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The Secretary,

Revenue Division,

Islamabad. …Respondent

Dealing Officer: …Mr. Muhammad Akbar, Advisor


Present: Mr. Omer Arshad Hakeem, Advocate for the complainant.

Mr. Munib Sarwar, D.C., Sales Tax, Lahore and Mr. Riasat Ali, (Sr. A), Collectorate of Sales Tax, Lahore for the respondents.

The complainant, a registered manufacturer-cum-exporter, exported goods worth US$ 7878035/- during the year 2005-06. During the year from May 2001 to September 2005, the complainant had claimed refund of input tax of Rs.67875923/-, which it had paid on the goods exported. The complainant had procured all inputs from sales tax registered suppliers after payment of sales tax and was entitled to refund of input tax paid used in the manufacture of goods exported in terms of section 10(2) of the Sales Tax Act, 1990 read with Refund Rules notified vide SRO.575(I)/02 dated 31.08.02. As per law and the relevant rules the input tax incurred in connection with exports was refundable within 30 days of the filing of returns. The respondents were required to sanction refund within 30 days but an amount of Rs.58067022/- had not been sanctioned to-date despite the fact that the complainant had furnished long ago all the supporting documents as required in the Refund Rules. The failure to decide the refund claims amounted to ‘maladministration’. The respondents may be advised to sanction refund of Rs.58557997/- without further loss of time.

2. In reply, the Collector, Sales Tax, Lahore has submitted that to claim zero-rated refund under sections 4 & 10 of the Sales Tax Act, read with Refund Rules, 2002, one has to establish export through shipping bills and other export and connected documents. The scrutiny of refund claims of the complainant revealed that the STARR system had reported number of discrepancies/ objections relating to sales tax invoices, bills of entry, shipping bills and non-submission of proof of payment/details by the complainant. Since the complainant had not provided any explanation to justify exports, pending refunds could not be finalized. Refunds, which were found admissible, were sanctioned. The complainant had also failed to provide the details of RCPS for the period September to October 2001. Therefore, the claims for the said tax period could not be processed. Refund claims for the tax period May 2001 to September 2005 were, therefore, under lot of objections because the complainant apart from not submitting a number of documents also failed to submit the relevant summary statements or count wise break-up of inventories nor did it provide proof of payments as required under section 73 of the Sales Tax Act, 1990. The aforesaid objections and non-submission by the complainant of proof of payment rendered input tax inadmissible. All the information was to be provided by the complainant and the complainant was required to remove the objections. Unless and until the requisite information/ documents were provided and the objections were removed, the claims could not be disposed of. Refund claims found admissible were sanctioned, the rest of the claims were deferred due to aforesaid objections relating to sales tax invoices, bills of entry, shipping bills, proof of payment etc. No ‘maladministration’ was committed. The complaint may be dismissed.

3. During the hearing, the AR reiterated the arguments advanced in the written complaint. He explained that the complainant had filed claims during the period May 2001 to September 2005 for an amount of Rs.67875923/-. Out of which part payment was made. The complainant had submitted all the supportive documents necessary for finalizing the claims but the claims were not finalized. He added that the respondents had communicated certain objections to them only after filing the complaint in the FTO Secretariat. Even so, the AR added, the complainant was prepared to submit the missing documents, if any, and remove the objections raised by the department.

4. The DR was asked to explain the delay in settling complainant’s refund claims. He could not give any satisfactory explanation except that the claims were under objections and that the complainant had failed to submit a number of supportive documents and proof of payments, as required under section 73 of the Sales Tax Act, 1990. He added that the complainant had filed claims manually. Those were required to be converted into CDs for processing on computer. Asked as to when the objection memos were despatched to the complainant asking it to remove the objections, the DR submitted that the memos were despatched on 11.08.06. He also submitted that as soon as the complainant supplied the supportive documents and removed the objections, the pending refund claims would be processed quickly. The AR stated that the complainant would be submitting the relevant documents/information as well as proof of payments, called for by the respondents, within the next couple of days.

5. As a result of ensuing discussion, it was agreed between the AR and the DR that the complainant would supply all the documents asked for and remove the objections raised by the respondents to enable the department to process the claims and decide them on their merits. It was also agreed that the respondents would sanction those refund claims that were found in order and admissible under law, but where any claim, on processing was found inadmissible, the respondents would issue show cause notice to the complainant before rejecting the same to enable it to seek further remedy from an appropriate forum. It was also agreed between the AR and the DR and that the claims would be processed and finalized on merit, in accordance with the provisions of law, within a period of three months.

6. The arguments of the two sides and records of the case have been considered and examined. The question arises that if the respondents were convinced that the complainant had not supplied certain documents and its claims were attracting certain objections they should have conveyed all their concerns and objections to the complainant as and when the claims were filed. They failed to do so. The DR admitted during complaint proceedings that the objections memos (copies on record) were issued to the complainant on 11.08.06 after the complainant had filed its complaint in the FTO Secretariat. Clearly, complainant’s claims of refund have suffered from ‘inattention’ on the part of the respondents leading to an inordinate and exceptionable delay in disposal thereof. Such delays should be avoided. Anyhow, ‘maladministration’ is established. Considering, however, that the two sides have agreed to a course of action as outlined in paragraph 5 supra, it is recommended that the Revenue Division/CBR direct the competent authority to:

i. Finalize those refund claims of the complainant as are found admissible under law on merits and, where any claim, on processing, is found inadmissible and not in accordance with the provisions of law, the respondents will issue show cause notice before rejecting the same to enable the complainant to seek further remedy from a competent forum. On its part, the complainant will supply all the missing documents, statements etc. asked for, and remove the objections raised by the respondents, to enable them to process and decide the claims on their merits.

ii. Compliance report be submitted within three months of the receipt of this order

(Justice (R) Munir A. Sheikh)

Federal Tax Ombudsman

Dated: -2006



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