ATM ENTERPRISES PAKISTAN (PVT.) LTD., ISLAMABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 538 (2011)

Sales Tax Act (VII of 1990)---

----Ss.7, 36 & 73---Determination of tax liability---Audit by DGRRA---Disallowance of admissible input tax adjustment---Taxpayer contended that he was not provided the basis of DGRRA's audit objection to enable him to explain his position before issuance of show-cause notice and order-in-original; and mechanical issuance of show-cause notice and order-in-original, without ascertaining the basis of DGRRA's objection, was not fair, just or lawful and amount of input tax stated as Rs.5.936 million in the show-cause notice was incorrect while the actual amount of input tax adjustment, during the period, was Rs.4.636 million---Break up of Rs.5.936 million along with details of audit objection was asked but to no avail---Revenue stated that basis of the objection and required break-up could not be supplied as it was not furnished by the DGRRA; and DGRRA's objection was not evaluated by the sales tax authorities before issuance of show-cause notice and stated that the matter could have been settled through reconciliation---Validity---Revenue agreed to sit with the complainant to reconcile the facts for which reasonable time was allowed---Revenue, after doing reconciliation exercise, was satisfied with the legality and propriety of input adjustment on the basis of valid invoices issued by the registered suppliers, valid copies of GDs showing payment of sales tax at import stage and transfer of payment of amounts to the suppliers through normal banking channels in accordance with the provision of S.73 of the Sales Tax Act, 1990---Amount of input tax adjustment was also wrongly indicated by the DGRRA---Mechanical issuance of show-cause notice without first evaluating the DGRRA's observation and failing to provide the information required by the complainant, to enable him to prove the genuineness of input adjustment, was tantamount to maladministration---Federal Tax Ombudsman recommended that Federal Board of Revenue to direct the Commissioner to set aside order-in-original in exercise of his powers under S.45A of the Sales Tax Act, 1990 and finalize the matter as per law.

Yasin Tahir, Senior Advisor Dealing Officer.

M. Mansoor Saeed Authorized Representative.

Zahid Hussain, Audit Officer, RTO, Islamabad Departmental Representative.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---This complaint is against alleged maladministration involved in mechanical issuance of show-cause notice (SCN) and unjustified and unlawful Order-in-Original (O-I-O) by the Regional Tax Office (RTO), Islamabad, disallowing admissible tax adjustment.

2.The complaint was sent to Secretary,RevenueDivision, on28-10-2011 for comments. In response, the RTO, Islamabad, submitted reply vide letter dated 21-11-2011, denying the allegations.

3.During the hearing, the parties reiterated theavermentsof their written pleadings. The complainant submitted that RTO,Islamabad, issuedSCNNo.RTO-IR/IRAO/Audit-I/DGRRA/2010-11/83dated28-5-2011 based on DGRRA's observation (No.12797/ST) for the twelve month period from June 2009 to May 2010. According to the complainant, he was not provided the basis of DGRRA's audit objection to enable him to explain his position before issuance of SCN and O-I-O. The mechanical issuance of SCN and O-I-O, without ascertaining the basis of DGRRA's objections, was not fair, just or lawful. Besides, the amount of input tax stated as Rs.5.936 million in the SCN was incorrect. The actual amount of input tax adjustment, during the period, was Rs.4.636 million.

4.After receiving the SCN, the complainant asked, vide letter No.IT/1787/2011 dated 6th June, 2011, for the break up of Rs.5.936 million along with details of audit objection to enable him to file his response. During the hearings held by the adjudicating officer, the complainant repeatedly asked him to meet the aforesaid requirements but to no avail.Inthis backdrop,theadjudicatingofficerissuedtheOrder-in-Original No. 64of2010dated26-9-2011withoutmeetingthe essential requirements or explaining the reasons for not meetingthoserequirements. The complainant contended that he possessed all the evidence required under the law for making input adjustment under section 7 of the Sales Tax Act 1990, including the supplier's invoices supported by evidence of transfer of payments through the normal banking channels in accordance with the provisions of section 73 of the Act. Evidence of payment of sales tax on import was also available with him in terms of the Goods Declarations (GDs). He requested that a reconciliation exercise should be allowed to settle the matter.

5.The DR stated that the basis of the objection and the required break-up could not be supplied as it was not furnished by the DGRRA. He accepted that DGRRA's objection was not evaluated by the RTO authorities before issuance of the SCN. He, however, submitted that if the complainant had cooperated in the adjudication process, the matter could have been settled through reconciliation. The DR agreed to sit with the complainant to reconcile the facts for which reasonable time was allowed.

6.After doing the reconciliation exercise, the DR reported that he was satisfied with the legality and propriety of input adjustment on the basis of valid invoices issued by the registered suppliers, valid copies of GDs showing payment of sales tax by the complainant at import stage and transfer of payment of amounts to the suppliers through the normal banking channels in accordance with the provisions of section 73 of the Sales Tax Act, 1990. He also agreed that the amount of input tax adjustment by the complainant during the period of June 2009 to May 2010 was Rs.4.636 million, and not Rs.5.936 million as wrongly indicated by the DGRRA.

Findings:

7.Mechanical issuance of show-cause notice without first evaluating the DGRRA's observation and failing to provide the information required by the complainant, to enable him to prove the genuineness of input adjustment, is tantamount to maladministration in terms of Section 2(3) of the FTO Ordinance, 2000.

Recommendations:

8.F.B.R. to direct the Commissioner, RTO, Islamabad to--

(i)set aside Order-in-Original in exercise of his powers under section 45A of the Sales Tax Act, 1990;

(ii)finalise the matter as per law; and

(iii)report compliance within 30 days.

C.M.A./1/FTOOrder accordingly.