The Federal Tax Ombudsman, former Justice Munir A. Sheikh, has instructed the Central Board of Revenue to refund Rs 58.192 million to a complainant of Peshawar. The complainant is a consortium of three parties namely the Nayab International, the Ashad Export, and the Zarmina Impex, Peshawar, is engaged in the export of textile products, which are zero-rated under the Act.
Brief facts of the complaint were that: a. Between January 2002 and July 2003, the complainant filed 44 refund claims, which were only partially sanctioned. The rejected/pending refund claims amounted to Rs 58.192 million.
b. The complainant received the refund of input tax on goods exported regularly till December 2001. However, from January 2002, some of the refund claims were blocked by the Collectorate of Peshawar against invoices issued by various suppliers.
c. The complainant received intermittent refund during the subsequent dates against the invoices of those very suppliers whose invoices were blocked on earlier dates.
d. On enquiry as to the reason for blocking the refund it was verbally alleged that the suppliers were black-listed but nothing was given in writing.
e. The complainant enquired from its suppliers about the facts of the case. It was informed that they were suspected of issuing fake/flying invoices. However, later on, it was claimed that their names were struck off the suspected list.
f. In the meantime, the CBR sought information regarding the claims of the complainant and decided to send the case to the ADRC u/s 47A of the Act.
g. The committee was appointed on September 10, 2004 and after long deliberations it gave its decision in favour of the complainant.
h. However, the CBR did not accept decision of the ADRC and in its letter dated July 9, 2005 directed the Collector Peshawar to re-examine the case and report as to whether all the parameters set by the Board had been fulfilled, especially with reference to the requirement of Section 73 of the Act and the deposit of input tax into the government treasury by the suppliers at the time of purchase of goods as claimed by the complainant.
i. The Additional Collector of Sales Tax's standpoint was that chain audit was to be conducted and since it was not done, he could not agree with the recommendations of the committee regarding the issuance of the refunds.
j. As a consequence of the rejection by the ADRC, a number of show-cause notices were issued all dated March 12, 2007.
2: (a) The Deputy Collector (Refund), Regional Tax Office, Peshawar, in his written reply to the complaint stated that the admissible refunds were sanctioned after completion of the process of verification of invoices.
(b) However, the invoices issued by the supplier which were subsequently black-listed could not be sanctioned because the veracity of their payments of input tax could not be ascertained.
(c) DC (Refund) also placed on record a list of 18 suppliers of the complainant against whose invoices the refunds of earlier dates were blocked but allowed on a later dates.
In his detail findings, the FTO observed the CBR has accepted that all the payments made by the complainant to its suppliers through banks, as required under Section 73 of the Act, this section was substituted by Finance Act, 2004 in order to curb spurious transactions. With some effort the provision could prove an effective tool to trace out fake transactions.
He said the department has admitted that nothing untoward was discovered in the banking transactions of the complainant.
He said refunds on the invoices of earlier dates of a particular supplier were stopped but given on those of the same supplier on a later date, therefore, explanation given by the department is not acceptable.
He said it is significant that the sales tax department considered the claim of Rs 32.192 million only against the claim of Rs 58.192 million and the reason given was that many files were missing, whereas there are specific instructions of the government for the maintenance of the record. He said the admitted fact that some of the files were missing indicate that these rules were not followed which goes against the department.
He said the order of the adjudicating authority was made applicable mutatis mutandis on 9 cases. In the order bearing No. 304/2007 the observations were made applicable mutatis mutandis on 10 cases. The departmental case could be accepted only when each case was discussed on its merits, which can differ from case to case.
The FTO observed even the fact that certain suppliers of the complainant were black-listed does not by itself establish that all of their transactions were spurious, therefore, the possibility of some of them being genuine could not be ruled out.
The department could discharge its onus conclusively only by proving each and every invoice to be fake/flying against which refund was denied, this was not done, he added.
He said the department was found to have committed maladministration for inordinately delaying the matter within the meaning of Section 2(3)(ii) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000, for passing the two impugned OIOs which are arbitrary [Section 2(3)(i)(b) and represent a departure from established practice (Section 2(3)(i)(a)].
He recommended that:
-- i. The competent authority to cancel the OIOs and the entire refund amounting to Rs 58.192 million be issued to the complainant.
-- ii. The compliance of the above-mentioned recommendations should reach his office within 45 days of its receipt by the Secretary, Revenue Division.