FINDING/RECOMMENDATIONS DR. ASIF, MAHMOOD JAH, FEDERAL TAX OMBUDSMAN.----Vide Finance Act, 2021, the Federal Government reduced rate of sales tax from 17% to 12.5% on vehicles having engine capacity upto 1000cc. The Government also changed the definition of time of supply; defined in Section 2(44) of the Sales Tax Act, 1990. With this change in the definition, tax became payable at the rate chargeable at the time of delivery of goods w.e.f. 01.07.2022.
2. 24 complaints were received by this Forum wherein it was complained that though M/s. Pak Suzuki had delivered vehicles having engine capacity up to 1000cc after 1st July of 2021, but they have not refunded them the excess. amount received by them in advance before 1st July, 2021 on previous rate of sales tax i.e. 17%.
3. This Forum examined the facts and legality of the complaints in terms of changes made vide Finance Act, 2021 in sales tax rate read with change in definition of time of supply in the Sales Tax Act and it was held that the amount paid in excess of 12.5%, was refundable and LTO, Karachi was directed to refund the differential amount of tax between 17% and 12.5% to the complainants collected from them at the time of booking of vehicles.
4. FBR filed representations in all 24 cases against the Findings and Recommendations of FTO before the Hon'ble President of Pakistan who rejected them vide single order dated 10.03.2022. The operative part of the Hon'ble President's order is as below: "9. By virtue of Section 3 of Sales Tax Act, 1990 there shall be charged, levied and paid a tax known as sales tax at the rate of 17% of the value of taxable supplies. The term "taxable supply" has been defined by the Act itself vide S."(41) "means a supply of taxable goods made by an importer, manufacturer..." By virtue of S.2(44) "time of supply" has been defined as "(a)" a supply of goods, other than under hire purchase agreement, means the time at which the goods are delivered or made available to the recipients of the supply. It may be noted that this change has been brought into force vide Finance Act, 2021 effective from 01.07.2021. Keeping the above legal background in view there appears no difficulty in reaching the conclusion that the term "time of supply" as introduced and amended through the Finance Act, 2021 is of utmost relevance and importance.
Such conspicuous change by the law maker demonstrates its intention of amending the definition by giving meaning to the time of supply. Such intendment of the law maker neither can be ignored nor frustrated rather has it to be given effect irrespective of any effects. Section 5 of the Act removes any possibility of doubt and sets the controversy at rest which says "if there is a change in the rate of tax a taxable supply made by a registered person shall be charged to tax at such rate as in force at the time of supply." Therefore, the approach adopted by the FTO in deciding the complaints that collection of Sales Tax in excess of due tax is contrary to the law and direction of refund the amount of Sales Tax collected in excess of 12.5% from the complainants is absolutely lawful and in accordance with law. These representations are bereft of any merits or justifications and are liable to be rejected."
5. In pursuance of the order, the mechanism for refund of the amount collected in excess of 12.5% was worked out in the meeting held on 04.04.2022 at FTOs regional office, Karachi attended by the representative of LTO, Karachi and M/s. Pak Suzuki Company Ltd. presided over by Ms. Seema Shakil, Advisor. The following procedure was laid down and circulated vide letter dated 05.04.2022: i) Pak Suzuki Company will furnish the refund claims under Section 66 of the Act to LTO Karachi in respect of refund due to the 24 complainants, ii) the refund claim will be accompanied with the relevant invoices and proof of tax paid on these invoices. On receipt of refund claim, LTO Karachi will process the claim as per law and issue refund to Pak Suzuki Company. iii) Pak Suzuki Co. will remit the amount to all the complainants as per their due share and submit proof of payment to LTO Karachi and FTO office for final implementation of the order.
6. In the aforementioned meeting, it was revealed that there were around 9000 cases in which Messrs Pak Suzuki had collected tax in excess of 12.5%, therefore, in order to provide relief to all the customers under the law, this Own Motion was taken and M/s. Pak Suzuki Motors Company Ltd. and M/s. Indus Motors Company Ltd. were required to provide the list of all the customers who had purchased vehicles having engine capacity upto 1000 from them by paying whole price inclusive of taxes before 1st July, 2021 and their delivery was made after 30th June, 2021. L'T'O, Karachi was also required to furnish their comments on the issue.
7. In response thereto, Messrs Indus Motors Company Ltd. informed that they do not manufacture vehicles having engine capacity upto 1000, hence, their report is nil. Whereas, M/s. Pak Suzuki Motors Company Ltd. vide email dated 25.04.2022 provided a list of 9,155 customers who had booked vehicles before 1st July, 2021 and paid sales tax at the rate of 17% but delivery to them was made after 30th June, 2021. LTO, Karachi also furnished comments vide letter dated 26.04.2022, wherein the issue of definition of time of supply as defined in Section 2(44) of the Sales Tax Act, 1990 was again raised. In addition to it, the following issues were also raised: i) refund is inadmissible in terms of Section 3B of the Sales Tax Act, 1990 as the incidence of tax has been passed on to the end consumers. ii) In the subject cases, transaction is between two parties, hence, primary condition of maladministration against revenue division or any tax employee is not there in terms of Section 9 of the FTO Ordinance, 2000.
8. Hearing was held on 11-5-2022. DR of LTO raised the issue of Section 3B of the Sales Tax Act, 1990 relating to passing of the incidence of tax to end consumers. lie also averred that no one has applied to them 'under section 66 of the Act for refund of the excess amount of sales tax paid by them; hence, the amount cannot be refunded by them on their own. Moreover, the refund under Section 66 of the Act lays down the period under which claim can be filed, hence, filing of claim cannot be unended without observing the time limitation. It is required to be filed within one year of payment of the tax. He further averred that there might be registered companies/persons who either had already filed claims on the issue with them but were rejected or they might have adjusted sales tax amount against their output tax or showed the purchase of vehicles as a capital asset in their returns, in such situation, they are also not liable to get refund of the excess amount paid by them in pursuance of the Hon'ble President's order on the issue. DR of Messrs Pak Suzuki Motors Company Ltd. averred that they agree to facilitate the end consumers provided the LTO, Karachi sanctions refund amount on filing of application by them with LTO.
9. Averments of LTO, Karachi and Messrs Pak Suzuki Motors Company Ltd were heard and the legality of points raised by them examined. In so far as the issue of Section 2(44) of the Sales Tax Act, 1990 regarding time of supply is concerned, the same, was settled and finalized by the President of Pakistan vide order dated 10.03.2022 passed on 24 representations filed before him by FBR, hence raising it again is irrelevant. The issue of application of Section 66 of the Act regarding filing of refund claim was also settled and agreed upon in the meeting held at FTO Regional Office, Karachi on 04.04.2022 and the mechanism for refunding the amount excessively paid was also devised. Hence raising the same again is unnecessary. In so far as the time limitation for filing application for refund under section 66 of the Act is concerned, the payment of tax by the customers were paid in advance much before delivery of vehicle. Secondly, the issue of refund remained under dispute which attained finality at the level of Hon'ble President of Pakistan when he rejected the contention of the Deptt vide order passed on 10.03.2022. I fence, counting the period of one year from the date of payment is unjustified. The application of time of one year laid down under Section 66 would be considered from the date of passing of the order passed by the President in terms of 2nd proviso to Section 66 of the Sales Tax Act, 1990 and refund claims/applications for refund filed till 09-03-2023 would be considered within time of one year.
However, the claims / applications filed after 09.03.2023 along with the application of condonation in time would be examined and considered on case to case basis.
10. The contention of the Deptt that transaction is between two parties hence primary condition of maladministration against revenue division or tax employee in terms of section 9 of FTO Ordinance, 2000 is not applicable in this case; was also examined. It is incorrect to say that transaction is between two parties. In these cases, the manufacturer collected tax leviable on vehicles from the customers on behalf of the FBR being their withholding agent and deposited it with LTO, Karachi through monthly sales tax returns, hence, the revenue division is very much party in this case and the amount collected in excess from the customer by the manufacturer has to be refunded by the LTO, Karachi to the manufacturer who then refund the same to the applicants/complainants; therefore their objection that they are not party in the dispute is not sustainable and overruled.
11. Section 38 of the Sales Tax Act, 1990 is also not operative in this cast because when the price inclusive of tax was paid, it was according to the rate of sales tax chargeable and payable at that time. The situation changed when the amendment in Section 2(44) of the Sales Tax Act, 1990 was made and rate of sales tax reduced from 17% to 12.5% vide Finance Act, 2021. Since amount was collected before 1st July, 2021 and delivery of the vehicles was made after the said date, therefore, refund of excess amount collected became due. It is incorrect to say that the incidence of tax has been passed on to the end consumers. In these cases, the manufacturer is not claiming refund on his own, it is the end consumers who are demanding refund of excess amount paid by them to the manufacturer which is to be refunded to them by the manufacturer when the LTO refunds them the amount paid in excess. Quoting Section 3B in these cases is neither relevant nor in accordance with the law.
12. Regarding the claims of registered companies/persons, the issue would be examined on case to case basis as and when any such claim is filed by the sales tax registered company or person.
13. In view of supra, following procedure is prescribed for disposal of complaints to be filed with FTO Office on the issue of refund of the sales tax amount paid in excess of 12.5% on the vehicles: i) On filing of the complaint by any aggrieved person with any Regional Office of FTO, he shall be required to submit a copy of invoice/receipt of payment of the price and delivery to confirm genuineness of the refund claim. After their receipt, the complaint shall be processed by the concerned Regional Office without referring to FBR or LTO, Karachi for comments on each complaint/application and forward the draft to FTO's office by mentioning the Own Motion read with Hon'ble,...Presidents order. On approval and signing of the order, the same shall be dispatched by Headquarter to the Chief Financial Officer, M/s Pak Suzuki Motors Company Ltd., DSU-13, Pakistan Steel Industrial Estate Bin Qasim Town, Karachi, FBR and the Chief Commissioner-IR, LTO, Karachi for processing the claim; ii) On receipt of the Order, Messrs Pak Suzuki Company will furnish the refund claim under Section 66 of the Sales Tax Act, 1990 to LTO Karachi in respect of refund due to the complainant along with the relevant invoice and proof of tax paid on the invoice; iii) On receipt of the refund claim from Messrs Pak Suzuki Motors, LTO Karachi will process it as per law and issue refund to Pak Suzuki Company; and iv) Messrs Pak Suzuki Motors will remit the amount sanctioned by concerned officer of LTO, Karachi to the complainant and submit proof of payment to LTO Karachi and to the concerned regional office of FTO; as compliance of the order.
14. The Own Motion is disposed of accordingly.