2002 PLP 1805 (PTD)

Input Tax (October 1996 to February 2000) Rs. 11,854,785 Cash payment (October 1996) Rs. 585,815 Total Rs. 12,440,600 Less : Refund paid in cash 4,883,63 Adjustment claimed against output tax in 5,854.001 Monthly Sales Tax Returns‑Oct. 1996 to Feb. 2000 10.737.635 Balance refundable Rs.1.702.965 The respondent's Representative contended that adjustment of refund against output tax at Rs.5,854,001 (as above) was not in accordance with law as per section 10 bf the Sales Tax Act, Moreover, the difficulty was that the payments aggregating Rs.2,448,614, though said to halve been paid‑ through "registered persons", could not be verified as these 'persons' were not contactable. In this connection, reference was made to Order No.418 of 1998, dated 12‑11‑1998 by the Assistant Collector Sales Tax, Multan which mentions 12 parties who were not traceable. It was, however, conceded that as per procedure followed in this behalf the purchasers (like the complainant) pay sales tax to the suppliers op cotton seed who are "(registered persons") act as 'collecting agent' for the Government. The law requires these 'collecting agents' to deposit the sales tax collected by them in the Treasury. To ensure that the soles tax so collected reaches the coffers of the Government, the pr4ctice is that no refund to the claimants of Input tax is allowed unless it is proved that the "registered person" who collected the tax has deposited the same in the Government account. Unfortunately, in the complainant's case some 12 "registered persons" who are said to have collected the tax, are not contactable and hence the refund to the complainant cannot be issued till verification is possible. The representative of Revenue lamented that some unscrupulous persons when getting themselves registered do not provide true particulars and leave no trace once they have collected the tax from their clients with the result that on the one hand Government is deprived of Revenue, on the other the purchasers come forward td claim refund by way of credit as input tax. He insisted that verification of deposits in Government Treasury was necessary to save loss of Revenue as the Government would otherwise be doubly hit by issuing refund of an amount which was never deposited with it.

4. The complainant on the other hand insists that they have fulfilled their part of the legal obligation hence they are clearly entitled to refund in respect of input tax inasmuch as: (1) the payments to the "registered (Sales Tax) Persons" were made through Demand Drafts, and (2) the copies of proper invoices issued by the "registered (Sales Tax) Persons" have been filed with the Sales Tax Department. According to the learned counsel, it is now incumbent upon the Department to recover Sales Tax from "registered (Sales Tax) Persons" whose complete particulars should be available with the Department because it was its duty to secure such particulars before giving him the status of a "registered, person".

5. The discussion with two representatives and the scrutiny of record brings out that Sales Tax Department is caught in the cobweb of its own making. When it was thought fit to authorize the suppliers of cotton seed as "collecting agents' for input tax, a foolproof system should have been devised to ensure that such agents are reliable, known verifiable, contactable and (above all) trustworthy so as to be entrusted with the responsibility of handling Government funds. If precautions were not taken and full details, business particulars and financial trustworthiness not evaluated by the Government, it is not proper to compensate the loss by refusing refund to those who actually parted with their money in the hope that it would go to Government account and then paid back to them, when due. If loss has occurred to Government due to loopholes in the system, the proper course would be to penalize those who designed the scheme but not the taxpayers who handed over the money in good faith. In the instant case, payments are proved as these were through demand draft supported by invoices issued by the "registered persons". Therefore, to require the complainant to physically produce a person whom the Government had itself `registered' under a specific law, is expecting too much from a taxpayer who has no coercive power to compel a person to abide by his wishes. On the other hand, Government is supposed to have longhands and wide powers to hunt and haunt those who hide from the law having frauded the Government by collecting tax and then running away with it. It is, therefore. recommended that: (i) The Secretary, Revenue Division arrange to issue the refund 01 Sales Tax as discussed hereinabove together with the additional amount due under section 76 of the Sales Tax Act. (ii) A compliance report be submitted within 30 days to this Secretariat. C.M.A./M.A.K./263/FTO Complaint accepted.