Dealing Officer …Mr. Muhammad Akbar, Advisor
Present: Mr. Ahsan Imdad Sheikh and Ghulam Murtaza, ITPs for the complainant.
Mr. Basharat Ali Malik, A.C, Sales Tax, Lahore for the respondents.
The complainant a supplier of textile goods to government hospitals/institutions, was issued a show cause notice by the adjudication authority on 11.05.05 but the Order-In-Original No.19/06 was passed on 30.01.06 after a lapse of 265 days (received by the complainant on 16.02.06) in violation of law. The DRRA (Director Revenue Receipt Audit) conducted complainant’s audit in response to audit notice dated 13.09.03. The complainant had complied with the aforesaid notice but subsequently owing to change in jurisdiction there was also a ‘change of opinion’ on the part of the respondents. The respondents alleged that they issued a notice dated 13.01.03 calling upon the complainant to supply certain records for conducting audit. The complainant, however, never received the aforesaid notice. On receipt of respondents’ notice in January 2004, it was submitted that Revenue Division had already finalized the audit and, therefore, second audit for the same year could not be conducted. The complainant replied to the show cause notice and supplied certain records. The adjudicating authority inquired about records relating to financial year 2003-04 whereas the year under consideration was financial year 2002-03. The impugned O-I-O was bad in law. The A.C exercised powers under section 33(6A) and passed the order under section 11(4) and 36(3) of the Act after a lapse of more than 180 days. The order had to be passed within 90 days of the issuance of show cause notice but the same was passed after the expiry of limitation period of 90 days against the provisions of the aforesaid sections. The order was illegal and void. The adjudication officer did not take into consideration the arguments advanced before it. It ignored the fact that the audit had already been conducted by the DRRA. Penalty imposed under section 33(6A) of the Act was illegal. The O-I-O passed by the A.C was illegal.
2. In reply, the Collector of Sales Tax, Lahore has submitted that the complainant had the remedy of filing appeal against the impugned O-I-O before the competent appellate authority. The complainant should have availed the remedy. FTO’s jurisdiction did not apply in the case. The complainant did not comply with the provisions of Sales Tax Law in that it did not provide records for audit for the year 2001-02 as required by a notice dated 13.01.03, followed by reminders dated 16.01.04, 09.02.04 and 20.07.04. Resultantly, audit could not be initiated. The case was properly adjudicated and communicated to the complainant. Provisions of section 36(3) and 11(4) were only directory and not mandatory. It had been held by the courts that even if the order was not made within stipulated time, no body could be allowed to evade duty and taxes. The complainant deliberately avoided submission of sales tax records for audit and contravened the provisions of section 22(1) and 25(3) of the Act. The complainant’s arguments were considered before deciding the case. While the complainant provided records for the year 2002-03 to DRRA, it did not supply records in response to notice dated 13.01.03 under which the department required records for the period prior to January 2003. Notice dated 13.01.03 was issued to the complainant through registered post for provision of records followed by three reminders but the records were not provided for 2001-02. Provisions of section 33(6A) of the Act were correctly applied. Penalty of Rs.50,000/- was rightly imposed in terms of section 33(6A) of the Act.
3. During the hearing, the AR confirmed that the complainant had not filed any appeal against the impugned O-I-O. He reiterated the arguments advanced in the written complaint, emphasizing that the audit of the complainant was earlier initiated in September 2003. The same was concluded showing ‘nil’ recovery. Subsequently, the DRRA conducted audit for 2002-03. When the complainant received notice dated 16.01.04, it submitted to the respondents that the audit had already been conducted and could not be conducted again. Asked to indicate whether the aforesaid submission was made to the respondents in writing, the complainant’s AR could not produce any written communication but stated he had given an affidavit to the effect that replies to notices dated 16.01.04, 09.02.04 and 20.07.04 were filed. He submitted that according to STGO No.3/2004 and section 25 of the Act audit could be conducted only once in a year.
4. The DR was asked to show the postal receipt under which first audit notice dated 13.01.03 was despatched to the complainant under registered cover as claimed. He could not produce any such postal receipt. He, however, provided an extract of despatch register (on record) showing despatch of the notice to the complainant. The DR submitted that the case was not decided under the provisions of sections 36(3) and 11(4) of the Act. The complainant did not produce the records asked for and, therefore, violated the provisions of sections 22(1) and 25 of the Sales Tax Act, 1990, and were penalized by the adjudication officer under section 33(6A) of the Act. He further submitted that the General Order referred to by the complainant was meant for internal audit only. The DRRA which represented external audit were not affected by it. The DR added that the CBR had suspended on going audit vide its order dated 08.11.04. The audit notices were issued on 13.01.04, 16.01.04, 09.02.04 and 20.07.04 before issuance of CBR’s order dated 08.11.04. The complainant was required to provide records for 2000-01 and 2001-02, which he did not provide.
5. The arguments of the two sides and records of the case have been considered and examined. Since the complainant had denied receipt of audit notice dated 13.01.04, the DR was asked to produce postal receipt under which it was allegedly despatched to the complainant. He failed to do so. He, however, produced an extract of despatch register showing issuance of notice in question to the complainant. In the absence of postal receipt showing that the notice was indeed despatched under registered cover, it is not possible to accept respondents’ contention that the same was issued and served on the complainant under a registered cover. The complainant, however, did acknowledge receipt of other three notices dated 16.01.04, 09.02.04 and 20.07.04. A close scrutiny of the aforesaid notices indicates that none of these provided details of records nor specified the period for which the records were required for audit. It is rather odd that the so-called second notice dated 16.01.04 (reminder) was issued by the respondent to the complainant after a period of one year of the issuance of the first notice dated 13.01.03, which was not received by the complainant. The adjudication authority has observed in para 7 of the O-I-O that “but vide notice dated 13.01.03 the department required record of period prior to January 2003, so the contention of the registered person is not solid that they provided the same record for audit”. In the parawise comments also, the respondents contend that the complainant did not provide records for audit for the year 2001-02 deliberately but the fact remains that in none of the notices did the respondents indicate the period for which the records were required. On the other hand, the complainant acknowledges receipt of three notices dated 16.01.04, 09.02.04 and 20.07.04 (without providing details of records and period). It has submitted an affidavit (on record) saying that the notices were replied to but the DR denied receipt of any such reply. Since the respondents have not produced any concrete evidence to establish that the first notice dated 13.01.03 was indeed sent to the complainant under registered cover, it means that the first communication that the complainant ever received was the one dated 16.01.04 which did not give any details of records or the period for which the records were required for audit. It appears that all-along the complainant was under the impression that records were being called for the period 2002-03 while department’s contention is that they intended to obtain records for the period 2001-02, which fact was not made clear in any of the notices. If the respondents had not mentioned the period for which the records were required in the first notice, the subsequent notices should have indicated the same but failed to do so. In view of this position, it is difficult to understand as to how the adjudication officer inferred or presumed that the required records were being asked for the year 2001-02. When the first notice was not served on the complainant and the first communication ever received by it was dated 16.01.04, it could not be inferred or presumed that the records were required for the period 2001-02 because the immediately preceding financial year happened to be 2002-03, records for which, the complainant claims, had already been submitted.
6. The complainant’s contention that the impugned O-I-O was time barred in terms of sections 36(3) and 11(4) of the Sales Tax Act, 1990 is not tenable because the adjudication was not made under provisions of the aforesaid sections. Show cause notice was, in fact, issued for violation of the provisions of sections 22(1) (maintenance of prescribed records) and 25 (access to record/documents). The failure to provide records, if requisitioned, attracted penal action under the provisions of section 33 of the Sales Tax Act, 1990. However, the O-I-O passed in the case suffers from impropriety inasmuch as it imposed penalty on the complainant without realizing that in the first place the notice dated 13.01.03 was never despatched nor received by the complainant as the department did not possess any concrete evidence (proper postal receipt) to establish that the same was served on the complainant and the other notices neither provided any details of records nor indicated the period for which those were required. The notices dated 16.01.04, 09.02.04 and 20.07.04 were vague and imprecise, as discussed above. The adjudication officer imposed a penalty of Rs.50,000/- on the complainant on the basis of incomplete notices. Furthermore, the show cause notice did not invoke specific clause (c) of section 33(6A) of the Act for imposition of penalty of Rs.50,000/- for failure to respond to three notices. The adjudication authority has vide the impugned O-I-O imposed penalty under section 33(6A) without invoking clause (c) thereof which attracted penalty of Rs.50,000/- for failure to produce the record on receipt of third notice. The adjudication authority has thus passed an improper and illegal O-I-O without considering the circumstances surrounding the case. Respondents’ objection to FTO’s jurisdiction is misplaced. This forum is fully competent to investigate complaints involving ‘maladministration’. In this case, ‘maladministration’ is clearly established. Accordingly, it is recommended that the CBR direct the competent authority to:
i. Reopen Order-In-Original No.19/06 dated 30.01.06 under section 45A of the Sales Tax Act, 1990 and annul it. The authority may, however, if so permitted by law and the departmental policy, issue fresh audit notice giving details of records, specifying therein the time period for which the records are required asking the complainant to produce the same for conducting audit.
ii. Compliance be reported within 30 days of the receipt of this order.
(Justice (R) Munir A. Sheikh)
Federal Tax Ombudsman
BEFORE THE FEDERAL TAX OMBUDSMAN