DECISION /FINDINGS ' JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).---The complainant was issued a show-cause notice, dated 21-6-2005. Subsequently, the Additional Collector (Adjudication), Multan vide Order-in-Original No.67 of 2006, dated 28-1-2006 directed it to pay excise duty amounting to Rs.1067687 along with additional duty and fine so adjudged and also to pay sales tax amounting to Rs.3363215 along with additional tax and penalty of 3% of the amount of sales tax. The show-cause notice and the impugned order-in-original were illegal and may be annulled. Show-cause notice was time barred. The limitation period for service of show-cause notice was one year of the relevant date under sub-rule(1) and three years under sub-rule(2) of rule 10 of the Central Excise Rules 1944. Show-cause notice was served four years after the relevant date for the year, 2000- 2001. Although rule 52A of the Central Excises Rules, 1944 was' omitted vide Notification dated, 15-6- 2002, its violation was alleged in the show-cause notice, dated 21-6-2005. The amendment made by the S.R.O. 328(1)/02, dated 15-6-2002 was given prospective application at the time of issuance of show-cause notice, dated 2176-2005. Under the aforesaid notification the limitation period for service of show-cause notice was enhanced from one year to three years under sub-rule(1) and from three years to five years under sub-rule(2) of rule 10 of the aforesaid rules. Since the amendment was given affect from 15-6-2002 it could not have been applied retrospectively.
Show-cause notice was defective. It did not level specific allegations nor disclose specific reasons for short-levy or non-levy nor did invoke relevant rules or sub-rules. Reliance was placed on judgments of the Lahore High Court, Lahore reported as 2003 PTD 1257, 2003 PTD 1593, 2003 PTD 1797, PTD 1378 and the judgments of the Supreme Court of Pakistan reported as PTCL 2003 CL 1 and PTCL 2002 CL 1. Sales tax liability was adjudged without notifying and alleging contravention of applicable provisions of law, especially charging provisions such as sections 3, 6, 7, 22, 23, 26 etc. Of the Sales Tax Act, 1990. The impugned order-in-original was passed after 221 days of the issuance of show-cause notice, dated 21-6-2005 after the time limitation of 45 days provided under section 33 of the Central Excises Act, 1944 and limitation of 90 days as provided in section 11 of the Sales Tax Act, 1990. The C.B.R. Was empowered to extend the time limit only in 'exceptional circumstances'.
C.B.R's. Letter, dated 20-12-2005 under which the extension was granted did not indicate 'exceptional circumstances'. Extension was granted 135 days after the expiry of 45 days limitation period prescribed under section 33 of the Central Excises Act, 1944. The impugned order-in-original dated 28-1-2006 and C.B.R's. Order, dated 20-12-2005 were illegal. Both were hit by time limitation.
Reliance was placed on FTO's judgment reported as 2004 PTD 340 and subsequent judgment of the President of Pakistan reported as PTCL 2005 CL 841, both in Complaint No.805/03. On merit, the percentage declared excessive by DRRA was in accordance with mixing formula. The wastage declared excessive was approved by the Excise Staff under supervisory system. The other DRRA teams did not object to the so-called excess wastage and were declared satisfactory by sales tax officers. The so-called concealment of production was never detected or pointed out by officials during surprise visits, inspections and audits conducted during the period 1992-2003. The impugned order-in-original was not based on reliable evidence. Both the show-cause notice and the order-in-original may be declared illegal and annulled Any other relief deemed fit may also be granted,
2. In reply, the Collector of Sales Tax, Multan has submitted that the case was decided vide Order- in-Original No.67 of 2006, dated 28-1-2006 after the time period to decide the case was extended by the C.B.R. Under section 45 of the Sales Tax Act, 1990. The complainant had challenged the powers of the C.B.R., which was a question of law beyond he jurisdiction of the FTO in terms of section 9(2)(b) of the FTO Ordinance, 2000. The act of the Board to exercise the powers under section 45 of the Sales Tax Act, 1990 did not amount to `maladministration'. Show-cause notice, dated 21-6-2005 was issued fixing 30-6-2005 as the date of hearing but no body appeared before the adjudicating authority nor requested for adjournment of the hearing. Even reply to the show- cause notice was not filed by the complainant. Multiple hearing opportunities were given to the complainant for submission of reply to the show-cause notice. The complainant sought many adjournments. It gave reply on 5-1-2006 after a lapse of more than six months of the issuance of show-cause notice. The case was decided on 24-1-2006 but the order-in-original was dispatched on 28-1-2006 as time was required for drafting, typing etc. The Collectorate vide its letter, dated 8- 12-2005 approached the C.B.R. For extension in the time for deciding the case. The Board extended the period up to 1-2-2006 vide letter, dated 20-12-2005. Show-cause notice invoking rule 10(2) of the Central Excises Rules, 1944 was issued within time. Rule 52A of the aforesaid rules was prevalent during the relevant time and was legally invoked. Sections of the Act and relevant rules of the Central Excises Rules, 1944 were correctly mentioned at para 2 of the show-cause notice. Show- cause notice was not barred by time. Rule 10(2) of the aforesaid rules provided five years for issuance of show-cause notice. The show-cause notice was issued under rule 10(2) of the rules due to evasion of central excise duty and taxes by mis-declaration and submission of false information by the complainant and it was issued within time. Section 11 of the Sales Tax Act, 1990 was invoked in the show-cause notice which covered assessment of sales tax short-paid or not paid. The case could not be finalized due to the fault of the complainant. The C.B.R. Allowed extension in the time for deciding the case vide order, dated 20-12-2005 keeping in view the 'exceptional circumstances'. The declaration of mixing formula did not absolve the complainant from paying leviable duty and taxes. The citations made by the complainant were not relevant to the present case. The complainant could not justify the abnormal wastage, especially it could not rebut department's contention that identical units were showing very low wastage. The complaint may be rejected and the complainant may be advised to file appeal before the next appellate forum or approach any Court of law for interpretation.
3. During the hearing, the AR reiterated the arguments advanced in the written complaint, emphasizing that the show-cause notice was barred by time as it was not issued within three years of the relevant date. The goods were cleared during the year, 2000-2001. Even if July, 2001 was taken as last date i.e. The relevant date, the three years period expired on 30-6-2004. Rule 10(2) of the Central Excises Act, 1944 was amended, extending the period to five years, on 15-6- 2002. It could not be applied retrospectively. Show-cause notice did not specify the reasons or the allegations or the law contravened. Section 11 on the Sales Tax Act, 1990 was invoked without invoking the charging provision. The order-in-original was time barred. Under the old Central Excises Act, 1944 section 33(3) prescribed a period of 45 days of the issuance of the show-cause notice within which the case had to be decided and since -7-2005, the time limitation prescribed in section 31(3) of the Federal Excise Act, 2005 was 90 days, extendable by another 90 days. Section 11(4) of the Sales Tax Act, 1990 prescribed 90 days, extendable by another 90 days for reasons to be recorded in writing by the Collector, for deciding the case. No extension was sought from the Collector, in terms of section 11(4) of the Sales Tax Act, 1990. In so far Excise law was concerned, the period of 45 days expired on 5-8-2005. On the sales tax side the period of 90 days expired on 19-9- 2005. Both the show-cause notice and the order-in-original were void and liable to be cancelled.
4. The DR submitted that the show-cause notice had invoked rule 10(2) of the rules. The show- cause notice could be issued within five years of the relevant date as the aforesaid rule was amended by S.R.O.328(I)/02, dated 15-6-2002, before issuance of the show-cause notice. The relevant sections and rules were correctly invoked. The C.B.R. Extended the time limit vide its letter, dated 20-12-2005 upto 1-2-2006 on the ground that the complainant had been seeking adjournment also because the first reply was submitted by the complainant after a lapse of six months. The order-in-original was issued before expiry of time extended by the C.B.R. The C.B.R.
Allowed extension both under section 31(3) of the Federal Excise Act, 2005 and 45 of the Sales Tax Act, 1990. In support of the contention that the C.B.R. Was competent to grant extension in the time for deciding the case, the DR referred to F.T.O.'s findings in Complaint No.122/06 dated 20-4-2006 (Messrs Janjua Welfare Trust Azad Kashmir) vide which it was held that the C.B.R. Had the inherent power to extend the time limit and it acted within the ambit of law to grant an extension in view of the 'exceptional circumstances' of the case. The AR, however, stated that no 'exceptional circumstances' existed warranting any extension. He further added that out of nine hearings the complainant had only sought adjournments on two occasions i.e. On 27-10-2005 and 22-11-2005.
The respondents were themselves to blame for delaying decision in the case. The AR submitted that while deciding the case the adjudication authority did not act independently of DRRA.
5. The arguments of the two sides and records of the case have been considered and examined.
The proviso to subsection (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 Collector (Adjudication) may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days".
' Second proviso to section 45 of the Sales Tax Act, 1990 (Power of Adjudication) is also reproduced below: "Provided further that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances".
' Subsection (3) of section 33 (Power of Adjudication) of the Central Excises Act, 1944, as it existed at the time, is also reproduced as under: "A Collector, an Additional Collector or a Deputy Collector shall decide the case within forty-five days of the issuance of show-cause notice: ' Provided that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances".
' Section 31(3) of the Federal Excise Act, 2005 (effective 1st July 2005) is reproduces as under:-- "A Federal Excise Officer invested with the powers to adjudicate shall decide the case within ninety days of the issuance of show-cause notice or within such extended period as he may for reasons to be recorded in writing fix provided that such extended period shall in no case exceed ninety days: ' Provided that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances"
' It will, therefore, be observed that the relevant sections of both the Central Excises Act and Sales Tax Act laid down time limitations within which the cases had to be decided. The respondents contend that the C.B.R. Could grant extension in time for adjudication of cases vide powers vested in it under the provisions of section 45 of the Sales Tax Act, 1990 and section 31(3) of the Federal Excise Act, 2005.
6. The complainant was issued a show-cause notice on 21-6-2005 intending to create excise and sales tax liabilities, together with additional duty and tax, and to impose penalties for violation of the provisions of law. Admittedly, the case was decided on 28-1-2006. The respondents argue that they had sought extension of time limit for deciding the case from the C.B.R. And the C.B.R., being the competent authority, had allowed extension, vide its letter, dated 20-12-2005, both under section 31(3) of the Federal Excise Act, 2005 and 45 of the Sales Tax Act, upto 1-2-2006. They further contend that as the case was decided on 28-1-2006 before the expiry of the extended date, it was not hit by time limitation.
7. A close scrutiny of the case reveals that the Collectorate of Multan bunched together 28 cases, including that of complainant's case, and approached the C.B.R. Vide letter dated 8-12-2005 for seeking extension in the prescribed time limit laid down in law for deciding various cases. As per the provisions of law, the C.B.R. Could grant extension of time limit only in 'exceptional circumstances'. The C.B.R. Vide its letter, dated 20-12-2005 extended the time limit under section 45 of the Sales Tax Act, 1990 and section 31(3) of the Federal Excise Act, 2005 without disclosing 'exceptional circumstances' on the basis of which the extensions were granted. The Collectorate vide letter dated 8-12-2005 sought extension in the complainant's case on the ground that the complainant had sought adjournments leading to delay in decision. The complainant's AR argued that the complainant had sought just two adjournments out of nine hearings and, therefore delay occurred on the part of the respondents. The grounds on which extension was sought did not constitute' exceptional circumstances' warranting extension. The adjudication authority was competent to refuse ordinary adjournments and abide by prescribed time limitations. Furthermore, it is observed that in the present complaint in so far Excise law was concerned, the period of 45 days (section 33(3) of the Central Excise Act, 1944) expired on 5-8-2005 and 90 days (section 31(3) of the Federal Excise Act, 2005) on 19-9-2005. On the sales tax side also, the period of 90 days prescribed in section 11(4) of the Sales Tax Act expired on 19-9-2005. While admittedly the Collector did not grant extension of further 90 days under section 11(4) of the Sales Tax Act, 1990 and 31(3) of the Federal Excise Act, 2005, he moved the C.B.R. For extension vide letter dated 8-12-2005 after the expiry of the prescribed time limitations. An extension sought after the expiry of the prescribed initial periods of 45 days or 90 days is not legally tenable. Similarly the C.B.R. Extended the time limit up to 1-2-2006, which too is not legally sustainable because the record shows that the extension was sought by the Collectorate on 8-12-2005 when the initial/original limitation periods as prescribed in sections 11(4) of the Sales Tax Act 1990 and 33(3) of the Central Excises Act, 1944 and 31(3) of the Federal Excise Act, 2005 for deciding the case, had already expired on 5-8-2005 and 19-9-2005. Such an extension cannot be held to be legally valid. It was sought by the Collectorate and given by the C.B.R. At a time when the case was already a closed transaction as the original limitations had already expired. A belated extension sought as an afterthought to cover the delay by the Collectorate and granted by the C.B.R. Cannot cure the inherent defect of jurisdiction.
Extension given after the expiry of the prescribed period has no force at law. In view of the foregoing discussion, it is found that the impugned order-in-original is hit by time limitation as provided in law and is liable to be cancelled.
8. The respondents have cited F.T.O.'s findings in Complaint No.122 of 2006 holding that the C.B.R.
Had the inherent power to extend the time limit for deciding the case and that it had acted within the ambit of law to grant an extension in view of the 'exceptional circumstances' of the case.
Regarding this, it is pointed out that in the cited case, the competent authority, while exercising the powers under section 179(4) of the Customs Act, 1969, extended the time of limitation up to 28-2- 2006 after considering all the circumstances. The case required detailed investigation involving verification of age, model, specification of the vehicles, verification of registration by referring cases to the registration authority in UK. The competent authority acted within the ambit of law to grant extension in view of the 'exceptional circumstances' of the case. Thus in the cited case, as brought out in the aforesaid decision, exceptional circumstances existed for grant of extension as per the parameters laid down in the relevant law. In the present case, the grounds on which extension was sought did not constitute 'exceptional circumstances' warranting extension. This forum has never accepted adjournments sought by the litigants as constituting `exceptional circumstances'. The adjudication authority could have refused routine adjournments sought by the complainant (although the complainant vehemently contended that it sought adjournments only of two out of nine hearings) so as to enable itself to adhere to the prescribed time limit within which the case had to be decided and remain on the right side of law.
9. It was held by the F.T.O. In Complaint No.805 of 2003, involving sales tax liability, that "in the instant case show-cause notice was issued on 16-6-2002 and order-in-original was passed on 13- 5-2003 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 F.T.O. Had, therefore, recommended in that case the cancellation of impugned order-in-original. The Department represented against the aforesaid decision of the F.T.O. Before the President of Pakistan. The President was pleased to reject the departmental representation vide order dated 7-5-2005, 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 F.T.O.'s decision must be sustained.
(4) Accordingly, the President has been pleased to reject the representation of the Department".
10. F.T.O.'s findings in C.No.805/2003, as sustained by Presidential Order referred to above, were made in the context of relevant provisions of sales tax law. However, the Presidential Order lays down the principle that "where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory". As in the impugned order passed in the instant case the respondents had created liabilities both of sales tax, along with additional tax and central excise duties and penalties but had failed to pass the order within the prescribed time limits, the ruling contained in the above-mentioned judicial precedent will apply not only to sales tax but also the central excise. Thus the impugned order, as a whole, is hit by time limitation as provided in law. Respondents' objection to F.T.O.'s jurisdiction to investigate the complaint is misconceived. They have violated the provisions of law. 'Maladministration' stands clearly established. In view of the foregoing discussion, it is held that the impugned order-in-original is not sustainable because it is clearly hit by time limitations as laid in law: Accordingly, it is recommended that the Revenue Division direct the competent authority to:
(i) Cancel the Order-in-Original No.67/06 dated 28-1-2006.
(ii) Compliance be reported within 30 days of the receipt of his order.