Federal Tax Ombudsman Munir A Sheikh has ruled that undertakings/firms cannot be compulsorily registered, without due process of law by issuing show-cause notice, affording hearing and issuing a speaking order.
The FTO gave this ruling on a complaint of Soony Traders, Khalid Bin Waleed Road, Karachi, against the Department of Sales Tax alleging unjustified compulsory registration, wrong inflated values of wine, arbitrary determination of tax on exaggerated and unsubstantiated sales and unlawful adjudication order of the Additional Collector.
The complainant said that the firm was not liable to registration because, during the period from 1999 to 2003, the annual sales were less than Rs 5 million, but the department unilaterally registered it, in violation of the provisions of Rule 4A (1) of Registration Rules and instructions of CBR contained in the letter dated 18.01.2000, and the applicant came to know about the registration on receipt of show-cause notice dated 05.01.2005.
It alleged that tax liability was not calculated in accordance with the formula under Rule 5 (3) of Retail Tax Rules, and the department had calculated 15 percent tax on value determined by it and not on the basis of work-back method, as prescribed in the said Rules.
The complainant said that quantities and total sale value of the liquor shown in the show-cause notice were also not correct, whereas the complainant had paid Rs 4,326,779 as input tax on purchases from suppliers.
The complainant further submitted that show-cause notice was issued on 05.01.2005 and the impugned adjudication order was passed after 192 days, instead of 90 days (or extended period of 180 days), as provided under section 36(3) of the Sales Tax Act.
The complainant argued that the President has held in his decision on the representation in complaint No 805/2003 that a public functionary was empowered to create liability against a citizen only within the mandatory time limit.
In his reply, Deputy Collector (Adjudication) stated that the complainant was registered with the department as retailer, but was not filing monthly sales tax returns, nor was paying sales tax correctly on the taxable supplies of Pakistan-made foreign liquor (PMFL) and Alcoholic Beer.
Consequently, a show-cause notice (SCN) was issued to the firm for recovery of sales tax amounting to Rs 11,597,715 along with additional tax, and the case was decided by A C for recovery of recalculated amount of sales tax, additional tax and penalty.
The department further stated that 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 complainant was liable to be registered when he started making taxable supplies, and should have applied for voluntary registration.
During the hearing, the applicant admitted that during 2000-02 its sales exceeded Rs 5 million but did not get registered because the issue was being negotiated between CBR and the Retailers Association against the threshold of Rs 5 million. He referred to CBR instructions not to target units of Rs 10 million sales and thus none of the shops within this range had obtained registration.
He said that as a result of Association's negotiations, annual threshold of Rs 5 million was enhanced to Rs 20 million, as evident from the amendment of clause (ii) of section 14 of the Sales Tax Act by the Finance Act 2004, but sales tax authorities had ignored this provision of law.
In reply, Deputy Collector of Sales Tax, however, stated that there were several other units of Rs 10 million and above which got registered and were paying tax but he did not explain why, despite CBR directions to the contrary, their units were registered.
In his findings, the FTO said that there was nothing on record to show that compulsory registration was done after due process of law by issuing show-cause notice, affording hearing and issuing a speaking order, nor did the department send any notice/reminder for not filing monthly returns.
He further observed that the department ignored that in Financial Year 2003 Budget, the ceiling was enhanced to Rs 10 million and did not comply with the time limit of issue of adjudication order within (extended) period of 180 days under sub-section (3) of section 36 of the Sales Tax Act, which rendered the whole process of adjudication nullity in law.
He said that the Additional Collector Adjudication-III did not ascertain the factual position about the quantities and sale process of PMFL and Beer nor did he examine the validity of the department's argument about the registration of the unit and also ignored the time limitation laid down in the Sales Tax Act.
The FTO ruled the AC's decision as 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.
He advised CBR to set aside the order by the AC (Adjudication-III) and directed the Collector of Sales Tax not to press for recovery of sales tax etc for the period the unit was not liable to registration.
Comments
Comments are closed.