NEW SHALIMAR STEEL INDUSTRIES (PVT.) LTD. VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2015 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1674 (2015)

Sales Tax Act (VII of 1990)---

----Ss.10 & 74---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.10---Complaint---Post-refund audit---Withdrawal of complaint---Obtaining inadmissible refund of huge amount of Rs.102.04 million by concealment of duty free/sales tax free import of input materials by complainant company was under post refund audit with Directorate General of Inland Revenue Audit under instructions of Federal Board of Revenue---No justification existed for allowing withdrawal of complaint at such stage---Federal Ombudsman recommended the Directorate General of Inland Revenue Audit to expedite post-refund audit of complainant company to complete it within a reasonable period of time---Ombudsman also recommended to recover inadmissible amount of refund obtained through concealment of duty free/tax free import of input materials and to proceed under law against those found responsible for fraudulent claim of refund---Withdrawal of complaint was rejected in circumstances.

CST, Zone-A, Lahore v. Chenab Textile Mills Ltd. (1980) 42 Tax 140 and 2007 SCMR 818 ref.

Umar Farooq, Advisor Dealing Officer.

Akram Niazami, Faisal Naseer Rana and Shahid Rafique Authorized Representatives.

Asim Majid Khan, CIR Departmental Representative.

FINDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.--The complaint was filed in terms of Section 10(1) of the FTO Ordinance, 2000 (the Ordinance) against indecision and lack of response by FBR on the Complainant's application dated 16-8-2013 for condonation of time bar involved in his refund claim.

2.The complaint was referred for comments to the Secretary, Revenue Division in terms of section 10(4) of the Ordinance. In response, the FBR filed para wise comments vide C.No.2(91)EX2012/ 50358-R dated 2-4-2014 inter alia including the following disclosures:

(i)it may be noted that the Complainant has concealed the facts that he made imports, without payment of customs duty and sales tax, into Manufacturing Bond. However, he claimed refund/repayment of sales tax under S.R.O. 308(I)/2008 dated 24-3-2008 under which the amount of sales tax repayable has been fixed on the basis of calculation that sales tax has been paid on all the inputs used. Therefore, he has deliberately and consciously claimed a wrong benefit, causing loss to the exchequer;

(ii)the claim was erroneously processed without considering the fact that the major inputs were procured without payment of sales tax. Therefore, the formula for payment under S.R.O. 308(I)/ 2008 dated 24-3-2008 was not applicable and the refund should not have been held admissible to any extent;

(iv)the RTO erroneously sanctioned the claim, and also condoned delay of twelve months, without properly considering the merits of the case and the law;

(v)in the light of the above submissions, it is clear that the complainant has approached the FTO with unclean hands and mala fide intent. He has concealed the fact of availing the facility of Manufacturing Bond whereunder his major inputs did not suffer any sales tax. Despite that he claimed refund/ repayment under S.R.O. 308(I)/2008 dated 24-3-2008, while violating the basic conditions of time limitation.'

3.During hearing, the parties reiterated the averments of their written pleadings. The DR stated that the complainant's request for condonation of time bar of over one year was examined by the FBR in terms of section 74 of the Sales Tax Act, 1990. As no justification for delay in filing the refund claim was given, the FBR, vide its letter No.2(91)EX2012/50737-R dated 2-4-2014, rejected the request for condonation of time bar in the light of a judgment of Hon'ble Supreme Court of Pakistan reported as (1980) 42 Tax 140-CST, Zone-A, Lahore v. Chenab Textile Mills Ltd.

4.Responding to the DR's contention, the AR stated that the complainant had not received the FBR's rejection order and that the Deptt could not challenge the FTO's Recommendations dated 24-4-2012 for refund as these had attained finality and an Assessment Order No.01/2013 dated 8-3-2013 had been issued by the Deputy Commissioner, RTO-1, Lahore. As the amount was held admissible for refund in the aforesaid Assessment Order, there was no justification for the complainant's application to the FBR for condonation of time bar of over one year.

5.The DR disputed these contentions on the ground that the complainant had concealed the fact of duty and tax free import of raw materials under the Customs Manufacturing Bond Facility for Export and unlawfully claimed refund of an amount of sales tax which had not been paid by the complainant on import of raw materials i.e. M.S. Billets. Hence, no amount of sales tax was admissible for refund. As regards the AR's contention of non receipt of FBR's rejection order, the DR explained that due to a typographical error, the FBR's rejection order was addressed, vide letter No.2(91)EX2012/50737-R dated 2-4-2014, to Messrs Shalimar Steel Industries (Pvt.) Ltd, instead of Messrs New Shalimar Steel Industries (Pvt.) Ltd. As both units were located at the same premises, there should not have been any difficulty in reaching the order to the complainant.

6.Responding to the AR's contention that the admissibility of refund had attained finality by virtue of the FTO Findings/ Recommendations in Complaint No.88/LHR/ST(17)/158/2012 and the Deptt Assessment Order No.01/2013 issued by a Deputy Commissioner of Inland Revenue, the DR contended that it was a trite rule of law that decisions derived through falsehood, misstatement or concealment of facts cannot hold ground. The Hon'ble Supreme Court of Pakistan vide its landmark judgment reported as 2007 SCMR 818 (SCP) had decided that when basic order is without lawful authority, the superstructure built on it would have to fall on the ground automatically. As in this case, the complainant had concealed the fact of his availing duty free/tax free import of raw materials (M.S. Billets), no refund of sales tax amount was admissible despite the aforesaid decisions which were made on the basis of concealment of critical facts by the complainant.

7.After conclusion of the hearing process, the complainant sent a letter dated 4-9-2014, duly endorsed by his lawyers, requesting for withdrawal of the complaint which was stated to have been necessitated by 'certain changed circumstances' which were not explained. However, permission was sought to file a fresh complaint, if it was subsequently, required.

8.The complaint and the request for its withdrawal have been examined in the light of written and oral submissions of the parties and documents I n record. It has been observed that the Complainant had previously filed Complaint No. 88/LHR/ST(17)/158/2012 dated 31-1-2012 claiming the total amount of input entitlement of Rs.503,695,467 as per the provisions of sections 7 and 8 of the Sales Tax Act, 1990 (the Act). However, the complainant had filed refund claim under Section 10 of the Act for an amount of Rs.161,447,535 for the 28 month tax period from July, 2007 to October, 2009. As the duty and tax free import of inputs under the Customs Manufacturing Bond Facility was concealed by the complainant, the RTO Lahore sanctioned refund of Rs.31,655,992 for the last six month period as it was not barred by time limitation. Another amount of Rs.70,385,366 was sanctioned by condoning the time bar of twelve months by the Commissioner as its condonation fell in his jurisdiction in terms of S.R.O. 394(I)/2009 dated 21-5-2009. However, an amount of Rs.22,566,170 was rejected on account of over calculation. For the remaining amount of Rs.28,507,125 involving delay of over twelve months in filing the refund claims, the complainant filed condonation request dated 16-8-2013. As condonation of delay over one year lay in the jurisdiction of FBR, the complainant's request was referred to FBR for consideration. The FBR, however, took time to convey its decision, the complainant filed the present complaint.

9.While the present complaint was under consideration of the FTO, the Deptt. discovered that the entire refund claim was fraudulent as the complainant had not paid any sales tax on import of raw material for which the duty free/tax free Customs Manufacturing Bond Facility for Export had been availed by him.

10.On receiving reports that huge amount of refund had been obtained against exports from Manufacturing Bond by six companies including the complainants Messrs New Shalimar Steel Industries (Pvt.) Ltd., and Messrs Shalimar Industries (both located at the same premises) by also abusing the Expeditious Refund System (ERS) facility of the Deptt, the Revenue Division/FBR directed the Directorate General of Internal Audit (Inland Revenue) vide C.No.1(1)Chief(Automation&ST)/ 2014 dated 10-9-2014 to undertake post-refund audit of all sales tax refunds paid to claimants through ERS. Despite that, the complainants filed a Writ Petition No.2343/2015 dated 30-1-2015 in Hon'ble Lahore High Court praying for refund of the balance amount of refund. The Hon'ble High Court directed the Deptt., vide its judgment dated 9-2-2015, to decide the matter within a fortnight. The Deptt is of the view that since the FBR had declined to condone the delay of over one year in filing refund claim, the matter stood settled at that. It also informed the FTO that the matter of inadmissible refund obtained by six companies including the complainant Company by concealment of duty free/sales tax free import of input materials and misuse of ERS was under post-refund audit by the Directorate General of IR Audit.

Findings:--

11.As obtaining in admissible refund of a huge amount of Rs.102.04 million by concealment of duty free/sales tax free import of input materials by the complainant Company is under post-refund audit with the Directorate General of IR Audit under instruction of the FBR, there is no justification for allowing withdrawal of this complaint at this stage. Therefore, the complainant's request for withdrawal of complaint is rejected.

Recommendations:

12.FBR to--

(i)direct the Directorate General of IR Audit to expedite post-refund audit of the Complainant Company to complete it within a reasonable period of time;

(ii)recover the inadmissible amount of refund obtained through concealment of duty free/tax free import of input materials;

(iii)proceed under the law against those found responsible for fraudulent claim of refund; and

(iv)report compliance of (i) above within 7 days 6 and (ii) and (iii) above on completion of post-refund audit.

MH/73/FTOOrder accordingly.