MUHAMMAD ALI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2015 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2141 (2015)

Sales Tax Act (VII of 1990)---

----Ss. 2(14)(37), 3, 7, 8(1)(d), 21(3) & 45-A---Sales Tax Rules, 2006, R.12(5)---S.R.O. 555(I)/2006, dated 5-6-2006---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.10---Issuance of notices on the issues already adjudged---Complaint had been filed against Commissioner for declaring the issuance of show-cause notices as void ab initio on the issues already adjudged by Appellate Authority---Allegation was that complainant had claimed input tax on invoices of a corporation, which was blacklisted by FBR, and that input tax claimed by the complainant was inadmissible---Order-in-original passed by Adjudicating Authority against the complainant, was set aside by Appellate Authority on the ground that supplier was operative at the time of transaction---Department did not prefer second appeal against judgment of Appellate Authority, but despite that fresh show-cause notices were issued against complainant, against which complaint had been filed---Appellate Authority, while setting aside order-in-original, had explicitly found that the supplier was operative, hence disallowance of input tax was uncalled for and unwarranted---In view of unambiguous decision of Appellate Authority, which had attained finality as no second appeal was filed by the department, no justification existed to serve impugned show-cause notices on the complainant, on the same issue and start assessment proceedings afresh---Issuing fresh show-cause notices on same allegations already decided, appeared to be not covered under the law without re-opening the said appeal order by Federal Board of Revenue under S.45-A of the Sales Tax Act, 1990---FBR, was recommended by Federal Tax Ombudsman to direct Chief Commissioner to withdraw impugned show-cause notices, issued on the already adjudged issues within 15 days' if FBR wanted to issue fresh show-cause notices, then it should re-open the order-in-appeal strictly in accordance with provisions of Sales Tax Act, 1990 and to report compliance within 21 days.

Imtiaz Ahmed Barakzai, Advisor Dealing Officer.

Ajeet Sundar and Nadir Husain Abro Authorized Representatives.

Nasir Khan, DCIR for Departmental Representative.

FINDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.---The complaint was filed against the Commissioner-IR (CIR), Zone-IV, (RTO)-II, Karachi in terms of Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (the Ordinance), for declaring the issuance of show-cause notices as void ab-initio on the issues already adjudged by CIR (Appeals-II) vide order dated 26-5-2014.

2.The complaint was referred to the Secretary, Revenue Division for comments in terms of Section 10(4) of the Ordinance. In response, the FBR submitted comments vide letter C. No. I (1518)S(TO-II)/2014 dated 14-1-2015 of the CIR, Zone-IV, RTO-II Karachi dated 7-1-2015. It was contended that the complainant had claimed input tax amounting to Rs.7,150,406 on the invoices of Messrs Sunny Corporation, a fraudster blacklisted by the FBR. Thus input tax claimed by the complainant was inadmissible under Sections 2(14)(37), 3,6,7,8(1)(d), A23, and 26 of the Sales Tax Act, 1990 (the Act) read with Rule (12)(5) of Chapter 1 of Sales Tax Rules, 2006 (the Rules) issued vide S.R.O. 555(I)/2006, dated 5 June, 2006. Accordingly, after providing opportunity of hearing vide SCN dated 22-4-2013, Order-in-Original was passed against which the complainant preferred an appeal. The CIR (Appeals), however, set aside the Order-in-Original dated 17-7-2013 vide Appellate Order No.86 dated 26-5-2014 on the ground that supplier was operative at the time of transaction. It was further contended that as the case was set-aside, the Deptt. did not prefer second appeal. Fresh SCNs were issued against which the complainant has filed the instant complaint. It was pleaded that law does not debar the Deptt. to take up the matter afresh, therefore, no grievance was caused to the complainant; and the complaint may be dismissed.

3.The AR filed rejoinder dated 23-1-2015 arguing that the first SCN was issued allegedly for inadmissibility of input tax from the supplier namely Messrs Sunny Corporation and Order-in-Original dated 17-7-2013 was passed. The CIR (Appeals), however, set-aside the said Order-in-Original. It was held that the disallowance of input tax was uncalled for and unwarranted on the ground that the supplier Messrs Sunny Corporation was found operative on 26-5-2013 whereas transactions in question were related to July 2011 to June 2012. He further argued that order of the CIR (Appeals) had attained finality as the Deptt. had admittedly not preferred an appeal before the Appellate Tribunal. He contended that the impugned SCNS dated 19-6-2014 and 21-11-2014 contained the same allegations which had already attained finality after the appellate order.

4.The Deptt. in its counter comments has contended that the Sales Tax Registration of MR. MUHAMMAD RIZWAN PROP: of Messrs SUNNY CORPORATION. Karachi, bearing STR No. 170036176875 and NTN: 3617687-7, from whom complainant had claimed illegal input tax was temporarily blocked/suspended on the recommendations of the Commissioner Inland Revenue, of Zone-IV, RTO-II, Karachi vide order No. CIR/ST/ZONE-IV/Audit Unit-01/RTO-II/khi/2012-13/2352, dated 17-1-2013 on account of obtaining fraudulent Sales Tax input tax to the tune of Rs.95,266,933.

5.Subsequently, Messrs Sunny Corporation filed Constitutional Petition before the Hon'ble High Court of Sindh vide C.P. No. 3607 of 2013. The Hon'ble High Court vide order dated 8-10-2013 gave the following directions and observations:--

"We have briefly considered the various parawise comments. Till next date by way of interim arrangement and entirely without prejudice to the case of any of the parties, Sales Tax I.D. suspension of each of the petitioners is hereby directed to be lifted with immediate effect. However, it is clarified that while such removal of the blockage shall entitle each of the petitioners to conduct its sales tax affairs in accordance with law, this shall not for the time being and unless otherwise permitted or directed by the court entitle or enable any of the petitioners to claim any amount by way of refund or adjustment. It is clarified that the interim order made today also extends to suspension of the blacklisting the petitioners".

Messrs Sunny Corporation has done no business after the activation.

6.The complainant Messrs Raab Packages (Pvt.) Ltd., NTN: 3193759-4 has claimed input from aforesaid supplier Messrs Sunny Corporation NTN: 3617687-7. Hon'ble High Court of Sindh has clearly directed the department that no refund or adjustment will be allowed until otherwise permitted. As no refund or adjustment has been allowed to Messrs Sunny Corporation by the Honorable Court, from whom the complainant has claimed the input tax, so no adjustment can be allowed to the complainant.

7.It is pertinent to mention here that all the input tax of complainant has been disallowed only on purchases made from Mr. Muhammad Rizwan Prop: of Messrs Sunny Corporation Karachi bearing STR No. 1700361768715 and NTN: 3617687-7. Messrs Sunny Corporation has no local purchases and has claimed only imports. However upon scrutiny it transpired that no imports were made by Messrs Sunny Corporation and all the claimed import G.D's were fake, since its registration with F.B.R. It shows that the input claimed by the complainant on purchases from Messrs Sunny Corporation was fake.

8.Further claimed that the issue was rightly picked up by the CREST. Section 8(1)(caa) of the Act, 1990 clearly states that purchases in respect of which a discrepancy is indicated by CREST or input of which is not verifiable in the supply chain shall not be allowed to reclaim or deduct input tax. Further any illegal input tax claimed whether prior or after such blacklisting shall be rejected according to section 21(3) of the Act.

9.The averments of the parties have been considered and record perused. It is evident that the interim order of the Hon'ble High Court Sindh dated 8-10-2013 was in respect of supplier, whose suspension was revoked with immediate effect but was not allowed to claim any amount by way of refund or adjustment. In the instant complaint, grievance of the complainant against the Deptt. is regarding issue of input adjustment which was already settled in appeal by the CIR (Appeals) against which the Deptt has admittedly not preferred further appeal. The CIR (Appeals) while set-asiding the Order-in-Original dated 17-7-2013 had explicitly held that the supplier was operative, hence disallowance of input tax was uncalled for and unwarranted. Thus, in view of unambiguous decision of the CIR (Appeals) against which the Deptt did not prefer second appeal, there was no justification to serve impugned SCN on the complainant on the same issue and start assessment proceedings afresh.

Findings:

10.Issuing fresh SCN on same allegations already decided vide Order-in-Original No.04/2013 dated 7-7-2013 which was set aside by Commissioner (Appeal) through Order-in-Appeal No. 86/2014 dated 26-5-2014 appears not covered under the law without reopening the said appeal order by FBR under section 45A of the Sales Tax Act, 1990.

Recommendations:

FBR to:-

(i)direct Chief Commissioner RTO-II, Karachi to withdraw impugned SCNs issued on the already adjudged issue within 15 days

(ii)if FBR wants to issue fresh show-cause notices, then it should re-open the Order-in-Appeal No.86/2014 dated 26-5-2014 strictly in accordance with provisions of Sales Tax Act, 1990; and

(iii)report compliance for (i) above within 21 days.

HBT/65/FTOOrder accordingly.