EJAZ SPINNING MILLS LTD. VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 424 (2011)

Sales Tax Act (VII of 1990)---

----Ss.10 & 45-A(4)---Sales Tax Rules, 2006, R.28---Complaint against non-issuance of refund---Complainant filed various refund claims for tax periods under S.10 of Sales Tax Act, 1990 and also provided the necessary supporting documents as per R.28 of the Sales Tax Rules, 2006 including input and output invoices as well as diskettes along with proof of payment to the respective suppliers in accordance with law, but the department did not take up the refund claims for disposal, despite lapse of significant time---Complainant had contended that though comprehensive documentation was provided to the department, the refund claim remained blocked largely due to objections by the STARR system, which according to the complainant had no legal backing under the statute and was not applicable to his refund claims---In the case of the complainant inordinate delay in disposal of pending refund claims, was the predominant feature and same fell squarely in the definition of maladministration in S.2(3)(ii) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Department was supposed to devise effective ways and means to ensure that administrative bottlenecks did not become endemic---Department must ensure that the system put in place to process refund claims, actually had delivered the desired results, but in the case of the complainant it was evident that the system had failed badly---Delay in issuance of refund was tantamount to maladministration under S.2(3)(ii) of Establishment of Federal Tax OmbudsmanOrdinance,2000---DelayalsocreatedtherighttoreceivecompensationadmissibleunderSalesTaxAct,1990---Federal Board of Revenue was recommended to direct the Chief Commissioner to issue refund claim, along with compensation as per law within 21 days and to report compliance within 7 days thereafter.

2010 PTD (Trib.) 1636 and 2011 PTD (Trib.) 483 ref

Muhammad Munir Qureshi, Advisor Dealing Officer.

Ahsan Mehmood Authorized Representative.

Taimoor Kamal Malik, DCIR Department Representative

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---This complaint is against non-issuance of refund.

2.The complainant filed various refund claims for the tax periods of 6/2005, 9/2005, 3/2006, 7/2006 to 12/2006, 1/2007 to 2/2007, 7/2009 to 12/2009 and 1/2010 to 3/2010 under section 10 of the Sales Tax Act, 1990 (the Act), and also provided the necessary supporting documents as per Rule 28 of the Sales Tax Rules, 2006 including input and output invoices as well as diskettes along with proof of payment to the respective suppliers, in accordance with law. However the Department did not take up the refund claims for disposal despite lapse of significant time.

3.A Complaint No.319/LHR/ST(45)/640/2011 was filed earlierbefore the Hon'ble Federal Tax Ombudsman and during the pendency of aforesaid complaint, the Commissioner Inland Revenue Zone-I, LTU, Lahore, re-opened matter pertaining to the complainant's outstanding refund claims, and in exercise of powers conferred under section 45A(4) of the Sales Tax Act, 1990, sanctioned refund claims amounting to Rs.8,104,496 out of total deferred amount of Rs.10,066,567. The balance amount was withheld on account of various STARR objections.

4.During the course of arguments on 12-7-2011 in the aforesaid complaint, it was mutually agreed between the parties that the Department would inform the complainant about any objections regarding issuance of balance refund and the refund claims would be disposed of after the required documentation was submitted by the complainant. In case the complainant was unable to provide the required documents to the Department an order would be passed rejecting the refund claim to theextent that it was found to be unsubstantiated.

5.After scrutiny of complainant's pending refund claim an Order-in-Original (O-I-O) No.9 of 2011 dated 13-8-2011 was passed rejecting an amount of Rs.422,130 out of the total outstanding refund claim of Rs.1,876,937. A refund amount of Rs.454,807 was found to be in order and sanctioned.

6.On 17-12-2011 the Department submitted a report giving a break-up of the rejected amount of Rs.1,422,130 that included an additional amount of Rs.133,588 cleared by the Department.

7.The complainant contends that although comprehensive documentation was provided to the Department the refund claim remains blocked largely due, to objections raised by the STARR system. According to the complainant, the STARR system had no legal backing under the statute and was not applicable to the refund claims of the complainant for the period 6/2005, 9/2005 and 3/2006 as it was introduced in 2006. Reliance in this regard is placed on judgment reported as 2010 PTD (Trib.) 1636 and 2011 PTD (Trib.) 483 wherein it has been held that the "rejection of refund claims filed against invoices issued prior to 1st July 2006 on the objections pointed out by the STARR computer system was illegal, void ab initio."

8.When confronted, the Department filed a reply in which the responsibility for the pending refund claim was placed squarely on the complainant. It was contended that inability to furnish the requisite documentation and the required clarifications regarding suppliers were the root causes for the delay. Also, section 45-B of the Act provided an appellate forum to redress grievances against an order-in-original and the complainant should have availed of that forum rather than approach the Hon'ble Federal Tax Ombudsman.

9.Itemized objections raised under various heads in the matter pertaining to refund disposal have been cited by the Department in their reply on the complaint. However, it has not been explained what amount out of the total refund claim not yet cleared relates to each item in the complainant's case. Nor has the complainant been required to produce specific documentation in order to obtain clearance. Many of the items cited relate to STARR.

10.The Department defends the STARR system as a good example of the use of technology and automation in ensuring expeditious and efficient processing of documentation such as that involved in refund claims. However it has not been explained how the objections raised by the STARR system be resolved within a reasonable time frame. In any case no proper justification has been made out for the use of STARR to process refund claims that are pending before the system was put to use in the Department, especially when appellate fora too have commented adversely in the matter. The need for frequent manual overriding of STARR objections would appear to indicate a fundamental problem with the system. The rather verbose reply filed by the Department is short on specifics and is couched in generalities. In many cases the objections cited make no sense at all. Thus the objection raised at Serial No.(x) against "Objection wise reply" in the Department's report pertains to wrong citation of tax period. Three shipping bills for an amount of Rs.68,953 (Rs.19,655 + 30,180 + 19,118) mentioned at Serial Nos. 11, 12 and 13 for the month of November, 2011 have been rejected on the ground that Wrong Tax Period was cited. In this regard it is to be noted that all these shipping bills are dated 28-10-2011 and were claimed in the month of November 2011. Section 7 of the Act provides that where a taxpayer is unable to claim input tax within the relevant tax period, he may prefer a fresh claim within the next six months. Thus rather than reject the claim outright on a sheer technicality it would make sense to appraise the claim on merit on the basis of the documentation produced and the nature of the claim. In the case of shipping bills, such as in the complainant's refund claim, it should not be too problematic to evaluate the same for their authenticity. Similarly, against Serial No.(vi) it is stated that "MR Information not available with Customs Department." This is again a STARR innovation and even the Department has no clue what it means. How can the complainant be expected to deal with the problem? Again where suppliers fail to file Returns or Statements, for any reason, the 'system' will block the processing cycle and the refund claimant unduly suffers. Why does the Department not take action against the non filer directly for a statutory violation rather than block the claimant's refund? After all, the claimant is not responsible for the supplier's lapse.

11.The Departmental contention that the complainant should have availed facility of filing appeal against order-in-original rather than seek the Hon'ble FTO's intervention is misconceived for the reason that where maladministration was a predominant feature only the Hon'ble Federal Tax Ombudsman was in a position to provide efficacious relief as he had exclusive jurisdiction to deal with acts of omission and commission of Departmental functionaries that tantamount to maladministration. Inthecaseofthecomplainantinordinatedelayinthe disposal of pending refund claims was the predominant feature andthe same fell squarely in the definition of maladministration in section 2(3)(ii) of the FTO Ordinance.

12.A significant part of the complainants refund claim (Rs.627,000) that has been held up is attributed to the so called 'policy matters.' It has been explained that where policy decisions are taken for removal of STARR objections prior approval of the Commissioner Inland Revenue is required to sanction the refund amount. These take time and result in delay in disposal of the refund claim. Evidently, in the complainant's case, 'policy matters' account for a significant part of the held-up refund. It is for the Department to devise effective ways and means to ensure that administrative bottlenecks do not become endemic.

13.The Department must ensure that the systems it puts in place to process refund claims actually deliver the desired results. In the case of the complainant, it is all too evident that the system has failed badly.

Findings:--

14.The delay in issuance of refund is tantamount to maladministration under section 2(3)(ii) of the FTO Ordinance. The delay also creates the right to receive compensation admissible under the Act.

Recommendations:--

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

(i)issue refund due, along with compensation, as per law, within 21 days; and

(ii)report compliance within 7 days thereafter.

H.B.T./6/FTOOrder accordingly.