DESCON OXYCHEM LTD., LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2015 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2331 (2015)

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

----Ss. 2(3) & 10---Sales Tax Act (VII of 1990), Ss. 10 & 67---Sales

Tax Rules, 2006, R. 26A(7)---Complaint against non-issuance of sales tax refunds and delay in issuance of sales tax refunds-- Maladministration---Additional payment (compensation) for delay in payment of refund claims---Contention of taxpayer inter alia was that Department was deliberately delaying issuance of sales tax refund Validity---Under R. 26A(7) of the Sales Tax Rules, 2006, normal refund cases filed under the STARR system needed to be processed within 38 days and if such claims were processed late, the department needed to pay an additional amount (compensation) under S. 67 of the Sales Tax Act, 1990---Federal Tax Ombudsman observed that the delay, in the present case, in processing of refund claims of taxpayer filed through the STARR system beyond 38 days was against S. 10 of the Sales Tax Act, 1990 and the Sales Tax Rules, 2006 and was tantamount to maladministration in terms of S. 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000---Federal Tax Ombudsman recommended that the Federal Board of Revenue direct the concerned Commissioner to process the pending refund claims of the taxpayer immediately, and in case processing of said refund claims was delayed beyond 38 days after filing of the same, then payment of compensation/additional amount in terms of S.67 of the Sales Tax Act, 1990 was to be made to the taxpayer---Complaint was disposed of, accordingly.

Muhammad Munir Qureshi, Advisor Dealing Officer.

Ch. Wasim Ismail, Authorized Representative.

Khurram Fakhar, ACIR, Departmental Representative.

FINDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.---This complaint was filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (the Ordinance) against non-issuance of sales tax refund for tax periods July to October, 2014 (originally due to error year 2015 was mentioned in the complaint but was subsequently corrected as 2014 through corrigendum). These refunds were processed through FBR's Expeditious Refund Processing System (E.R.S) but the same were not cleared by the Risk Management System (RMS) of FBR IT system and were forwarded to concerned RTO for normal processing. It was alleged that deptt. was using RMS based on wrong criteria of fixing input values below 3.5% of export value to divert refund claims from ERS to normal processing where these were delayed deliberately in violation of Section 10 of the Sales Tax Act, 1990 (the Act), being processed in queue in terms of FBR's letter C.No.1(11)CSTRO/FBR/2013 dated 25-9-2013. It was requested that deptt. may be directed to pay additional payment (compensation) for delay in payment of refund claims in terms of Section 67 of the Act.

2. When confronted the dept filed a reply under Section 10(4) of the Ordinance to intimate that complainant Company's sales tax refund claims, filed through Expeditious Refund System (ERS), were not cleared by the RMS of FBR IT System and were under process under normal system. Further that the Company first filed the complaint prematurely on 4-6-2015 and then lodged the refund claims on 12-6-2015. The Deptt. contended that the Company actually had no grievance to report when it filed the complaint. The present complaint was statedly a pressure tactic to get its subsequently lodged refund claims cleared early.

3. The complainant responded to the Dept'l comments stating that the tax periods pertaining to 2015 were mentioned inadvertently but were corrected through corrigendum. The Company assailed Dept'l decision to process the refund though STARR instead of ERS, as a deliberate attempt to delay finalization of the refund claims. It said that the objection/reason given to take the refund claims out of ERS for normal processing under STARR was vaguely worded viz: 'Scrutiny for verification of input tax is required B' and made compliance problematic. The Company further pointed out that earlier refund claims pertaining to tax periods in 2012, filed under the ERS, were also delayed deliberately and were got cleared after the FTO's intervention.

4. Both sides heard and available record examined.

5. As per Rule 26-A(2) of the Sales Tax Rules, 2006 (the Rules) refund claims not cleared by the ERS are to be processed normally. Thus forwarding of refund claims by ERS for normal processing is covered under the existing Rules. In the present case after rejection from ERS, the complainant filed refund claims under STARR/Crest for tax periods July, August, September and October, 2014 on 13-1-2015, 29-5-2015, 12-6-2015 and 12-6-2015 respectively.

6. Crucial question is the delay which &curs due to normal processing of refund claims due to so Called queue introduced by the FBR through its letter C.No.1(11)CSTRO/FBR/2013 dated 25-9-2013. This delay can only be eliminated if FBR and its field offices are compelled to pay compensation under Section 67 of the Act if they fail to pay admissible refund claims, filed under Section 10 of the Act, within 45 days.

7. Careful examination of the Rules shows that refund claims filed under ERS under Rule 26A(2) of the Rules are to be processed within two working days of their filing and as soon as these are processed, system generates Refund Payment Order (RPO) for cleared amount and communicates it to the Registered Person (R.P) electronically. Amounts in disputes are also communicated to the R.P. by the system. Refund claims filed under normal processing require submission of soft data and hard copies of the documents at refund counters of RTO/LTU. R.P. gets computer receipt showing number for his claim. These refund claims are then processed by the dealing staff at their discretion. One major cause of delay in settlement of refund claims is late processing by the delaying staff on the pretext of the queue introduced through FBR letter No.1(11)CSTRO/FBR/2013 dated 25-9-2013. As under Rule 26A(7) of the Rules, refund cheques are required to be issued within 7 working days of issue of R.P.O, the balance time out of 45 days specified in Section 10 of the Act for zero rated and export refunds left for processing by STARR/Crest is 38 days. Thus normal refund cases filed under STARR/Crest system need to be processed by the relevant staff within 38 days. If these claims are processed late, then the deptt. needs to pay additional amount (compensation) under Section 67 of the Act. Similarly cases where Chief (CSTRO) fails to issue cheques within 7 working days of issue of RPOs, RPs are entitled to addition amount under Section 67 of the Act.

8. It is evident that in the instant complaint deptt. has failed to process refund claims filed through STARR by the complainant for tax periods July and August, 2014 on 13-1-2015 and 29-5-2015 respectively within 38 days of their filing. It is also evident that Complainant filed refund claims for tax periods September and October, 2014 on 12-6-2015 after filing of the complaint.

Findings:

9. Delay in processing of refund claims of the complainant, filed through STARR, for tax periods July and August, 2014 on 13-1-2015 and 29-5-2015 respectively beyond 38 days being against section 10 of the Act/Rules tantamount to maladministration in terms of section 2(3)(i)(a)&(ii) of the Ordinance.

Recommendations:

10. FBR to direct the concerned Chief Commissioner to:--

(i) process pending refund claims of the complainant immediately.

(ii) in case processing of refund claims is delayed beyond 38 days of filing, then pay additional amount (compensation) under section 67 of the Act; and

(iii) report compliance 10 days thereafter.

KMZ/95/FTOOrder accordingly.