FINDINGS/RECOMMENDATIONS ' DR; MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN--- The Complainants are aggrieved by the Order-in-Appeal No,3149/2010 dated 5-1-2010 passed by Collector (Appeals) confirming income tax liability on import of cotton by them.
2. It is claimed that S.R.O. No, 567(1)/2003 dated 11-6-2008 provided exemption from withholding Income Tax @ 1% on import of cotton falling under H.S. Code 52.01. With the insertion of clause 56 in Part IV of the 2nd'Schedule to the Income Tax Ordinance, 2001, under the Finance Act, 2008, H.S. Code 52.01 was omitted, and as a result, the import of cotton became liable to payment of income tax @ 1% with effect from 1-7-2008.
3. However, not only did S.R.O. 567(I)/2008 , dated 11-6-2008 remain on the F.B.R. Website for about one year after 1-7-2008, the Commissioner income Tax issued clarification to the Collector of Customs, on July 12, 2008, that the S.R.O. Was still valid. On the other hand, recovery notices were issued in many cases (Complaints Nos.554, 555 and 556-K/2009, for instance) for non-payment of income tax during 2008-2009 at import stage. In the complainants' case, a Show-Cause Notice dated 22-5-2009 was issued on the basis of which an Order-in-Original No,1/2009 dated 18-9-2009 was passed. The Complainants filed appeal before the Collector which was rejected through Order-in-Appeal No,3149 dated 5-1-2010.
4. In this background, the Customs Department is pursuing recovery of 1% Income Tax short paid on the import of cotton while the Complainants claim that demand of Rs, 8,530,779 was not payable by them as the tax liability based on the Return of Income for the tax year, 2009 had already been fully discharged. The Complainants further submit as follows:--
(i) recovery of the demand may not be effected as the deduction at import stage was 'advance tax' and was not final tax;
(ii) since the entire tax liability based on Return of Income had been paid, any further recovery was not justified;
(iii) the Collectorate did not make collection of 1% Income Tax at the time of import in view of S.R.O.
Related confusion. There was no intention on the part of the complainants to evade taxes;
(iv) the Customs had no jurisdiction to pass order-in-original and order-in-appeal; and
(v) any payment realized for the tax year 2009, where refund had already been determined, would increase the amount of refund as tax so recovered would only add to the refundable amount.
5. The parties were heard in the FTO's Regional Office, Karachi, They reiterated their respective positions as reflected in their written Omissions in the complaint and the parawise comments.
6. As the payment of 1% Income Tax on import of cotton was not made by the importers due to the confusion created by the Commissioner's clarification referred to at para-3 supra, no will fullness or deliberate miss-declaration can be attributed to the complainants. So far as the subsequent discharge of liability or accumulation of refund are concerned, these aspects obviously need looking into by the F.B.R. As per law.
Findings:
7. The issuance of wrong clarification by the Commissioner Income Tax that S.R.O. 567(I)/2008 dated 11-6-2008 exempted cotton from the levy of withholding Income Tax at import stage constitutes maladministration in terms of section 2(3) of the FTO Ordinance, 2000, and no mala fide can be attributed to the complainants for non-payment of withholding Income Tax at import stage. However, the claim of the complainants that they had already discharged their tax liability for the relevant period through the Return of Income and thus further recovery was not justified needs to be examined by F.B.R. As per law.
Recommendations:--
8. F.B.R. To--
(i) examine the legality and propriety of the order-in-original and order-in-appeal in view of the complainants contention that their entire tax liability as per the relevant Return of Income for the year 2009 had already been duly discharged, and take appropriate action as per law;
(ii) fix responsibility and take appropriate action for non-withdrawal of S.R.O. From website on the date of promulgation of Finance Act, 2008, as also for incorrect clarification on 12 July, 2008; and
(iii) report compliance within 30 days.