The Federal Tax Ombudsman (FTO), former Justice Munir A. Sheikh, has ruled that assessment and determination of liability of tax falls outside the jurisdiction of the FTO as bar is placed by clause (b) of sub-section of section 9 of the establishment of the Office of FTO Ordinance, 2000.
He, however, said he can hear complaints against arbitrary exercise of power by officials ignoring provisions of law and circular instructions of the CBR and condemning a person/party unheard.
The FTO gave this ruling while disposing of a complaint of the Rakhsani Builders, Railway Housing Society, Joint Road Quetta against deduction of sales tax at source from its security deposit.
Brief facts of the case are that the complainant, duly registered with the sales tax department executed a contract in 2003 with the irrigation department, Quetta, for construction of tube-wells purely for agriculture purposes in the drought-affected area under DIMRC programme funded by the Asian Development Bank, and as per terms of the contract had made some deposit with the department as security.
In 2005, the irrigation department asked the complainant to produce sales tax invoices for pipes installed in the construction of tube-wells failing which it threatened to deduct the sales tax at source from the running bill payment.
The complainant submitted that without prior intimation, the irrigation department deducted sales tax amounting to Rs 2.422 million at source from his security deposit and issued a deduction certificate for this amount.
The complainant approached the Central Board of Revenue (CBR) for reimbursement of the tax so deducted on the grounds that such deduction of sales tax at source was illegal as the Board itself had already clarified vide letter No (47)STB/08(Vol-1) dated 9.4.2002 that no deduction of sales tax at source is to be made because it was not in line with the present Vat-Mode invoice - based sales tax scheme.
He argued that the work done by it was not taxable as it did not constitute supply of movable goods as tube-well is not like goods to supply, but it is an immovable property like building, roads, etc and that by their letter No 4(47) DYB/98 (PT-2) dated April 2, 2002, the CBR has already held that there is no sales tax on immovable property such as building and roads since these are excluded from the definition of goods under the Sales Tax Act, 1990.
Replying to the allegations in the complaint, the additional collector in his written report stated that the deduction of sales tax was made in compliance of the directives of the audit department as the complainant made taxable supply in placement of MS pipes for the installation of tube-wells.
He also stated that words "supply and placement of MS pipes" used in the tender document indicated that the supply of pipes was also made by the contractor. He contended that the supply and subsequent installation of tube-well is a taxable activity under section 3 of the Sales Tax Act, 1990 regardless of the terms of individual contract.
He said the CBR vide letter dated April 2, 2002 has already clarified that installation of tube-well is a taxable activity and that such installation of tube-well does not come within the ambit of construction work and hence is taxable.
After hearing the parties and examining the record, the FTO observed that under section 11 of the Sales Tax Act, 1990, if a person is found not to have paid tax due on supplies made by him or has made short payment, then assessment of sales tax payable by that person has to be made, but no order under the said section can be made unless a show-cause notice is given to the person in default specifying grounds on which it is intended to proceed against him and the sales tax department shall take into consideration the representation made by such a person in this behalf and provide him with an opportunity of being heard.
He said in his case neither any show-cause notice was issued nor any Order-in-Original was passed, therefore, the complainant was denied even of an option to approach the appropriate forum for redress of the grievances if he had felt dissatisfied by such an order.
The FTO observed that the principle of natural justice requires that hearing be granted to a person being condemned unless the relevant statute specifically excludes such an opportunity of hearing.
He said since such an opportunity was denied to the complainant, therefore, the action of withholding the sales tax, being contrary to law and principles of natural justice, is not sustainable and tantamount to mal-administration.
He asked the CBR to direct the authority concerned to examine the matter afresh and process and settle the same on its merits within 60 days of the receipt of this order in accordance with law and facts of the case after providing a reasonable opportunity of hearing to the complainant.