ISLAMABAD (September 03 2007): The Federal Tax Ombudsman (FTO), former Justice Munir A Sheikh has ruled that the Federal Board of Revenue (FBR) could not de-register a unit/concern/factory unilaterally without hearing the other party. He gave this ruling on a complaint of M/s Lion Box Factory, Karachi, registered as manufacturer with the Sales Tax Department about two decades ago.
The complainant lodge complain with FTO stating that the Department vide letter dated 23.03.2007 de-registered them with retrospective effect from 01.07.2004 on the grounds that their turn-over during 2003-2004 was below Rs 5 million and advised them to apply for fresh registration. Abbas Bhojani, Proprietor of the Factory admitted that their turn-over amount during the period was correctly mentioned in the Department's letter.
But he stated that he was first informed about de-registration vide Department's letter dated 23-3-2007 intimating that they stood de-registered from 01-07-2004.
He added that he had been submitting the Sales Tax Returns regularly on monthly basis along with the summary under section 26 (5) of the Sales Tax Act, 1990 and obtained acknowledgements.
He further stated that sales turn-over during the year 2005-2006 was above Rs 5 million ie Rs 7.213 million while during the current financial year 2006-2007 (upto 07-02-2007), sales had reached Rs 3.249 million.
He complained that the department had withheld Factory's suppliers/customers heavy refunds and as such suppliers made the Factory to suffer a big financial loss of about Rs 1.9 million.
Department stated in its rejoinder that the complainant was de-registered by virtue of Federal Government's Policy announced in budgetary measures 2004-2005 with regard to sales tax payers having turn over of less than Rs 5 million during the period 2003-2004.
It was stated that Federal Government abolished the Turn Over Tax/Enrolment Scheme and rationalised the exemption threshold by raising the ceiling to Rs 5 million for both manufacturers and retailers vide CBR letter dated 30-6-2004.
Accordingly all the manufacturers and retailers enrolled under section
14 of the Sales Tax Act, 1990 whose annual turn over during the last 12 months was below Rs 5 million stood de-registered with effect from 01-07-2004, it added.
Department further stated that the complainant submitted an application for restoration of registration which was forwarded to the Central Registration Office, CBR, Islamabad on 10-01-2007 but it was not acceded to vide CBR' s letter dated 12.3.2007.
During the hearing, Complainant reiterated the points stated above and prayed for restoration of registration with retrospective effect. Complainant stated that some other units were not deregistered although they did not fulfil the above said requirements.
The FTO said when he asked about pendency of the above said application, Assistant Collector promised to take up the case now with CBR forwarding the request duly recommended within two days and endorse its' copy to this office. He preferred to remain silent when inquired about the refund cases.
FTO observed that Assistant Collector did not forward copy of letter to CBR as advised although he was reminded over phone twice. In his findings, the FTO said it has been established that the Department, in accordance with the CBR's directive in the budget measures of 2004-2005, correctly but unilaterally deregistered the complainant's unit as no intimation to this effect was given to them.
The unit remained under impression that it continued to be a registered unit and kept on filing monthly sales tax returns regularly and also submitted summaries of invoices under section 26(5) of the Sales Tax Act. On the complainant's part it remained registered because there was no negative response on receipt of monthly returns.After a gap of three years, intimation was given vide letter dated 23-03-2007 that the unit had been deregistered w.e.f. 0 1-07-2004, he noted.
It was admitted by the Department that it was in its knowledge that during the year 2005=06 the annual turnover had exceeded the ceiling of Rs 5 million and the turnover was Rs 7.213 million but it did not restore the registration or ask the complainant to apply for and obtained registration w.e.f. 0 1-07-2005, he observed.
The FTO concluded that this was clearly a case of maladministration on the part of the Department because the complainant all the time presumed that it was a registered unit and was keen to remain so but the Department did not take appropriate action even when the turnover exceeded the ceiling.
It was also an act of maladministration that under CBR's order the unit was deregistered but complainant was not informed, although it might have published news in one particular newspaper as told, he ruled. The FTO said that it had also been noticed that Departmental representatives attending hearings were neither fully conversant with the facts of the case nor they did fulfil the promises made before this office. They also sought several adjournments.
Their attendance was not punctual and regular and when they did attend hearing they did not report any progress as promised by them. In light of these findings, the FTO recommended to FBR to”
a) restore registration of M/s Lion Box Factory with effect from 01.07.2005;
b) direct the concerned Departments to ensure that representatives of the Department attend hearings with punctuality and regularly
c) . Compliance be reported to this office within forty five days.