ZAMAN TEXTILE MILLS LTD. VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2010 P T D 862
[Federal Tax Ombudsman]
Before, Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
Messrs ZAMAN TEXTILE MILLS LTD.
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaints Nos. C-555-K, C-554-K and C-556-K of 2009, decided on 03/12/2009.
Income Tax Ordinance (XLIX of 2001)---
----Ss.162, 205, 148 & First Sched., Part-IV, cl. (56) [as substituted by Finance Act, 2008]---S.R.O. 567(I)/2008 dated 11-6-2008---Recovery of tax from the person from whom tax was not collected or deducted---Additional tax---Import of cotton---Demand of tax due at the import stage along with additional tax on the ground that S.R.O. 567(I)/2008 dated 11-6-2008 allowing exemption had become redundant on substitution of provision of cl. (56) Part (iv) of First Schedule to the Income Tax Ordinance, 2001 by the Finance Act, 2008, from 1-7-2008---Assesee contended that while substitution of cl. (56) was said to have taken effect from 1-7-2008, the Commissioner of Income Tax on 12-7-2008 clarified to the Chief Collector of Customs that the said S.R.O. was in field and exemption was available---However, returns of income were due by December, 2009, where purchase of raw materials including import of cotton would be reflected in audited accounts/statements---Tax collectable at import stage was not final discharge of tax liability---If tax was not collected at import stage, it could be discharged at the time of filing return---Validity---There appeared lack of coordination, inaction and mistaken interpretation on the part of Federal Board of Revenue officials---Confusion, delay, inaction, unjust and unreasonable treatment meted out to the complainant constituted maladministration--Ingredients of mal-administration, additionally Federal Board of Revenue clarified the position with regard to the said S.R.O. and cl. (56) by Circular letter dated 8-6-2009, but by that time imports had taken place---On 26-9-2009, after complainant's representation, the Federal Board of Revenue directed field offices that recovery of demand in such-like cases be kept "on hold" and the amount be recovered in six equal instalments starting July, 2009 onwards but the recovery was being enforced, and on "default" additional tax was being charged---From the facts and documents maladministration was there due to delay, negligence, incompetence, and lack of coordination and being unjust and unreasonable in the treatment to resolve the issue---Federal Tax Ombudsman recommended that Federal Board of Revenue to direct Commissioner of Income Tax to cancel the order under S.162 read with 205 of the Income Tax Ordinance, 2001 and decide the issue in accordance with law after providing opportunity of hearing to the "Complainant"; that to fix responsibility for non-withdrawal of SRO from website on the date of promulgation of Finance Act, 2008, for incorrect clarification on 12 July, 2008; and also for restricted circulation of clarification issued on 31 January, 2009, and proceed against those responsible under the Removal from Service (Special Powers) Ordinance, 2000; that to adopt measures to avoid such ugly situations, in future; that to consider request of complainants on merit for payment of tax due on instalment basis; and to collect details in respect of total imports of similar nature and tax amount involved, and share the data with the office of Federal Tax Ombudsman.?
Mumtaz Ahmad, Advisor (Dealing Officer).
Imran Javed Iqbal, A.R. and Syed Tasneem Ahmed, Manager for the Complainant.
Aslam, Additional Commissioner of Income Tax/D.R. and Fayaz Rasool, Deputy Collector of Customs/D. R. Departmental Representative.
FINDINGS
DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX.OMBUDSMAN).---Messrs Zaman Textile Mills (C-555-K/09) have filed complaint alleging maladministration, inter alia, in the matter of charge of additional tax for non-payment of tax at import stage. The Complainant has grievance that principle of audi alterm partem has not been followed and facts have not been appreciated in that import of cotton was exempted from withholding Income Tax vide S.R.O.567(I)/2008 dated 11-6-2008 (S.R.O. 567) and based on clarification issued by the Commissioner of Income Tax in his letter dated 12-7-2008 (addressed to the Chief Collector informing that tax was not payable on import of cotton), the Collector of Customs had not collected the tax at source and therefore, charge of default related additional tax was not tenable. The company claims vide para 3 of the complaint that import of cotton and raw material was made under H.S. Code (5201-0010) and 5210.0090 from July, 2006 to May, 2009 without payment of income tax. The cancellation of order levying additional tax under section 162 read with section 205 of the Income Tax Ordinance is also requested in the prayer clause which reads as under:
(i) That the issuance of impugned Order No.09/01 dated 1-8-2009 may be declared maladministration with the meaning of section 2 of the Federal Tax Ombudsman Ordinance, 2000.
(ii) That the respondents may be directed to set aside the said impugned order to implement the directives of the Commissioner of Income Tax vide letter No.44/2008 dated 12-7-2008 (This related to clarification by the Commissioner of Income Tax that S.R.O.???????? 567(I)? of???????? 11-6-2008 was in the field extending concession/exemption).
(iii) That if the respondents have any reservations to setting aside the impugned orders, then, they may be directed to grant an opportunity of hearing to the Complainant as the defend the case in accordance with the provisions of law.
2. In case of Complaint No.C-556-K/09 of Messrs Fazal Textile Mills, imports made at Rs.443 million against 17 Customs Reference numbers. In Complainant No.C-554-K/09 (Messrs Mekotex (Pvt.) Ltd. in the import of cotton was made from July, 2008 to May, 2009.
3. In these three complaints C-555-K/2009, C-554-K/2009 and C-556-K/2009, tax collectable at 1% of the import value could not be paid for reasons stated in para 1 above. Facts are identical in the three complaints, circumstances are the same and the Advocates representing the complainants are also the same. Therefore, these are considered for common recommendations.
4. Facts are that on 11-6-08 and S.R.O. 567(I)/2008 dated 11-6-2008 was issued granting exemption from withholding tax under section 148 at import stage. The relevant provision of the S.R.O. reads as under:--
"In Part-IV, for clause (56), the following shall be substituted namely:
"(56) The provisions of section 148, shall not be applicable to the import of goods classified under Pakistan Customs Tariff falling under Chapters 27, (52.01), 86 and 99."
(It may be mentioned here that PCT Chapter 5201 related to import of cotton).
By promulgation of Finance Act, 2008, clause (56) of Part-IV of First Schedule was substituted on 1-7-2008, (within just 20 days after issuance of the S.R.O.). The substituted clause 56 reads as under:
"Clause 56 Part IV of the 2nd Schedule to the Income Tax Ordinance
The provisions of section 148 regarding withholding tax on imports shall not apply in respect of:-
(i) Goods classified under Pakistan Custom Tariff falling under Chapters 27, 86 & 99----"
From comparison of the relevant contents of the SRO and the clause (56), it appears that exemption to the import under head 52.01 was not available as clause (56) substituted by Finance Act, 2008, over-ruled the S.R.O. 567. The S.R.O. however, was not removed from the website, and clarification dated July 12, 2008 issued by Commissioner that S.R.O. 567 related exemption was in the field during the period of imports. The clarification issued by the Commissioner read as under:
"...The Federal Government has in the recently announced Budget for the FY 2008-09 introduced amendments in the Income Tax Ordinance, 2001 whereby the rates of tax under section 148 of the Ordinance on various items of import have been revised. Accordingly the Board issued Income Tax S.R.Os. Nos.566(I)/2008 & 567(I)/2008 dated 11th June, 2008 to incorporate these changes with immediate effect. These S.R.Os. were forwarded to all the Income Tax and Customs Authorities across the country for immediate implementation."
In para. 2(ii) the following has been stated:
(ii) S.R.O. 567(I)/2008 dated 11th June, 2008 introduced that exempt certain items of import from attracting the statutory rate of income tax and subjects them to income at 1% and also exempts certain items from the application of section 148 of the Ordinance as follows in clause (e) of (ii) of para. 2.
"it is stated that further more, the goods falling under PCT Chapters Nos. 27; 52.01, 86 and 99 have been exempted from the application of provisions of section 148 of the Ordinance."
Thus, S.R.O. 567(I)/2008 dated 11-6-2008 and clarification dated 12-7-2008 were the basis of claim and grant of exemption from income tax withholding on import of cotton,
5. However, as appears from the record, Messrs Suraj Cotton Mills Ltd., Lahore sought clarification from the Board (number and date of the letter is missing in the clarification) about the application of S.R.O. 567 dated 11-6-08 in presence of the clause (56). Board clarified vide letter No.16472-R dated 31-1-2009, as under:--
Islamabad, the 31st January, 2009
Messrs Suraj Cotton Mills Limited
Tax under section 148 on Import of Cotton clarification regarding
The undersigned is directed to refer to your letter No., and date nil relating to application of S.R.O. No.567(I)/2008 dated June 11, 2008. It is clarified that the said SRO had become redundant because of insertion of clause (56) of Part-IV of the Second Schedule enacted by the Finance Act, 2008. Thus tax under section 148 is collectible @2% (should be 1%). As such action taken by the Collector of Customs, Lahore is within the ambit of law.
(Sd.)
Secretary (IT Policy)
? Phone:9205561
Note on Original:
Copy to:
| The Member (Customs), FBR (HQ), Islamabad | With the request to please look into the fact as to why tax under section 148 has not been collected at Karachi Port? Copy of the Bill of Entry, in the case of Messrs Suraj Cotton Mills Limited dated 10th January, 2009 is enclosed. |
This letter was not circulated throughout the field formations. A copy of this letter appears to have been endorsed to the Member (Customs) F.B.R., HQ, Islamabad only. He was asked to see as to why the tax was not being collected. The exemption continued even in the presence of this restricted clarification till May, 2009 when Mr. Nisar Muhammad of Modern Collector of Customs at Karachi, drew attention of the Board of 20-5-2009 to the redundant SRO that was being relied on. The Board on 8-6-2009 came up the clarification and circulated the same as under:-
???????????
Islamabad June 8, 2009
Collector,
Model Collectorate of Customs, PACCS,
Custom House,
Karachi.
Inadmissibility of Benefit of Advance Income Tax(IT) @2% under Income Tax Ordinance, 2001, on import of Raw Cotton (52.01).
The undersigned is directed to refer to your letter No. MCC/Mist/26/Group.III/2008 dated 20th May, 2009, on the subject and to state that the goods classified under PCT Head 52.01 were included in clause (56) of Part-IV of the Second Schedule to the Income Tax, 2001, in the Finance Bill, 2008. However, National Assembly amended the same and the existing provisions of he Finance Act, 2008 are as under:-
"(56) The provisions of section 148, regarding withholding tax on imports shall not apply in respect of-
(i) goods classified under Pakistan Customs Tariff falling under Chapters 27, 86 and 99;
2. As such S.R.O. 567(I)/2008 dated 11th June, 2008 stands redundant. The matter has already been clarified to the Collectorate vide the Board's letter of even number dated 31st January, 2009 (Copy enclosed for ready reference).
3. Since the S.R.O. 567(I)/2008 dated 11th June, 2008 is inconsistent with the provisions of the subsection (10) of section 239 of the Income Tax Ordinance, 2001, therefore, is invalid.
6. On receipt of this clarification, the exemption was stopped and such intimation was also put on the website from June, 2009. The Collector then started recovery proceedings in score of such-like cases. The Commissioner of Income Tax having jurisdiction has also made effort for recovery and have levied additional tax for non-payment of tax at customs stage in the Complainant's cases.
7. In the meantime, APTAMA made representation to the Board and requested relief. Board has allowed payment in instalments vide letter dated 26-6-2009.
The Director-General
Regional Tax Office,
Karachi.
26-6-2009
Subject: ?????????? Withholding Tax on import of cotton---proceedings under section 162 regarding
I am directed to refer to APTMA's letter No.PO/Admin/Chair/09-230 dated 27-5-2009, on the subject cited above and to say that the recovery of arrear demand under section 162 of the Income Tax Ordinance, 2001, initiated in these cases may be kept on hold, till condition of the industry improves to pay the tax prospectively.
2. I am further directed to convey that the arrears be adjusted against the refunds available in the cases of each taxpayer. Balance amount if any, be recovered in six equal instalments, starting July onward.
(Sd.)
Secretary (Withholding Tax)
Copy to: Mr. Tariq Mehmod, Chairman, All Pakistan Textile Mills Association, APTMA House, 44-A, Lalazar Moulvi Tamizuddin Khan Road, Karachi-74000.
8. Charge of additional tax in the Complainant's cases and non-compliance of the FBR's letter dated June 26, 2009 is also the grievance agitated in the complaint.
9. The Department demanded payment of tax due at the import stage and also additional tax, informing the Complainant that the S.R.O. being relied upon in the matter of the exemption had become redundant on substitution of provisions of clause (56) Part (IV) of First Schedule to the Income Tax Ordinance, 2001 by the Finance Act, 2008, from 1-7-2008. The representative averred that while substitution of clause (56) is said to have taken effect from 1-7-2008, the Commissioner of Income Tax Enforcement on July 12, 2008, clarified to the Chief Collector of Customs that S.R.O. 567(1) dated 11-6-2008 was in the field and exemption was available. The Complainants are also aggrieved by the treatment stating that returns of income are due by December, 2009, where purchase of raw materials including import of cotton would be reflected in audited accounts/statements. In their view, tax collectable at import stage in the case of manufacturers/complainants was not final discharge of tax liability. Therefore, for import of cotton, if tax was not collected at import stage, it could in their opinion be discharged at the time of filing of return. This will not make material different for the purposes, if such declared tax liability is paid on basis of returns or on assessment.
10. The D.Rs. on the other hand have stated that the S.R.O. had become redundant. The tax is to be paid. It is also appreciated that the Complainants are regular taxpayers and manufacturer of textiles. The FBR "clarification of June, 2009 about payment in instalments was being followed and that additional tax was chargeable.
11. From the above discussion, there appears lack of coordination, inaction and mistaken interpretation on the part of FBR officials. The confusion, delay, inaction and unjust and unreasonable treatment meted out to the Complainant constitutes maladministration. The ingredients of maladministration, additionally are:
(i) FBR clarified the position with regard to the S.R.O. 567 dated 11-6-2008 and the clause (56) by Circular letter dated 8-6-2009, but by that time imports had taken place.
(ii) on 26-9-2009, after Complainant's representation, the FBR directed field offices that recovery of demand in such-like cases be kept "on hold" and the amount be recovered in six equal installments starting July, 2009 onwards but the recovery was being enforced, and also "default" additional tax was being charged.
(It appears that the heading 5210.090 in the Complaint para No.3 is a typographical mistake as no such heading appears in the tariff. The correct heading may be 5201.0090 which has been mentioned in the order under section 162 read with section 205, passed by the Deputy Commissioner of Income Tax).
12. Findings:
From the facts and documents, maladministration is there due to delay, negligence, incompetence and lack of coordination and being unjust and unreasonable in the treatment to resole the issue.
13. Recommendations:
The Revenue Division/FBR to:
(i) direct Commissioner of Income Tax to cancel the order under section 162 read with 205 of the Income Tax Ordinance and decide the issue in accordance with law after providing opportunity of hearing to the Complainant;
(ii) fix responsibility for non-withdrawal of S.R.O. from website on the date of promulgation of Finance Act, 2008, for incorrect clarification on 12 July, 2008; and also for restricted circulation of clarification issued on 31 January, 2009, and proceed against those responsible under the Removal from Service (Special Powers) Ordinance, 2000;
(iii) adopt measures to avoid such ugly situations, in future;
(iv) consider request of Complainants on merit for payment of tax due on instalment basis; and
(v) Collect details in respect of total imports of similar nature and tax amount involved, and share the data with this office also.
14. These recommendations shall apply, mutatis mutandis, to the other two Complainants: C-554-K/2009 and 556-K/2009.
15. Compliance in the above matters be reported within 45 days.
C.M.A./183/FTO???????????????????????????????????????????????????????????????????? ??????????? Appeal accepted.??