In a recent order, the FTO has directed the FBR that the tax authorities should issue instructions, through a Sales Tax General Order, that declarations made in the income tax returns shall not be made basis for assessment of sales tax unless the registered person is provided a reasonable opportunity of hearing, and the advance income tax withheld duly shown in the income tax return is accounted for.
Details of the case show that the complaint was directed against the order-in-original (O-i-O) No.41/2011 dated 31-5-2011 passed by Assistant Commissioner, Audit Div-II, Zone-II, RTO, Islamabad, alleging that the impugned order was arbitrary, oppressive and had been passed in utter disregard of law and procedure by ignoring reply to the show-cause notice. It was also contended that the O-i-O had been passed to create a frivolous demand to meet the revenue targets assigned to the FBR.
The complaint was sent to Secretary, Revenue Division, on June 25, 2011. A reply dated 11-7-2011 signed by Commissioner Inland Revenue, Zone-II, was received through the Second Secretary (TO-II), FBR on 14-7-2011. The Complainant also submitted a rejoinder dated 22-7-2011 on the reply from the Respondent.
During the hearing, the authorised representative (AR) contended that the complainant was predominantly engaged in providing and rendering of consultancy and other services to customers, besides occasionally supplying taxable goods under consultancy contracts. The Complainant regularly filed sales tax returns for each tax period. He also filed income tax return for the tax year 2010. The Assistant Commissioner, inland Revenue, deliberately and wilfully issued a show-cause notice for levy of sales tax on the income derived from providing and rendering of consultancy services which were otherwise not falling in the ambit of the Sales Tax Act, 1990. The Complainant submitted a detailed reply along with specimen of invoices for providing consultancy services, but the Assistant Commissioner, Inland Revenue, dismissed the reply without seeking any additional information or providing adequate opportunity of hearing just to create frivolous and arbitrary demand to meet the revenue targets of FBR. The AR produced the relevant records and requested that the DR may examine the records before advancing arguments.
After thorough examination of the record, the departmental representative (DR) stated that the Department was willing to rectify the O-i-O, in exercise of powers conferred under Section 45A of the Sales Tax Act, 1990 provided the Complainant supplied photocopies of invoices of consultancy services. The AR agreed to provide the requisite photocopies.
According to the findings of the FTO, in view of above stated facts, it is evident that the impugned O-i-O is arbitrary, oppressive, and passed without applying proper care and due diligence, which is tantamount to maladministration under Section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.
The FTO has recommended to the FBR to direct the Commissioner, Zone-II, RTO, Islamabad to call the record and rectify the impugned O-i-O under Section 45A of the Sales Tax Act, 1990. The FBR should issue instructions through a Sales Tax General Order that declarations made in the Income Tax Returns shall not be made basis for assessment of Sales Tax unless the registered person is provided a reasonable opportunity of hearing and the advance income tax withheld duly shown in the Income Tax Return is accounted for and submit compliance report within 30 days.