DECISION FINDINGS/DECISION JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).- The complaint has been filed against the Department of Sales Tax alleging maladministration on account of alleged unjustified compulsory registration, wrong inflated values of wine, arbitrary A determination of tax on exaggerated and Unsubstantiated sales and unlawful adjudication order of the Additional Collector.
2. The following statements were made in the complaint and during the hearing by the Consultant of the Complainants:--
(i) The firm was not liable to registration because during the period 1999 to 2003, the annual sales were less than Rs. 50,00,000. The quantities and total sale value of the liquor shown in the show- cause notice were also not correct.
(ii) The registration was carried out in violation of the previsions of Rule 4A(1) of Registration Rules and the instruction of C.B.R. Contained in letter dated 18-1-2000, no notice was received by the Complainants and due process of law was not complied. Complainants came to know about the unilateral and unlawful action of the Department on receipt of SCN dated; 5-1-2005.
(iii) The alleged tax liability was not calculated in accordance with the formula under Rule 5(3) of Retail Tax Rules. The Department calculated 15% tax on the value determined by them and not on the basis of work back method as prescribed in the said Rules.
(iv) The allegation that the figures of sales were not in accordance with the figures obtained from the Excise Department was also not correct. The record of excise duty was submitted to and admitted by the Adjudicating Officer.
(v) The Complainants had paid input tax of Rs. 4,326,779 on purchases from suppliers. This fact was ignored by the Department.
(vi) The sale price taken by the Department was not correct because the sale price of the Complainants was the same as applied by other retailers and no evidence was shown to support the alleged high prices.
(vii) SCN was issued on 5-1-2005 and the impugned adjudication order was passed after 192 days instead of 90 days (or extended period of one hundred and eighty days) as provided under section 36(3) of the Sales Tax Act.
(viii) When the hearing took place before the Adjudicating Officer, nobody attended from the Department and the documents asked for were not provided.
(ix) President has held in his decision on the representation in Complaint No. 805 of 2003 that a public functionary was empowered to create liability against a citizen only within the mandatory time-limit.
(x) It was requested that order of the Additional Collector being non-speaking, illegal and contrary to law, rules and regulations be declared as illegal and any other relief deemed just and fair be granted to the Complainants.
3. The. Deputy Collector (Adjudication) replied to the complaint as follows:---
(i) Complainants were registered with the Department as retailer but were not filing monthly sales tax returns nor paying sales tax correctly on the taxable supplies of Pakistan made foreign liquor
(PMFL) and Alcoholic beer. From the record of the Excise and Taxation Department and the computer profile maintained by the Department it was observed that they had supplied PMFL and Beer during the period 1999-2000 to 2002-2003 @ Rs. 410 and Rs. 63 respectively.
(ii) Since the Complainants had not paid any sales tax, SCN. Was issued to them for recovery of sales tax amounting to Rs. 11,597,715 along- with additional tax. The case was decided by the Additional Collector for recovery of . The recalculated amount of sales tax, additional tax and penalty. v
(iii) Under Section 14(1) of ^the Sales Tax Act it was provided that a retailer whose value of supplies in any period, during the last 12 ' months exceeded five million rupees was required to be registered, and the Complainants were liable to be registered when they started making taxable' supplies, and should have applied for voluntary registration.
(iv) Department had mentioned in the contravention report that the total sales had been ascertained from the Excise Department but no evidence was furnished. Adjudicating Officer therefore accepted the sales figures submitted by the Complainants.
(v) The case has been instituted by the Department on the basis of the price of PMFL and Beer excluding the assessm ent fee but the Adjudicating Officer has held in para 24 of the Adjudicating Order that the Complainants were liable to be registered and the assessment fee was a part of the value of supplies as defined in Section 2(46) of the Sales Tax Act. However, the provision of excise levy has not been- shown anywhere in the proceedings and the valuation ha? Been based on the prices of Rs. 410 per bottle of PMFL Rs. 63 per bottle of Beer.
(vi) SCN was issued on 5-1-2005, Complainants sought adjournments, their reply to SCN was received vide letter dated 20-1-2005 and the judgment was passed on 29-6-2005. The case was decided within the time-limit envisaged under Section 36(3) of the Act i.e. Within 180 days but there was nothing on record to show that extension of time-limit was obtained from C.B.R.
4. During the hearing of the complaint, the learned Consultant admitted that sales during 2000-01, 2001-02 and 2002~03 exceeded Rs. 5 million but argued that the Complainants did not get themselves registered because the issue was being negotiated between C.B.R. And the Retailers'
Association against the threshold of Rs. 5 million. He also referred to C.B.R. Instructions not to target units of Rs. 10 million sales and thus none of the shops within this range had obtained registration.
5. As a result of Associations' concerted efforts, annual threshold of Rs. 5 million was enhanced to Rs. 20 million as evident from the amendment of clause (ii) of subsection (1) of section 14 of the Sales Tax Act by the Finance Act, 2004. Consultant stated this provision of law ha been completely ignored by the Sales Tax Authorities.
6. Deputy Collector of Sales Tax admitted that negotiations with the Association were in progress at that time and the direction of C.B.R. Was also on record not to target units of less than Rs. 10 million sales. But, he stated, there were several other units of Rs. 10 million and above which got themselves registered and were paying tax. It was pot explained why despite C.B.R. Directions to the contrary, their unit was registered.
7. It was also stated that unit was compulsorily registered in 1999 but no SCN was issued and there was nothing to show that any intimation or order to this effect was sent to the unit. Eventually, notices were sent on 25-10-2003 and 6-12-2003 as mentioned in the contravention report to produce sales tax record but their copies were not available in the file. The contravention report was made on 19-3-2004, SCN was issued on 6-1-2005 and adjudication order passed on 16-7-2005 and served on 22-7-2005.
8. Submissions of both the sides have been examined. Complainants have admitted that their annual sales exceed Rs. 5 million during the period but they did not get registered because of the active negotiations of their association with the C.B.R. And the interim order to the Sales Tax Authorities not to target units sales of 10 million or less. Respondent has claimed that the unit was compulsorily registered but there is nothing on their record to show this was done with due process of law by issuing show-cause notice, affording hearing and issuing a speaking order. They did not send any notice/reminder for not filing monthly returns. It has also stated that in Financial Year 2003 Budget, the ceiling was enhanced to Rs. 10 minion which seems to have been ignored by the Department. It is-also established that the time-limitation of issue of adjudication order within (extended) period of 180 days under subsection (3) Of Section 36 of the Sales Tax Act was not complied with which rendered the whole process of adjudication nullity in law. Additional Collector (Adjudication-III) did not ascertain the factual position about the quantities and sale process of PMFL and Beer, he did not examine the validity of the Department's argument about the registration of the unit and has also ignored the time-limitation laid down in the Sales Tax Act. His decision is arbitrary; contrary to law, based on irrelevant grounds which constitute maladministration under sub-section (3) of Section 2 of the Ordinance No. XXXV of 2000.
9. It is recommended that C.B.R.
(i) set aside the order passed by the Additional Collector (Adjudication-Ill); and
(ii) direct the Collector of Sales Tax not to press for recovery of sales tax etc. For the period the unit was not liable to registration.
(iii) Compliance be reported to this office within forty-five days.