2003 PLP 63 (PTD)

Tax period Refund Claimed (Rs.) Refund sanctioned (Rs.) Amount withheld/pending Remarks Nov‑00 5,782,707 2,079,098 3,703,609 Amount withheld involved in the invoice of H.A. Fabrics, Hamad Textile, Amna Looms and Aysha Fabrics. Dec‑00 3,243,453 2,200,329 1,043,124 Amount withheld involved in the invoices of Hammad Textile, H.A. Fabrics & Aysha Fabrics. Feb‑01 1,612,565 424,121 1,188,444 Amount withheld involved in the invoice of N.S. Enterprises and Amna Looms. Total 10,638,725 4,703,548 5,935,177 It appears from the above that inquiries are apparently also being, made by the respondent regarding invoices issued by H.A. Fabrics, Hamad Textile and Aysha Fabrics in addition to the two parties mentioned in the respondent's reply. It was c6ntended that these parties have not been traced so far and that the issuance of bogus invoices by fake units has been found to be a large scale fraud involving billions of rupees. It was pleaded that the Department may be alloyed to carry out its investigation which it is duly authorized to do without any specific time limit under section 10(4) of the Sales Tax Act and rule 7(4) of the Sales Tax Rules. The complainant on the other hand reiterated that the refund claims in question were genuine and that all the purchases were made from registered persons which meant that the Sales Tax Department would have already verified the genuineness of the parties at the time of registration. It was also claimed that all the payments were made through cross cheques and that this further proved the genuineness of the parties from whom the purchases were made.

4. The contentions of the two sides have been considered and the respondent is found to be correct in saying that the law provides for necessary verification in the case of suspected invoices etc. and that no specific time frame have been provided for completing the investigation. This does not, however, mean that the Department can withhold refunds indefinitely on the plea that investigation is being made. Nor can investigation be continued for unreasonably long period. Dependent on the facts and circumstances of the case a reasonable time has to be fixed. During the hearing the respondent's representative did not in fact clearly show on what lines the investigation was now being made considering that the parties involved were statedly not traceable at their given addresses. It was also not made clear whether in the case of cross cheques issued by the complainant, an attempt was made to identify the bank accounts through which the cheques were encashed. It is also clear that apart from Messrs M.A. Industry, Lahore, all the so‑called suspected units belong to the Faisalabad Collectorate and there is no reason why the Department should not be able to expeditiously finalize inquiries regarding these units. Under the circumstances the Department cannot allow itself to withhold the refund without, apparently, any specific investigation being in progress.

5. The contention of the Department that the amount of tax collected by registered person has not been deposited in the Government Treasury cannot be a ground for withholding the refund. If it is proved that manufacturer has purchased from the registered person who has collected tax from him then as the registered person who under law acts as an agent of the Department it is the responsibility of the said agent to deposit the tax within specified period as required by law. The purchaser/manufacturer thus cannot be held liable for non‑deposit of such tax in the Government Treasury. Under law the Department should regularly monitor and take action against registered persons who having recovered and collected the tax fail to deposit in the Government Treasury. A person who has already paid the tax as required by law he cannot be held liable for such tax for the default of the Department and its agent. Such complaints have been filed by several persons and in Complaint No.250 of 2002 a detailed decision has been given pointing out the specific irregularities and negligence by the Department and recommendation has been to redress the grievances and streamline the tax administration. In the present case if it is established that tax has been paid by the manufacturer which they claimed to have made through cross cheque then only question remains to be ascertained is whether the transactions are genuine or not? If payment through cross‑cheque is established presumption will be that the transaction was genuine unless rebutted by the Department by strong evidence. Therefore, on the mere ground of non‑deposit of tax by the registered person in Government Treasury refund cannot be withheld.

6. It is recommended that: (i) Verification process be finalized within 90 days in which the complainant should also be associated. If as a result of investigation the invoices are not found to be fake and fraudulent the refund amount be paid to the complainant within 15 days of completion of investigation. (ii) Compliance report with investigation report be submitted within 20 days of the completion of, investigation. C.M.A./483/FTO Order accordingly.