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Petitioner: SOHAIL BIN RASHID VS Respondent: SECRETARY, REVENUE DIVISION, ISLAMABAD
Court Name: Federal Tax Ombudsman Judge(s): Munir A. Sheikh Title: SOHAIL BIN RASHID vs SECRETARY, REVENUE DIVISION, ISLAMABAD Case No.: Complaint No. 732 of 2004 Date of Judgment:2004-12-11 Reported As: 2005 PTD 1390 Result: Order accordingly
Judgment FINDINGS /DECISION The Complainant, a Commercial Exporter, is registered with the Collectorate of Sales Tax, Faisalabad. Maladministration is alleged on account of rejection of following sales tax refund claims aggregating Rs.1,973,281 and imposition of penalty amounting to Rs.591, 984 @ 30% of aggregate claims vide Sales Tax Order-in-Original No.6 of 2004, dated 20-6-2004 passed by D.C. (Refund-II) Faisalabad. Tax Period Refund Due August, 2000 5,621 September, 2000 172,579 October, 2000 149,351 December, 2000 156,988 January, 2001 549,433 March, 2001 144,543 June, 2001 636,863 September, 2001 157,893 Total 1,973,281 A complaint registered vide No.848 of 2002 was filed with this forum alleging delay caused due to inattention, incompetence and ineptitude of the Respondents in performance of their duty. 2. The respondent opposed the complaint on the grounds that refund claim was based on fake invoices and there was no physical delivery of goods from the suppliers to the complainants. After
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hearing the complainant and the Respondent, the following findings were recorded in the decision on the said complaint:-- (i) Revenue had not contended that any of the vendors had disowned the issuance of tax invoices. (ii) The Respondent had no basis to observe that the complainant had not received supplies against such invoices. (i.e) The refund claim of the complainant had been denied on a mere hypothesis that the registered vendors who issued the tax invoices were either fake or fraudulent. (iv) None of the allegations made about the four vendors suggested any misdeclaration, false statement or false claim in contravention of any provisions of either section 7, or section 8, of the Sales Tax Act, on the part of the complainant. (v) Adjustment of input tax claimed by the complainant could not be denied on the basis of aforementioned allegations against the vendors. 3. Following recommendations were made vide order, dated 10-3-2002. (i) That the concerned officer processes claims of the complainant restricting the examination to the requirements of provisions of sections 7 and 8 of the Sales Tax Act to be fulfilled by the complainant. (ii) That refunds on the basis of credits of input tax claimed by the complainant be allowed if the process recommended in (i) supra yields positive findings. 4. In pursuance of recommendations supra the DCST (Refund-II) issued a show-cause notice, dated 1-4-2003 showing his. Intention to reject the refund claim and to impose penalty under section 33 of the Sales Tax Act 1990, hereinafter referred to as the 'Act'. The complainant submitted a written explanation and opposed the notices relying upon the findings recorded by this forum reproduced supra. The complainant's refund claim was rejected and penalty under section 33 amounting to Rs.591,984 @ 30% of Rs.1,973,281 was also imposed vide Order-in-Original No.46 of 2003. 5. Another complaint was filed challenging the Order-in-Original No.46 of 2003 alleging maladministration on the grounds that the order was passed in violation of findings and directions issued by this forum vide order in Complaint No.848 of 2002. The second complaint was registered as Complaint No. 911 of 2003. After hearing the complainant and the Revenue the following findings and recommendations were recorded by this forum vide order, dated 28-2-2004. "It is seen that in the order-in-original evidence furnished to establish the genuineness of the complainant's transactions e.g. payments through cross cheques has not been considered by the Deputy Collector and in this context it was stated by the representative of the respondent that further investigations could be carried out in order to verify the bank accounts in which the cheques issued by the complainant to the alleged fake suppliers were deposited as this was an important aspect which had not been taken into account in the order-in-original. It is also obvious that if any evidence was being utilized against the complainant the Deputy Collector (Refund) was under obligation to allow the complainant access to the said evidence and his refusal to do so was an act of maladministration as defined in section 2(3)(i)(a) and (b) of the Establishment of Office of the Federal Tax Ombudsman Ordinance, 2000." (Emphasis provided) 6. It was recommended that:-- (i) "The order-in-original, dated 14-42003 be cancelled under section 45A of the Sales Tax Act and all relevant aspects of the case such as the payment through cross cheques be re-examined in detail in order to conclusively establish the genuineness or otherwise of the transactions. Furthermore if any evidence is to be used against the complainant the said evidence be made available to it. (Emphasis provided) (ii) Further action be taken in the light of the verified facts."
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7. The Deputy Collector Sales Tax (Refund-II) Faisalabad thereupon issued letters to the complainant to appear before him, on 10-6-2004. It is now averred on behalf of the complainant that a written application was submitted on 2-6-2004 to provide them the relevant evidence/documents relating to:-- (i) Messrs Rana Textile, Faisalabad. (ii) Messrs Best Fabrics, Faisalabad. (i.e) Messrs Hummail Textile, Faisalabad. (iv) Messrs Baba Farid Textile Mills, Faisalabad. Besides several other documents and decisions copies of following documents from the personal files of the complainant relating to tax periods, 8 of 2000, 9 of 2000, 10 of 2000, 12 of 2000, 1 of 2001, 3 of 2001, 6 of 2001 and 9 of 2001 were requested for. However, it is alleged that the respondent has refused access to the following evidence/ documents--- (i) Copy of report for each tax period by processing officer under clause 5 of the Sales Tax Refund Rules 2000. (ii) Copy of reasons and circumstances recorded by Officer Incharge under clause 5(2) ibid for extension of time for scrutiny of refund claim for each tax period. 8. Proper enquiry was recommended into the genuineness of tax invoices on which complainant's refund claims were based upon. It is alleged that the Deputy Collector (Refund) has again rejected not only complainant's refund claims but has also imposed a. Penalty without taking the recommended enquiry to its logical conclusion. There is no finding that the suppliers have disowned the tax invoices on the basis whereof the complainant is claiming the refund. The respondent has not confronted the complainant with the specific reasons recorded by him in the impugned Order-in-Original before giving the finding that payments for goods and sales tax thereon to the suppliers were in contravention of statutory provisions of section 73 of the Act. One such reason recorded in the order is that the cross cheques issued by the complainant have been collected in Bank Account different from the Account mentioned by the supplier in his Registration Form. The complainant has averred that had the Deputy Collector (Refund) confronted him specifically on this point, he would have submitted before him that firstly there was no such requirement in law when the transactions under consideration were made and secondly that if still he suspected any manipulation, the DC (Refund) might further investigate into the bona fide of the bank A/C in which the cross cheque was collected. This onus, however, was to be discharged by the respondent. 9. The complainant has further averred that it is evident from the facts recorded in the impugned Order-in-Original that the suppliers Messrs Rana Textile, Faisalabad had been filing sales tax returns during the relevant period and a sum of Rs.828,000 was paid as Sales Tax as per Order-in- Original No.22 of 2001. Regarding the other supplier Messrs Hummail Textile (Pvt.) Limited the complaint has averred that the unit paid around Rs.5,000,000 (Five million) as sales tax as per Order-in-Original No.35 of 2001. Similarly there is no judicial finding on record that Messrs Best Fabrics Faisalabad and Messrs Baba Farid Textile Mills did not conduct taxable activity. There is no adjudication order on record so far declaring those units fake. The copies of Ordersin-Original are not supplied to the complainant despite written request. Similarly no evidence was supplied to complainant showing further proceedings against the units. 10. An allegation against registered suppliers of issuing fake invoices, therefore, is merely based on presumptions and surmises. The Collectorates have circulated lists of units not found at their registered addresses on the "suspicion" that those were fake or fraudulent. The Collector has neither blacklisted the suppliers nor has suspended their registration even after addition of the proviso to subsection (4) of section 21 in the Act by Finance Act, 2003. Without prejudice to the contention that contraventions on the part of registered suppliers as mentioned in the Order-in-
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Original cannot have any bearing on complainant's refund claims, the respondent either has not filed prosecution proceedings or those are pending since as long as September, 2001. The Respondents have not substantiated their allegations in three years. They have not disclosed even the nature of proceedings. 11. It is contended that still it is not the case of respondent that the bank accounts in which the cross cheques issued by the complainant have been collected were not opened and maintained by the aforesaid suppliers. There was no provision in law for collection of cheques by the supplier in any particular account when the transactions in question were made. None of the allegations in the impugned order against the four suppliers suggest any misdeclaration, false statement or false claim on the part of the complainant. The adjustment of input tax claimed by the complainant cannot be denied on the basis of the allegations against the suppliers unless they disown the invoices issued by them as well as the payments received by them against such invoices through cross cheques in their bank accounts. The complainant in fact even in such eventuality has to be given due opportunity to disprove their disowner. 12. The complainant, therefore, avers that entire payments to the suppliers .Are in order and in accordance with provisions of section 73 of the Act. Contrary to the factual position as available on record, an adverse finding (in para. 10 of the impugned order) has been recorded on the ground that mere production of tax invoice is not enough to prove that the goods were actually received. This is a falsification of record A and amounts to gross maladministration as the complainant had produced complete documentary evidence as prescribed by law. The DC (Adjudication) has deliberately ignored the complainant's tax record available with him and the explanation submitted on 20th June, 2004. 13. The DC (Adjudication) has committed gross maladministration in deliberately ignoring and violating the finding recorded by the Federal B Tax Ombudsman in Complaint No.848 of 2002. The findings so recorded were specifically brought to the notice of the DC (Adjudication) vide written submission, dated 20th June, 2004. These were binding on the DC (Refund-II): The findings are reproduced hereunder:-- (i) Revenue had not contended that any of the vendors had disowned the issuance of tax invoices. (ii) There was no basis for the respondent to observe that the complainant had not received supplies against such invoices. (i.e) The complainant had been denied refund claims on a mere hypothesis that the registered vendors who issued the tax invoices were either fake or fraudulent. (iv) None of the allegations made about the four vendors suggested any misdeclaration, false statement or false claim by the complainant in contravention of any provisions of either section 7, or section 8, of the Sales Tax Act. (v) Adjustment of input tax claimed by the complainant could not be denied on the basis of any of the allegations against the vendors. 14. The DC (Refund-II) has also imposed a penalty of Rs.591, 984IC under section 33(4) without issuing any show-cause notice. Complainant's explanation in para. 8 of the written submission, dated 20-6-2004 has been completely ignored. It amounts to maladministration on account of making a decision contrary to law, perverse, arbitrary, without valid reasons, involving exercise of powers for administrative excess, incompetence and ineptitude in discharge of duties and responsibility. 14A. Responding to the notice under section 10(4) of the FTO Ordinance the Deputy Collector has averred that complainant failed to submit any proof in support of the claim that they physically and actually received the goods. Moreover, the bank statement provided by the complainant at the time of hearing before the Deputy Collector, Sales Tax (Refund) in support of their contention that they had made payment against these invoices, it has been found that the bank statement
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does not show the exact amount transferred against each invoice. Their contention that they have made lump sum payment against 3-4 invoices through one banking instrument is not tenable because it defeats the very purpose of reflection of the amount paid by the buyer to the supplier in the bank statement of buyer, in terms of section 73 of the Act. Besides the amount was not transferred in the account shown by the suppliers in their registration documents. 15. Thus, the respondent avers that requirements of section 7 of the Sales Tax Act, 1990 that no adjustment/refund of input tax shall be allowed unless the registered person claiming such refund/input tax adjustment holds a valid tax invoice in support of his claim has not been fulfilled. Regarding his reason to believe that the tax invoices held by the complainant were fake, the respondent has again relied upon the list circulated by the Collector Sales Tax, Faisalabad vide Letter C. No.STR/ Misc/15/2001/3435, dated 24-9-2001 in which names of aforementioned four 'suppliers' of the complainant are included. The Collector has also directed in the letter ibid that invoices of these units should not be entertained for input tax adjustment/refund purposes as there are reasons to believe that these persons got themselves registered fraudulently and issued fake sales tax invoices either without having any manufacturing facilities or the matching manufacturing facilities. 16. Requirement of section 8 of the Act ibid that a registered person shall be entitled to claim refund or adjust input tax paid on the goods only if such goods are used or to be used for no purpose other than for manufacture and production of taxable goods has not been fulfilled either. The case has been adjudicated upon afresh in the light of findings of the Federal Tax Ombudsman after providing the complainant proper opportunity to produce records and present his viewpoint. The relevant record pertaining to the suppliers was also made available to the complainant . Regarding the allegation that access to the report of Processing Officer under Rule 5 of Refund Rules has been denied to the complainant, the respondent has submitted that there are no reports on record as such except the remarks and nothings of Processing Officer as well as the Officer in Charge on the file which have been offered for inspection to complainant's counsel. He has also denied the allegation that sufficient opportunity was not allowed to the complainant regarding verification of evidence in support of compliance of provisions of section 73 of the Sales Tax Act. The Order-in-Original No.6 of 2004 passed on 20-6-2004 is an appealable order if he is aggrieved with the order. The complaint again filed before the Federal Tax Ombudsman is not maintainable because there is no case of maladministration as defined under section 9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. 17. The respondent further avers that Messrs Rana Textile Faisalabad was registered as wholesaler on 20-6-2000 but subsequently changed its status and got itself registered as manufacturer on 25-7-2000. Respondent had drawn adverse inference about genuineness of the tax invoices issued by it on the ground that, at the time of registration, it declared total capital employed at Rs.0.5 million only, against which he has shown supplies of more than Rs.172 million during first five months of registration. The registered person has also shown purchase for Rs.174 million during first four months and adjusted the input tax against output tax payable against the supplies shown by him. Overall, during the entire period for which the unit remained functional/operative, it has shown total supplies worthy Rs.415 million but has paid an amount for Rs.46,793 only as tax on its output during the entire period of 11 months. The registered person has made purchases worth Rs.11.51 million without procuring any bank loan in first month of registration i.e. July, 2000. Thus, the respondent inferred that these were mere paper transactions. As per registration documents, a person namely Farhan Hashim declared as sole proprietor of the unit with NIC No.293-77- 543975 has been confirmed to be fake by NADRA vide letter No. Regn. 4158/2002-SKP (Tech) 421, dated 20- 3-2002.
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. 18. The name of Messrs Rana Textile, Faisalabad was included in the list of blacklisted/suspected units issued by the Collectorate of Sales Tax, Faisalabad vide C. No. STR/Misc/15/2001/5063, dated 25-1-2002. The complainant is trying to mislead this forum by stating that the Collectorate has taken no action under section 21(2) of the Sales Tax Act, 1990. Section 21(2) stipulates that:- "Notwithstanding anything contained in this Act, in cases where the Collector is satisfied that a registered person is found to have issued fake invoices, evaded tax or has committed tax fraud, he may blacklist such person or suspend his registration in accordance with such procedure as the Board may, by notification in the official Gazette, prescribe". 19. The respondent avers that the Collector, Sales Tax, Faisalabad has ordered for re-opening the Order-in-Original No.22 of 2001 passed by the Deputy Collector (Adjudication), Faisalabad for audit. Thus, averment of complainant about payment of out put tax against the said Order-in-Original is not tenable. Similarly, the respondent disputes averment of the complainant regarding taxable activity by the unit on following grounds:-- * As per investigation carried out by I & P Cell of this Collectorate, the unit did not exist at the address declared in registration documents i.e. P-86, New Jalvi Market, Jaranwala. Road, Faisalabad. Further investigation revealed that the said premises were hired by another person namely Muhammad Azhar S/o Muhammad Idrees who has been arrested in case F.I.R. No.4 of 2001 against Messrs Hajveri Weaving Industries. It was also revealed during investigation that the declared proprietor of Messrs Hajveri Weaving Industries namely Naveed Khan (whose NIC was also confirmed fake by NADRA) has signed the lease agreement executed by Messrs Rana Textiles, as a witness. It is also interesting to note that telephone number (545462) declared by Messrs Rana Textile in their registration documents is also mentioned in the registration application of Messrs Hajveri Weaving Industries. The aforementioned facts regarding relationship between Messrs Rana Textile Mills and Messrs Hajveri Weaving Industries, clearly led to the conclusion that it is a gang involved in issuing fake and flying invoices, operating in different names. At the time of registration as manufacturer, the registered person showed only one address, which was Gali No.7, Faisalabad where, as per declaration, only 12 looms of 120" width were installed. However, subsequently they have shown their looms installed at six other places/addresses, none of which is verifiable. The fact that the unit did not exist or was never established is also substantiated from the fact that in the spite of huge production and supplies shown by the registered person, they have never claimed any input tax against electricity bills, which itself is an ample proof to establish that the unit did not operate for a single day. 20. Respondent further avers that Messrs Hummail Textile (Pvt.) Ltd. Was registered as manufacturer. As per registration documents it has shown authorized capital of Rs.2.00 million only. As per records, the unit worked for 18 months (from July, 2000 to Aug-2001), during which it has shown supplies worth Rs.400.021 million, but paid an amount of Rs.547, 618 only as output tax for the entire period. As per records, the registered person started business in leased premises. The lease agreement was made between Messrs Hummail Textiles (Lessee) and Shahid Mehmood Anjum (Lessor) who was in Jail when the said lease agreement was executed. Manzoor Ahmad, brother of Shahid Mahmood Anjum gave affidavit that his brother did not execute the said lease agreement because he (Manzoor Ahmad) had already leased out the said looms to another firm namely Messrs S&Z Fabrics (Registration No.08- 90-9999-813-37) and the looms remained with Messrs S&Z Fabrics till June, 2001, whereas the lease agreement submitted by Messrs Hummail Textiles shows the date of agreement as 26-4-2000. As per declaration at the time of registration, the unit has
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shown a total number of 34 looms, which was later shown as 280 looms. However, neither any such declaration was ever made to- the sales tax department nor whereabouts of these remaining 246 looms were ever declared. The fact that no taxable activity or no manufacturing of taxable goods was ever carried out by Messrs Hummail Textiles is evident from the fact that the unit has never claimed any input tax against the electricity charges despite having shown production and supplies worth Rs.400.021 million. 21. It is further averred that the officials who verified existence of the said unit in their audit report were proceeded against and subsequently dismissed from service by the competent authority. The contravention report has been submitted to the Collectorate of I Adjudication, Faisalabad involving detection of Rs.60.912 million on account of inadmissible input tax adjustment, issuance of fake/flying invoices, excessive input claimed for which no disposal has been shown by the unit and non-maintenance and non-production of record. Prosecution proceedings were initiated against the unit vide F.I.R. No.1 of 2001, dated 28-1-2001 and currently under trial before Honourable Special Judge, Customs and Excise, Lahore. 22. The respondent avers that the Collector, Sales Tax, Faisalabad has ordered for re-opening the Order-in-Original No.35 of 2001 passed by the Deputy Collector (Adjudication), Faisalabad for audit. Thus, allegation of withholding the copy of Order-in-Original does not arise. As far as deposit of Rs. 5,000,000 is concerned, the case is re-opened; contention of the complainant, therefore, is irrelevant. ' 23. Similarly, regarding Messrs Best Fabrics. Faisalabad, the respondent avers that the unit was registered as wholesaler of cotton fabrics . The declared capital of registered person at the time of registration was Rs.1.00 million only. During five months its declared supplies amounts to Rs.90 million, out of which the registered person has shown supplies worth Rs.45 million during first month. However, it has paid Rs.29,205 only towards output tax. 24. The Registration record shows Muhammad Farooq as proprietor. During inquiry, he has stated that he was an employee of Irfan Sohail Raza who got this unit registered against his (Irfan Sohail Raza) NIC. He (Irfan Sohail Raza) further confirmed that the unit did not exist and as such no taxable activities were ever carried out at this unit. The rent agreement made between Muhammad Farooq (Tenant) and Naveed Altaf (Owner) was also confirmed fake. Naveed Altaf, who was shown as owner in the rent agreement confirmed in his statement that since he was not the owner of the premises, he could not make any rent agreement in respect of the said premises. In view of these facts, it is beyond doubt that unit was fake and all the transactions/supplies shown by them were actually not made. 25. The respondent avers about Messrs Baba Farid Textile Mills that during the financial year, 2000- 2001, the registered person has shown purchases for Rs.2.4 million, but has not made payment to respective suppliers. They have in fact 'manipulated/tampered' the cheques issued in the name of suppliers and thus received the payment themselves. This charge was also established against them in Order-in-Original No.18 of 2002, dated 30-5-2002,…
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