SHOAIB AHMAD, MUHAMMAD ALI COTTON WASTE FACTORY, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD

2012 P T D 1343

2012 P T D 1343

[Federal Tax Ombudsman]

Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman

SHOAIB AHMAD, MUHAMMAD ALI COTTON WASTE FACTORY, FAISALABAD

versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

ComplaintNo. 100/LHR/ST(21)192of2012,decidedon7thMay,2012.

(a) Sales Tax Act (VII of 1990)---

----Ss.21 & 2(17)---Establishment of the Office of Federal Tax Ombudsman Ordinance, (XXXV of 2000), S.2(3)---De-registration, blacklisting and suspension of registration---Bleaching of cotton rags---Suspension of sales tax registration on the ground that there was no machinery installed in the business premises and claimed outstanding refund arising from excess deduction of tax at the time of import of chemicals were held up pending finalization of Departmental investigation---Taxpayer contended that there was no justification to keep sales tax registration suspended for a protracted period, as, despite lapse of significant time, the Department had not been able to come up with a definitive finding of commission of sales tax fraud; that in other similar cases registration had been restored; and that discriminationagainst him was tantamount to maladministration---Department contended that as no machinery was installed at the business premises, the complainant not being a manufacturer had wrongly declared his status as such to the Department---Validity---Department had restored the sales tax registration in other cases, even though in those cases the Department had found that no machinery was available at the business premises---Commissioner had accepted in the order that no machinery as such was required in the bleaching of cotton rags; therefore, there was no justification to treat the taxpayer differently and to keep his sales tax registration suspended for a protractedperiod---Refundaroseasaresultofexcessdeductionoftax at importstageandsuchdeductionwasfullydocumented---Non-restorationofsalestaxregistration,whenregistrationhadbeen restored in other cases in similar circumstances, was tantamount to maladministration---Federal Tax Ombudsman recommended that FederalBoardofRevenuetodirecttheChiefCommissionertorestore sales tax registration within 15 days andprocess pending refundclaimsonmeritandissuerefunddue,asperlaw,within21 days.

2011 PTD (Trib.) 2090 ref.

(b) Sales Tax Act (VII of 1990)---

----S.2(17)---Manufacturer or producer---Presence of machinery---Definition of manufacturer under S.2(17) of the Sales Tax Act, 1990 apparently did not make the presence of machinery at the premises a precondition.

Muhammad Munir Qureshi, Advisor Dealing Officer.

Khubaib Ahmad, Authorized Representative.

Azhar Abbas Shirazi, ACIR Departmental Representative.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---This complaint is against suspension of sales tax registration.

2.The complainant is engaged in bleaching of cotton rags/waste. His sales tax registration was suspended on 3-3-2011 when a surprise visit by the authorities to his business premises revealed that there was no machinery installed thereon. A show-cause notice for blacklisting of his business was issued. As a result of suspension of his sales tax registration, his outstanding refund claims arising from excess deduction of tax at the time of import of chemicals were held up pending finalization of departmental investigation. Thecomplainantcontendsthat there was no justification to keep his sales tax registration sus-pended for a protracted period, as, despite lapse of significant time, the Deptt., had not been able to come up with a definitive finding of commission ofsales tax fraud by him. Moreover, in three other broadly similar cases the registration had subsequently been restored. Discriminating against him was therefore tantamount to mal-administration. The complainant also referred to a judgment of the Appellate Tribunal Inland Revenue cited as 2011 PTD (Trib.) 2090 in which protracted suspension of sales tax registration and blacklisting of business in the absence of reliable evidence of tax fraud was held to be unjustified and the Deptt. had then reversed its earlier stance and restored the sales tax registration.

3.When confronted, the Deptt. filed a reply in which it was contended that as no machinery was installed at the business premises of the complainant, it was obvious that the complainant not being a manufacturer had wrongly declared his status as such to the Deptt. As regards the other cases referred to in which the sales tax registration was restored after cancellation, the Deptt. denied that they were comparable with the complainant's case. As for the ATIR Judgment cited by the complainant, the Deptt. offered no comment.

4.The arguments made by both sides have been heard and cited case-law perused.

5.Examination of the record presented reveals that the Deptt. had restored the sales tax registration in the case of Messrs Bilal Cotton Waste Factory, Faisalabad (STRN 2400520501455), even though in that case also the Deptt. had found that no machinery was available at the business premises. In the order passed by the Commissioner, he had accepted the argument that no machinery as such was required in the bleaching of cotton rags. This is also the complainant's contention. There is thus no justification to treat him differently and to keep his sales tax registration suspended for a protracted period. As for non disposal of complainant's pending refund claims, it is noted that refund arose as a result of the excess deduction of tax at import stage and such deduction was fully documented. The definition of manufacture under section 2(17) of Sales Tax Act, 1990 apparently does not make the presence of machinery at the premises a precondition.

Findings:

6.The non-restoration of complainant's sales tax registration, when registration had been restored in other cases in similar circumstances, was tantamount to maladministration under section 2(3) of the FTO Ordinance.

Recommendations:

7.F.B.R. to direct the Chief Commissioner to---

(i)without prejudice to the outcome of investigation, restore sales tax registration within 15 days;

(ii)process pending refund claims on merit and issue refund due, as per law, within 21 days; and

(iii)report compliance within 07 days thereafter.

C.M.A./91/FTOOrder accordingly.