2012 PLP 424 (PTD)

4. During the course of arguments on 12-7-2011 in the aforesaid complaint, it was mutually agreed between the parties that the Department would inform the complainant about any objections regarding issuance of balance refund and the refund claims would be disposed of after the required documentation was submitted by the complainant. In case the complainant was unable to provide the required documents to the Department an order would be passed rejecting the refund claim to the extent that it was found to be unsubstantiated.

5. After scrutiny of complainant's pending refund claim an Order-in-Original (O-I-O) No.9 of 2011 dated 13-8-2011 was passed rejecting an amount of Rs.422,130 out of the total outstanding refund claim of Rs.1,876,

937. A refund amount of Rs.454,807 was found to be in order and sanctioned.

6. On 17-12-2011 the Department submitted a report giving a break-up of the rejected amount of Rs.1,422,130 that included an additional amount of Rs.133,588 cleared by the Department.

7. The complainant contends that although comprehensive documentation was provided to the Department the refund claim remains blocked largely due, to objections raised by the STARR system. According to the complainant, the STARR system had no legal backing under the statute and was not applicable to the refund claims of the complainant for the period 6/2005, 9/2005 and 3/2006 as it was introduced in 2006. Reliance in this regard is placed on judgment reported as 2010 PTD (Trib.) 1636 and 2011 PTD (Trib.) 483 wherein it has been held that the "rejection of refund claims filed against invoices issued prior to 1st July 2006 on the objections pointed out by the STARR computer system was illegal, void ab initio."

8. When confronted, the Department filed a reply in which the responsibility for the pending refund claim was placed squarely on the complainant. It was contended that inability to furnish the requisite documentation and the required clarifications regarding suppliers were the root causes for the delay. Also, section 45-B of the Act provided an appellate forum to redress grievances against an order-in-original and the complainant should have availed of that forum rather than approach the Hon'ble Federal Tax Ombudsman.

9. Itemized objections raised under various heads in the matter pertaining to refund disposal have been cited by the Department in their reply on the complaint. However, it has not been explained what amount out of the total refund claim not yet cleared relates to each item in the complainant's case. Nor has the complainant been required to produce specific documentation in order to obtain clearance. Many of the items cited relate to STARR.

10. The Department defends the STARR system as a good example of the use of technology and automation in ensuring expeditious and efficient processing of documentation such as that involved in refund claims. However it has not been explained how the objections raised by the STARR system be resolved within a reasonable time frame. In any case no proper justification has been made out for the use of STARR to process refund claims that are pending before the system was put to use in the Department, especially when appellate fora too have commented adversely in the matter. The need for frequent manual overriding of STARR objections would appear to indicate a fundamental problem with the system. The rather verbose reply filed by the Department is short on specifics and is couched in generalities. In many cases the objections cited make no sense at all. Thus the objection raised at Serial No.(x) against "Objection wise reply" in the Department's report pertains to wrong citation of tax period. Three shipping bills for an amount of Rs.68,953 (Rs.19,655 + 30,180 + 19,118) mentioned at Serial Nos. 11, 12 and 13 for the month of November, 2011 have been rejected on the ground that Wrong Tax Period was cited. In this regard it is to be noted that all these shipping bills are dated 28-10-2011 and were claimed in the month of November 2011. Section 7 of the Act provides that where a taxpayer is unable to claim input tax within the relevant tax period, he may prefer a fresh claim within the next six months. Thus rather than reject the claim outright on a sheer technicality it would make sense to appraise the claim on merit on the basis of the documentation produced and the nature of the claim. In the case of shipping bills, such as in the complainant's refund claim, it should not be too problematic to evaluate the same for their authenticity. Similarly, against Serial No.(vi) it is stated that "MR Information not available with Customs Department." This is again a STARR innovation and even the Department has no clue what it means. How can the complainant be expected to deal with the problem? Again where suppliers fail to file Returns or Statements, for any reason, the 'system' will block the processing cycle and the refund claimant unduly suffers. Why does the Department not take action against the non filer directly for a statutory violation rather than block the claimant's refund? After all, the claimant is not responsible for the supplier's lapse.

11. The Departmental contention that the complainant should have availed facility of filing appeal against order-in-original rather than seek the Hon'ble FTO's intervention is misconceived for the reason that where maladministration was a predominant feature only the Hon'ble Federal Tax Ombudsman was in a position to provide efficacious relief as he had exclusive jurisdiction to deal with acts of omission and commission of Departmental functionaries that tantamount to maladministration. In the case of the complainant inordinate delay in the disposal of pending refund claims was the predominant feature and the same fell squarely in the definition of maladministration in section 2(3)(ii) of the FTO Ordinance.

12. A significant part of the complainants refund claim (Rs.627,000) that has been held up is attributed to the so called 'policy matters.' It has been explained that where policy decisions are taken for removal of STARR objections prior approval of the Commissioner Inland Revenue is required to sanction the refund amount. These take time and result in delay in disposal of the refund claim. Evidently, in the complainant's case, 'policy matters' account for a significant part of the held-up refund. It is for the Department to devise effective ways and means to ensure that administrative bottlenecks do not become endemic.

13. The Department must ensure that the systems it puts in place to process refund claims actually deliver the desired results. In the case of the complainant, it is all too evident that the system has failed badly. Findings:--

14. The delay in issuance of refund is tantamount to maladministration under section 2(3)(ii) of the FTO Ordinance. The delay also creates the right to receive compensation admissible under the Act. Recommendations:--

15. F.B.R. to direct the Chief Commissioner to-- (i) issue refund due, along with compensation, as per law, within 21 days; and (ii) report compliance within 7 days thereafter. H.B.T./6/FTO Order accordingly.