DECISION /FINDINGS ' This complaint alleges maladministration against Sales Tax Department, Lahore for illegally recovering an amount of sales tax and for continuing to adjust their input refunds against the so- called liabilities worked out by their audit team causing harassment to the complainant. The facts of the complaint are that the complainant, a manufacturer-cumexporter registered with the Sales Tax Department, manufactures textile made -ups, canvas etc. By purchasing yarn, canvas and other materials from the open market on payment of sales tax and exports made-ups. After export, refund of sales tax paid on the raw materials is claimed from Sales Tax Department, The audit of the unit conducted for the period 1999-2000, 2000-2001, and 2001-2002 was completed vide audit report No, 205, dated 6 3-2003. The audit report had pointed out discrepancies that (i) the complainant had submitted tax return for the month of March 2002 late after due date attracting a penalty of Rs,5000, (ii) complainant's failure to give proof of payment as envisaged under section 73 of the Sales Tax Act, 1990 for an amount of Rs,6,34,823 ,(Sales Tax of Rs,82,802) warranted action against it, (iii) it's failure to discharge the tax liability of local supplies i.e. Wastage of M. Pipes also warranted action under the appropriate provisions of law. Subsequent to the issue of audit report the respondents did not submit any contravention report to any adjudicating officer for adjudging the issues involved or for determining the alleged tax liabilities pointed out by the audit. Instead the functionaries of the department arrogated to themselves the powers and functions of the adjudicating officers and got an amount of Rs,129,558 deposited by adopting coercive measures, including threats of arrest. The complainant had claimed genuine input refunds on purchases from various units but the respondents forced it to undertake/ agree for adjusting the amount of refund already sanctioned against undetermined liabilities because of purchases allegedly made from units branded as suspicious and included in suspicious units list. The complainant had claimed a total refund of Rs,2,569,610 during the period from 8 of 1999 to 2 of 2000 out of which an amount of Rs,1,179,525 was sanctioned, leaving a balance of Rs,1390085. The adjustment by the respondents of the so-called liabilities against the sanctioned refunds and against likely amounts to be sanctioned in future, is unlawful because the liabilities have not been adjudged. The complainant had purchased the goods against payment made in terms of section 73 of the Sales Tax Act, 1990 and had used the raw material in the manufacture of tents exported by it. Even the Audit team did not observe that purchases were fictitious or that the exports were dubious. The respondents may be directed to refund the amount of Rs,129558, which was got deposited under coercion and be stopped to adjust its already sanctioned/to be sanctioned refunds against un-adjudged liabilities and allow refunds due to it. Also the assumption of adjudication powers by audit officer may be declared illegal.
2. In reply, the respondents have stated that no doubt the matter was not adjudicated under section 45 of the Sales Tax Act, 1990 but the normal practice was that the department after completion of an audit discussed the audit findings/observations with registered persons and if registered persons agreed with the observations they deposited the arrears detected by the audit or give undertakings to deduct the liabilities from admissible refund claims pending with the department. Since the complainant's case fell in this category it's case was not sent up for adjudication .The complainant had in fact undertaken for deduction of recoverable amounts from its pending admissible refund claims. Had it not agreed, the proceedings would have been initiated under section 45 of the Act for proper adjudication. The amount recoverable was, therefore, deducted as per undertaking given voluntarily without coercion. The purchases from the negative units were discussed with the complainant who gave an undertaking voluntarily for deduction of the amount involved against purchases from units included in the negative list and to reclaim the amount of input tax involved on issuance of NOC to units included in the list. It could still claim refund of input tax subject to clearance of the units from the negative list. The complainant was not harassed. The complaint may be rejected.
3. During the hearing the AR reiterated the points earlier advanced in the written complaint contending that the amount of Rs,129558 was got deposited through coercion. In fact, the challan of deposit was filled in by one of the officers of department (Mr. Muhammad Ashraf, Deputy Superintendent) who took the money from the complainant in cash and deposited the same in the bank. The undertaking said to have been given voluntarily was in fact forced out of the complainant, which is unlawful. The complainant's input refunds have been illegally withheld and are being arbitrarily adjusted against so-called liabilities despite the fact that it had complied with the provisions of section 73 of the Sales Tax Act, 1990 by making necessary payments through banking channels. They should adjudicate upon the discrepancies detected by the Audit by giving a proper show-cause notice and an opportunity of hearing to enable the complainant to defend its case. The AR also referred to FTO's ruling in the case of Messrs Arzo Textile Mills, Faisalabad emphasizing that if any recovery was to be ffected it should be .Effected from the suppliers and not from the purchaser who purchased the goods from registered persons after payment of sales tax.
4. The DR submitted the total liability created by the audit was Rs, 2,270,355 (tax plus additional tax and penalty) an amount of Rs, 128,000 was deposited (principal tax and additional tax) by the complainant. The input tax of Rs,1,179,525 was refunded to the complainant, which it was to return. It undertook to give back the amount already received and also agreed to adjustment against future refunds. It had given the undertaking voluntarily.
5. The arguments of the parties and the record of the case have been considered and examined.
The audit report on record reveals that the audit had pointed out various discrepancies and recommended action for recovery of tax involved and imposition of penalties under various provisions of Sales Tax Act, 1990. Admittedly, the respondents did not initiate any judicial proceedings and relying, instead, on an undertaking given by the complainant proceeded to recover an amount of Rs,1,29,558 and started adjusting the so-called liabilities against sanctioned sales tax refund with the intention to also do that against future refunds due to the complainant.
The respondents claim that they were justified to do that because the complainant had agreed to this arrangement voluntarily. On the other hand the complainant denies having filed a voluntary undertaking disentitling it to judicial proceedings to determine the liabilities or to its input refunds.
The demand of the complainant that the case against it should have been properly adjudicated after due process of law is legitimate. It is prepared to face the judicial proceedings, so long as it is issued a show-cause notice and provided the opportunity of defence, written as well as oral. The department's contention that the complainant had given the undertaking voluntarily is belied by the audit report itself. In the last para. Of the report the audit team states in conclusion that "they have agreed to adjust the outstanding liability from their pending admissible refund claims and have given written undertaking. .It is pertinent to mention here that the registered persons