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The Secretary,

Revenue Division,

Islamabad. …Respondent

Dealing Officer …Mr. Muhammad Akbar, Advisor

FINDINGS/DECISION


Present: Syed Abbas Raza Rizvi, CMA/Advocate for the complainant.

Mr. Muteen Alam, A.C, Sales Tax, Multan for the respondents.

Facts of the case as narrated in the complaint are that based on an audit report, the Additional Collector (Adjudication), Multan issued a show cause notice dated 17.06.04 to the complainant alleging evasion of sales tax of Rs.3442777/- by declaring less value of Hydrogen Gas @ Rs.5/- per cubic meter as against the market rate of Rs.50/- per cubic meter during the period from 1996-97 to 15.06.02. He decided the case vide Order-In-Original No.939/05 dated 30.06.05 ordering the complainant to pay the evaded amount of sales tax alongwith additional tax. The complainant filed appeal against the aforesaid O-I-O before Collector of Appeals, Multan wherein the complainant, among other grounds, also questioned the validity of the O-I-O because it was passed after the mandatory time limit of 90 days prescribed in the Sales Tax Act, 1990. The Collector rejected the appeal vide Order-In-Appeal No.261/06 dated 26.04.06. Both the impugned O-I-O No.939/05 dated 30.06.05 and the Order-In-Appeal No.261/06 dated 26.04.06 were illegal and liable to be annulled. The O-I-O was passed after 379 days of the issuance of show cause notice dated 17.06.04 beyond the mandatory time limit of 90 days, extendable by another 90 days, prescribed under sections 11(4) and section 36(3) of the Sales Tax Act, 1990 for making such an order. The O-I-O was hit by time limitation. Reliance was placed on FTO’s findings in complaint No.805/03 and President of Pakistan’s order dated 07.05.05 passed on a representation against FTO’s findings in the aforesaid complaint. The time for deciding the case was not extended. The Order-In-Appeal dated 26.04.06 was also hit by time limitation because it was passed after 97 days of the filing of appeal dated 11.10.05 as against the time limit of 90 days, extendable by another 90 days, as provided in section 45B(2) of the Act for passing Order-In-Appeal. Under section 36(2) of the Act, the show cause notice had to be served within three years of the relevant date. Since the show cause notice covered the period from 1996 to 17.06.01, it was also hit by time limitation. Hydrogen Gas, which was raw material of vegetable ghee, was exempt from payment of sales tax vide 6th Schedule to the Sales Tax Act, 1990. The fixation of market price of gas @ Rs.50/- per cubic meter by the valuation committee was arbitrary, discriminatory and against law. The O-I-O would disclose that the departmental representative submitted before the adjudication authority that “however it is also submitted that in a similar case M/s Haji Faqir Muhammad Ghee Mills Borewala has since been decided by adjudication authority @ Rs.7”. Charging market price of Rs.50/- per cubic meter from the complainant and Rs.7/- per cubic meter from another unit was discriminatory. Both the O-I-O and Order-In-Appeal may be declared as illegal.

2. In his reply, the Collector of Sales Tax, Multan has submitted that the complainant was involved in evasion of sales tax by declaring less value of Hydrogen Gas @ Rs.5/- per cubic meter instead of market rate of Rs.50/- per cubic meter. The amount of sales tax evaded alongwith additional tax was, therefore, recoverable. The valuation committee was constituted for determination of value. The tax liability was created in accordance with decision of the valuation committee. No ‘maladministration’ was involved. Both orders were lawful. The time limitation as provided in sub-section (3) of section 36 of the Act was desirable and not mandatory as held by the Appellate Tribunal in sales tax appeal No.2149/LB/02 dated 05.03.03. The complainant sought multiple adjournments of various dates of hearing and caused delay in deciding the case. The show cause notice was issued under section 11 of the Sales Tax Act, which did not prescribe any time limitation for issuing of show cause notice. Hydrogen Gas was not exempt from payment of sales tax. The complainant failed to rebut allegations during adjudication proceedings. The value of gas was adopted keeping in view the market price of Hydrogen Gas prevailing at that time. The complaint lacked merit.

3. In reply, the Collector of Appeals has submitted that the appeal was received on 11.10.05. The period for further 90 days was extended under section 45B (2) of the Sales Tax Act, 1990 as was also evident from paragraph 6 of the impugned Order-In-Appeal. The judgment was announced on 16.03.06. Thus the order was passed within the extended period. The complainant deliberately failed to pay livable tax on Hydrogen Gas. The case fell under section 36(1) of the Act, according to which show cause notice could be served within five years of the relevant date. The appellate authority vide Order-In-Appeal held that liability of last five years should be worked out. Hydrogen Gas was not exempt and was clearly taxable under the 6th Schedule to the Sales Tax Act, 1990. In compliance of the order of the Honourable Appellate Tribunal, a valuation committee was constituted under section 2(46)(e) of the Act for determination of value of Hydrogen Gas consumed in manufacturing. The complainant was assessed to tax liability on the value determined by the valuation committee. The complaint may be dismissed. If the complainant was aggrieved by the Order-In-Appeal, it had the remedy to file appeal before the Honourable Appellate Tribunal.

4. During the hearing, the AR clarified that the complainant filed an appeal against Collector of Appeals’ order dated 26.04.06 before the Appellate Tribunal on 24.06.06, whereas it had filed complaint in the FTO Secretariat on 15.06.06, prior in point of time than the filing of appeal. He reiterated that the Order-in-Original was hit by time limitation as provided in section 36(3) and 11(4) of the Sales Tax Act, 1990. He also contended that the Order-In-Appeal was also hit by time limitation as provided in section 45B(2) of the Act. He added that vide SRO.443(I)/95 dated 31.05.1995, the CBR had fixed Rs.5/- per cubic meter as sales tax on Hydrogen Gas. The SRO was rescinded on 13.06.1996. The complainant was not aware of the same and kept on paying sales tax @ 5/- per cubic meter. The AR added that the complainant had raised the question of time-bar before the Collector of Appeals who did not give only findings on that account. He argued that even if the show cause notice had invoked only section 11 of the Act, the O-I-O passed in the case was hit by time limitation as provided in section 11(4) of the Act. The O-I-O was passed long after the expiry of the mandatory period in the absence of extension in time for deciding the case. Valuation Committee’s decision fixing value at Rs.50/- per cubic meter of Hydrogen Gas was not supplied to the complainant. The committee did not fix any value. In a similar case, Rs.7/- per cubic meter was adopted and assessed. He added that the ADRC had vide its decision dated 26.04.06 determined the price of gas @ Rs.2.25/- per cubic meter and that even the Collector had decided an other case @ Rs.3.67/- per cubic meter

5. The DR submitted that the demand was raised under section 11(4) of the Sales Tax Act, which did not prescribe any time limit for raising a demand. The complainant’s contention on that account was, therefore, wrong. No doubt, the O-I-O was to be passed within 90 days as per the provisions of section 11(4) of the Act and no extension in the time for deciding the case was granted but the prescribed time limit was not mandatory as decided by the Appellate Tribunal in number of cases. He added that the complainant sought four adjournments of hearings fixed for 19.04.05, 25.05.05, 12.05.05 and 15.07.05 and was, therefore, responsible for delay in deciding the case. He further submitted that the Valuation Committee had decided the value @ Rs.50 per cubic meter.

6. The arguments of the two sides and records of the case have been considered and examined. The Additional Collector (Adjudication) issued a show cause notice dated 17.06.04 to the complainant framing various charges against the complainant for violation of different provisions of law, asking it to show cause as to why the evaded sales tax alongwith additional tax be not recovered under the provisions of sections 11 and 34 of the Sales Tax Act, 1990 and why penalty be not imposed under section 33 ibid. The Deputy Collector (Adjudication) decided the case vide Order-In-Original No.939/05 dated 30.06.05. Complainant’s main contention is that the D.C passed an out-of-jurisdiction order in violation of the provisions of section 11(4) and 36(3) of the Act because the order that was required to be passed within a mandatory period of 90 days, as provided in law, was passed long after the expiry of 90 days. The impugned O-I-O, the AR argued, was hit by time limitation. The DR, on the other hand, argued that the time limitation was directory and not mandatory and that the complainant should seek remedy against Collector of Appeals’ order dated 26.04.06 before the Appellate Tribunal.

7. In the present case, the show cause notice was issued by the Additional Collector on 17.06.04 invoking, among other provisions of law, section 11 of the Sales Tax Act, 1990. A perusal of parawise comments filed by Collector (Appeals) and the Collector of Sales Tax, Multan reveals a contradiction. While, vide paragraphs 4 and 5 of his comments, the Collector of Appeals says that the case fell under section 36(1) of the Act, which prescribed issuance of show cause notice within five years of the relevant date, the Collector of Sales Tax, vide paragraph 4 of his comments, says that the show cause notice was issued under section 11 of the Act, which did not prescribe any time limitation for issuance of show cause notice. In its appeal filed before the Collector of Appeals---which has since been decided-the complainant had also argued before the appellate authority that the order passed by D.C (Adjudication) was hit by time limitation provided in section 36(3) of the Sales Tax Act, 1990. The order had to be passed within 90 days whereas the same was passed after 11 months. It is observed that the Collector did not give any finding on this plea, despite the fact that he holds in the parawise comments on the complaint submitted by him that the case fell under section 36(1) of the Act. The record of the case reveals that show cause notice also invoked provision of section 11 of the Act. The question of time limitation raised by the complainant with reference to section 36(3) of the Act could have been examined and considered by Collector (Appeals) in the light of provisions of section 11 of the Act, for even according to section 11(4) of the Act, the order was required to be passed within 90 days, which was not done. Collector (Appeals) failed to do so. The O-I-O was passed on 30.06.05 after 11 months of the issuance of show cause notice. The proviso to sub-section (4) of section 11 of the Sales Tax Act, 1990 reads as under: -

Provided that order under this section shall be made within ninety days of issuance of show cause notice or within such extended period as the Collector or, as the case may be, Collector (Adjudication) may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days”.

According to sub-section (3) of section 36 of the Sales Tax Act, 1990 the competent authority after considering the objections of the person served with a notice to show cause under sub-sections (1) or (2) of section 36 of the Act could determine the amount of tax or charge payable. However, Proviso to section 36(3) reads as under:-

Provided that order under this section shall be made within ninety days of issuance of show cause notice or within such extended period as the Collector or as the case may be Collector (Adjudication) may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed ninety days.”

8. It was held by the FTO in complaint No.805/03, involving sales tax liability, that “in the instant case show cause notice was issued on 16.06.2002 and Order-in-Original was passed on 13.05.03 after about 11 months of the issuance of notice which is clearly hit by time limitation as provided in law. Maladministration is therefore established”. The FTO had, therefore, recommended in that case the cancellation of impugned O-I-O. The department represented against the aforesaid decision of the FTO before the President of Pakistan. The President was pleased to reject the departmental representation vide order dated 07.05.05, paragraphs 3 and 4 of which are reproduced below:

3. “The department contends that the time limit under section 36(3) ibid was merely directory and not mandatory. The contention does not seem to be valid. Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory but where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory. The FTO’s decision must be sustained.

4. Accordingly, the President has been pleased to reject the representation of the department”.

9. Since the impugned O-I-O creating liabilities was passed by the D.C after the expiry of time limit prescribed in section 11(4) of the Act, which prescribes that the order under the section should be passed within 90 days of the issuance of show cause notice, extendable for another 90 days for reasons to be recorded in writing by the Collector, the D.C’s order is hit by time limitation as prescribed in section 11(4) of the Sales Tax Act, 1990. The Presidential order dated 07.05.05 (mentioned above) passed on departmental representation filed against FTO’s findings in complaint No.805/03 laying down the principle that where liability was created by a public functionary the prescribed time limit was mandatory applies to the present case also because a similar time limitation is provided in section 11(4) of the Act (Section 11 was invoked in the show cause notice). Judged on the criterion/principle laid down by the Honourable President of Pakistan, the impugned O-I-O, creating liabilities against the complainant is found to be hit by time limitation as provided in law and is liable to be annulled.

10. No doubt, the complainant had filed appeal before the Collector of Appeals but the same had been disposed of vide Order-In-Appeal dated 26.04.06. Against the aforesaid Order-In-Appeal, the complainant has filed an appeal before the Appellate Tribunal on 24.06.06. However, the complainant filed this complaint in FTO’s Secretariat on 15.06.06. According to the provisions of FTO Ordinance, 2000, the FTO is competent to diagnose, investigate, redress and rectify any injustice done to a person through ‘maladministration’ by functionaries administering tax laws. The definition of ‘maladministration’ as provided in section 2(3) of the FTO Ordinance, 2000 includes, interalia, a decision, process, recommendation, act of omission and commission, which is contrary to law, rules and regulations or is a departure from established practice or procedure unless it is bonafide and for valid reason and also includes neglect, inattention, delay, inefficiency and inaptitude, in the administration or discharge of duties and responsibilities. Both sections 11(4) and 36(3) of the Act lay down that the orders under these sections are to be passed within 90 days of the issuance of show cause notice or within such extended period as the Collector, or, as the case may be, the Collector (Adjudication) may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed 90 days. Surely, the period prescribed in the aforesaid sections of the Act for deciding a case, where liability is created, is mandatory, as already held by the Honourable President of Pakistan in representation filed against FTO’s findings in complaint No.805/03, reproduced above.

11. The Collector of Appeals has in his parawise comments argued that if the complainant was aggrieved by the orders passed by the appellate forum it had the remedy of filing appeal before the Appellate Tribunal under section 46 of the Sales Tax Act, 1990. It is observed that the complainant has filed an appeal against Collector of Appeals’ order before the Appellate Tribunal. However, the present complaint was filed in this forum on 15.06.06 whereas the appeal before the Appellate Tribunal was filed on 24.06.06, later than filing the complaint in the FTO Secretariat. Section 9(2)(a) of FTO Ordinance, 2000 is reproduced below:

(2) The Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into matters which:



(a) are subjudice before a court of competent jurisdiction or tribunal or board or authority on the date of the receipt of a complaint, reference or motion by him”.

The present complaint, which was presented in the FTO Secretariat on 15.06.06, was not subjudice on the day of presentation in terms of the provisions of section 9(2)(a) of the FTO Ordinance, 2000, because the appeal in the case was filed before the Appellate Tribunal on 24.06.06. The affected parties have a right to file complaints before the FTO in cases involving ‘maladministration’ and to safeguard their remedy on merits, may also file appeals before appellate forums to get decision on merits in case they failed to establish ‘maladministration’. The only condition is that on the date of filing of complaint, the matter should not be subjudice before any Tribunal etc. Scope of complaint is limited to the question of ‘maladministration’, which is within administrative sphere, whereas Appellate Tribunal can adjudicate the case on pure merits. The FTO is competent to investigate complaints falling within the definition of ‘maladministration’ in terms of the provisions of FTO Ordinance, 2000. The failure to decide a case within the mandatory time limit prescribed in law, besides being illegal and unlawful, is purely an administrative issue. It constitutes an administrative lapse that falls well within the definition of ‘maladministration’, which covers not only the acts of omission and commission and acts contrary to law but also neglect, inattention, delay and inefficiency in the administration of tax laws. The FTO Ordinance aims to provide relief to cases involving ‘maladministration’. This forum is, therefore, competent to investigate complaints involving ‘maladministration’. In this case ‘maladministration’ is established in that the D.C (Adjudication) passed an order, which was hit by time limitation as provided in section 11(4) of the Sales Tax Act, 1990 and the Collector (Appeals), though admitting in his parawise comments on the complaint that the case fell within the purview of section 36 of the Act, did not give any finding on complainant’s plea of time limitation in that section nor did he realize that even if section 36 of the Act was not invoked in the show cause, the show cause notice did invoke section 11 of the Act, the sub-section (4) of which also prescribes an identical time limitation and, therefore, failed to hold the order passed in the case as time barred. In view of the foregoing discussion, and in view of the Presidential decision dated 07.05.05 holding that “……..but where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory…….”, it is held that the impugned O-I-O No.939/05 dated 30.06.05 is hit by time limitation as provided in law. The Order-In-Appeal No.261/06 dated 26.04.06 is also not legally sustainable as it has upheld an order which ab-initio void as such should fall on the ground as being a superstructure based on a void order (PLD 1956 S.C 104 may be referred). ‘Maladministration’ is established. The respondents should, therefore, annul both the impugned Order-In-Original and the Order-In-Appeal under section 45A of the Sales Tax Act, 1990. Since appeal has also been filed before the Appellate Tribunal to challenge the order on merits, therefore, the complainant, in the event that the respondents reopen the case and annul the impugned O-I-O and the Order-In-Appeal under section 45A of Sales Tax Act, 1990, as is being recommended in this case, will withdraw its appeal from the Appellate Tribunal. Accordingly, it is recommended that the Revenue Division direct the competent authority to:
i) Annul the impugned O-I-O No.939/05 dated 30.06.05, being time barred, and the Order-In-Appeal 261/06 dated 26.04.06 for upholding a time barred/void order, under section 45A of the Sales Tax Act, 1990. The respondents may, however, proceed further in the matter in accordance with the provisions of law.

ii) Compliance be reported within 30 days of the receipt of this order.



(Justice (R) Munir A. Sheikh)

Federal Tax Ombudsman

Dated: -2006

BEFORE THE FEDERAL TAX OMBUDSMAN

REGIONAL OFFICE

LAHORE

COMPLAINT NO.715/2006


M/s Naveed Impex

Iqbal Street, Rail Bazar

Gujranwala. …Complainant

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