The Federal Tax Ombudsman, Justice Muniar A Sheikh, has ruled that the power to extend time limit vested in the Federal Board of Revenue (FBR) "is neither absolute nor uncontrolled".
Giving his findings on a complaint regarding provisions of Section 36(3) of Sales Tax Act 1990, he said that FBR's powers to extend time for decision of a case are subject to parameters provided by law, ie existence of exceptional circumstances.
"Law has provided this criterion to avoid exercise of such power by the FBR arbitrarily or whimsically and to provide safeguards against undue harassment to taxpayers," he said.
The FTO pointed out that the law has fixed limitation period for decision of a case after the issuance of Show-Cause Notice (S.C.N.), and extension could be made only in exceptional circumstances.
Therefore, he said, unless those exceptional circumstances are brought on record on the basis of which the FBR extends the time, its decision could safely be held to have suffered from illegality and maladministration.
Zeeshan Energy Limited, Faisalabad, had complained that Deputy Collector, Customs, Sales Tax & Central Excise, Faisalabad, had issued a show-cause notice (SCN) on 21.4.2005 asking the complainant to explain why a sum of Rs 2.47 million may not be recovered along with the penalty. A reply along with the supporting documents was submitted.
The complainant argued that under the provisions of Section 36(3) of the Act, the adjudication proceedings were required to be completed within 135 days of the issuance of S.C.N.
No such order was passed within the prescribed time. However, an Order in Original (O.I.O) was passed on 6-01-2006, after the expiry of the prescribed period, it added.
The Deputy Collector, in his written reply, stated that the complainant was manufacturer of electricity. During audit of its case for the period 01-01-01 to 30-06-03 contraventions of certain provisions of the Act were observed. Therefore, the process of issuance of S.C.N and the passage of the O.I.O were undertaken. The complainant also filed an appeal, which was rejected by the Collector (Appeals).
He rejected the complainant's plea that the O.I.O was barred by time on the ground that extension was obtained from the FBR (CBR) which is valid under the law.
WHILE EXTENDING THE PERIOD OF LIMITATION THE CBR GAVE FOLLOWING REASON:
"Hearings are being conducted regularly. It is expected that the case will be finalised within the required period of extension".
In his decision, the FTO said the department's explanation has completely failed to elucidate the "exceptional circumstances", as appearing in second proviso to Section 45 of the Act, under which the CBR could exercise its powers of grant of extension.
He said this action not only falls short of specific legal requirement, it is also perverse, arbitrary and oppressive, falling squarely in the definition of maladministration under Section 2(3) of the FTO Ordinance.
He said that any order or decision based on such an order suffering from maladministration passed or made by the subordinate officer of the Revenue Division could also legally be declared to have suffered from maladministration and jurisdictional defect in the same manner as was the order of the CBR on which it was based.
He said it is a firmly settled law that any superstructure based on illegal or void order has no legs to stand and has to fall on the ground along with the order on which it was based.
The FTO pointed out that extension was sought after nearly 8 months of issuance of S.C.N By this time, the limitation provided by Section 36(3) of the Sales Tax Act had a1ready expired.
He said that in this case, the Revenue Division had failed to give any cogent reason for giving extension of time after the expiry of time, or that it applied its mind in deciding whether the circumstances existed in which this delay took place on the part of the officer of the Revenue Division in not deciding the case and if so, those constituted exceptional circumstances to justify the extension of time.
The decision of the CBR in this case in the absence of any such reasons or findings about existence of exceptional circumstances, therefore, was not only illegal but also suffered from arbitrariness adversely affecting the rights of the taxpayers to treat the proceedings to have come to an end on the expiry of the period of limitation so far as the said show cause notice was concerned.
The FTO advised the competent authority to reopen the impugned Order in Appeal bearing under the provisions of Section 45A of the Sales Tax Act, 1990 and annul the aforesaid O.I.O as being hit by time limitation as provided in the law as well as annul the Order In Appeal for illegally upholding the time-barred O.I.O and may proceed in accordance with the provisions of law.