MUHAMMAD JAMEEL Versus SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No.182/Lhr/ST(09)/301/2010, to Complaint No.186/Lhr/ ST(13)/305/2010 and Complaint No.188/Lhr/ST(15)/307/2010 to Compliant No.198/Lhr/ST(25)/317/2010, decided on 7th May, 2010.

Result: Order accordingly.

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Summary

This matter involves sixteen identical complaints concerning the delay in sanctioning refunds of Sales Tax unlawfully collected by the Forest Department on the sale of standing/live trees on behalf of the Revenue Division. The core legal questions relate to whether live trees are exempt from Sales Tax as agricultural produce, whether the Federal Tax Ombudsman has jurisdiction to entertain complaints regarding refund delays, and whether refund claims can be denied on the ground of limitation or technicalities. The Federal Tax Ombudsman held that live and standing trees are exempt from Sales Tax under the law and FBR clarifications without distinction between fruit and non-fruit trees, and that the State cannot retain money collected without lawful authority. The Federal Tax Ombudsman recommended that the FBR direct the concerned officials to sanction the due refunds within thirty days by condoning any delay, effectively circulate the non-taxability of trees to prevent further unlawful collections, and ensure refunds in similar cases within sixty days.

Questions settled in this judgment

Whether live and standing trees are exempt from the levy of Sales Tax as agricultural produce?
Does the Federal Tax Ombudsman have jurisdiction under section 9(2)(b) of the FTO Ordinance, 2000 to entertain complaints regarding delay in sanctioning tax refunds?
Can the refund of Sales Tax illegally collected on exempt items be denied on the ground of delay in filing the claim?
Whether the State has the lawful authority to retain money collected from a citizen without the authority of law?

Laws & provisions referred

sales tax refundexempt goodsstanding treesagricultural producefederal tax ombudsmanjurisdiction

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.--- These are sixteen identical complaints involving common issue of delay in the sanction of refund of Sales Tax which was unlawfully collected from the buyers of standing trees/live trees by Forest Department on behalf of the Revenue Division.

2.The complainants claim that they purchased different lots of standing trees in open auction from the Forest Department of the Government of the Punjab. The Divisional Forest Officer acting on behalf of the Revenue Division collected Sales Tax from the complainants. It is alleged that recovery of Sales Tax was contrary to law and the instructions of the Federal Board of Revenue issued vide letter C.No.1/105-STT/98 dated 10-9-2003 whereunder it was clarified that trees were exempt from levy of Sales Tax. The complainants approached RTO Multan for refund of Sales Tax but their claims were not considered. They have further submitted that if any delay occurred in the filing of claims the same might be condoned in view of particular circumstances involving recovery of Sales Tax on exempt goods. They have supported their claim with earlier decisions by the honourable Federal Tax Ombudsman in Complaints No.120/2003, 1674/2003 and 440-L/2008 to 443-L/2008 whereby collection of Sales Tax on an exempt item like live trees by the Divisional Forest Officers was held unlawful.

3.The complaints under reference were sent to the Secretary Revenue Division for comments in terms of section 10(4) of the FTO Ordinance, 2000. In his comments received through the Revenue Division, the Commissioner, RTO, Multan has stated as under:--

(i)As per section 9(2)(b) of the FTO Ordinance, 2000 the jurisdiction to entertain complaint relating to assessment/ determination of tax liability in which legal remedies are available is not vested with the honourable Federal Tax Ombudsman;

(ii)Legal remedy in the form of Appeal under section 45-B of the Sales Tax Act, 1990 was available to the complainant against Department's failure to sanction refund of amount collected as Sales Tax on the supply of trees;

(iii)The complainants never filed claim of refund amounting to Rs.330,553.

(iv)The complainants have filed complaints on the plea that Sales Tax was collected on trees which fall in the definition of agricultural produce which is exempt from levy of Sales Tax. The complainants' plea for exemption is contrary to the law as the respective heading of Pakistan Customs Tariff PCT 0602.2000 cover only fruit bearing trees whereas the complainants have purchased forest trees which were not exempt from Sales Tax under the category of agricultural produce covered under item No.10 of Table 2 of the 6th Schedule to the Sales Tax Act, 1990.

4.At the time of hearing, the DR stated that refund claims of the complainants were not traceable and so the complainants should provide duplicate copies to enable RTO Multan to ascertain the legal position regarding admissibility of refund after proper verification. He stated that refund was to be claimed within specified time frame as laid down in section 66 of the Sales Tax Act, 1990. The AR, however, contended that honourable Federal Tax Ombudsman in different cases i.e. complaint No.440-L/2008 to 443-L/2008, No.120/2003 and 1674/2003 had held trees to be exempt from payment of Sales Tax, and refund could not be denied on mere technical grounds, even if the claims of refund were filed late. AR pointed out that honourable Sindh High Court in case reported as 2003 PTD 593 titled as Messrs Saleem Haji Rehmat Ullah Dada Karachi v. CIT Karachi ruled that relief available in law to a person should not be denied on account of technicality. He produced copies of two letters dated 3-12-2009 and 7-12-2009 bearing signatures of the Sales Tax officials who had duly received the refund claims. He also provided copies of reminders sent to the Commissioner IRS to expedite the matter. Copies of all the letters and the reminders were provided to the DR.

5.The complaint has been examined in the light of written and oral submissions of the parties. The contention in the parawise comments that the complainants had not filed any refund claim is not maintainable on account of the fact that copies of two letters of the Complainants bearing signature of the Sales Tax Officials in token of receipt of refund claim as well as two reminders [as at para 4 supra] show that the refund claims were not only filed by the complainants but also duly received by the concerned Sales Tax Officers. Moreover, the contention of the Commissioner that the exemption was restricted to fruit trees is incorrect on the following grounds:--

(i)The F.B.R's. clarification No. 1/105-STJ/98 dated 10th September, 2003 says that the trees being agricultural produce are exempt from payment of Sales Tax without qualifying trees into fruit trees and non- fruit trees;

(ii)The exemption under serial No. 12 of the Sixth Schedule is also without qualification of fruit or non-fruit trees as it not only covers heading 0602.2000, but also 0602.9090 which is most relevant to the live trees;

(iii)The FTO Secretariat has already directed in a number of cases including complaint No.120/2003, complaint No.1674/2003 and complaint Nos. 440-L/2008 to 443-L/2008 that the Sales Tax illegally collected by the Forest Officers on the auction of standing trees was unlawful ab initio;

(iv)Upholding the FTO's Findings in complaint No. 440-L/2008 to 443-L/2008, the honourable President had directed, that there was no lawful authority under which the 'State can retain the citizen's money collected from him without the authority of the law' [Honourable President's decision vide F.No.73/08-Law (FTC)) dated April 25, 2009 refers]. Not even section 3B of the Sales Tax Act, 1990 applies in such cases in the light of the honourable President's decision No. 142/2003/FTO Law dated 20-11-2003 in Complaint No.120/2003; and

(v)The F.B.R. had accepted these decisions after rejection of their Representations and allowed the refund of unlawfully charged Sales Tax.

6.As the complainants have lodged complaints against delay in the sanction of Sales Tax refund, there is no question of determination of tax. The provisions of section 9(2)(b) of FTO Ordinance, 2000, therefore, are not attracted. The provisions of Section 45B are also not attracted as no order regarding refund claims under reference had been passed to enable the complainants to file appeal in case of adverse decision.

7.In view of this established position, an appropriate course for the Revenue Division and F.B.R. is to effectively circulate the information among all the Forest Officers that sale and purchase of standing trees/live trees is not chargeable to Sales Tax in order to forestall the chances of repetition of this malpractice of collecting Sales Tax on auction of trees by the Forest Officers.

Recommendations:

8.F.B.R. to-

(i)direct the concerned officials to sanction due refund as per law within 30 days by condoning any delay involved in filing the claims;

(ii)effectively circulate the non-taxability of live/standing trees and plants and take other appropriate measures to forestall the chances of the malpractice of collecting Sales Tax on trees by the Forest Officers;

(iii)ensure that in other similar cases where Sales Tax has been charged on standing trees/live trees despite F.B.R's clarification No. 1/105-STT/98 dated 10-9-2003, the same be refunded to the persons who paid it, within 60 days; and

(iv)report compliance of (i) above within 45 days and (ii) and (iii) within 75 days.

H.B.T./106/FTO Order accordingly.

Judges on this bench

Dr. Muhammad Shoaib Suddle179 judgments
Federal Tax Ombudsman30 judgments