JAFFER BROTHERS (PVT.) LTD. Versus RESOURCE MOBILISATION AND TAX REFORMS COMMISSION

ORDER

The petitioner has challenged in this petition the purchase of computer machines by respondent No.1 from respondent No.4, for use in different tax departments of respondent No.3, namely, the Customs, Income Tax and Central Excise, as mala fide, without lawful authority and of no legal effect. The petitioner has also sought a declaration that the propriety certificates issued by respondent No.3 for purchase of computer machines of respondent No.4 for Income tax and Central Excise Department are mala fide and illegal.

Comments in the case were called for, which have been filed by respondent No.1. We heard the learned‑ counsel for the petitioner, respondent No.1 and the learned Attorney‑General of Pakistan who was assisted by Mr. Nizam Ahmed, DA.‑G. and by a short order dated 4‑3‑1992 dismissed the petition summarily. These are the detailed reasons for the short order.

On 7‑9‑1991, respondent No.1, invited applications from experienced software services organisation for pre‑qualification to carry out the development and implementation of computer based information processing system in selected areas of the tax department of the Federal and Provincial Governments. On 14‑9‑1991, respondent No.1 issued another advertisement inviting applications for pre-qualification from reputed suppliers for supply of computer hardware required for information processing system in selected areas of Tax Departments of Federal and Provincial Governments. In both the advertisements it was specifically mentioned that after receiving pre -qualification proposals, respondent No.1, will identify a short list of suppliers to whom detailed tenders will be issued for submission of technical and financial proposals. It appears that 24 firms applied to respondent No.1 for prequalification in response to the abovementioned advertisements. Out of them 7 applications were rejected by respondent No.1 outright, as they were found deficient and lacking in particular information of the remaining 17 applicants, four had applied for pre-qualification both as software developers as well as hardware vendors. They were asked by respondent No.1 to select any one of the category, namely, the software development or hardware vendors. These four firms finally opted for pre-qualification as computer hardware. vendor only and thus they were excluded from the list of software suppliers. The capability of remaining 13 software development firms was evaluated and M/s. System (Pvt.) Ltd., which secured the highest mark was awarded the contract for development of software. The petitioners Nos.1 to 3 and respondent No.4, which had pre-qualified as hardware vendors were issued tender documents for supply of computer hardware and were asked to submit their respective technical and financial proposals separately to respondent No.1 by 30‑10‑1991. The tender evaluation committee of respondent No.1 which met on 30‑10‑1991 approved the evaluation criteria by allocating marks on different aspects of the proposals and also decided that the financial proposal of only these bidders would be opened for consideration which obtained at least 75 marks, which was set as the minimum qualifying marks. On the basis of the evaluation criteria approved by the Tender Evaluation Committee of respondent No.1 the technical proposals of only petitioner No‑1 and respondent No.4 secured the required qualifying marks with petitioner No‑1 having a slight edge over respondent No.4. Accordingly, the financial proposals of petitioner No.1 and respondent No.4 were opened by respondent No.1 for consideration. After scrutiny of financial proposals of petitioner No.1 and , respondent No.4, it was found that the prices offered by respondent No.4 were lower by 35.6% (Rs.12,417,600) when compared with the prices of petitioner No.1. In addition to this price difference, respondent No,4 had also given an `upgrade option' of the existing IBM computer system in the customs, which meant a further, reduction in the prices of respondent No.4 by Rs.2,442,500. Respondent No.1 accordingly, accepted the `upgrade option' of respondent No.4 and placed the order for supply on 12‑12‑1991. According to comments of respondent No.1, which are not disputed, supply/deliveries were commenced in December and were finalized by 25‑1‑1992 and respondent No.4 were paid off on 4‑2‑1992 upon installation and running/ satisfaction certificate. After installation of IBM AS/400 Model D500 Computer System in the Customs, respondent No.1 recommended to respondent No.3 for acquiring the same computer system for Income tax Department as well. It appears that before the recommendation of respondent No.1 the Computer Wing of Income Tax Department had already expressed its preference for acquiring IBM AS/400 Computer range and as such respondent No.3 issued a proprietary certificate for purchase of IBM Computer System on 17‑12‑1991. According to the comments filed in the case, the order for supply of computer to Income Tax Department, Karachi was placed on respondent No.4 on 17‑12‑1991, the goods were supplied by 1‑2‑1992 and payment was made on 8‑2‑1992. Similarly, the contracts for supply of computers to Income Tax Departments, Lahore/Rawalpindi were signed on 23‑1‑1992 between respondents Nos.1 and 4. ‑On 2nd July, 1992, respondent No.1 wrote to respondent No.3 that IBM AS/400 Computer System has already been installed in the Customs and Income Tax Departments and as such it recommended for acquiring the same computer system for Central Excise Department as well and requested for issuance of a proprietary certificate to enable it to purchase the required computers for Central Excise Department. Respondent No.3, issued a proprietary certificate for purchase of IBM System AS/400 Computers for Central Exise Department on 5‑1‑1992, and it appears that a letter of intent for purchase of the computer for Central Excise Department has been signed on 8‑2‑1992 and the contract with respondent No. 4 has been finalized on 17‑2‑1992.

Mr. Makhdoom Ali Khan, learned counsel for petitioners while assailing the purchase of Computer hardware by respondent No.1 from respondent No.4 and the issuance of proprietary certificates by respondent No.3 for purchase of same computer system as was installed in the Customs, for Income Tax Department and Central Excise Department, raised the following contentions:‑‑‑

(1) That at the time of issuance of tender the petitioners were not informed that in the event of acceptance of their bid the same computer machine would be required for other departments of respondent No.3 as well and as such, the petitioners could not make their bids competitive as compared to respondent No.4, which was aware of these facts as the business partner of respondent No‑4 M/s. System (Pvt.) Ltd., was already appointed as consultant by respondent No.1 for carrying out system analysis and software development for computerization of the Tax Department of respondent No.3, before issuance of the tender.

(2) That the decision of respondent No.1 to purchase the same Computer machine which was installed in Customs, for other departments of respondent No.3 was arbitrary and designed to favour respondent No.4 at the expense of other competitors.

(3) That the purchase orders for the machines placed on respondent No.4 was not based on open and fair dealing but was the result of unilateral and secret deal between respondents Nos.1 and 4 on the basis of proprietary certificate issued by respondent No.2/respondent No.3 on the dictation of respondent No.1; and

(4) That respondent No.1 had no authority under the law to purchase the computer machines for the use of the departments of respondent No.2 and as such respondent No.1 exceeded its term of reference by ordering purchase of these machines for the Customs, Income Tax and Central Excise Departments.

We will first deal with the last contention of the petitioners as it relates to the very jurisdiction of respondent No.‑1 to enter into the contract for purchase of computer machines from respondent No.4. Respondent No.1 was constituted by Federal Government vide SRO No.124(I)/91 dated 14‑2‑1991 which reads as follows:‑‑‑

"CONSTITUTION OF RESOURCES MOBILIZATION AND

TAX REFORMS COMMISSION

Notification No.SRO 124(1)/91, dated 14th February, 1991: ‑‑The Government of Pakistan hereby constitutes a Resources Mobilization and Tax Reforms Commission.

The following shall be the composition of the Commission:

1. Senator Syed Mazhar Ali Chairman

2. Mr. H.U. Beg Member

3. Mr. H.N. Akhtar Member

4. Dr. Hafiz A.Pasha Member

5. Mr. Aftab Ahmed Member/Secretary

The Commission may co‑opt such other members as it may deem fit.

2. The terms of Reference,of the Commission are as follows:‑‑‑

(a) to assist in the implementation of the Recommendation‑ of the Committee on Tax Reforms;

(b) to bring about, inter alia, structural reforms in tax system, through:‑‑‑

(i) a workable Capacity Taxation System in the field 'of Central Excise;

(ii) institution of a fixed or presumptive Tax System in Direct Taxes;

(iii) Restructuring of the Customs Collection System:

(iv) broadening the tax‑base and increasing the proportion of direct taxes;

(c) improve the tax administrative system. With a view to minimizing the use of discretion, simplifying forms and procedures, removing anomalies in introduction of comprehensive computerization, developing a data base and restoring the dignity of the tax‑payer;

(d) recommending any other measures that would improve the recourses of the Federal and Provincial Governments. ,

3. In order to elicit public opinion, the Commission may issue questionnaires, hold public hearings and examine witnesses and documents.

4. Necessary Secretariat Services for the Commission will be provided by the Central Board of Revenue:'

The composition of respondent No‑1 has been changed by the Federal Government from time to time and the present composition of the Commission has been constituted on 22‑11‑1991 is as follows:‑

"1. Syed Mazhar Ali Chairman

2. Mr. Hafeez Pasha Member

3. Mr. H.U. Beg Member

4. Mr. Ibrahim Sidat Member

5. Mr. Naseem Zafar Member

6. Mr. Nawab HaiderNaqvi Member

7. Mr. Aftab Ahmed Member/Secretary.

Para. 2 of the notification dated 14‑2‑1991 conferred wide powers on respondent No.1 and in our view the terms of reference were wide enough to include the power to negotiate for purchase of computer system for the tax departments of respondent No. In addition to it alongwith the comments respondent No.1 has filed a copy of the letter dated 22‑6‑1991 addressed by it to Minister of Finance and Economic Affairs, Government of Pakistan, which reads as follows:‑‑‑

June 22,1991.

"Senator Sartaj Aziz,

Minister for Finance

Economic Affairs,, . .

Government of Pakistan,

Block `Q', Pak Secretariat,

Islamabad.

Subject: 1991‑92 BUDGET: IMPROVEMENTS IN THE EXISTING TAX

SYSTEMS THROUGH COMPUTERISATION

Dear Sir,

The 1991‑92 budget is historic, as about Rs.10 billion are being generated through undertaking improvements in the existing tax system, whereas in the previous budgets the budget measures with additional taxes, used to be about 6 to 7 billion rupees only. To achieve this gigantic target, it is essential that all necessary measures are adopted at the earliest. In this connection the most important measure is the installation on priority basis of suitable computer systems (alongwith data transmission and communication links), in all the tax departments and the CBR. However, if the conventional Government procedures are followed, computerisation would take a very long time resulting in colossal loss of revenue, loss of revenues is one thing the nation cannot afford. Therefore, it is of utmost importance that computerisation of the tax departments be carried out on a war‑footing, and furthermore, one Central agency be delegated the powers for its implementation.

At present, computerisation by each tax department is being carried out independently, with the result that the computers in one tax department are incompatible with those of the other departments. The operating systems are different, the programming languages are different and the hard wares are different integration and compatibility between the computers of all tax departments is essential.

Sometime back, while discussing the subject, we had offered our services for carrying out the computerisation of the tax departments. A few days back, again this subject was discussed by your kind self with the undersigned, when it was agreed that the computerisation, automation and establishment of suitable communication links between the tax departments and CBR, should be entrusted to the Commission. Accordingly we would be highly obliged if in this connection necessary formalities are carried out at an early date, ensuring the following:

(a) The Commission be empowered to carry out the creation of data bases, computerisation and automation of the Tax Departments and the Central Board of Revenue, alongwith the establishment of modern communication links between' them. In this connection the Commission be authorised to have the powers of the Government.

(b) Necessary funds in this regard be placed at the disposal of the Commission.

(c) The Commission be empowered to negotiate with and engage companies/firms having experience in systems analysis, computer programming, etc.

(d) The Commission be further authorised to arrange necessary hardware, communication links, arrangement of necessary space, air conditioning, furniture, standby generators, equipment uninterrupted power supply etc., alongwith necessary peripheral and auxiliary equipment.

(e) Commission, be further authorised to either take steps outlined in `c' and `d' together, to suitable vendors who have experience of carrying out both functions combined.

(f) Hiring of necessary staff in connection with computerisation, automation and establishment of communication links.

(g) Any other items/measures which may be necessary for speedy creation of data bases, computerisation, automation, establishment of communication links, Management Information Systems, etc.

(h) Negotiations with the World Bank, Asian Development Banks, UNDP and other loan‑giving and technical assistance organizations etc. to obtain computer hardware, communication links, software and the services of firms of systems analysis and computer programmers etc.

Since the end‑user, is the Central Board of Revenue and its tax departments, all computerisation will, of course, be designed keeping in view their requirements.

You will be pleased to know that we have already arranged some meetings regarding computerisation of "valuation" and "warehousing" of Customs House, and creation of data‑base of Tax Payers in the Income Tax Department. In this connection, the Customs, Sales and Excise Departments have already supplied us with their ultimate requirements of computerisation, which will be broken‑down into short term and long term implementation plans. The Income Tax Department is at present in the process of preparing a similar brief, which we hope to obtain very soon.

Hoping that you will find that above in order, and awaiting to hear from you.

I remain,

Yours faithfully, (Sd.)

(Syed Mazhar Ali)

Chairman:'

The above letter of respondent No.1 was replied by the Minister of Finance, as under:‑

MINISTER FOR FINANCE AND ECONOMIC AFFAIRS GOVERNMENT OF PAKISTAN

D.O.No.2349‑FM/91 Islamabad the 27‑6‑1991.

Subject: 1991‑92 BUDGET, IMPROVEMENTS IN THE EXISTING TAX SYSTEMS THROUGH COMPURTERIZATION

Dear Senator Mazhar Ali,

I am grateful for your letter dated 22 June, 1991 on the above subject. I fully share your view that to realize the additional revenues from improvements in the tax system, as visualized in the budget, all necessary measures have to be adopted at the earliest.

2. In this context we 'welcome your proposal that the Resource Mobilization and Tax Reforms Commission should be empowered to carry out the creation of data‑bases, computerization and automation of the Tax Departments and the Central Board of Revenue, alongwith the establishment of modern communication links between them. We will be pleased to give the Commission the powers and the resources necessary for this purpose to carry out the activities and steps outlined in para. 3 (c‑g). As for negotiations with aid‑giving agencies mentioned in para. 3(h), this should be undertaken in consultation with EAD and participation of CBR.

3. As soon as possible, we would like to have an estimate of the funds that will be required for this purpose in 1991‑92 and a time schedule for the completion of the first phase of computerization.

4. I will also like to have a meeting with the Commission, hopefully by the middle of July, to discuss the overall follow up of the Taxation proposals in the budget specifically with regard to the Commission's participation in the implementation process.

With regards,

Yours sincerely, (Sd.)

(SARTAJ AZIZ)."

The above correspondence was followed by the following memorandum issued by the Finance Division:‑‑‑

"No. 10170‑FS/91. GOVERNMENT OF PAKISTAN FINANCE DIVISION

Islamabad, July 1, 1991

MEMORANDUM

Chairman, Resource Mobilization and Taxation Reforms Commission is hereby authorised to arrange computerization of the Tax Departments as well as Central Board of Revenue, in consultation with the relevent Members of the Central Board of Revenue.

(Sd.)

(SAEED AHMAD OURESHI),

FINANCE SECRETARY.

Senator Mazhar Ali,

Chairman,

Resource Mobilization and

Taxation Reforms Commission,

Karachi:"

After going through the Notification issued by Federal Government constituting respondent No.1 and the dof`uments reproduced above we are of the view that respondent No.1 was competent and authorised to enter into the contract with respondent No.4 for purchase of computer machines for use in the departments working under respondents Nos.2 and 3. Apart from it the petitioners having participated in the tenders issued by respondent No.1 and having failed to get the contract cannot turn round and question the authority of respondent No.1 to invite tenders.

The next objection of the petitioners is, that the contract for purchase of computer machines was awarded by respondent No.1 to respondent No.4 by unfair means and mala fide. It is urged that at the time of issuance of tenders the petitioners were not made aware of the fact that in case of acceptance of their tender the same machines will be required by respondent No.1 for other departments of respondent No.2 and as such they could not make their bids competitive; while respondent No.4 was aware of these facts as its business partner was the consultant of respondent No.1, and accordingly respondent No.4 made his bid more competitive keeping in view the future sale prospect of its machines. It is also contended that the issuance of proprietary certificates by respondent No.2 to enable respondent No.1 to purchase computer machines for Income Tax and Central Excise Departments was illegal and mala fide as no fresh tenders were issued for purchase 'of computer machines for these departments and the deal was finalized secretly between respondent No.1 and on the basis of proprietary certificates issued by respondent No.2.

4. The contentions of the petitioners have no force. Respondent NO in its comments filed in the above petition has set out in detail the reasons for appointment of M/s. System (Pvt.) Limited, as consultant of respondent No.1. The petitioners have not denied the assertions of respondent No.1. It is quite obvious from the comments that the appointment of M/s. System (Pvt.) Ltd., as consultant of respondent No.1 was made openly on a competitive basis purely on merit, because of their vast experience in the field of computer consultancy. It is admitted before us by the learned counsel for the petitioners that M/s. Systems (Pvt.) Ltd., were appointed as consultant of respondent No.1, much before the issuance of pre-qualification tenders by respondent No.1 and petitioners were aware of this fact when they submitted their bids to respondent No.1. The petitioners raised no objection at the time of submitting their bids to respondent No.1 that presence of M/s. System (Pvt.) Ltd. as consultant is likely to cause prejudice to petitioners or advantage to respondent No.1 The petitioners having participated in the bidding with notice of all the material facts cannot, now raise objection to the validity of the bidding process after they failed to get the contract. The respondent No.1 has clearly stated in their comments that the computers were purchased by them directly from IBM (respondent No.4) and that M/s. System (Pvt.) Ltd., did not act as GMA of IBM (respondent No.4). Respondent No.1 has also annexed with their comments a letter from IBM certifying that no commission was paid to any firm or person in connection with the sale of IBM Computers to respondent No.1. These facts clearly show that there was no underhand deal between respondents Nos.1 and 4 in connection with the purchase of computer machines. The admitted position in the case is that the prices offered by E respondent No.4 for their computer system were about 40% less than the prices offered by petitioner No.1 and as such the acceptance of the bid of respondent No.4 by respondent No.1 was not only justified but perfectly legal and in the interest of public exchequer. In addition to it, the preference expressed by respondent No.1 to have same computer system in various tax departments of respondent No.2 was based on sound technical judgment and did not suffer from lack of bona fides on the part of respondent No.1. The contention of the petitioners that at the time they submitted their bid for supply of computers to Customs Department they were not aware that in case their bid is accepted the same machine will be required for other departments of respondent No.3 is devoid of any force. The advertisement issued by respondent No.1 inviting applications for prequalification clearly stated that the machines were required for selected areas of the tax departments of Federal and Provincial Governments. No particular tax Department was mentioned in these advertisements. There was sufficient indication in these advertisements that the machines were required for more than one tax departments of Government. No case for interference is made out. Dismissed summarily.

A.A./J‑142/K Petition dismissed.