INNOVATIVE IMPEX, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 325 (2011)

Sales Tax Act (VII of 1990)---

----Ss.10 & 73---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3), 16(a) & 32---Refund ofinputtax---Delay in giving effect to the appeal---Appellate Tribunal had found that not only the show cause notice issued after inordinate delay of about five years was illegal, but Collector (Appeals) had also failed to decide the appeal within the period stipulated under the law; and directed the Department to pay refund claim, as permissible under the law; and department did not discard the invoices through evidence as per requirements of S.73 of the Sales Tax Act, 1990 and there existed no provision to levy tax twice; firstly at the time of purchase and secondly at the time of sales---Department failed to give effect to the finding of Tribunal---Revenue contended that suppliers of the complainant were registered with the Department as commercial importers/wholesalers and not manufacturers, as was claimed and suppliers were found black listed on account of their involvement in the issue of fake and flying invoices and physical verification of Units of suppliers was conducted and were found non-existent on the addresses given on the invoices and owners in whose names such Units were shown were either found not traceable or were engaged in petty business and after affording opportunity of being heard to explain his position about fake and flying invoices, his refund claims were rejected through speaking order-in-original which was upheld by the First Appellate Authority and in order to allow appeal effect to Tribunal's order and issue refund permissible under the law, claims were processed through the STARR system launched by the Federal Board of Revenue; and copies of objection memos. generated through STARR were served on the complainant to clarify his position with regard to sales tax invoices, bills of exports and shipping bills in respect of the claims and as soon as the reply was filed by the complainant, the claims would be settled, as per law---Validity---In order to allow appeal effect to the Tribunal's decision the Department had already initiated processed through STARR and the objection memos. generated by the system had been served on the complainant---Case spoke volumes about how the Department dealt with the taxpayers affairs, and at times how stubborn and insular its organizational climate was---Any further dilly-dallying would entail serious consequences---No tax functionary could be allowed to make a mockery of the law---Appellate Tribunal had allowed the refund, delay in giving appeal effect to the order of Appellate Tribunal was tantamount to maladministration---Federal Tax Ombudsman recommended the Federal Board of Revenue to direct the Chief Commissioner to allow the refund, as per law, within 15 days.

Manzoor Hussain Kureshi, Advisor for Dealing Officer.

Ammar Yasser for Authorized Representative.

Tariq Hussain Shaikh, DCIR andAkhtar Hussain Qureshi, Deputy Superintendent for Departmental Representatives.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---The complainant, a commercial exporter of textile goods, is aggrieved against the Department for not allowing appeal effect to the Inland Revenue Appellate Tribunal's Order dated 18-1-2011 and as a consequence, non-issuance of refund due.

2.According to the AR, the complainant had filed refund claims for the month of August 2002 and September, 2002 against 'zero-rated supplies' under section 10 of the Sales Tax Act, 1990 (the Act). He contended that the Department failed to settle the claims within the stipulated time. Aggrieved with the delay in settling above claims, the complainant filed complaint of maladministration against the Department; vide C-526-K of 2004. The Hon'ble FTO, vide Findings/ Recommendations dated 3-1-2005, recommended to the F.B.R. to

(i)direct the Collector concerned to process and finalize the refund claims;

(ii)pay compensation for the withheld amount under section 67 of the Sales Tax Act.

3.The Department preferred representation against the Findings/ Recommendations before Hon'ble President of Pakistan under section 32 ofthe FTO Ordinance, 2000.ThePresidentofPakistanwaspleasedtorejecttherepresentationoftheDepartmentvideorderdated10-12-2005.

4.The review sought by the Revenue Division, against the said decision vide application dated 16-5-2006 under section 38 of the FTO Ordinance, 2000, was also rejected by the Hon'ble President of Pakistan vide order dated 1-7-2007.

5.The complainant thereafter filed contempt application under section16(a)oftheFTOOrdinance,2000,whichtheHon'bleFederal Tax Ombudsman decided vide order dated 26-6-2007 holding a under:

"After clarification of the implication of the decision in the complaint and order of the President as well the respondent is given an opportunity to comply with the Recommendations within 20 days and in case they would fail to do so I shall be constrained to make recommendation to the worthy President to take action against the officers and also to issue notice of contempt."

6.In order to implement the Recommendations of the Hon'ble FTO, the Deputy Collector, Refund Group-VIII (DCRG), Sales Tax (Enforcement), Karachi, after making physical verification of the suppliers, served on the complainant a show cause requiring him to explain his position regarding verifiability of his claims. After considering the reply of the complainant, the DCRG passed order-in-original (Order-in-Original) dated 18-9-2007 rejecting his claims on the ground that the suppliers were already on the roll of blacklisted companies as being bogus. The complainant filed appeal before the Collector (Appeals) who, vide Order-in-Appeal (Order-in-Appeal) dated 30-7-2008 confirmed the Departmental treatment. The complainant thereafter preferred appeal before the Appellate Tribunal. The Tribunal vide order dated 18-1-2011, however, held that not only was the show-cause notice issued by the Department after inordinate delay of about five years illegal, but, the Collector (Appeals) had also failed to decide the appeal within the period stipulated under the law. The Tribunal accordingly directed the Department to pay the refund claim, as permissible under the law. It was further held that the Department did notdiscardtheinvoicesthroughevidenceasperrequirementsofsection 73andthatthereexistednoprovisionintheActtolevytax twice; firstly at the time of purchases and secondly at the time of sales.

7.The Revenue Division, in compliance to notice, filed parawise comments on 9-8-2011 and 15-11-2011, denying vehemently, at the outset, any maladministration on the part of the Department. It was stated that the suppliers of the complainant were registered with the Department as commercial importers/wholesalers and not manufacturers, as was claimed by him. It was further contended that the suppliers were found blacklisted on account of their involvement in the issue of fake and flying invoices. It was for this reason that physical verification of alleged Units of suppliers was conducted. These were found nonexistent on the addresses given on the invoices. Moreover, the alleged owners in whose names these units were shown were either found not traceable or were engaged in petty businesses. It was argued that after affording opportunity of being heard to the complainant to explain his position about fake and flying invoices, his refund claims were rejected through speaking order-in-original dated 18-9-2007 which was upheld by the Collector (Appeals).

8.The AR of the complainant argued that the Appellate Tribunal vide judgment dated 18-1-2011 had already set-aside the order-in-appealdated 30-7-2008, and directed the department to pay the refund claim as permissible under the law. He contended that there is nothing left for the Department but to allow appeal effect and sanction the refund claims as directed by the Appellate Tribunal. He reiterated that the department, despite passage of considerable time had failed to allow appeal effect to the Appellate Tribunal's order and issue refund due.

9.The DR confirmed that order of the Appellate Tribunal was with the Legal Wing and the Department had not filed reference against the order under section 47 of the Act, and so, as a consequence, it had attained finality. He however contended that in order to allow appeal effect to the Tribunal's Order and issue refund permissible under the law, claims were processed through the STARR system launched by the F.B.R. He submitted copies of Objection Memos (OM) generated through STARR dated 6-8-2011 which were served on the complainant to clarify his position with regard to sales tax invoices, bills of exports and shippingbillsin respect of the claims. Hecontendedthatassoonasthe reply is filed by the complainant, the claims would be settled, as per law.

10.The arguments of both the parties have been given due consideration and record perused. It is noted that in order to allow appeal effect to the Tribunal's decision the Department has already initiated process through STARR and the OMs generated by the system have been served on the complainant. This case speaks volumes about how the Deptt. deals with the taxpayers' affairs, and how stubborn and insular its organizational climate is, at times. Any further dilly-dallying, however, will entail serious consequences. No tax functionary can be allowed to make a mockery of the law.

Findings:--

11.The Appellate Tribunal allowed refund on 18-1-2011. The delay in giving appeal effect to this order is tantamount to maladministration.

Recommendations:

12.FBR to direct the Chief Commissioner to -

(i)allow the refund, as per law, within 15 days; and

(ii)report compliance within 07 days thereafter.

C.M.A./269/FTOOrder accordingly.