COMPLAINANT VS HAQ NAWAZ, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 751 (2011)

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss. 2(3), 9 & 10---Misuse of circular of the Board of Revenue---Exemption from withholding tax---Federal Board of Revenue, issued a circular under the Prime Minister's Economic Incentive Package for FATA and PATA, to rehabilitate the economic life in the areas affected from war on terror---Respondent firm, which was dealing inrice export, was got registered with Federal Board of Revenue, only to avail the benefit of said Circular---Rice, being not cultivated in FATA and PATA, export ofthesamecouldnotoriginatefromsaidareas---Bank account of the respondent firm had shown that it did not belong to FATA and PATA---Firm availed the benefit of Circular in question and deprived the Government of legitimate revenue---Said firm, in view of clarification of the Board, did not qualify for exemption from withholding tax under the cover of the Circular---Respondent firm evaded payment of withholding tax and department without due application of mind or seeking clarification from the Board, allowed undue benefit of tax amounting to Rs.6,804,567 to the firm---Board on the intervention of the Federal Tax Ombudsman issued clarification according to which benefit of Circular in question, was disallowed to the firm---Federal Board of Revenue, was recommended to direct concerned Chief Commissioner Inland Revenue, to finalize proceedings, as per law and report compliance within 30 days.

M. Nadir Khan, Advisor, Dealing Officer.

Muhammad Arif, Deputy Commissioner, Fida-ul-Haq, Assistant Commissioner, Departmental Representatives

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---A complaint about misuse of Circular No.1 of 2010 dated 20-1-2010 was addressed to Hon'ble FTO seeking his indulgence. Though the complainant had withheld his identity, but having regard to the issue raised in the complaint, the same was entertained exercising suo-motu powers under section 9(1) of the FTO Ordinance.

2.The F.B.R. issued Circular No.1 of 2010 dated 1-1-2010 under the Prime Minister's Economic Incentive package for FATA and PATA, to rehabilitate the economic life in the areas affected from war on terror. It is alleged that benefit of this Circular was misused by Haq Nawaz proprietor of Messrs Haq Nawaz Traders resident of Gowalmandi Chowk, MullahTareenRoad,Quetta,holdingCNICNo. 54400-0340585-3.ItisfurtherallegedthatthefirmwasregisteredwithF.B.R.on6-9-2010 and with Rice Exporters Association of Pakistan vide membership No.1-1-10-5503 only to avail the benefit of the Circular 1 of 2010. As rice is not cultivated in FATA and PATA, the export of the same could not originate from FATA and PATA. Besides, Messrs Haq Nawaz Traders' bank account was with Soneri Bank Limited, Main Branch, Quetta. Also, Haq Nawaz did not belong to FATA and PATA. He unduly availed the benefit of Circular No.1 of 2010 and deprived the Government of legitimate revenue, in addition to ruining the trade of regular and genuine exporters of Quetta.

3.In response to the notice of complaint issued to the Secretary, Revenue Division, Islamabad, Commissioner IR (Legal-1) filed para-wise comments wherein it was pleaded that according to Circular No.1 of 2010, cases of exports originating from worst affected and moderately affected areas were exempted from withholding income tax leviable on exports up to 30-6-2011, and no condition regarding residential address or membership detail was imposed. According to the Department, Messrs Haq Nawaz Traders was registered with FBR under NTN 3620578-8 and STRN 2100362057819 having business address at No.3, Khyber Zawirstan Das, Chowk Bazar Banu, Daggar. As the exports were initiated from Peshawar, these qualified for exemption/relief under Circular No.1 of 2010.

4.Parawise comments received from the Department were sent to Secretary, Revenue Division, Islamabad, for comments, wherefrom the following clarification was received:--

"The undersigned is directed to refer to the Board's Letter No.4(526) TO-I/2011 dated 6-7-2011 on the above subject and to state that Circular No.1 of 2010 (Income Tax) dated 20-1-2010 is not applicable to MessrsHaq Nawaz Traders as he is a bona fide resident of Quetta and his CNIC has also been issued from Quetta thus confirming that Mr. Haq Nawaz is a regular resident of Quetta city and does not belong to affected areas. The firm MessrsHaq Nawaz Traders bearing NTN No. 3620578 is registered with FBR on 6-9-2010 which is after the issuance of Circular No.1 of 2010 dated 20th January, 2010. Thus it is evident that Mr. Haq Nawaz has tried to save withholding tax on export proceeds realizations under the cover of the said circular."

5.The Department was supplied copy of clarification received from the Board. In response, the Department submitted that in view of the clarification of the Board Messrs Haq Nawaz Traders did not qualify for exemption of withholding tax under the cover of Circular No. 1 of 2010. According to the Department, export data of Messrs Haq Nawaz for the period from 20-1-2010 to 30-6-2011 was collected from Model Customs Collectorate, Quetta, and PRAL. The quantum of exports made by Messrs Haq Nawaz Traders was Rs.680,456,738 on which withholding tax amounting to Rs.6,804,567 appeared to have been evaded. The proceedings for recovery of evaded amount of tax had accordingly been initiated by issuance of show cause for recovery of the aforementioned amount, under section 162 of Income Tax Ordinance, 2001.

6.During the hearing, the DR reiterated the averments of para-wise comments and pleaded that grant of exemption of Circular No.1 of 2010 was allowed as the Circular did not impose any condition about residential address of exporter. However, on receipt of clarification from the Board, action for recovery of evaded income tax was promptly initiated. He submitted that progress made towards recovery would be intimated to the FTO Office in due course.

7.The facts discussed hereinabove prima facie show that Messrs Haq Nawaz Traders evaded payment of withholding tax under Circular No.1 of 2010 and the Department without due application of mind or seeking clarification from the Board allowed undue benefit of tax amounting to Rs.6,804,567. However, on intervention of the Hon'ble FTO, the Board issued clarification according to which benefit of Circular No.1 of 2010 was disallowed to Messrs Haq Nawaz Traders.

Recommendations:

8.FBR to direct-

(i)Chief Commissioner Inland Revenue Regional Tax Office Quetta to finalize proceedings, as per law; and

(ii)report compliance within 30 days.

H.B.T./28/FTOOrder accordingly.