S.R. ENTERPRIZES VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2014 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 104 (2013)

(a) Sales Tax Act (VII of 1990)---

----S.7---Determination of tax liability---Jurisdiction---Taxpayer contended that jurisdiction of the case vested in the specified Inland Revenue Officer while the assessment had been made by the Inland Revenue Officerof other unit and assessment thus was out of jurisdiction and void ab initio, thatand in pursuance of finalization of (illegal) assessment by the non-specified Inland Revenue Officerthe Inland Revenue Officer of specified Unit threatened of coercive action, in case the sales tax demand raised as a result of assessment made by Inland Revenue Officer of non-specified unitwas not deposited in treasury---Validity---Department admitted that the assessment made was out of jurisdiction---Sales tax demand raised as a consequence of that assessment had no validity in the eye of law---Order passed without jurisdiction had been held to be a fraud on the statute, a nullity in the eye of law and void ab initio---Show-Cause Notice for recovery issued by the specified Inland Revenue Officer was also illegal and notwithstanding the fact that the Department claimed that the said Show-Cause Notice stood withdrawn---Order-in-Original remained an illegal order and tax demand raised thereby could not be enforced---Order-in-Original being illegal, havingno validity in law, tax demand raised as a consequence of such assessment could not be recovered---Illegal assumption of jurisdiction by Inland Revenue Officer was tantamount to maladministration---Federal Board of Revenue was directed to ensure that illegal assessment made by the Inland Revenue Officer vide Order-in-Original be vacated under S.45A of the Sales Tax Act, 1990 by the Competent authority.

2008 SCMR 240; 2006 PTD 219 (Trib.) and 2011 PTD 1943 (Trib.) rel.

(b) Federal Ombudsman Institutional Reforms Act (XIV of 2013)----

----Ss. 18 & 28---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 9(1)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Federal Tax Ombudsman holds "concurrent jurisdiction without restraint" in all cases involving maladministration by Federal Board of Revenue functionaries---Taxpayer had the option to go either before the regular appellate forum or the Federal Tax Ombudsman where maladministration was a predominant feature---Under Ss. 18 & 28 of the Federal Ombudsmen Institutional Reforms Act, 2013, once a matter was placed before the Federal Tax Ombudsman and he had assumed cognizance, it could not be taken up by any Court, Tribunal or Authority.

Messrs Arafatex Industries Faisalabad v. CBR Complaint No.732 of 2004 not considered.

Muhammad Saleem v. FTO and others Writ Petition No.11545 of 2012 rel.

Muhammad Munir Qureshi, Advisor Dealing Officer.

Khubaib Ahmad , Authorized Representative.

M. Javaid Akhtar, DCIR Departmental Representative.

FINDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY (FEDERAL TAX OMBUDSMAN).---This complaint is against alleged illegal sales tax adjudication order dated 8-4-2013 statedly passed 'out of jurisdiction' by the IRO, Unit-04, Faisalabad.

2.The facts in this case are that the complainant, a manufacturer/ supplier of 'paper cones', has been assessed by the Inland Revenue Officer, Enforcement and Collection Unit-04, Zone-III, RTO Faisalabad vide sales tax Order-in-Original No.266 of 2013 dated 8-4-2013. The complainant contends that as per jurisdiction order issued by the CIR Zone-III, RTO. Faisalabad No 426 dated 13-9-2012, in the case of manufacturers/suppliers/dealers of paper and related paper products the jurisdiction specified in Col 2 of the jurisdiction order vests in the IRO Unit 01. Assessment in complainant's case has been made by the IRO Unit 04. The complainant contends that the said assessment is out of jurisdiction and hence illegal and void ab initio. He further contends that pursuant to finalization of the illegal assessment by IRO Unit 04, the IRO Unit 01, RTO, Faisalabad, threatened coercive action against the complainant in case the sales tax demand raised as a result of assessment made vide Order-in-Original No.266/2013 dated 8-4-2013, passed by IRO Unit 04, is not deposited in Treasury. The complainant further contends that in the presence of earlier adjudication order dated 8-4-2013 passed by the IRO Unit-04, the IRO Unit-01, Zone-III, RTO, Faisalabad again sought to create sales tax liability against the complainant involving the same invoices as were issued by the suapliers, earlier assessed by the IRO Unit-04. He says that this was tantamount to double jeopardy and as such not tenable under the law. The complainant contends that assessment made by IRO Zone-04 is void under the law being without jurisdiction and hence no tax demand created as a result of the said assessment can be recovered from him. He requests that the said order of assessment be ordered to be vacated.

3.When confronted, the dept filed a reply in which the Commissioner IR concerned has raised a preliminary objection that the order-in-original under reference was an appealable order and the President of Pakistan in decision in Complaint No 732/2004 (Messrs Arafatex Industries Faisalabad v.CBR), had held that the FTO did not have jurisdiction when the matter was appealable and the FTO's order was vacated. It is contended that in the present case as well, the order passed by the IRO was appealable and hence the complaint filed could not be investigated by the FTO. On merits, it is acknowledged that the order passed by the IRO E&C Unit 04, Zone-III, Faisalabad vide Order-in-Original No.266/2013 is out of jurisdiction. However, the CIR has submitted in the reply that the complainant's reference to the noticedated 15-2-2013 for recovery of sales tax amount adjudged by the IRO Unit 01, Zone III, R.T.O., Faisalabad had since been vacated and only the assessment made by IRO Unit-04 was in the field. The commissioner submits that the assessment has been made only once and input tax adjustment allegedly wrongly claimed by the complainant against fake invoices issued by suppliers had rightly been disallowed and the sales tax demand was accordingly raised against the complainant. It is his contention that the said sales tax demand was in order and should be paid by the complainant.

4.Both sides have been heard and record produced examined.

5.The preliminary objection raised in the Dept'l reply has been considered and found to be misconceived. The Lahore High Court, Lahore in judgment in Writ Petition No.11545 of 2012 (Muhammad Saleem v. FTO and others) has held unequivocally that the FTO holds "concurrent jurisdiction without restraint" in all cases involving maladministration by FBR, functionaries. This is a judgment 'in-rem' delivered by a superior legal forum and is authoritative. It means that a taxpayer/complainant now has the option to go either before the regular appellate forum or the FTO in cases in which maladministration is a predominant feature. Furthermore, as per sections 18/28 of the Federal Ombudsmen Institutional Reforms Act, 2013, once a matter is placed before the FTO and he has assumed cognizance, it cannot be taken up by any Court, Tribunal or authority.

6.On merits,theC.I.R.havingadmittedin the Dept'lreplythat the assessment made vide Order-in-Original No.266 of 2013 dated8-4-2013 was out of jurisdiction Sales tax demand raised as a consequence of that assessment had no validity in the eye of law. An order passed without jurisdiction has peen held to be a fraud on the statute, a nullity in the eye of law and hence void ab initio [2008 SCMR 240]; [2006 PTD 219 Trib.]; [2011 PTD 1943 (Trib.)]. The Show-Cause Notice for recovery issued by the IRO Unit-01 dated 15-2-2013 is also illegal and notwithstanding the fact that the Deptt. claims that the said SCN stands withdrawn, Order-in-Original No.266/2013 remains an illegal order and tax demand raised thereby cannot be enforced.

Findings:

7.Order-in-Original No.266/2013 dated 8-4-2013 being illegal, as explained supra, has no validity in law and tax demand raised as a consequence of such assessment cannot be recovered.

8.Illegal assumption of jurisdiction by IRO, Unit-04, Zone-III, RTO, Faisalabad was tantamount to maladministration as defined in section 2(3) of the FTO Ordinance, 2000.

Recommendations:--

9.FBR to--

(i)ensure that the illegal assessment made by the IRO Unit-04 vide Order-in-OriginalNo.266/2012 is vacated under section 45A of the Act by the competent authority; and

(ii)Compliance reported within 21 days.

CMA/152/FTOOrder accordingly.