DECISION /FINDINGS This complaint directed against Sales Tax authorities, Lahore alleges 'maladministration' on account of arbitrary deduction of an amount of Rs.25,000 by way of penalty from the complainant's sanctioned refund amount of Rs.952,864 without assigning any reason for imposition of penalty or disclosing the law under which it was imposed and subsequently deducted from the overall amount of refund.
2. The facts of the case as narrated by the complainant are that the respondents deducted an amount of Rs.25,000 out of its sanctioned refund for February, 2003 on account of recovery of so-called penalty imposed by them. As verbally told the penalty was imposed under section 33(7) of the Sales Tax Act, 1990 read with the Public Notice No.1 of 2002, dated 12-12-2002. Tax invoices issued against zero rated taxable supplies indicated the required description. Public notice referred to above had prescribed a criterion whereby all refund claims were to be disposed of by the authorities only after seeking detailed and complete information in respect of exported goods. Contrary to the prescribed criterion, the respondents unilaterally imposed and deducted a penalty of Rs.25,000 (Rs. 2500 for each of the ten shipping bills involved) without seeking detailed and complete information from the complainant as prescribed in the public notice. Neither any show-cause notice was issued nor was the opportunity of defence given. The act of deduction is arbitrary and unreasonable and the imposition of penalty militates against the principles of natural justice. The impugned order making a deduction of Rs.25,000 by way of imposition of so-called penalty may be set aside. Respondents may also be bound to follow the principles of natural justice so as to provide the complainant the opportunity of being heard before imposing any penalty. If this cannot be done, then, a penalty of Rs.25,00 per month (instead of Rs.2500 per shipping bill) should be sufficient under section 33(7) of the Sales Tax Act, 1990 to caution the exporters against any lapse on their part.
3. In reply, the respondents have submitted that the complainant filed refund claim for the month of February, 2003 on 2-7-2003 without mentioning the count or construction of garments in 10- shipping bills and the related commercial invoices submitted by it in contravention of the provisions of section 22(1)(a), 23(1)(d) read with Sales Tax General Order No.5 of 1998, dated 28-8- 1998, Standing Order No.5 of 2002, dated 19-10-2002 and Public Notice, dated 12-12-2002. Penalty was imposed for each shipping bills aggregating Rs.25,000. The amount was deducted from complainant's refund claim for February, 2003 in the light of an undertaking given by it to the effect that if it failed to mention count or construction etc. On shipping bills in future the competent authority would be authorized to deduct an amount of Rs.2500 for each shipping bill to which it would have no objection. A penalty of Rs.25,000 was accordingly levied and deducted from the amount of refund due to the complainant. No show-cause notice was issued as imposition of penalty had already been agreed to by the complainant. The complainant was fully aware of the relevant provisions of the Sales Tax Act, 1990. No doubt the quantity of goods was mentioned but complete description of goods like count/construction/denier was not mentioned in the invoices. In the shipping bills the complainant had mentioned the description as per commercial invoices which did not enable the department to ascertain the count of cotton yarn or polyester which was consumed in the export goods. The complainant's claim that B the description had been mentioned in the invoices is incorrect. The details of count/construction declared by the complainant in its claim file for December, 2002 were accepted by the department on the condition that the complainant would not repeat this mistake in future. That is why no penalty was imposed for December, 2002. Once the goods are exported it becomes very difficult to ascertain the material consumed in the export goods creating complications for the department. The allegations lack merit. The complaint may be set aside.
4. During the hearing, the AR reiterated the arguments advanced in the written complaint emphasizing' that penalty was levied without assigning any reason and without confronting the complainant with alleged contraventions. It did not submit the undertaking referred to by the respondents in parawise comments. It, however, gave undertaking only for the month of December, 2002 and not for February, 2003 and placed on record copy of the same.
Construction/denier etc. Were indicated on Sales Tax invoices. He emphasized that his main grievance was that he was neither disclosed the reason for deduction nor was he provided the opportunity of defence/hearing. Had it been provided the opportunity of defence it would have explained the so-called alleged discrepancy. The complainant could not be penalized on the basis of an undertaking for December, 2002 for a matter which related to February, 2003. It has not filed any appeal against the order of deduction as no formal order levying penalty was issued. The undertaking referred to by the department was given by the ex-consultant who did not have the power of attorney to sign the same. Provisions of General Order No.5 of 1998 do not apply to the complainant because the complainant is neither a textile manufacturer nor a supplier of yarn.
5. The DR submitted that it was agreed between the department and the complainant in December, 2002 that it would pay a penalty of Rs.25,00 for each shipping bill in the event of its failure to provide count/denier/construction on any shipping bill in future, therefore, no show- cause notice was given. The undertaking being produced by the complainant now was not received by the department. The bona fide of the department is proved by the fact that even in the month of December, 2002 the complainant had not mentioned count/construction/denier of export goods and yet no penalty was levied basically because the complainant had agreed through an undertaking that it would show the same in future. It was in complainant's knowledge that penalty would be levied and deducted from its refund in case it failed to comply with the requirement. The DR further added that the complainant was given chance and time to correct the particulars. The AR, however, emphasized that the complainant had complied with the provisions of law . The DR rebutted that this was not true because the complainant was supposed to .Give count/construction/denier on export documents but it failed to do so.
6. A scrutiny of the record and the arguments of the parties reveal that an amount of Rs.25,000 was deducted from the overall amount of complainant's refund of Rs.952,864 sanctioned vide Refund Order No.5243/03/21, dated 7-10-2003 on account of recovery by way of penalty levied under section 33(7) of the Sales Tax Act, 1990 for complainant's failure to mention the count/construction/denier of goods etc. On 10 shipping bills. The respondents levied the so-called penalty under the aforesaid section in the light of an undertaking, dated 13-9-2003 (given by the complainant at the time of processing of complainant's refund claim for December, 2002) to the effect that:-- "We hereby undertake and confirmed that the above said count/ construction is exported in the month of December, 2002. We further undertake and confirmed that in case of any discrepancy in our statement is found you are fully authorized to recover our refund amount with additional tax and penalty. We also undertake that in future if we are failed to provide Count/Denier or Construction on any shipping bill, you are fully authorized to impose the penalty of Rs.2500 for each shipping bill and we will raise no objection in this regard."
The AR, however, denied having given the above undertaking and stated that the complainant had in fact given an undertaking, dated 11-9-2003 only in respect of December, 2002 (on record) and it did not undertake to pay any penalty for failure to mention descriptions/specifications in future. He, however, denied submission of undertaking, dated 13-9-2003 on the ground that it was signed by someone who was not holding any power of attorney. It is difficult to believe complainant's version because in the undertaking, dated 13-9-2003 the complainant did undertake to pay Rs.2500 as penalty for each shipping bill in the event of its future failure to indicate count/denier or construction on any of the shipping bills. According to the respondents, no show-cause notice was issued for February, 2003 as the complainant had already agreed to imposition of penalty.
Standing Order No..5. Of 2002, dated 19-10-2002 specific to the exporter seeking refund prescribed submissions of inventory giving detailed specification and description of material e.g. Count, denier, yarn construction, size of product etc. Used in the manufacture of goods in the shipping bills. It also prescribed that refund claims not supported by complete inventory would not be received at the receipt counter and advised the officers to dispose of all such refund claims only after seeking detailed and complete inventory from the claimants. Public notice, dated 12-12-2002 also prescribed declaration by exporters on export documents giving necessary details/specifications, including counts/denier/size etc. (description and construction). This public notice also prescribed that refund claims not supported by export documents, including the above details, were to be disposed of only after receipt of detailed and complete information about the exported goods from the claimants. If one goes by the aforesaid Standing Order, dated 19-10-2002 and Public Notice, dated 12-12-2002 then the refund claims could have been returned to the complainant for submission of correct and complete description of export goods, which was not done. In this case, however, the claim was received, processed and sanctioned but an amount of Rs.25,000 was deducted for non-mentioning of correct description on 10 shipping bills and penalty was levied on the basis of above said undertaking. However, the penalty was levied without issuance of a show-cause notice and without passing a proper order assigning reasons for levying the penalty. No doubt, the complainant had given an D undertaking to pay penalty at the rate of Rs.2500 per shipping bill in the event of failure to mention the specification and construction but the complainant contends that the penalty was wrongfully levied as it had fulfilled all the requirements. The undertaking, dated 13-9-2003 is at best an extra legal document which cannot substitute a proper show-cause notice as the basis for levy of penalty. The proper course would have been to decide the case after (i) issuing the complainant a proper show-cause notice confronting it with alleged contraventions as well the so-called undertaking and (ii) giving it the opportunity of being heard, especially when the complainant challenges department's contention by emphasizing that it had shown the description/construction etc. On the invoices issued by it.
The claimant also claims that the undertaking has not been signed by it or any authorized representative. There is a clear deviation from the settled procedure for adjudging penalty inasmuch as it was levied without issue of a show-cause notice and without hearing the complainant denying it the right to explain its position and also without passing a formal order imposing such penalty enabling it to file an appeal, if it had so wished. A fair hearing ought to have been given to the complainant before imposing a penalty, which affected it .The imposition of penalty in the manner in which it was levied and the E deviation from the proper procedure for levying it without issuance of a show-cause notice and without providing the complainant the opportunity of defence are acts of omission and commission constituting `maladministration' well within the meaning of section 2(3)(i)(a) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000. If the department feels that the complainant has indeed contravened the provisions of law and those of Standing Order/General Order/Public Notice etc. In force, attracting penal action then it needs to issue a proper show-cause notice to the complainant charging it with contraventions to enable it to explain and defend its position before deciding whether or not the penalty was leviable and decide the issue accordingly. In view of the foregoing position, it is recommended that the C.B.R. Direct the Collector concerned to:
(i) Set aside the deduction of an amount of Rs.25,000 from out of "complainant's refund, effected vide Refund Order No.5243/ 03/21, dated 7-10-2003 and issue a prpper show-cause notice to the complainant for deciding the question of imposition of penalty in accordance with the provisions of law and prescribed procedure after giving the complainant the opportunity of defence/hearing.
(ii) Compliance be reported within 30 days. .