2011 PTD 2197 (PLP)

10. The complaints have been examined in the light of written and oral submissions of the parties. The main issues involved in these complaints are broadly as follows: (i) Whether the jurisdiction of Hon'ble FTO is competent in these complaints; (ii) Whether the SCNs were time-barred and therefore null and void in the eye of law; (iii) Whether delay was involved in deciding the refund claims.

11. As the complaints involve serious allegations constituting maladministration as defined by section 2(3)(i)(a)(b) and (ii) of the FTO Ordinance, 2000 the jurisdiction of the FTO is competent. The Hon'ble President has decided vide his Order No.64 of 2009-Law-1(FTO) dated 7-4-2010 in Complaint No.36-K/2009 that Hon'ble FTO's jurisdiction would be competent in cases involving maladministration. The following extract from the decision of Hon'ble President is sufficient to settle this issue:-- "When a question relates to assessment simplicitor the efficacious remedy is through adjudicatory process/appeal. But when the Agency does not follow the due process and the complainant spells out the failure on the part of the Agency in this connection, the FTO can entertain the complaint to the extent of the latter question."

12. The facts and circumstances of Hon'ble FTO's Findings in Complaint No.1380 of 2005 were substantially different. Therefore, Hon'ble President's Order in respect of that complaint cannot be invoked in the present complaints in which the complainant has clearly spelt out maladministration in terms of delay, neglect and inefficiency etc. as defined by section 2(3) of the FTO Ordinance, 2000. The filing of appeals also does not debar Hon'ble FTO's jurisdiction under section 9(1) of the FTO Ordinance, 2000 to investigate allegations of maladministration as the appeals had not been filed on the day complaints were filed before the Hon'ble FTO. Subsection 2(a) of section 9 clearly stipulates that FTO shall not entertain the complaints which are sub judice on the date of receipt of complaints. As the subject matter of these complaints was not subjudice on the date 'of their receipt, therefore, these were rightly and lawfully entertained for investigation under the FTO Ordinance, 2000.

13. As regards the allegation by the AR that SCNs do not make mention of the sections and subsections, it is belied by the fact that section 11(2) has been clearly and specifically mentioned in the SCNs in Complaints Nos.42/2011, 43/2011, 45/2011, 46/2011 and 49/2011. However, in Complaints Nos.44/2011 and 47/2011 instead" of mention of Section 11(2) a reference has been made to the violation of Refund Rules, 2006, notwithstanding the fact that the relevant Refund Rules were of 2002 and not the Refund Rules, 2006. Complaint No.48/2011 relates to section 36 and its subsections have also been duly mentioned. The AR's contention that subsections have not been mentioned is not therefore maintainable.

14. The next question is whether or not the SCNs issued after 05 years are time-barred? Placing reliance on Hon'ble Sindh High Court, Karachi, judgment reported as 2010 PTD 251 dated 5-5-2009 (Messrs Gulistan Textile Mills Ltd. v. Collector Appeals), the AR contended that ' the 05 year time limit introduced in section 11(4) of the Act was applicable retrospectively, being remedial and' curative in nature. The Hon'ble Sindh High Court held it applicable retrospectively to all cases pending upto 30-6-2008 excluding the cases which were past and closed transactions. The Department, however, controverted the AR's plea by stating that Hon'ble Sindh High Court's judgment was not relevant as it did not hold that the 05 year time limit as provided under section 11(4) of the Act was applicable retrospectively. The DR also placed reliance on section 6 of the General Clauses Act, 1897, to substantiate that the amendment carried out in section 11(4) in the year, 2008 was not effective retrospectively unless specifically so provided. Reliance was also placed by the DR on judgment reported as 1997 PCr.LJ 1837 upholding the principle that "amendment which affects substantive rights of the parties cannot operate retrospectively". However, according to the AR, the provisions of general statutes were not applicable on special statutes. As the Sales Tax Act, 1990, was a special law section 6 of the General Clauses Act, 1897, was not applicable. He also placed reliance on judgment of Lahore High Court in case of Messrs Data Steel Pipe Industries (Pvt.) Ltd., S.T.A. No.11 of 2006.

15. The DR's contention that Hon'ble Sindh High Court Judgment reported as 2010 PTD 251, was not relevant to the case under reference is factually incorrect as the said judgment is not only specific to section 11, of the Sales Tax Act, 1990, but it also specifically holds that the 05 year time limit under section 11(4), being curative and remedial in nature, is effective retrospectively excluding those transactions which were past and closed by 30-6-2008. The DR was asked whether the Department had filed any appeal against this judgment and if so what was the outcome. He could not produce any such evidence. The position was also checked from the legal side of F.B.R. and the Sales Tax authorities Karachi. They confirmed that the aforesaid Sindh High Court Judgment was not appealed in the Hon'ble Supreme Court of Pakistan. The F.B.R. letter No.2(3)S(L-IDT)/2011 dated 6-5-2011 read with Commissioner LTU Karachi letter No.CIR/Zone-II/LTU/2010-11 dated 23-4-2011 reconfirmed the above position. Thus the Hon'ble Sindh High Court Judgment had attained finality. Therefore, the SCNs of Complaints Nos.42/2011, 43/2011, 44/2011, 45/2011, 46/2011, 47/2011 and 49/2011 being time barred, the Orders-in-Original and Orders-in-Appeal based on these unlawful SCNs could not be held to have been validly issued.

16. As regards Complaint No.48 of 2011, the SCN dated 19-6-2009 was issued under section 36(1) read with Refund Rules, 2002, attributing a deliberate act of claiming refund against fake/flying invoices. As this charge was not based on proper inquiry/audit as required under Rule 7(3) of the Refund Rules, 2002, there was no justification for attributing any deliberate act to the complainant. Such inquiry was all the more necessary because section 36 contains two categories of violations (i) deliberate and (ii) inadvertent. The period for issuance of SCN in case of deliberate offence is five years and for inadvertent errors, it is three years. It appears that deliberate act has been attributed to justify issuance of SCN to circumvent the time limitation a three years. The fact of the matter in Complaint No.48 of 2011 is that the complainant filed refund claim with required supporting documents. The Sales Tax authorities processed it; 'found it admissible and sanctioned the refund. The Department cannot now turn around after so many years and say that the claim of refund in Complaint No.48 of 2011 was based on fake/flying invoices without any evidence whatsoever. Calling the duly sanctioned refund into question at such a belated stage, that too without proper inquiry and reliable evidence, would be tantamount to being discriminatory besides being highhanded as the officers responsible for sanctioning the refund have not been proceeded against for sanctioning it on alleged fake/flying invoices. Only the complainant is being penalized by holding the refund claim inadmissible. Therefore, attributing deliberate offence of claiming refund on fake/flying invoices without sufficient evidence to support, such a charge is tantamount to being unreasonable, oppressive and highhanded besides being unlawful. In such view of the facts, the SCN and the orders based on this SCN are not maintainable.

17. As regards delay, the law as prescribed in section 10 of the Act in 2003-2004 required refund to be made not later than 30 days of filing of return (reference subsection (2) of section 10 as it stood during the period 2003-2004). Rule 7 of the Sales Tax Rules, 2002 also required sanction and payment of admissible refund within 15 days of the submission of supportive documents by a manufacturer-cum-exporter. Rule 8 of the aforesaid Rules, 2002 obliged the Department to serve a notice to the claimant requiring him to show cause in writing within 14 days as to why the claim or as the case may be, part thereof should not be rejected. Despite these time limitations neither the admissible part of refund claims was sanctioned within the prescribed time limits nor any inquiries were conducted. Nor were SCNs issued for years on end. On 29-7-2008, however, i.e. 4 to 5 years after the tax period 2003-2004, objection memos. were issued. The SCNs were issued still later in the year 2010 which was over 5 to 6 years after receipt of supporting documents. Thus the SCNs were time-barred in terms of the Hon'ble Sindh High Court Judgment cited in para 14 supra. This kind of abnormal delay of over 5 to 6 years in cases where the law and the procedure required settlement of refund claims within weeks is indicative of the systemic inefficiency obtaining in the Sales Tax Department. Issuing of SCNs and rejection of refund claims without proper inquiry to substantiate whether or not the transactions had actually taken place during the period when the supplier was in existence at Gujranwala, the place of his registration, and the complainant had sourced his supplies against payments made through normal banking channels as required under, section 73 of the Act was tantamount to oppressive and unjust handling by the Department. Findings:-

18. The facts in the complaints under reference reveal gross inefficiency, incompetence, oppressiveness, highhandedness and unreasonable attitude on the part of tax officials, which constitutes maladministration as defined by sections 2(3)(i)(a) and (b) and (ii) of the FTO Ordinance, 2000. The SCNs are not maintainable being time-barred. So are the decisions and orders based on these SCNs. Recommendations:

19. F.B.R. to- (i) set-aside the Orders-in-Original and Orders-in-Appeal in Complaints Nos.42 of 2011 to 49 of 2011 as these are based on time-barred show cause notices; (ii) provide opportunity to the complainant to produce documentary evidence of genuineness of supplies; (iii) ensure that, after satisfactory proof, the deferred amounts are paid and already paid amounts regularized as per law; (iv) identify the staff responsible, for excessive delay and non-observance of time limitations in these cases and take/initiate deterrent action against the defaulters; (v) include these complaints as a case study in the training modules for capacity building of Sales Tax officials; and (vi) report compliance within 30 days. H.B.T./151/FTO Order accordingly.