the sales tax authorities--Federal Tax Ombudsman recommended that Central Board of Revenue set aside the order in question passed by the Deputy Collector (Adjudication).

1993 MLD 1654 ref.

(b) Sales Tax Act (VII of 1990)---

----S.36(3)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Recovery of tax not levied or short-levied or erroneously refunded---Limitation---Inordinate delay---Argument of the Department that time limit fixed under subsection (3) of S.36 of the Sales Tax Act, 1990 was merely directory in nature and not mandatory could not be cited as justification for inordinate delay in passing an order which on merits did not meet the test of law.

M. Mubeen Ahsan, Advisor (Dealing Officer).

A. Majeed Khan, Legal Officer, PMDC for the Complainant.

Aijaz Ahmed Khan, Deputy Collector of Sales Tax, (Adjudication) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The Pakistan Mineral Development Corporation (PMDC), an autonomous Corporation under the administrative control of Federal Ministry of Petroleum and Natural Resources with head office at Islamabad, have stated that they are a large taxpayer on coal excavated and sold by them. They have complained that during the year, 2000, the Revenue Receipt Audit (RRA) staff visited their premises, audited their sales tax accounts and issued an audit observation, dated 19-2-2000 against entitlement to claim input tax Rs.17,422 and for violation of the provisions of section 7(2) of the Sales Tax Act.

2. They stated that during 1999-2000 and 2000-2001 they had disposed of scrap/assets machinery lying at their Lakhra Coal Mining Project through open auction and deposited advance sales tax amounting to Rs.3,04,696 through Sales Tax-cum-Payment Challan of June, 1999 on estimated weight. On actual weighment, it was found that the weight was short and the amount of Rs.17,422 had been deposited in excess of the actual tax payable. They adjusted the amount through another Challan for the same month of June, 1999 instead of applying for refund. They stated that the sales tax had been paid and the excess amount was adjusted through a bona fide mistake causing no loss to revenue.

3. The complainants stated that the sale of fixed assets/scrap did not constitute supply of goods .under the Sales Tax Act as decided by the Appellate Tribunal vide its order, dated 17-10-2000 in the appeal of Messrs Sanghar Sugar Mills v. Collector (Appeals). The Tribunal had held that no sales tax was payable on sale of such goods because the sale of fixed assets/scrap did not constitute supply of goods under the Act.

4. The complainants further stated that RRA staff had no legal authority to audit the record at their office. Their audit observation, dated 17-2-2000 was communicated on 3-5-2000, but demand notice was issued on 4-9-2000 after a lapse of seven months, a show-cause notice (S.C.N.) was issued on 26-5-2001, and adjudication order, dated 30-9-2003 was received on 13-1-2004 i.e. 1426 days after the issuance of audit observation and 962 days after the issue of S.C.N. They further stated that hearing was held five times from 11-6-2001 to 30-6-2003. As a result, the order was not passed within the period prescribed under section 36(3) of the Sales Tax Act and the Department was demanding penalties and additional tax on account of their own delay.

5. They argued that no cogent reason has been given to support the decision against the judgment of the Tribunal in Appeal No.47 of 2000. There was no evasion or shortfall and sales tax on actual weight had been paid. They contended that the order passed by the respondent was arbitrary, unjust, based on irrelevant grounds and had no legal authority, and, in the interest of justice, it should be set aside.

6. The Deputy Collector of Customs (Adjudication), Hyderabad, replied to the complaint that sales tax was paid on hypothetical basis on the sale of scrap and after, actual lifting, the excess payment was discovered which was adjusted in violation of section 7(2) of the Sales Tax Act. He stated that the decision was delayed due to a large number of cases pending with his office and it was a settled principle in law that time limitation in issuing adjudication order was directory and not mandatory. The lawful revenue of the Government should not be withheld due to delay in issuance of the adjudication order. He stated that there was no arbitrariness, unjustness or irrelevance in the adjudication order and the complainants had cited irrelevant provisions of law and judgment of higher forum. He contended that there was no maladministration and the complaint be dismissed under section 9(2)(b) of Federal Tax Ombudsman Ordinance as it related to determination of tax liability for which legal remedy of appeal was available.

7. During the hearing of the complaint, the Legal Officer of P.M.D.C. emphasized that since tax on actual weight had been paid there was no justification to demand additional tax penalty, particularly when the delay in adjudication process was not their responsibility. He reiterated that (i) the sale of scrap did not constitute supply of goods and, therefore, not liable to sales tax; (ii) RRA officials acted beyond their jurisdiction; (iii) S.C.N. was issued seven months after the issue of the audit observation, (iv) and the order was passed after lapse of 1425 days; (v) both violated the time-bar provided under section 36(3) of the Sales Tax Act, and, therefore (vi) the adjudication order was legally not valid.

8. The Deputy Collector (Adjudication) replied that the department's view point had been adequately stated in the reply to the complaint that a registered person was allowed the adjustment only for the supplies made during the same month, P.M.D.C. filed two returns for June, 1999, first for payment of sales tax of full amount of sales tax and the second for payment of Rs.5,21,572 against the sale of coal and adjustment of Rs.17,422 for excess sales tax paid.

9. He submitted a copy of the Lahore High Court decision, 1993 MLD 1654, wherein section 45 of the Sales Tax Act has been discussed on the point whether the time-bar provided thereon is directory or mandatory; the High Court has held that since the language is affirmative and not negative it should be deemed to be directory and not mandatory. He added when he took the charge of office in 2003, one year and a half had already elapsed since issue of S.C.N. and the backlog of cases being quote large in number, the disposal took considerable time.

10. From the 'facts brought out above, it is established that the adjustment of the excess sales tax was inadvertently taken by the taxpayer in the second return filed for the same month. However, what is more important is the fact that sales tax was not chargeable on the sale of scrap as clearly held by the Appellate Tribunal and the amount inadvertently paid was higher than the amount calculated on the basis of the actual weight. The Department has completely ignored the basic fact that there was no liability of tax on sale of scrap. It has only taken up the technical objection about adjustment of the excess amount. Another significant issue is the inordinate delay of approximately four years in issue of the adjudication order. The Department's argument that the time limit fixed under subsection (3) of section 36 of the Sales Tax Act is merely directory in nature and not mandatory cannot be cited as justified for inordinate delay in passing an order which on merits does not meet the test of law.

11. The whole exercise of issue of demand, the show-cause notice and the adjudication order is contrary to law, it is perverse in character, it is unjust and oppressive, based on irrelevant grounds, it is a clear case of inordinate delay, incompetence, inefficiency and miscarriage of administrative justice. There was no evasion of sales tax, no shortfall in its recovery, and the demand for additional tax and penalty has no justification. The charge of the maladministration under section 2(3) of Ordinance No. XXXV of 2000 is established against the sales tax authorities.

12. It is recommended that C.B.R.

(i) set aside the Order No.172 of 2003, dated 30-9-2003 passed by the Deputy Collector (Adjudication), Hyderabad; and

(ii) compliance be reported to this office within thirty days.

C.M.A./103/F.T.O.Order accordingly.