YASRAB COTTON INDUSTRIES, MAILSI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 973 (2008)

Sales Tax Act (VII of 1990)---

----S.36(1)---S.R.O. 488(I)/04 dated 12-6-2004---S.R.O. 25(I)/06 dated 9-1-2006---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Recovery of tax not levied or short-levied or erroneously refunded---Adjustment of input tax---Supply of cotton seed oil to unregistered person---Issuance of show-cause notice for recovery of sales tax along with additional tax and penalty on the ground that adjustment of input tax was not admissible to the complainant as cotton seed oil had been sold to unregistered person---Complainant contended that input involved against electricity bills was admissible irrespective of whether the oil had been supplied to registered or un registered person under amended S.R.O. 25(I)/06 dated 9-1-2006, which had retrospective effect from 8-7-2004---Further tax was paid in compliance of audit report and liability created later was not relevant---Show cause notice should have been issued within 90 days or 180 days as it created a liability against a citizen---Collector (Appeals) had held that the complainant did not challenge the formula/working of sales tax as alleged in the show-cause notice; that under S.R.O. 488(I)/04 dated 12-6-2004 the complainant was not authorized to adjust input against electricity bills as it had supplied oil to unregistered person; that the complainant was required to give solid evidence that it supplied oil to registered person which it failed to do; that the plea the audit observation was a judgment/decision was not correct because audit report was observation of auditor, which was required to be approved by the seniors and an audit report was not a judgment or decision under S.45 of the Sales Tax Act, 1990; that even after approval, the contravention report could be prepared and sent to the adjudication officer for adjudication; that contention that action was time barred was not tenable because the period involved was 2004-05 and the complainant had deliberately adjusted the input tax for which it was not entitled and the provisions of S.36(1) of the Sales Tax Act, 1990 were correctly invoked in the show-cause notice which authorized recovery of sales tax for five years and action for recovery of evaded sales tax was not time barred and, that desk audit report signed by the auditors provided by the complainant did not cover the aspect of inadmissibility of input tax---Assistant Collector, on submission of report, directed for compliance of S.R.O. 488(I)/04 dated 12-6-2004 which was done and the charge was accordingly framed out in the audit report whereas the complainant was relying on unapproved audit report---Order-in-appeal dealt with the main contentions of complainant had given his findings on issues relating to audit report, admissibility or otherwise of input tax adjustment and the alleged time barred show-cause notice on the merit of case---Such was not maladministration---Complainant, against order-in-appeal, had filed appeal before Appellate Tribunal---Appeal though had been filed later in point of time than the filing of complaint, the complainant had raised therein more or less the same issues as had been raised before Federal Tax Ombudsman---Collector (Appeals) having decided the case on its merit, the complainant should pursue its appeal filed before Appellate Tribunal---Appellate Tribunal, which is competent to deal with both points of law and fact, could deal with the issues raised in appeal comprehensively on the basis of relevant law and the available evidence and pass a judgment on merits of the case after due consideration of the arguments of the parties to the dispute.

Collector of Sales Tax and Central Excise v. Pattoki Sugar Mills Ltd. and other 2007 SCMR 1245 = 2006 PTD 2889; Messrs Shah & Co. Karachi v. C.B.R./Customs Department Complaint No.1270-K/03 and Messrs Super Asia Muhammad Din Sons (Pvt.) Ltd. v. Collector of Sales Tax, Gujranwala 2008 PTD 60 ref.

Muhammad Akbar, Advisor, Dealing Officer.

Rana Muhammad Ishaq for the Complainant.

Nadeem Ahmad ,A.C. ,Sales Tax, Multan for Respondents.

DECISION/FINDINGS

JUSTICE (RETD.) MUNIR A. SHEIKH, (FEDERAL TAX OMBUDSMAN).---The Sales Tax Department, Multan conducted complainant's desk audit for the year 2004-05. The complainant had supplied the required documents; the audit was completed and audit report was concluded. As per the audit report only an amount of Rs.625 was recoverable, which was paid on 29-6-2005 along with principal amount by claiming immunity under amnesty scheme launched vide Notification No.520(I)/05 dated 6-6-2005. All matters stood settled but after a lapse of more than two years the respondents issued a show cause notice dated 15-6-2007 to the complainant. The aforesaid show cause notice was not served on the complainant. Resultantly, an ex parte. Order-in-Originals Nos.363 to 383 dated 19-7-07 was passed, which too was not served on the complainant. The complainant learned about the impugned Order-in-Original on receipt of recovery notice. Against the impugned Order-in-Original, the complainant filed an appeal before Collector (Appeals) who did not touch the appeal file although complainant's counsel had argued the case before him on three different occasions. A staff member framed the impugned Order-in-Appeal, who did not bother about auditor's point of view and damaged Collector (Appeals) status by not passing judgment on the merits of the case. It was alleged in the show-cause notice that (i) the complainant was asked to provide information and records relating to purchase of cotton seed and sale of cotton seed and oil dirt for the period 2004-05 but it did not provide the information and records except electricity bills, (ii) the complainant was asked to intimate closing stock of cotton seed, cotton seed oil and oil dirt, quantity and value of cotton seed oil sold to the registered and unregistered persons during the period 1-7-2004 to 30-6-2005, advising it that if the said information was not provided within seven days it would be considered that the complainant had no stock of cotton seed, cotton seed oil and oil dirt and that they had sold cotton seed oil to unregistered persons. Levelling these allegations, the department calculated sales tax payable by the complainant at Rs. 185448, The first allegation was wrong because even para. No.1 of the desk audit report acknowledged that the records were provided. The last line of page 2 of desk audit report also mentioned "month wise detail of supply of cotton seed and oil dirt is enclosed". As regards allegation No.2, the complainant provided the said information according to which the department rightly took no stock of cotton seed, cotton seed oil and oil dirt and completed the audit. While filing para-wise comments, it was alleged by the department that the complainant did not provide month-wise production of supply and cotton oil seed in order to check whether it had supplied cotton seed oil to registered persons or otherwise, whereas the last line of page 2 of desk audit mentioned that "month-wise detail of supply of cotton seed oil and dirt is enclosed". The department had taken the position that it was mentioned in the desk audit report in para. 3 thereof that later on if any discrepancy was found out it would be pointed out accordingly. This discrepancy was restricted to consumption of electricity units per Maund on the basis of 2.7 units per Maund and it did not provide any license to the department to make other observations/objections after more than two years. The auditor, after scrutinizing the relevant record, accepted adjustment of Rs.185448 and issued audit report for 2004-05 accordingly. Nothing was shown as recoverable except an amount of Rs.625, which had been paid. The complainant had availed amnesty scheme dated 6-6-2005 and the principal amounts of sales tax on cotton seed oil (Rs.212142) and oil dirt (Rs.4124) totaling Rs.216266 stood settled and finalized after adjustment of Rs.185448. An amount of Rs.31500 was paid on 29-6-05, including an amount of Rs.625. Nothing was left by way of additional tax or penalty. A valuable right had accrued to the complainant, which could not be disturbed through conjectures. There was no revenue loss as the tax had been deducted from electricity bills. Action now being taken amounted to double taxation, which was not admissible in law. Issuance of audit report was a judgment/decision framed by the competent authority and objections, if any, were to be made within 30 days, 60 days or at the maximum 90 days. Show-cause notice was issued after more than 2 years, which was time barred 2007 SCMR 1245 = 2006 PTD 2889. The respondents had not demanded any record through notices. The complainant filed written arguments and additional comments but the respondents did not give any weight to them. The impugned Orders-in-Originals Nos.363-383/07 dated 14-7-07 and Order -in-Appeal No.383 dated 18-4-08 be set aside and vacated. The department may be ordered not to recover the amount of tax through coercive measures.

2. In reply, Collector (Appeals), Multan has submitted that the complainant was required to file appeal against Collector (Appeals)' order before Customs, Sales Tax and Central Excise Appellate Tribunal, Lahore. FTO'S jurisdiction was barred in terms of section 9(2) of the FTO Ordinance, 2000 in cases where legal remedies of appeal were available. The President of Pakistan in Complaint No.1270-K/03 (Messrs Shah & Co. Karachi v. C.B.R./Customs Department) had held that since legal remedy of appeal was available to the complainant against Collector (Appeals) order under the relevant legislation the FTO had no jurisdiction to investigate the matter raised in the complaint. The contentions of the complainant were properly considered. Its contention raised in the appeal memo. had been reproduced in the Order-in-Appeal and as such the contention that the Collector did not touch the appeal was incorrect. According to S.R.O. 488(I)/04 dated 12-6 04 the complainant was not entitled to claim adjustment of input tax against electricity bills in cases where oil was supplied to un-registered persons. During hearing proceedings on 15-1-08, the complainant's counsel submitted that the complainant did not contest the formula applied by the department to work out production of cotton seed oil and oil dirt but contested the disallowing of input involved against electricity bills as the same was admissible irrespective of whether the oil had been supplied to a registered or un-registered person under amended S.R.O.25(I)/06 dated 9-1-2006, which had retrospective effect from 8-7-04. The omission of `aa' had no retrospective effect. The complainant failed to prove that oil was supplied to registered persons. It had caused loss to the revenue by claiming inadmissible input tax. It was not a case of double taxation. Recovery of sales tax was not time barred. The arguments of the complainant were considered. The complainant had not alleged any `maladministration'. It had merely requested that the show cause notice be declared void. The complaint may be dismissed and the complainant may be advised to file appeal before the Appellate Tribunal.

3. In reply, the Collector of Sales Tax, Multan has submitted that FTO's jurisdiction was barred in terms of section 9(2) of the FTO Ordinance, 2000 as legal remedy of appeal was available under the relevant legislation. The complainant failed to provide the purchase, production and supply records to ascertain compliance of S.R.O. 488(I)/04 dated 12-6-2004. The demand of Rs.625 was based on available record. However, it was also mentioned in the desk audit report that if any discrepancy was found out later the same would be pointed out accordingly. The complainant did not provide month-wise details of production and supply of cotton seed oil to enable the department to check whether it had supplied cotton seed oil to registered persons or otherwise. The complainant had supplied oil to unregistered persons. It was not entitled to input tax adjustment against electricity bills as per S.R.O. 488(I)/04 dated 12-6-2004. The show cause notice was properly issued within the stipulated period. Opportunities of hearings were provided on 25-6-2007, 03-7-2007 and 10-7-2007 by the adjudication officer but the complainant failed to attend the hearings. The arguments of the complainant had been discussed in the Order-in-Appeal. The contention of the complainant that he had provided complete records was incorrect. Similarly, the contention of the complainant that the desk audit had been completed and desk audit report was issued was again incorrect. The desk audit report enclosed by the complainant with the complaint was neither approved by the A.C. nor it was issued to the complainant. Only the amount claimed by the complainant as input tax against electricity had been disallowed. No valuable right' of the complainant had been negated. Show cause notice was issued within the stipulated period. The complainant failed to submit written arguments and additional grounds to the adjudication officer. The complainant had not alleged any `maladministration' and had only requested that show cause notice be declared void. Being baseless, the complaint may be filed.

4. During the hearing, the AR was asked to indicate whether the Complainant had filed appeal against Collector (Appeals) Order No.83/08 dated 18-4-2008. He submitted that he had filed appeal before the Appellate Tribunal but on 27-6-2008 after filing the present complaint in the FTO Secretariat. He reiterated that the complainant was neither served with a show cause notice nor the Order-in-Original and it had learned about it only on receipt of recovery notice dated 10-9-2007. It was then it obtained a copy of the Order-in-Original and filed appeal before Collector (Appeals). The AR added that the show cause notice had called upon the complainant to submit reply within 10 days of its receipt but the show cause notice was dated 15-6-2007 whereas the first hearing was fixed for 25-6-2007 and the complainant was not even allowed tolerance time for receipt thereof. Practically, the respondents had not given ten days notice. Even the next hearings were fixed before expiry of ten days of the issuance of the hearing notices. He argued that the complainant had given written arguments to the Collector (Appeals), which were not considered. The complainant had paid Rs.625, which was pointed out for recovery by the audit. Collector (Appeals) did not apply his judicious mind as he depended upon his staff member's observations. A liability of Rs. 185448 was illegally created despite the fact that on 29-6-2005 the complainant had paid Rs.31500, including Rs.625 under amnesty scheme. The desk audit report was issued in May, 2005 whereas show cause notice was issued on 15-6-2007, which was barred by time. No liability was outstanding against the complainant. There were no loss of revenue. The ex parte decision given vide the impugned Order-in-Original and non-consideration of complainant's arguments amounted to `maladministration'.

5. The DR stated that the show cause notice was served on the complainant at the given address and similarly, the Order-in-Original Nos.663 to 683 dated 19-7-2007 was also issued to the complainant at the given address and, therefore, the contention that it had not received the show cause notice and the impugned Order-in-Original was incorrect. He produced courier receipts and placed them on record showing despatch of show cause notice and impugned Order-in-Original to the complainant. The DR added that the complainant had neither submitted any reply to the show cause notice nor had made any personal appearance. He also pointed out that the complaint was time barred as it had been filed after six months of the Order-in-Original dated 19-7-2007. In so far as the recoverable amount was concerned, the audit report was reviewed by the A.C., who made his own observation and asked the auditors to check whether the complainant had sold oil to the unregistered person for, if the complainant had, it was not entitled to any adjustment. An amount of Rs.185448 was recoverable because the complainant had taken an illegal adjustment. Show cause notice was issued within time as per the provisions of section 36(1) of the Sales Tax Act, 1990, which prescribed a recovery period of five years. Since the period actually involved was 2004-05, the show cause notice was issued on 15-6-2007 within a period of five years. The case was subjudice before the Tribunal. Sufficient opportunities of hearings were granted to the complainant by the adjudication authority but the complainant neither submitted any reply to the show-cause notice nor made personal appearance.

6. The AR argued that Rs.625 was paid in compliance of the audit report. The liability created later was not relevant. Show cause notice should have been issued within 90 days or 180 days as it created a liability against a citizen. In so far as the amount of Rs.185448 was concerned, the same was incorporated later. The DR stated that the complainant had obtained an unauthorized and incomplete audit report. The AR insisted that the same had been issued to the complainant, which was received by it. He also added that although it had been alleged that the complainant had not provided any documents the respondents had not served any notice on the complainant for submission of the same.

7. The arguments of the parties and the record of the case have been considered and examined. The complainant was issued a show cause dated 15-6-07 by the Deputy Collector proposing recovery of evaded sales tax amounting to Rs.185448 under section 36(1) of the Sales Tax Act, 1990 and additional tax under section 34 of the Act and imposition of penalty under the appropriate provisions of law. The case was decided by the D.C. vide Orders-in-Original Nos.363 to 383 dated 19-7-2007 and the charges framed in the show cause notice were upheld on the ground that adjustment of input tax of Rs.185448 was not admissible to the complainant as cotton seed oil had been sold to unregistered persons. Accordingly, the complainant was directed to deposit the aforesaid amount along with additional tax, besides penalty. Against the impugned Order-in-Original the complainant filed appeal before Collector (Appeals), which was rejected.

8. The complainant contends that neither the show cause notice nor the impugned Order-in-Original was served on it. The respondents, on the other hand, have placed on record courier receipts showing issuance of both the show cause notice and the Order-in-Original to the complainant at the given address. They, therefore, contend that the complainant did not bother to reply to the show cause notice nor did it make any personal appearance before the D.C. despite the fact that the case was fixed for hearings on 25-6-2007, 3-7-2007 and 10-7-2007 and hence there was no option but to decide the case ex parte. As regards respondents' contention that the complaint was time barred as the same had been filed six months after the issue of the impugned order, the complainant contends that it came to learn about the impugned Order in-Original upon receipt of recovery notice dated 10-9-2007 and after obtaining copy thereof from the respondents filed appeal against the Order-in-Original before Collector (Appeals) who rejected the same vide Order-in-Appeal No.383/08 dated 18-4-08. Even if the complainant's version that he came to learn about the impugned Order-in-Original on receipt of the aforesaid recovery notice is considered, it is observed that he had first (sic) had notice of his grievance upon receipt of recovery notice dated 10-9-2007 yet he did not file complaint of 'maladministration' within six months of the receipt of recovery notice. The recovery notice is dated 10-9-2007 whereas the complaint was filed in the FTO Secretariat on 12-5-2008. The complainant, however, contends that he has filed this complaint on 12-5-2008 not only against the impugned Order-in-Original but also against Order-in-Appeal dated 18-4-2008 passed by Collector (Appeals), Multan and that way the complaint was filed within time.

9. As regards respondents' arguments that since remedies of appeals were available to the complainant FTO's jurisdiction was barred in terms of section 9(2) of the FTO Ordinance, 2000 this is to point out that the FTO is competent to investigate complaints involving 'maladministration'. The position in this case, however, emerges as under: --

The scrutiny of case record reveals that the complainant did not contest the impugned O-I-O, hence it was decided by the D.C. ex-parte. As against complainant's contention that show cause notice was not served on it, the respondents contend that they had issued show cause notice to the complainant at the given address through courier service (receipts placed on record) and 'despite that it had failed to respond to the show cause notice or to make appearance before the D.C. The complainant needs to rebut respondents' contention on this account to make its plea that the case was decided at its back more convincing. The complainant also contends that he had raised various contentions before Collector (Appeals) but the Collector (Appeals) without applying his judicious mind and relying upon the advice of his subordinate staff did not give weight to these contentions. A perusal of the Order-in-Appeal No.383/08 dated 18-4-2008 passes by Collector (Appeals) reveals that the Collector after identifying the following as the main contentions of the complainant passed his Order-in-Appeal on the merits of the case:--

(i) The department completed the Audit for the year 2004-2005 on the basis of record provided and adjustment of Rs.185448 was accepted in the said audit report. In the audit report it was alleged that the appellant supplied 1088 maunds of cotton seed oil during 2004-05 involving sales tax of Rs.212142 out of which Rs.26694 had been deposited and the remaining amount of Sales Tax of Rs. 185448 had been adjusted against electricity. They paid the amount of Rs.31500 in the light of audit observation after availing amnesty and thus all the liabilities were stood finalized after availing and paying balance amount of Rs.31500.

(ii) That all the matters stood settled and finalized through audit. The issuance of audit report is a Judgment/Decision framed by the competent authority and objection if any to it should be made within 30 days. 60 days or at the most 90 days and even if some valid reason recorded and approval obtained from the competent authorities may extend to 180 days but the show cause notice was issued after more than two years which is time barred. They referred the judgment of the Hon'ble Supreme Court of Pakistan in case of Collector of Sales Tax and Central Excise v. Pattoki Sugar Mills Ltd and other in Civil Petitions Nos.813-L and 835-L of 2005, 2007 SCMR 1245 = 2006 PTD 2889 and Lahore High Court in case of Messrs Super Asia Muhammad Din Sons (Pvt.) Ltd. v. Collector of Sales Tax, Gujranwala in W.P. No.13331 of 2006 decided on 7-11-2006 2008 PTD 60. The appellant also referred the S.R.O.25(I)/2006 dated 9-1-2006.

Dealing with the above-mentioned contentions, the Collector (Appeals) has, in the order passed by him, held that (i) the complainant did not challenge the formula/working of sales tax as alleged in the show cause notice, (ii) under S.R.O. 488(I)/04 the complainant was not authorised to adjust input against electricity bills, as it had supplied oil to unregistered persons, (iii) the complainant was required to give solid evidence that it supplied oil to registered persons which it failed to do, (iv) the plea of the complainant that audit observation was a judgment/ decision was not correct because audit report was observation of auditor, which was required to be approved by the seniors and an audit report was not a judgment or decision under section 45 of the Sales Tax Act, 1990, (v) even after approval, in case of any discrepancy, the contravention report could be prepared and sent to the adjudication officer for adjudication, (vi) the contention of the complainant that respondents' action was time barred was not tenable because the period involved was 2004-05 and the complainant had deliberately adjusted the input tax for which it was not entitled and the provisions of section 36(1) of the Sales Tax Act, 1990 were correctly invoked in the show cause notice which authorized recovery of sales tax for five years and, therefore, the action for recovery of evaded sales tax was not time barred, (vii) the desk audit report signed by the auditors provided by the complainant did not cover the aspect of inadmissibility of input tax; on the report submitted by the auditors to the A.C. the A.C. had directed for compliance of S.R.O. 488(I)/04 dated 17-6-2004 which was done and the charge was accordingly framed out in the audit report whereas the complainant was relying on unapproved audit report.

10. It is observed that Collector (Appeals) has vide the impugned Order-in-Appeal dealt with the main contentions of the complainant and has given his findings on issues relating to the audit report, admissibility or otherwise of input tax adjustment and the alleged lime-barred show cause notice on the merits of the case. As it is, no `maladministration' is noted. It is also observed that against the impugned Order-in-Appeal 383/08 dated 18-4-2008 the complainant has filed appeal before the Appellate Tribunal on 27-6-2008. Although the appeal has been filed later in point of time than the filing of complaint in the FTO Secretariat, the complainant has raised therein more or less the same issues as have been raised before this forum. Since Collector (Appeals) has decided the case on its merits, the complainant should pursue its appeal filed before the Appellate Tribunal. The Appellate Tribunal, which is competent to deal with both points of law and fact, can deal with the issues raised in the appeal by the complainant comprehensively on the basis of relevant law and the available evidence and pass a judgment on the merits of the case after due consideration of the arguments of the parties to the dispute.

11. The complaint is disposed of with observations made above.

C.M.A./31/Tax(Trib.)Order accordingly.