2012 PLP 491 (PTD)

4. The Department's preliminary objection to the Hon'ble FTO's jurisdiction under section 9(2)(b) of the FTO Ordinance has been considered and is found to be misconceived. It is not the assessment of taxable sales for purposes of levy of sales tax per se that is the subject matter of the complaint. Rather, the elaborate scheme involving F.B.R. officials and outside criminal elements to defraud the exchequer of huge sales tax revenues and the alleged unwarranted victimization of the complainant when there was no direct evidence against him are core issues in the complaint. These are all matters that fall well within the definition of maladministration in section 2(3) of the FTO Ordinance.

5. The arguments made by both sides have been considered.

6. The sophistication of the scam is evident from the fact that but for the insider information, the racket may not have been exposed at all. The available evidence does not show that the informant or any other person ever identified the complainant directly as a member of the racket. The fact that the complainant was a one-time user of fake sales tax invoices was the main reason that the Department believed that he was an integral part of the elaborate plan to defraud the revenue. Significantly, though the Department retained his last five years sales tax documentation for more than a year and subjected it to rigorous scrutiny it was unable to detect any discrepancy therein. And as soon as he came to know that fake invoices had been unwittingly used by him, the complainant immediately deposited the amount involved. The Department says that he did so because he had a guilty mind. However the fact that he wrote on the CPR that the payment was being made under protest and wanted it to be returned to him as soon as recovery was made from the persons who had masterminded the racket would appear to exonerate rather than convict the complainant. A person depositing the amount out of fear could not reasonably be expected to demand its return back to him in the event of recovery of the amount from the real perpetrators of the criminal scheme.

7. Coming to the complainant's allegation of complicity of the Departmental and the PRAL officials with the racketeers, the ambient circumstances are certainly indicative of a nexus between them. Otherwise, Messrs Waqar Ali Chaudhry, Imran Qamar, Furqan Ahmad Rind and their companions could not possibly have got hold of the User IDs, Passwords and Pin Codes. Nor would they have been able to set up 39 registered persons profiles to put the scheme into operation. No meaningful investigation has been carried out so far to unmask the PRAL's role, if any, in this nefarious scheme to defraud the revenue.

8. The fact that the culprits in this scheme have been able to get away with very light sentences considering the extent of their crime that involved an estimated Rs.230 million loss to the exchequer is indicative of the conspiracy between the perpetrators of serious financial crimes and their silent patrons within the ranks of F.B.R. officials. The Directorate of Intelligence and Investigation even failed to appeal against the light sentences awarded in the case by the Special Judge Customs. One would expect the Directorate of Intelligence and Investigation to be zealously committed to bringing the perpetrators of such heinous crimes to book.

9. So far as the order-in-original regarding levy of 100% penalty and default surcharge, the Department was unable to establish mens rea and wilful involvement of the complainant in the scheme, which is a condition precedent to levy of 100% penalty. Findings:--

10. The action of the Department to recover sales tax from the complainant without passing any legal order and thereafter charging 100% penalty without proving his involvement in the tax fraud scheme is tantamount to maladministration in terms of section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. Recommendations:

11. F.B.R. to-- (i) direct the Chief Commissioner to refund the amount deposited by complainant, under protest, as there was no legal order in the field at the relevant time ; (ii) direct the Commissioner to cancel the Order-in-Original No. July, 2011/2003 dated 29-7-2011; (iii) conduct an enquiry to identify if any PRAL officials were involved in the scheme and to proceed against the defaulters, as per law; (iv) to launch an investigation into the circumstances why the officials of the Directorate of Investigation and Intelligence did not file an appeal against the apparently light sentences awarded to those who seemingly masterminded the scam; and (v) report compliance within 30 days. H.B.T./13/FTO Order accordingly.