Present phraseology of section 57 in the Sales Tax Act (Act) empowers officers of Inland Revenue, Commissioner, Commissioner (Appeals) and the Appellate Tribunal to rectify any mistake in an order, apparent from the record, on own motion or on any mistake brought to his or its notice. Commendable features of the law are:
(a). in case the mistake, brought to the notice of cited authorities by a tax payer, is not rectified by an order before expiry of the financial year next following the date on which notice for correction of the mistake was given, it shall be treated as rectified.
All the provisions of the Act shall have effect accordingly, section 57 provides.
(b). the rectification does not extend its sphere to authorisation for increasing an assessment already made, reducing a refund payable by the government or otherwise, unless the tax payer was provided a reasonable opportunity of being heard.
(c). proscribed is rectification in relation to an order sought to rectified, after five years from date of the order.
(c) above is a particularly laudable feature of the arrangement. It protects the registered persons from being subjected to clamp, in time unbound, through orders for assessments and refunds etc on the ground of 'correction'.
Cited change in phraseology of section 57 of the Act has been made through the Finance Act-2013. Earlier words of this section provided that the law was restricted to correction of clerical or arithmetical errors which did not extend to mistakes of application or conceptualisation of law or mistakes of fact. So to say up to June, 2013, language of section 57 did not seek due redress by way of rectification of all sorts of mistakes in orders of the executive. As against 'correction' used in the Act before 2013, the present law has the word 'rectification' which is wholesome.
Tax laws are neither laws based on equity nor laws founded on permanent public policy. They impose a burden. They restrict subjects in the enjoyment of their property and pursuits. Hence, they have to be strictly construed. No equity. No intendment. No presumption. One has to go by words of the law, as he has them. Accordingly, tax related rectification also is not based on equity or natural justice. It is according to words of the relevant fiscal law, enacted or promulgated or framed by the government authorities. Often it is SROs, general orders, circulars, rulings and communications from FBR to show light to the field and adjudication authorities on what the law 'is' and to direct the public to live with the same.
Witnessed by the naked eye is that once an audit observation is issued, the assessee has confronting him battalions from tax offices to justify charges framed against him. The capricious tax officials are not always found wise in lore. Laws are interpreted according to their perceptions and FBR directions, often committing mistakes. Several factors contribute to the happenings. This, the present set-up of section 57 seeks to ride.
Mistakes in orders of Inland Revenue officials cost the ones on the other side heavily. In tax related matters, normally - not scarcely, the seniors go by verdict of the ones under them. The way to seek a redress is through the thickets of cumbersome laws and regulations, with pretty bleak visibility. Before we proceed to dovetail the system to be for play of section 57, needed is a look at complexion and working of the ADR system. An ADR Committee nominated by FBR in a dispute requiring resolution under the system consists of three members, one of whom is a senior officer of FBR. Non-government members of an ADRC are picked out of a panel for such nominations already notified by the Board. Normally, an industrialist or businessman is the other member. The third is a professional or again a notable from the business world. Chairman of the committee who enjoys statutory privilege in relation to working of the committee is out of the two non-government members. He is named as such by FBR in the gazette notification for constitution of the ADRC to be seized with the specific dispute. On the grapevine is that the parties desirous of taking the ADRC route provide their preference of members of the committee.
This scribe is of the view that privileges available to an ADRC chairman, to convene the meetings and finalisation of findings of the committee etc, normally available to chairmen of the committees, need a balancing. The balancing would go to avoid tilting in favour of an interested party. In the background of this suggestion is also the fact that many recommendations/findings of the ADRCs have been assailed by the FBR. At times, such assailings had their routes in the manner of conducting and recording findings of ADRCs proceedings, non perception of the laws and the system apart.
Normal adjudication process provided by the law is hardy. Longevity of the disputes generates loopholes not favourable to FBR. It has a damming effect on moral fibre of the populace, more so when these harbour mistakes of facts or law. Not a scant sight is that registered persons face liquidity crunch, suffer with pegged-up financial overheads and squeezed margins. No wonder they may come to have distaste for the system, running away from associating with the law, often crossing to tax out laws, particularly when longevity of the bickering has costs punching them. Winking possible loss of revenue, for a while, tax offices' proceedings go as a heavy dose of disenchantment in the ranks and files of taxpayers.
The assessees/registered persons hardly have options other than hiring expensive consultants to counsel the tax officials. They know where the law and the man are. One is told of the victories many consultants reap with shining swords in their armories. Assisted by wisdom in the lore, they come to a win against the armies confronting.
Aside the traditional ways, the Act provides another system for resolution of tax related disputes - 'Alterative Dispute Resolution' (ADR), in terms of section 47A. Mechanics of which found its way to the law through Finance Act, 2002. The ADR system, in clear terms, does not get to rectification of mistakes by the tax authorities.
In the event of an error in an order or decision, sub-section (4A) of section 47A enables passing an order, deemed just and equitable by the Chairman / Member FBR. To this scribe, sub-section (4A) in section 47A appears misplaced. As an independent section of the Act it could have been more efficacious. This can conveniently be done by deletion of the words "or under sub-section (4A)" in its sub-section (5) and substituting the words and figure "sub-section (4)" by the words "the Act". Whereafter the sub-section can better be numbered "57A".
Biggest short coming is that the ADR system does not have a known or declared mechanism for bringing to light mischiefs of the law and wrongs of doers in the FBR fortress or the otherwise sprawling empires. The ADRC system does not have formal ado with the relevant LTU or RTO, other than by way of representation in an ADRC by the Additional Commissioner, LTU / RTO etc. Although, polity would require that officers at LTU / RTO of the FBR should not only remain associated with the proceedings, they should be answerable in relation to the ADRC's final outcome. The needed requirement of being accountable is winked at, because the law does not cater the same. Probably also because the business houses may not find this to their advantage.
Another big drawback of the system is that it is detached from the ones who frame contraventions against the assessees in LTUs or RTOs. FBR nominees in the ADRCs may be consulting the departmental officials on vires of the dispute. Apparently, they do not, as a matter of course, discuss with or get account for writing the contraventions they are called upon to thrash out at the ADRCs and to submit a report to FBR devoted to this end.
Well-versed in their own traits, members at ADRCs from the business world are not necessarily versed in the lore. Recommendations of the three members committee, forwarded to FBR for decision in the particular dispute, are drafted by the FBR officials attached to the ADRC system at the relevant station. Often the person charged for the 'drafting' is not part of the team witnessing deliberations of the committee. Normally, he would otherwise also be found oblivious to intricacies of the laws. Recommendations emerging out of the proceedings are processed at the FBR headquarter. Processing at the Board is time consuming. No wonder that due to all these there has been disillusionment regarding this system. Experience of the FBR also may suggest that the revenue's view point is not duly presented. Manifestation of which can be traced in FBR's several reversals of ADRCs findings/recommendations. One would hold that malice of the system is that real issues are not brought home. This turns the system to probably less than what icing in a cake is.
The FBR wants revenue. To this end, it devises laws and regulations. The regulations and rules have to correspond with laws enforced through authority of the legislature. What distinguishes a tax from extortion by rogues is that tax has the support of law, a bhatta does not have that. Tax recovered by incorrect application of law is not lawful inflow to the exchequer. It is taking poisonous fruits to the FBR. With the civil society gaining strength, the courts may order unlawful inflows into the exchequer ultra vires and hold 'responsible' the ones facilitating that.
As stated above, legitimacy through the legislature is not there in the case of extortion. Bhatta levy attracts wrath of the state. So should be attempts to inflict levies beyond words of the laws framed by the legislature. This can be achieved by putting in place a system under which:
(a). laws and regulations opposed to intents of the legislature enshrined in the tax law system are identified.
(b). framers of rules and regulations and officials found engaged in exercises opposed to the tax laws are made accountable.
(c). functionaries attempting to recover tax beyond law and regulations are proceeded against.
(d). a mechanism is established to provide for the needed rectifications of laws and regulations in the light of experience gained by the FBR fortressed by words of the otherwise.
The above will go to cut tax related disputes, save time spent in undesirable exercises, ameliorate understanding of the law amongst FBR's officials and reduce accusations to the FBR and by the taxpayers against each other.
Present section 57 was added to the Sales Tax Act. It reads: "The officer of Inland Revenue, Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayers or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner."
The problem with this law is that it is up to (basically) the same set of people to do the rectification job. Applications received for rectification are marked to an officer of Inland Revenue for needed action. Such an officer, like any other average officer:
(a). may not have sufficient knowledge of law and accounting as also exposure to legal intricacies.
(b). is likely to have an in built bias in favour of the departmental officers who are associated with the officers committing the wrong. He has to. Also because any time these two sets of officers may have a posting interchange.
Such officials (charged for committing the wrong and the one detailed to report in relation with mistakes) derive their authority from the same senior officers, Deputy Commissioner to Commissioner. These senior officer are by themselves party to mistakes sought to be corrected.
(c). would be carrying same sort of human weaknesses or intellectual integrity as the ones committing the mistakes.
This may go to lead that only those taxpayers may have a redress as can convince senior officers of the RTO/LTU to direct that the correction be made. Also because the officer detailed to the rectification job is called upon to makes proclamation that X,Y,Z, colleagues/seniors of such an officer, had done a wrong which needs correction. An unpleasant, difficult task.
In its form and texture section 57 is not likely to be efficacious the way FBR and diligent quarters would probably like it to be. Upshot of the matter is that, with the mechanism for correction/rectification in place, this section of the Act may not be very useful to mitigate miseries of the taxpayers.
In its texture and form section 57, a very commendable law, is not likely to be efficacious probably the way FBR and diligent quarters would like it to be. Because an application to correct the wrongs would be processed by the same hierarchy which is responsible for the mistake. It is only the few fortunate able to convince functionaries of LTUs and RTOs that the wrong calling for correction of an order was there.
By tuning working for rectification of mistakes by the LTUs and RTOs. FBR should be able to save lot of time and get the taxpayers applause. They have to be convinced that getting larger revenues is also by way of saving waste of time and energies as also mitigating woes of the taxpayers. To this end FBR should divest the jobs of investigation and issues formulation under the system, retaining with it superintendence and declaration of outcome on applications received for rectifications.
Also with rather not too happy experience of the ADRC mechanism in view, following system is proposed in relation with section 57 of the Sales Tax Act. This would need issuing an SRO. Outline of which is proposed in the following terms:
1. Applications for rectification shall be submitted to the Chief Commissioner along with challan for deposit of Rs 20,000 towards 'processing fee' for the application.
2(a). Within 7 days of receipt of the application, the Chief Commissioner, through an order, shall refer the same for examination by a committee comprising:
(i). A person, with degree in accounting, who has held position as a session judge or equivalent or an advocate with not less than 15 years standing at a High Court in Pakistan.
(ii). A member of Institute of Chartered Accountants of Pakistan or Institute of Cost & Management Accountants of Pakistan, holding certificate of practice issued by the relevant professional body.
(iii). An Additional Commissioner Inland Revenue. (He may not necessarily be an Officer directly in his command).
(b). Chairman of such a committee, being a non-governmental member, may be named by the Chief Commissioner, with age and professional standing of the person in view.
Provided that the Chief Commissioner, through an order giving reasons therefor, may nominate a person, not meeting the prescribed criteria, as member of the committee:
(c). The Chairman and member of the committee may be paid a fee of Rs 10,000 per hearing. Cheques for which shall be delivered to the non-government members, by the aforesaid Additional Commissioner, being a member of the committee, before commencement of the proceedings.
(d). In relation to an application for rectification of an order, the committee, in its finding, shall, inter alia, specify amendments deemed called for in the Act, rules and regulations. Statement to the effect that none as such was required shall also be recorded by the committee.
(e). Findings of the committee, to be signed by all members of the committee, shall be drafted by the member at 2(a)(i) of these rules.
3. The committee may finalise its recommendations in the first hearing, within a period not exceeding 30 days of a reference by the Chief Commissioner under rule 2(a).
In the event of a second hearing required, the chairman of the committee shall, through a short order, at the end of the hearing, pronounce reasons for non-finalisation along with date for the second hearing to be held within 15 days.
Provided, however, such finding shall also make a note regarding responsibility for non-finalisation of the recommendation(s) as such on the relevant party.
Cheque for identical amounts of fee to the committee members shall be delivered by the Additional Commissioner forming part of the committee before start of the second hearing. The amount as such will be borne by the Internal Revenue or the registered person held responsible for causing holding of the second meeting.
4. A subsequent hearing, succeeding the second hearing, may be allowed by the Chief Commissioner after obtaining comments from the chairman of the committee.
The Chief Commissioner, in his order allowing the hearing(s) as such, will lay down relevant rationale. Incidence and payment of fee in relation with such hearing(s)/meeting(s) shall also be decided by him.
5. In the event of the registered person not presenting himself at a meeting as such, on the basis of a note in this regard forwarded by chairman of the committee, the Chief Commissioner may notify the application for rectification having been 'determined' and inform the registered person, members of the Committee and FBR accordingly.
6(a). The Chief Commissioner shall have recommendations for change in laws and procedures appearing in reports of the committees, with reference to rule 2(d), compiled and forwarded to the Board by 15th days of each month.
A nil report shall also be submitted.
(b). The Chief Commissioner may have reports, received from the committee on mistakes in the orders of the officers of Internal Revenue, up to the level of a Deputy Commissioner, in his jurisdiction, compiled and referred to an in house committee headed by an Additional Commissioner reporting to him for recommending suitable action to be taken by the Chief Commissioner.
Action taken by the Chief Commissioner shall be notified to the Board as part of report under rule 6(a).
(c). The Chief Commissioner, under his signature, shall report to the Board findings of the committee in relation to officers ranking above a Deputy Commissioner, as per rule 2(c).
7(a). In no case action on an application for rectification shall be withheld and the applicant turned non-communicado.
(b). Action or a move culminating into withholding report of the committee formed for rectification of an order shall call for action under the relevant disciplinary rules.
(The writer is a corporate counsel, former Chairman of ICAP & ICMAP Joint Committee, Vice President ICMAP & ICSP and Founder President PIPFA)
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