FROOTO INDUSTRIES (PVT.) LTD., KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 544 (2011)

Sales Tax Act (VII of 1990)---

----S. 66---Refund to be claimed within one year---Excessive delay in allowing appeal effect---Taxpayer contended that till filing of complaint, department, despite repeated efforts,did not allow appeal effect and issue the refund due---Revenue conceded that claims arising out of appellate orders had to be refunded but claims could not be processed unless submitted through RCPS of STARR system and manual processing of refund claims was no more permissible; and when officer concerned approached the Director General (SP&R), Federal Board of Revenue, for permission to generate electronic Refund Processing Order, it was informed that claims under S.66 of the Sales Tax Act, 1990 could be lodged at Refund Claim Counter---Validity---Revenue despite admitting the claim of refund, showed inability to process the subject refund through the RCC as no procedure for handling refund claims arising out of court orders, where verification of bills and invoices was not involved, was provided in the STARR software---Delay in allowing appeal effect and settling refund claims being established was tantamount to maladministration---Federal Tax Ombudsman recommended that Federal Board of Revenue to revisit the instructions regarding refund processing through STARR dated 12-4-2003 so that payment of refund and maintenance of record were both clearly provided for; direct the concerned officials to allow appeal effect to appellate orders dated 24-1-2011 and 16-3-2011 and issue refund due, as per law.

Manzoor Hussain Kureshi, Advisor Dealing Officer.

Arshad Shehzad Authorized Representative.

Nasir Khan, ACIR Departmental Representative

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---The complainant, a manufacturer of fruit juices, has filed complaint against the Department for excessive delay in allowing appeal effect to the Appellate Tribunal's Orders dated 24-1-2011, and in sanctioning refund due.

2.According to the AR, the Appellate Tribunal vide judgment dated 24-1-2011 set-aside order of the Collector (Appeals) pertaining to claims for the tax period May, 2004 and June, 2004, with the direction that matter be decided after affording a fair opportunity of hearing to the complainant. Similarly, the Commissioner (Appeals) allowed the complainant's plea and set aside the recovery of demand pertaining to tax period August, 2003 vide order dated 16-3-2011. The complainant applied for appeal effect and sanctioning of refund due under section 66 oftheSalesTaxAct, 1990(the Act)throughapplicationsdated21-4-2011. However, till filing of the complaint before the Hon'ble Federal Tax Ombudsman, the Department, despite repeated efforts of the complainant did not allow appeal effect and issue the refund due.

3.In response to the notice of complaint issued to the Secretary, RevenueDivision,theDepartmentfiledparawisecommentson23-11-2011, conceding that claims arising out of appellate orders had to be refunded. However, as per procedure laid down by the F.B.R., the claims could not be processed unless submitted through RCPS of STARR system. It was contended that manual processing of the refund claims was no more permissible under the Act. It was further contended that when the Officer concerned approached the Director General (SP&R), F.B.R., for permission to generate electronic Refund Processing Order (RPO) vide letter dated 13-8-2011, he was informed vide letter dated27-8-2011 that claims under section 66 of the Act could be lodged at Refund Claim Counter (RCC) functioning in the RTOs.

4.The AR argued that the subject claims were not accepted at the RCC,as it required Refund Claim Processing System (RCPS) data i.e. invoices and bills etc. which for the cases where refund arose out of appellate orders was not available. In the instant case also the sales tax demand was created and the same was recovered by the Department through pay orders. The refund claims remained un-attended despite instructions of the DC (SP&R) conveyed to the Officer concerned vide letter dated 27-8-2011 to generate electronic RPO. He stressed that only method available in such cases was to process the same manually. He produced copy of "Instructions regarding refund processing through STARR" issued by the F.B.R. vide C.NO SECY (TS) 20/2002/1838 dated 12th April, 2003. Para 8 of the instructions regarding "Refund claims under section 66 of the Sales Tax Act, 1990" provides that refund claims arising on account of any order of a court/judicial forum etc. involving no verification of invoices shall be processed manually but the record will have to be maintained for monitoring purpose. However, para. 8 as presently worded does not provide for payment of refund. It needs to be reworded to stipulate payment as well as maintenance of record.

5.The DR, despite admitting the complainant's claim, showed inability to process the subject refund through the RCC as no procedure for handling refund claims arising out of court orders, where verification of bills and invoices was not involved, was provided in the STARR software. He stated that under the circumstance the DG (SP&R), F.B.R., had been again requested, vide letter dated 23-11-2011, to allow processing of claims of the complainant through generation of electronic RPOs.

Findings:

6.Thedelayinallowingappealeffectandsettlingrefundclaims being established is tantamount to maladministration in terms of section 2(3)(ii) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

Recommendations:

7.The F.B.R. to -

(I)revisit the instructions regarding refund processing through STARR dated 12-4-2003 so that payment of refund and maintenance of record are both clearly provided for;

(ii)direct the concerned officials to allow appeal effect to appellate orders dated 24-1-2011 and 16-3-2011 and issue refund due, as per law; and

(iii)report compliance within 30 days.

C.M.A./285/FTOOrder accordingly.