J.M. ENTERPRISES through Messrs Tax & Management Consultant, Karachi VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2010 P T D 53
[Federal Tax Ombudsman]
Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
Messrs J.M. ENTERPRISES through Messrs Tax & Management Consultant, Karachi
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. C-364-K of 2009, decided on 12/10/2009.
Sales Tax Act (VII of 1990)---
----Ss. 7, 8 & 10---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9, 10 & 11---Sale Tax input adjust ment---Complainant had pleaded that audit observation of the Directorate, Revenue Receipt Audit, in the matter of Sales Tax input adjustment based on photocopies of 5 bills of entry, were not well founded---No satisfactory reply was given by the Departmental Representative---Representative of the complainant had stated that he approached the Assistant Collector concerned and produced before him original bills of entry, whereupon the Assistant Collector assured that he would satisfy Directorate Revenue Receipt Audit or their office so that matter could be settled---Departmental Representative verified that Payment of Sales Tax was made at the proper stage on the relevant dates and the disallowance of input tax claim and creation of demand was not correctly made---In the process, the complainant has suffered since 2006 on account of wrong notices, ex parte order-in-original and Payment of a part demanded due to coercive measures---Department did not realize that if the bills of entry were produced, the tax must have been deducted and it only needed verification which was initiated after 3 years and that too after the matter was taken up before the Federal Tax Ombudsman and after causing undue inconvenience and difficulties to the taxpayer---Departmental officers should have thought as to how to proceed to determine whether any loss of revenue had been caused---Officers adopted easy course of creating the demand by disallowing input claim and that also by making ex parte decision---Even coercive measures for recovery were adopted by placing embargo---Delay had caused a lot of inconvenience to the taxpayer and created an embarrassing situation for them---Such was a case of mal administration---Recommendations were made to the effect; that Revenue Decision to direct the Collector to cancel the order-in-original passed by his subordinate and to undertake fresh proceedings; that FBR could write to the complainant regretting the inconvenience caused; that FBR to initiate inquiry against the officer responsible for order-in-original and for imposing embargo; that issue appropriate guidelines for the Sales Tax Officers in the matter of handling Directorate Revenue Receipt Audit, related observations; and that compliance of recommendations be reported up to specified date.
Mumtaz Ahmad, Advisor/Dealing Officer, FTO's Regional Office, Karachi.
Khushnood A. Khan, Authorized Representative.
Masood Sabir, Deputy Collector Sales Tax/Departmental Representative.
FINDINGS/RECOMMENDATIONS
DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---The complaint was filed on 4-6-2009. It is pleaded that audit observations of the Directorate Revenue Receipt Audit (DRRA), in the matter of Sales Tax input adjustment based on photocopies of 5 bills of entry, were not well-founded. It is alleged that the Sales Tax Department chose to make audit observations as basis for the Order-in-Original as Deputy Collector Sales Tax external audit in ex parte Order-in-Original No.21 of 2008 dated 2-12-2009 held that the adjustment of input tax of Rs. 216,547 in respect of imported goods was not admissible (having been allowed on photocopies basis). It is stated that the complainant approached the Assistant Collector and showed original bills of entry, who assured the representative of the firm that matter would be taken up with the DRRA for withdrawal of the observations para. It is revealed that the firm came to know about the order-in-original and the demand of Rs.216,547 raised by disallowing input tax claim when embargo was placed to recover the demand. (The embargo was lifted after Rs.50,000 was paid against the demand due to coercive methods adopted by the department.) It is further stated in the complaint that:--
"the Ex-parte order passed by the learned Deputy Collector is contrary to law, arbitrary, based on irrelevant grounds, using of coercive methods of tax recovery, therefore, fall within the ambits of maladministration as defined under section 2(3) of the Federal Tax Ombudsman Ordinance, 2000.
In prayer clause, it is submitted that:--
"in view of above facts, we, therefore, request your honour:--
(1) to kindly set-aside the illegal Order-in-Original No.21 dated 2-1-2009
(2) to please further direct to concerned Collector for the Refund of Rs.50,000 wrongly recovered, OR
(3) to provide any other relief suitable to your complaint."
2. The Deputy Collector Sales Tax submitted parawise comments through the Collector taking stand that Order-in-Original was legally maintainable and that the Order-in-Original can be appealed against before the Collector (Appeals). The following is para-wise reply.
"that, impugned order is legal and maintainable in law. It has been passed by an appropriate adjudication officer of sales tax, in exercise of the powers conferred upon him under section 45 ibid, on merits and on the strength of material available on record after affording due opportunity of hearing to the respondent (complainant). No cause of grievance is, therefore, available to him in this regard.
that, in case the complainant still feels aggrieved, he may file an appeal against the impugned order with the Collector (Appeals), under section 45 of the Sales Tax Act, 1990 who is appropriate Authority to pass an Appellate Order in the matter, after hearing' to the complainant, including, inter alia, the points related to the alleged acts of maladministration committed by the department.
that the Honourable Authority may observe that in terms of the letter of the learned Consultant of the complaint, he has himself deposited Rs.50,000 as 25% of the adjudged amount on behalf of the registered person and is ready and willing to pay the remaining dues in four instalments, If this is the admitted position, then what is the cause of action in the instant complaint"
3. In response of the FTO's notice, the learned A.R. of the complainant Mr. Khushnood Ali Khan, Advocate and the D.R. Mr. Masood Sabir, Deputy Collector, Sales Tax attended. During the course of proceedings, the following issues came up:-
(i) the audit observations related to January, 2006, why the matter was taken up in 2009?
(ii) DRRA has observed that input tax adjustment was allowed based on the photocopies of 5 bills of entry, why didn't the Sales Tax Department verify the authenticity of the photocopies from the Customs Department (Imports), before initiating action that culminated in the ex-parte Order-in-Original, and embargo etc to recover the demand?
(iii) Why didn't Adjudicating Authority consider the fact that if the imports were subject matter of Customs Duty and Sales Tax, the taxes would have been collected in all probability by the Customs (in terms of section 3(2) of the Sales Tax Act, 1990 and the rules made there-under), and why instead of verification of payment of Sales Tax at import stage the department chose to pass ex-parte order and adopt coercive measures to recover the amount?
(iv) Whether a sufficient opportunity was provided to the complainant to produce original or attested copies of the bills of entry, or any other satisfactory evidence in support of payment of sales tax at import stage?
4. No satisfactory reply was given by the DR. The A.R. on the other hand, stated that he approached the Assistant Collector concerned and produced before him original bills of entry, whereupon the Assistant Collector assured that he would satisfy DRRA or their office so that the para could be settled.
5. On 18-9-2009, the D.R. sated that the verification of sales tax input tax was conducted from the Customs Department and the endorsement dated 15-9-2009 confirmed that sales tax was collected in respect of the impugned bills of entry. The D.R. also produced Customs Department verification of input tax payment. The endorsement on the letter sent by the Sales Tax reads as under:--
"according to the report received from Model Customs Collectorate of Appraisement Karachi (copy enclosed) all the impugned Bills of Entry/Goods Declarations are verified and it is confirmed that Sales Tax was duly paid into the Government treasury on all of these transactions at import stage. (ii) That since Customs has verified that Sales Tax was paid by the complainant at import stage in all the listed consignments, the input tax availed by the complainant against further supply of these imported goods was valid under section 7 of the Sales Tax Act, 1990, and the objection raised by Auditor of DGRRA in terms of Audit observation No.86 dated 19-8-2004 was/is not sustainable ab initio."
Both the parties attended on 19-9-2009, again. The D.R. verified that payment of Sales Tax was made at the import stage on the relevant dates in the year 2002, and the disallowance of input tax claim and creation of demand, therefore, was not correctly made. It is obvious that in the process, the complainant has suffered since 2006 on account of wrong notices, ex-parte Order-in-Original, and payment of a part demand due to coercive measures. The Department did not realize that if the bills of entry were produced, the tax must have been deducted and it only needed verification which was initiated on 11-9-2009 after 3 years and that too after the matter was taken up before the Federal Tax Ombudsman and after causing undue inconvenient and difficulties to the taxpayer.
6. It may be observed that that DRRA under the Auditor-General of the Pakistan is doing its constitutional duty within the laid down rules, regulations, and parameters. Their observations in the first place are in the nature of making the tax authorities aware about the omission or commission, incorrect accounting that might have resulted in the loss of revenue receipts, or to check and report on any possible, probable or suspected loss of revenue. In some cases, tangible evidence is provided to establish the loss of revenue. But in the present case, based on the observations, the Departmental officers should have thought through as to how to proceed to determine whether any loss of revenue had occurred. They adopted easy course of creating the demand by disallowing input claim and that also by making ex parte decision. Even coercive measures for recovery were adopted by placing embargo.
7. Findings: The verification could have been made immediately on receipt of DRRA observations, as it has taken only four days to verify when the FTO Office took up the proceedings. In the first place, instead of taking wrong stand in the para-wise comments, the observations of DRRA could have been settled in 2006, by verifying the payment from Customs Department. The delay has caused a lot of inconvenience to the taxpayer, and created an embarrassing situation for him as embargo was placed on the movement of goods. This, therefore, is a clear case of maladministration.
8. RECOMMENDATIONS:
(i) The Revenue Division to direct the Collector to cancel the Order-in-Original passed by his subordinate and to undertake fresh proceedings so that refund of Rs.50,000 is created and paid to the complainant;
(ii) the FBR may writ to the complainant regarding the inconvenience caused;
(iii) FBR to initiate inquiry against the officer responsible for Order -in-Original and for imposing embargo;
(ic) issue appropriate guidelines for the Sales: Tax Officers in the matter of handling DRRA-related observations; and
(v) compliance of these recommendations be reported by 30-10-2009.
H.B.T./148/FTOOrder accordingly.