PESHAWAR ELECTRIC SUPPLY COMPANY (PVT.) LTD., PESHAWAR VS SECRETARY REVENUE DIVISION, ISLAMABAD
2011 P T D 1658
[Federal Tax Ombudsman]
BeforeDr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
Messrs PESHAWAR ELECTRIC SUPPLY COMPANY (PVT.)LTD., PESHAWAR
Versus
SECRETARY REVENUE DIVISION, ISLAMABAD
Complaint No. 170/ISD/ST(15)/1014 of 2010, decided on 28/03/2011.
Sales Tax Act (VII of 1990)---
----Ss. 11(2), 33(5), 34(1), 36(3) & 74---Establishment of Office of FederalTaxOmbudsmanOrdinance (XXXV of 2000), Ss.2(3), 9, 10 & 11---Disallowing input adjustment---Maladministration---Complainant company alleged maladministration on part of Chief Commissioner and Additional Commissioner (Audit Division) Regional Tax Office for arbitrarily disallowing input adjustment by the complainant, vide order-in-original---Maladministration had also been alleged on account of number of other acts of omission and commission including unlawful extension; and non-intimation of time limitation, back-dating and delayed dispatch of order-in-original, non-existence of the designation of Additional Commissioner in the Sales Tax Act, 1990, and for alleged discriminatory treatment etc.---Methodology adopted by Regional Tax Office for calculating inadmissible input adjustment could not be maintained being arbitrary and discriminatory---Provincially Administrated Tribal Areas'situation had also to be factored that Sales Tax was not payable in said area---Other elements such as non-payment due to extreme law and order situation in the service area of Peshawar Electric Supply Company, also needed to be examined for a Policy decision by Federal Board of Revenue---Disallowing line losses/distribution losses to the extent of 33.20% as determined being manifestly discriminatory and unlawful was tantamount to maladministration---Recommendations were made to Federal Board of Revenue to reopen the impugned order-in-original in exercise of its power under S.45-A of Sales Tax Act, 1990 and decide the matter afresh, as per law and practice; to take effective measures to ensure standard treatment of such mundane issues across Pakistan and to report compliance within 30 days.
Yasin Tahir, Senior Advisor Dealing Officer.
H.A. Shirazi and Iqbal Saeed Khattak, Assistant Manager Accounts (PESCO), Authorized Representative.
Barrister Syed Muddassir Amir, Harron Khattak, Audit Officer, RTO Peshawar and Sharifullah, Law Officer, RTO Peshawar, Departmental Representatives.
FINDINGS/RECOMMENDATIONS
DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---Messrs Peshawar Electric Supply Company (PESCO), Peshawar, operating as one of the eight public sector distribution companies owned by PEPCO/WAPDA/GOP have filed this complaint under section 10(1) of the FTO Ordinance, 2000 (the Ordinance) alleging maladministration on part of Chief Commissioner and Additional Commissioner (Audit Division-II), Regional Tax Office, Peshawar for arbitrarily disallowing input adjustment of Rs.2,462,631,249 by the CompanyfortheperiodMay,2008toMarch,2009videOrder-in-Original (O-in-O) No.01 of 2010 dated 29-6-2010. Maladministration hasalsobeenallegedonaccountofanumberofotheracts of omission and commission including unlawful extension and non-intimation of time limitation, back-dating and delayed dispatch of O-in-O, non-existence of the designation of Additional Commissioner in the Sales Tax Act, 1990 (the Act), and for alleged discriminatory treatment, etc.
2.The complaint was referred for comments to the Secretary Revenue Division as required under section 10(4) of the Ordinance. Parawise comments of Regional Tax Office (RTO), Peshawar, were received and sent to the complainant who filed rejoinder. The RTO Peshawar also filed comments on the complainant's rejoinder.
3.During the hearing, both DR and AR reiterated the averments of their written pleas. After making jurisdiction-related preliminary objection in terms of Section 9(2)(b) of the Ordinance, the DR explained that it was during audit of PESCO for the tax period May, 2008 to March, 2009 that Auditors of RTO Peshawar detected inadmissible adjustment of Sales Tax to the tune of Rs.3,383,920,930. A Show-Cause Notice (SCN) No.ST&FE/Adc/Adj/79/09/9245 dated 2-7-2009 was accordingly issued calling upon PESCO to explain, within 14 days, why the aforesaid amount of inadmissible adjustment should not be recovered undersection11(2)andsection36(1)along withpenaltyunder section 33(5) and default surcharge under section 34(1) of the Act. Instead of filing reply within time, PESCO submitted it on 12-9-2009 i.e. with a delay of almost two months. During this period, the adjudicating officer fixed four dates for hearing, three of which were adjourned on the written and telephonic requests of the AR. While submitting the reply on the fourth date, i.e. 12-9-2009, the AR requested for constitution of a Reconciliation Committee to re-examine the amount of input adjustment to rectify some calculation errors. The request was granted. The Reconciliation Report reduced the amount of inadmissible input from Rs.3,383,920,930 to Rs.2,462,631,249, and it was submitted to the adjudicating officer on 15-10-2009.
4.As the statutory time limit for finalization of adjudication was expiring on 30-10-2009, an extension of 60-day time limit was obtained from Collector Sales Tax in terms of the proviso to section 36(3) of the Act. On 28-10-2009 the Finance (Amendment) Ordinance, 2009 was promulgated and the Sales Tax officers belonging to the Customs and Excise Group including the Additional Collector Sales Tax who was adjudicating this case became non-functional due to a major organizational restructuring of F.B.R. In the ensuing legal changes, section 45 of the Act specifying powers of adjudicating officers was omitted and section 25 ibid was amended replacing the need for adjudication order with assessment order. As these legal amendments were silent about the adjudication cases in hand, the ambiguity was resolved by the F.B.R. vide C.No.1(16)IR-Jud/2009 dated 10-2-2010, and adjudication of pending cases was accordingly resumed by officers of the newly established Inland Revenue Service. As in the meanwhile the extended time limit for adjudication of this case had also expired, the F.B.R. was requested by Chief Commissioner, RTO Peshawar, vide letter No.ST/Adc/Adj/4571 dated 21-4-2010, to extend the time limit in exercise of its powers under section 74 of the Act. The F.B.R. accordingly extended the time limit upto 30-6-2010 on the ground that the matter under reference involved complicated legal issues as well as transfer of jurisdiction. The adjudicating officer next fixed a hearing on 9-6-2010, but it was adjourned on the request of the AR. On the next date of hearing i.e. 16-6-2010 the AR filed rejoinder to the Department's parawise comments dated 20-10-2009. TheAdjudicatingOfficerfinalized theadjudicatingproceedingsvideO-in-O No.01 of 2010dated29-6-2010, i.e. a day before the expiry of the extended time limit.
5.The O-in-O dated 29-6-2010 was prima facie, handed over to dispatch staff as recorded at serial 379 of the Dispatch Register, with a copy to Commissioner (E&C) for enforcement on 30-6-2010. However, due to countrywide strike of the staff for increase in their salaries,the O-in-OwasdispatchedtoPESCOandMember(LegalF.B.R.)on 9-7-2010 by UMS as per postal receipts Nos.506 and 505 respectively. The DR pleaded that no maladministration was committed by the Chief Commissioner or the Additional Commissioner as the O-in-O was passed within the extended time limit and the delay in dispatch was due to circumstances beyond their control.
6.The complaint has been examined in the light of written and oral submissions of the parties. The contentions of the parties mainly relate to the following issues:
(i)WhetherHon'bleFTO'sjurisdictionisbarredunder section 9(2)(b) of the Ordinance;
(ii)Whether the initial extension of 60 days granted by the Collector under the provisions of section 36(3) of the Act and subsequent extensionup to30-6-2010grantedbytheF.B.R.under section 74 ibid was lawful;
(iii)Whether the O-in-O was time-barred and back-dated;
(iv)Whether any discrimination was involved in this case; and
(v)Whether input adjustment was admissible as per law.
7.The DR contended that as appropriate remedy of appeal against the impugned O-in-O was available to the complainant under section 45B of the Act, the jurisdiction of Hon'ble FTO was not competent in terms of section 9(2)(b) of the Ordinance. In support of his contention, the DR cited the decisions of Hon'ble President of Pakistan on representations in Complaint Nos. 99-K/2003, 599-K/2004, 952-K/2005 and 1061-L/2007, involving mainly legal disputes of tax assessment, classification or valuation. However, where the complaints involved maladministration, the Hon'ble President invariably held that the Hon'ble FTO's jurisdiction was competent. Even in complaints involving both legal disputes and maladministration as defined under section 2(3) of the Ordinance, the Hon'ble President has been pleased to hold that jurisdiction of Hon'ble FTO'swascompetent. AcaseinpointisdecisionNo.64/2009-Law-1(FTO) dated 7-4-2010:--
"When a question relates to assessment simpliciter the efficacious remedy is through adjudicatory process/appeal. But when the Agency does not follow the due process and the complainant spells out the failure on the part of the Agency in this connection, the FTO can entertain the complaint to the extent of the latter question. The issue of failure to follow the due process can, therefore, be severed from the question relating to assessment."
8.It is evident that in complaints involving acts of omission or commission of tax functionaries as included under section 2(3) of the Ordinance, the FTO's jurisdiction is competent, and so the jurisdiction-related preliminary objection of the DR being not maintainable is over-ruled.
9.According to AR, maladministration was involved on the ground that (i) the complainant had no intimation of 60-day extension in time limit by the Collector; (ii) the O-in-O was back-dated; (iii) the O-in-O was not dispatched within the mandatory time limit prescribed under section 36(3); (iv) the extension in time limit by F.B.R. under section 74 of the Act was unlawful as it was granted without justification after expiry of the period of 60 days extended by the Collector and that the complainant was neither associated with nor intimated about the extensions; (v) the O-in-O was issued by the Additional Commissioner who was not then competent to issue it as the designation 'Additional Commissioner' did not exist in Sales Tax law at that time, and (vi) the O-in-O was highly discriminatory as other public sector distribution companies were being treated differently by the F.B.R.
10.As regards extension of 60 days granted by the Collector under section 36(3) of the Act, the adjudicating officer had to obtain necessary extension of 60 days from the competent authority in order to avoid time bar. As the AR participated in the adjudication proceedings even after the expiry of the extended period of 60 days without raising any objection with regard to the cause or factum of extension by the Collector, his objection at this belated stage in this regard is not maintainable. If the AR required formal intimation, he should have so asked and the onus would have then passed to the adjudicating officer.
11.The AR also contended that since the O-in-O was dispatched by theDepartmenton9-7-2010andreceivedbythecomplainanton 15-7-2010 it showed that it was not finalized on 29-6-2010, but was backdated. The DR, however, submitted that the Order was passed on 29-6-2010, and produced official receipt Nos.506 and 505 showing dispatch of the mail to the complainant and Member Legal, F.B.R., on 9-7-2010. According to DR, the delay in dispatch was on account of countrywide strike by the staff of the Department. As the plea of countrywidestaffstrikewasnotdisputedbytheARtheallegation madebytheARthattheO-in-Owasback-datedremains unsubstantiated.
12.The DR also placed reliance on the following observation of the Hon'bleSupremeCourtofPakistaninCivilAppealNo.2036of 2004:--
"no order can be scrapped or annulled or set aside, only on the ground that the same has been passed with unreasonable delay. There is no such concept attached to the judicial and quasi judicial proceedings, unless provided in the statute."
13.It is also the AR's contention that the extension granted by the F.B.R. under Section 74 of the Act was unlawful as it was granted after the expiry of the extended time limit by 60 days which expired in 2009 while the extension granted by the F.B.R. was communicated in April, 2010. The AR has placed reliance on a number of judgments of superior courts, the Hon'ble FTO and the Tribunals, and the General Clauses Act. He particularly cited the Lahore High Court judgment reported as 2008 PTD 60:--
"Once limitation has started to run and had come to an end, the assessee had acquired a vested right of escapement by lapse of time."
14.The DR however, placed reliance on the following judgment of Islamabad High Court in Tax Reference 5 of 2008:--
"We have already held that the order of extension can be passed even after the expiry of original ninety days."
15.Both parties were asked to provide evidence in support of their respective positions by any judgment of the Hon'ble Supreme Court of Pakistan. However, they could not do so, stating that the issue was still being contested in the apex court.
16.Prima facie, it seems clear that the F.B.R. extended the time limit vide its letter referred in para. 4 supra based on cogent reasons, and the adjudicating officer decided the case in pursuance of this extension. No maladministration can therefore be attributed to the adjudication officer on this count.
17.As regards the AR's contention about non-existence of the designation of Additional Commissioner in the Sales Tax Department at the time the O-in-O was issued, the DR explained that the F.B.R. had notified the designation of Additional Collector as Additional Commissioner vide Order No.1(6)IR-Judicia1/2009 dated 11-11-2009. The Government also validated this designation through the Finance Act 2010.Nomaladministrationcanthereforebeattributedtothe Chief CommissionerortheAdditionalCommissioneronthiscountalso.
18.Finally, the AR alleged discrimination on the ground that normal line losses of other companies operating in the country were not being held inadmissible for input adjustment as had been done in their case. The DR however stated that they had simultaneously audited TESCO which was another power distribution company under the jurisdiction of RTO Peshawar. Similar irregularities were discovered in the input tax adjustment of TESCO and had been likewise adjudicated vide O-in-O No.1/2011 dated 29-1-2011. Besides, similar companies operating under jurisdictions of other RTOs in the country were not the responsibility of RTO Peshawar. According to DR, no maladministration could therefore be attributed to the Chief Commissioner or the Additional Commissioner on account of any perceived discrimination.
19.The issue of discrimination alleged by the AR was critical as, prima facie, nowhere in the country, except in the jurisdiction of RTO Peshawar, input adjustment due to line losses/distribution losses as ascertained by NEPRA for individual distribution companies was being disallowed. The position was confirmed by LTU Karachi which deals with KESC by providing a copy of F.B.R. instructions on the subject vide F.B.R. (then C.B.R.) letter No.1(22)STAS/2004 dated 7-12-2004 relevant part of which reads as follows:--
"Subject:REFUND/ADJUSTMENT OF SALES TAX BY MESSRS KESCAGAINST ELECTRICITY NOT BILLED BECAUSE OF THEFT
(2)The issue has been examined thoroughly in consultation with Sales Tax Wing. It is observed that the case against KESC is not based on sustainable grounds for the reason that the department has been allowing input tax adjustment against transmission and distribution losses (T&D) to KESC as well as WAPDA. The question remains as to whether the electricity losses due to theft/pilferage be treated as T&D losses or otherwise. Had KESC not declared losses on account of theft/pilferage, the same would have been treated as T&D losses and input tax adjustment against the same would (sic).
(3)Secondly, the cost of electricity billed by KESC against which output tax is being paid also includes the line losses, hence, if there were no line losses, the cost of electricity chargeable output/sales tax would have been lower than the one against which is collected. Therefore, practically no loss to government exchequerwouldincurincasetheproposedinputtax adjustment is allowed against the electricity loss due to theft/pilferage.
(4)It is, therefore, advised that the case of Messrs Karachi Electric Supply Corporation (KESC) may be decided accordingly under intimation to the Board."
20.LTU Karachi has also confirmed that KESC was being allowed input adjustment on this account. Besides, normal wastages in other sectors are also allowed as a matter of routine for purpose of Sales Tax. It therefore transpires that the methodology adopted by RTO Peshawar for calculating inadmissible input adjustment cannot be maintained, being arbitrary and discriminatory.
21.The PATA situation has also to be factored in due to the Court Judgment that Sales Tax was not payable in the PATA area. Similarly, other elements such as non-payment due to extreme law and order situation in the service area of PESCO also need to be examined for a policy decision by the F.B.R.
Findings:--
22.Disallowing line losses/distribution losses to the extent of 33.20% as determined by NEPRA being manifestly discriminatory and unlawful is tantamount to maladministration as defined under Section 2(3) of the Ordinance.
Recommendations:--
23.F.B.R. to-
(i)reopen the impugned O-in-O No.01 of 2010 dated 29-6-2010 in exerciseofitspowersundersection45AoftheSalesTax Act, 1990anddecidethematterafresh,asperlawand practice;
(ii)take effective measures to ensure standard treatment of such mundane issues across Pakistan; and
(iii)report compliance within 30 days.
H.B.T./129/FTOOrder accordingly.