GEOFMAN PHARMACEUTICALS, KARACHI VS SECRETARY, REVENUE DIVISION; ISLAMABAD, 2011 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1339 (2010)

Customs Act (IV of 1969)---

----Ss. 19-A, 33 & 195-C---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3), 9, 10 & 11---Rejection of refund claim---Complainant was a manufacturer of drugs and medicines, including various I. V. solutions sold in LDPE Packing locally. manufactured by the complainant using imported Pharmaceutical Grade LDPE Granules---Said LDPE Granules were exempt from payment of sales tax, but despite that department charged sales tax from July 2001 to March 2006---Complainant had filed 41 refund claims, but same had been rejected, on two grounds; firstly, that the certificate issued by the Chartered Accountant was not a sufficient document for confirmation, whether or not the incidence of tax was passed to the end consumer, according to the department, for the said purpose audit report and certification of import documents by Chartered Accountant were also required; and secondly that the claim of the complainant was time-barred under S.33 of the Customs Act, 1969---Record did not indicate that the department ever asked the complainant to submit additional evidence i.e. audit report and certificate of import documents by Chartered Accountant to prove that the incidence of tax was not passed on to the end consumer---At the time of issuance of letter of rejection of the claim, applicability of S.19-A of the Customs Act, 1969 for claims relating to period prior to insertion of said provision was not considered---Complainant was admittedly not confronted with the issue of limitation; and the claims of the complainant was rejected by issuance of letter which could not be termed as an order to enable the complainant to file appeal/review---Refection of refund claim of the complainant, constituted mal administration under S.2(3) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Recommendations were made to Federal Board of Revenue to direct the Collector to withdraw the Deputy Collector's letter in exercise of his power under S.195(1) of the Customs Act, 1969 treating the claim of refund as pending; to direct that the pending claim of refund be decided in accordance with law within 21 days after affording opportunity of hearing to the complainant; and to report compliance with 7 days thereafter.

2005 PTD 2286 and Fecto Belarus Tractors Ltd. v. Government of Pakistan 2005 PLD 605 ref.

Justice (Retd.) M. Nadir Khan, Advisor, Dealing Officer. Mushtaq Kazmi, Consultant, Authorized Representative.

Ms. Shalra Khan, Deputy Collector, Departmental Representative.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---The complainant is a manufacturer of drugs and 11 medicines, including various I.V. Solutions sold in LDPE packing locally manufactured by the complainant using imported Pharmaceutical Grade LDPE Granules. According to the complainant, LDPE Granules were exempt from payment of Sales Tax as clarified by the Sales Tax Wing of Central Board of Revenue (now F.B.R.) vide letter dated 30-7-1997. However, the matter was finally settled vide letter dated 16-10-1997 when it was ruled that Sales Tax was not chargeable on LDPE Granules used for manufacturing packing of I.V. Solutions.

2. The complainant alleged that in 2001 the Department started charging Sale Tax on Pharmaceutical Grade LDPE Granules. The objection of the complainant and his competitors, Messrs Otsuka Pakistan Ltd. and others was not accepted by the Department. Having no other alternative LDPE Granules were got cleared on payment of Sales Tax. Simultaneously, the complainant and other importers approached the Ministry of Health in this regard. In the meanwhile, the F.B.R. vide letter dated 4-2-2006 directed the Customs to provisionally assess the imported Pharmaceutical Grade LDPE Granules free of Sale Tax against Indemnity Bond. However, the matter was finally settled by issuance of ruling C. No.1(51)STT/96 dated 3-3-2007 whereby the exemption of Sale Tax was extended to Pharmaceutical Grade LDPE Granules and F.B.R. letter dated 8-9-1997 was held to be valid. Thereafter, Sale Tax was not charged on imported Pharmaceutical Grade LDPE Granules and the Indemnity Bonds submitted by the complainant for the provisional clearance were returned.

3. The AR pleaded that as Sale Tax unlawfully charged by the Department from July, 2001, to March, 2006 was required to be refunded, the complainant, accordingly, filed 41 refund claims amounting to Rs.14,267,634. A certificate issued by Charted Accountant confirming that the Sales Tax involved was not passed on to the end consumers was also provided as required by the Department. Despite that, the Department rejected the refund claim vide letter 19-4-2010.

4. The complainant feeling aggrieved by rejection of refund claims has approached the Hon'ble FTO on the grounds that rejection of the claim after a delay of 3 years vide letter dated 19-4-2010 was illegal as no appealable order had been passed. Nor the certificate of the Charted Accountant about not passing of the incidence of Sales Tax to the end consumers was considered by the Department. Besides, section 19-A of the Customs Act was not applicable to the claims relating to period prior to its insertion in the Customs Act, 1969. According to the complainant, the issue of limitation was not raised nor was he afforded opportunity of hearing on the said issue.

5. The notice of the complaint was issued to the Department through Secretary Revenue Division. In response, Deputy Collector of Customs Appraisement-II filed parawise comments, wherein preliminary objection about maintainability of the complaint was raised on the ground -that it was hit by the provisions of section 9(2)(b) of the FTO Ordinance. However on merits, the Department did not dispute the facts and it was contended that from 2001 till 2006 Sales Tax was paid voluntarily and the refund claim was filed after the lapse of period provided by section 33 of the Customs Act. The Department further contented that the complainant failed to prove that the incidence of tax was not passed on to the end consumers, and so the refund claim was rejected. The order about rejection of the claim was appealable but said remedy was not availed. The Department further contended that Messrs Otsuka Pharmaceuticals Company, Karachi, filed refund claim which was rejected by Alternate Dispute Resolution Committee (ADRC) constituted under section 195(C) of the Customs Act, 1969 and it was observed that refund claim filed after the expiry of permissible limit of six months under section 33 of the Customs Act be rejected. According to the Department no element of maladministration was involved in rejection of the refund claim of the complainant.

6. The complainant was supplied copy of parawise comments, in response to which he filed a rejoinder. The parties were called for hearing on 27-8-2010 which was attended by Syed Mushtaq Kazmi, Consultant, for the complainant while the Department was represented by M. Shalra Khan, Deputy Collector of Customs.

7. During arguments, the parties supported the averments of their pleadings. However, the focus of arguments was the letter of rejection of the refund claim which according to the AR could not be termed as an order against which appeal could be filed. The AR contended that the complainant was called upon to submit certificate issued by Charted Accountant to prove that the incidence of tax was not passed on to the end consumer but the same was rejected without assigning any valid reason. The AR also contended that no issue of limitation was raised and without affording of any opportunity the claim was rejected treating it as time-barred. According to the AR, limitation was to be reckoned w.e.f. 3-3-2007 when ruling No.1(51)/STT/96 was issued by F.B.R. about Pharmaceutical Grade LDPE Granules being exempt from Sales Tax.

8. The DR though supported the order of rejection of the refund claim but on being confronted with the submission made by the AR fairly conceded that the complainant was not heard on the issue of limitation. However, he pleaded that rejection of the claim being in the form of administrative letter notwithstanding, the complainant could have availed the legal remedy under the Customs Act, 1969. He submitted that if the complainant considered that on the issue of limitation as well as applicability of section 19-A of the Customs Act, the matter required further consideration, the complainant should file application for review which would be considered as per law.

9. After due consideration of the submissions made by the parties and thorough examination of the record, it is observed that the complainant and other importers paid Sales Tax from 2001 to 2006 as the Department did not extend the concession of exemption of Sales Tax on import of Pharmaceutical Grade LDPE Granules. However, from 4-2-2006 as per instructions of F.B.R., LDPE Granules was provisionally assessed by obtaining pay orders against the Sales Tax, and subsequently, on issuance of ruling No.1(51)STT/96 dated 3-3-2007, the goods under reference were held to be exempt from payment of Sales Tax. The complainant thereafter filed the claim for refund of Sales Taxes received by the Department from 2001 to 2006. The Department demanded evidence about not passing the incidence of refund claimed to the end consumer, which the complainant did provide, but the Department through letter dated 19-4-2010 rejected the refund claim on two grounds: firstly, that the certificate issued by the Charted Accountant was not a sufficient document for confirmation whether or not the incidence of tax was passed to the end consumer, according to the Department, for the said purpose audit report and certification of import documents by Charted Accountant were also required, and, secondly, that the claim, was time-barred under section 33 of the Customs Act, 1969.

10. The record does not indicate that the Department ever asked the complainant to submit additional evidence i.e. audit report and certification of import documents by Charted Accountant to prove that the incidence of tax was not passed on to the end consumer. Furthermore, at the time of issuance of letter of rejection of the claim, applicability of section 19-A of the Customs Act for claims relating to period prior to insertion of said provision was not considered. It would be desirable to examine the applicability of the aforesaid section in the light of Supreme Court judgment reported as 2005 PTD 2286 and 2005 PLD 605 (Fecto Belarus Tractors Ltd. v. Government of Pakistan).

Findings:

11. As it is an admitted fact that the complainant was not confronted with the issue of limitation, and the claim was rejected by issuance of letter which could not be termed as an order to enable the complainant to file appeal/review, the rejection of refund claim in such a manner constituted maladministration under section 2(3) of the FTO Ordinance, 2000.

RECOMMENDATIONS:

12. F.B.R. to--

(i)direct the Collector to withdraw the Deputy Collector's letter dated 19-4-2010 in exercise of his powers under section 195(1) of the Customs Act, 1969, treating the claim of refund as pending;

(ii)direct that the pending claim of refund be decided in accordance with law within 21 days after affording opportunity of hearing to the complainant; and

(iii)report compliance within 7 days thereafter.

H.B.T.1120/FTOOrder accordingly.