Federal Tax Ombudsman Justice Munir A Sheikh has ruled that tax officials are bound to pass orders within the prescribed time limit given in the Sales Tax Act, 1990, pertaining to sales tax and central excise liabilities against the taxpayers.
The FTO gave this ruling in a detailed judgement on the complaint of Dandot Cement Company Ltd against Order-in-Original passed by Additional Collector (Adjudication), Rawalpindi, a copy of which was made available to Business Recorder here on Tuesday.
Dandot Cement Company had filed a complaint with FTO Secretariat that the Collectorate of Sales Tax and Central Excise, Rawalpindi, had issued the complainant a combined show-cause notice, dated 26.10.02, pertaining to sales tax and excise duty for the period from April 2000 to June 2000.
The complainant argued that under Sales Tax Act 1990, the Collector was required to pass the order within 135 days and 45 days, respectively, of the issuance of show-cause notice which he did on 11.01.05, creating sales tax and central excise liability along with additional tax and penalty, and even this order was dispatched on 14.07.05, after expiry of six months.
In reply, the respondents submitted that in exercise of the powers vested in them under second proviso to section 45 of the Sales Tax Act, 1990 and under section 33(3) of the Central Excises Act 1944, they had the power to regulate the system of adjudication, including transfer of cases and extension of time limit.
After hearing arguments of both sides and perusal of the relevant record, the FTO observed that the case had actually become barred by the time, way back in December 2002 (as per time limitation prescribed under section 33 (3) of the Central Excises Act) and in second week of March 2003 (as per time limitation prescribed under section 36(3) of Sales Tax Act, even if the initial period of 45 days had been extended by the competent authority by another 90 days, though no evidence of such an extension was made available).
He further observed that whereas according to Proviso of section 45 of the Sales Tax Act, 1990, extension could be granted only in "exceptional circumstances" but while doing so, valuable rights of the assessee must be kept in mind.
The FTO noted that the order-in-original was passed on 11.01.05 but it was dispatched to complainant on 14.07.05. "An order passed on the file but not communicated to the affected party within the prescribed time limits or within the extended period of time cannot be treated as having been passed within the prescribed time limits" he ruled.
The FTO said that he had already held in another complaint involving sales tax liability that ".... Show-cause notice was issued on 16.06.2002 and order-in-original was passed on 13.05.03 after about 11 months of the issuance of notice which is clearly hit by time limitation as provided in law; "Maladministration is established", therefore impugned order be cancelled.
FTO said that CBR represented against his decision before the President of Pakistan but the President rejected the departmental representation with the following observations.
"The department contends that the time limit under section 36(3) ibid was merely directory and not mandatory. The contention does not seem to be valid. Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory but where a public functionary is empowered to create liability against a citizen only within the prescribed time it is mandatory. The FTO's decision must be sustained."
He said that while rejecting CBR's contention the Presidential order had laid down the principle that "where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory".
FTO observed that in the present complaint charges against the complainant were framed both for infringement of the provisions of Sales Tax Act and Central Excises Act vide show-cause notice dated 26.10.02 , decided on 11.01.05 much beyond the prescribed time limits.
As in the combined impugned order passed in this case he said , the CBR functionaries had created liabilities both of sales tax, along with additional tax and central excise duty and penalties but failed to pass the order within the prescribed time limits, the ruling contained in the above-mentioned judicial precedent will apply not only to sales tax but also to central excise.
He said that the impugned order, as a whole, is hit by time limitation as provided in law and the CBR's objection to FTO's jurisdiction to investigate the complaint was misconceived. "They have violated the provisions of law, 'Maladministration' stands clearly established.
In view of the foregoing position and FTO's decision in complaint No 805/03, as sustained by the Presidential order dated 07.5.05, FTO held that the impugned O-I-O was not sustainable because it was clearly hit by time limitations as laid in law and cancelled.