APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.849/IB/2024
ITA No.850/IB/2024
(Tax Years2013, 2014)
ITA No.851/IB/2024
ITA No.852/IB/2024
(Tax Years2016, 2017)
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M/s Sprint Oil and Gas Services,
FZC Plot # 5-B, Main Road, Sector I-10/3, Islamabad. |
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Appellant |
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Vs |
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Commissioner Inland Revenue,
CTO, Islamabad |
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Respondent |
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Appellant By: |
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Mr.Waheed Shahzad Butt, Advocate &Mr. Khurram
Shahzad, ITP |
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Respondent By: |
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Mr. Faisal Mushtaq Dar, CIR Ms. Ishrat Mujahid, ACIR Mr. Osama Idress, Add CIR. |
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Date of Hearing: |
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08.07.2024 |
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Date of Order: |
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08.07.2024 |
ORDER
M. M. AKRAM (Judicial
Member): The appellant taxpayer
has filed the titled appeals as the first appeal under section 131 of the newly
substituted section in the Income Tax Ordinance, 2001 ("the Ordinance")
through the Tax Laws (Amendment) Act, 2024. These appeals are against the
impugned Orders, all dated 02.05.2024, issued by the learned Assistant
Commissioner of Inland Revenue (ACIR), Unit 01, Zone-I, CTO, Islamabad,
for the Tax Years 2013, 2014, 2016, and 2017, based on the grounds detailed in
the memos of appeals. Given the similarity of the facts and issues in these
appeals, they are being addressed through this common order.
2. The brief facts leading to the appeals are
that the appellant is a permanent establishment of a non-resident UAE-based
company that began its business operations in Pakistan in 2004. It provides oil
field services to various Government and Public Sector clients, including
OGDCL, Pakistan Petroleum Limited, and Pakistan Oilfield Limited. The appellant
filed its income tax returns for the cited tax years within the timeframe
specified by law. Taxes deducted at source under various provisions of the
Ordinance for services, imports, banks, utilities, etc., were claimed as
refundable, as they exceeded the admitted income tax liability for all the tax years
under appeal. The filed tax returns were by fiction of law treated as assessment
orders under section 120(1)(b) of the Ordinance. However, the department
initiated income tax audit proceedings for the tax year 2017 and multiple
amendments of assessment proceedings under Section 122(5A) of the Ordinance for
the tax years 2013, 2014, 2015, 2016, and 2017. After examining the records and
considering the relevant laws, a significant income tax demand was created
against the appellant. This demand was challenged in appeals before the
concerned CIR-Appeals and then before the Appellate Tribunal Inland Revenue (ATIR).
A brief history to understand the background is summarized in a tabulated form marked
as annexure “A” with this order. The annexure indicates that the tax
officials are committing severe contempt by disregarding clear orders issued by
higher authorities and the superior judiciary regarding the taxpayer’s refund
claims.
3. The learned ACIR, while proceeding under
section 170(4) of the Ordinance for the tax years 2013, 2014, 2016, and 2017,
assumed jurisdiction in May 2024 to inquire about the status of the Withholding
Tax Deduction (WHT) deducted on account of imports and services. The ACIR
rejected the appellant's claim, treating it as final tax liability (not
adjustable) for all the years under appeal. Additionally, the refund claim for
the tax year 2014 was rejected on the ground that the refund application for
that year was barred by time according to Section 170(3) of the Ordinance as
the application for excess refund was filed on 30.09.2018 after the expiry of
the stipulated time of three years. Aggrieved by these decisions, the appellant
filed direct appeals based on the pecuniary jurisdiction available to this
Tribunal.
4. This case was heard on
25.06.2024, 03.07.2024, and 08.07.2024. Considering the sensitivity of the
matter, the concerned Zonal CIR, Add CIR, and the author of the impugned orders
were also called to appear before the court in person with the complete
records. The learned AR of the appellant reiterated the same grounds as
outlined in the memo of appeal and support thereof, he submitted written
arguments in a booklet form comprising 152 pages. A copy of this booklet was
also provided to the learned IRS officers present to defend the department's
stance. The learned CIR, Add-CIR, and ACIR defended the impugned orders,
arguing that the appellant taxpayer had been filing returns under the incorrect
assumption that WHT deducted at the import stage and for services was
adjustable/refundable income tax, whereas it was a final tax liability. They
contended that the appellant-taxpayer was not operating as an “Industrial
Undertaking” but as a service provider, making the WHT on services provided a
final tax. Therefore, the ACIR rightly rejected the refund claims by treating
it as final tax in the garb of section 170(4) of the Ordinance.
5. The department's representative
also presented written comments supporting their position and stated that
previous unchallenged orders passed by superior IRS functionaries under
Sections 122(1)/177/214C and 122(5A) of the Ordinance were incorrect. They
argued that the new stance of the learned ACIR in the impugned orders from May
2024 was correct. Regarding the binding order passed by the Apex Court in the
Honda Atlas case, all three IRS officers stated that this order was not binding
upon them and was thus rightly ignored and not discussed in the refund
rejection orders. The learned DRs requested the dismissal of the appeals, while
the learned AR for the appellant strongly argued against the department's
stance, calling it flimsy, biased, patently illegal, and vindictive. The AR
presented documents and data relevant to the controversy, including orders
passed by predecessor IRS functionaries in the case, orders by ATIR, and
binding orders from the Hon’ble High Courts and Hon’ble Apex Court on time
limitation and refund laws. The AR requested that the impugned orders be
graciously annulled with special costs and proceed against the respondents in
accordance with law.
6. We have considered the arguments advanced by
both parties and have reviewed the relevant orders and case laws cited by the
learned AR of the appellant as well as the counterarguments by the tax officials
CIR, Add-CIR, and ACIR. The submissions made on behalf of the appellant have substance.
The following questions arise from the records and need to be considered and
addressed by this Tribunal in deciding the instant appeals:-
(i) Whether the mandate of Section 170 of the
Ordinance is limited to verifying whether the claimed refund is supported by
evidence and does not allow the department to go beyond the assessment order
(under Section 120)?
(ii) Whether,
under the facts and circumstances of the case, the department was justified in
assuming jurisdiction under section 170 of the Income Tax Ordinance, 2001, to
determine the amount chargeable to tax and change the classification of WHT
deducted at source to declare some WHT as final tax liability?
(iii) Whether the deemed orders that were later
amended by higher authorities under Sections 122(1) and 122(5A) of the
Ordinance, and subsequently merged into the orders of the ATIR, be overturned
using the refund issuance mechanism in proceedings under Section 170 of the
Ordinance?
(iv) Whether, under the facts and circumstances
of the case, the assessing officer deliberately and willfully committed maladministration
by rejecting the refunds and treating certain WHT as final tax
liability/non-adjustable while assuming jurisdiction under Section 170 of the
Ordinance, despite the presence of amended orders passed by senior IRS officers
under Sections 122(1) and 122(5A) of the Ordinance, which were later merged
into orders passed by the Tribunal?
(v) Whether the limitation for filing a refund
application provided in Section 170 of the Ordinance is mandatory in nature?
(vi) Whether, under the facts and circumstances
of the case, the department's deliberate disregard of the binding order passed
by the Hon’ble Supreme Court on 15.11.2022 in the Honda Atlas case, regarding
the refund mechanism, constitutes a contemptuous attempt to undermine the
authority of the apex court of Pakistan and a grave contempt of court?
ANSWER TO QUESTION NOS. (i) & (ii)
7. We will first address question Nos. (i)
and (ii). To appreciate the divergent views of the parties, it is appropriate
to first examine and review the relevant provisions of Section 170 of the
Ordinance in light of the controversy ultimately decided by the Apex Court of
the country in the case titled CIR, Legal, LTO vs. Honda Atlas Cars
Limited (Civil Petition No. 1129-L/2021) dated 15.11.2022, which
has binding force under Article 189 of the Constitution of Pakistan, 1973. In
the said judgment the question was whether in the exercise of powers under
section 170(3) of the Ordinance, the Commissioner whilst granting a refund to a
taxpayer can re-examine the return filed by the taxpayer which was matured into
a deemed assessment order or not? The Hon’ble court held that:
“…………..None of the actions envisaged by the
above said provision empowers the Commissioner to re-examine the return filed
by the taxpayer either to modify the income declared or the tax liability
accrued thereon. Such a power is vested in the Commissioner and the tax
authorities under different provisions including section 122 of the Ordinance
which have not been invoked in the instant case. Consequently, we agree with
the findings recorded by the three learned fora below that the efforts made by
the tax authorities to revise the tax liability of the respondent taxpayer
amounts to revising the assessment order which is not permissible under
aforementioned provision of the Ordinance. Consequently, this petition is
dismissed.”
Section
170 addresses the conditions, procedures, and powers for issuing or refusing
refunds. The taxpayer needs to disclose (i) the total income of the relevant
tax year, (ii) the tax chargeable on the total income, and (iii) the amount of
tax paid. Based on these declarations, the Commissioner assumes jurisdiction
under Section 170. While exercising this jurisdiction, the Commissioner must
first determine whether the requirements of subsection (2) of Section 170 are
met. Secondly, under subsection (3), the commissioner must verify, through
examining supportive documents, that the tax is overpaid. Upon being satisfied,
the overpaid tax must be refunded. If not satisfied after inquiring into the
correctness of the overpaid tax, the Commissioner shall issue a written order
reducing or refusing the claimed refund, after allowing the taxpayer to be
heard.
8. A review of Section 170 in conjunction
with Section 120 reveals that clause (b) of subsection (1) of Section 120
states, "the return shall be taken for all purposes of this Ordinance
to be an assessment order issued to the taxpayer by the Commissioner on the day
the return was furnished." Therefore, a refund can be claimed
based on an assessment order. If an amount was paid in excess of the chargeable
tax as determined in the assessment order, it can be claimed as a refund under
subsection (1) of Section 170. Section 170 grants the power only to verify
whether the claimed refund is supported by evidence. The relevant provisions do
not suggest that the Commissioner can question the correctness of a return that
has attained by the fiction of law the status of an assessment order.
The assessment order (under Section 120) serves as an
order for all purposes of the Ordinance, including the issuance or rejection of
refunds under Section 170. Therefore, the Commissioner cannot go beyond the
assessment order while exercising jurisdiction under Section 170. If the
Commissioner believes that the tax deducted should be treated as final tax, the
proper course of action would be to assume jurisdiction under Section 122 of
the Ordinance by issuing a Show Cause Notice to propose an amendment to the deemed
assessment order. This issue has been conclusively settled, first by the
Hon’ble Lahore High Court and then by the Apex Court in the case of Commissioner
Inland Revenue, LTO vs. Honda Atlas Cars (ITR No. 2455 of 2021) by
relying on 2016 PTD 377 (LHC) and 2020 PTD 1157 (SC), and finally decided by
the Apex Court in CIR, Legal, LTO vs. Honda Atlas Cars Limited
(Civil Petition No. 1129-L/2021) dated 15.11.2022.
9. Under Section 170, the power to issue a
refund does not include the authority to discuss the nature of the taxpayer's
business or determine whether the income is presumptive, or whether WHT is
final, adjustable, or minimum. The duty of the refunding authorities is limited
to verifying the documents for calculating the refund amount and ensuring that
the tax has been physically paid into the Federal Treasury. Therefore, the
answer to question No. (i) is in affirmative and in favor of the appellant. The
answer to question No. (ii) is in negative and also in favor of the appellant
taxpayer.
ANSWER TO QUESTION NOS. (iii) & (iv)
10. Regarding
question Nos. (iii) and (iv), it is noted that the deemed orders have been
undisputedly amended under Section 122(1) read with Sections 214C and 177 for the
tax year 2017, and under Section 122(5A) of the Ordinance for the tax years 2013,
2014, and 2016. The issues regarding adjustable WHT on account of services
rendered/provided (Sections 153/152) were accepted at the assessment stage, and
in some cases, the tax on imports (Section 148) was accepted at the assessment
and/or appeal stage. Consequently, the deemed order merged with orders passed
under Sections 122(1), 177, 214C, and 122(5A) cannot be disturbed under the
guise of the refund issuance mechanism in proceedings under Section 170 of the
Ordinance. The assessing officer cannot determine, change, modify, or alter the
tax liability of the appellant under the provisions of Section 170 of the Ordinance.
Further, the issues involved in the impugned orders have already been settled
by the appellate authorities and therefore, the matter is now past and closed
transaction. No legal and moral justification exists to reopen the issue which
has attained finality and is a past and closed transaction for all purposes.
Reliance is placed on the case titled Zarai Taraqtati Bank Limited and
Others Vs Mushtaq Ahmed Korai, (2007 SCMR 1698) and Hafiz
Noor Muhammad and Others Vs Ghulam Rasul and Others, (1999 SCMR
705).The appellate authorities after due deliberations, scrutiny of the record,
and proper appreciation of the legal aspects of the issues accepted the stance
of the appellant. Now passing the impugned order by the assessing officer being
the lower authority cannot override the findings of the appellate/higher
authority. Hence, the impugned orders are unsustainable in law.
11. The power to amend an assessment order under
the Ordinance is a different concept with its own parameters, as provided under
Section 122, whereas the claim for a refund is adjudicated under Section 170
with its own attributes. Therefore, the action taken by the learned ACIR under
Section 170 is patently illegal, contrary to law, and a departure from
established practice. It is also perverse, arbitrary, unreasonable, unjust,
biased, oppressive, discriminatory, and based on irrelevant grounds, involving
the exercise of powers for improper motives with extreme administrative
excesses. This state of affairs reflects neglect, inattention, incompetence,
inefficiency, and ineptitude in the administration and discharge of duties and
responsibilities on the part of supervisory functionaries, including the
concerned CCIR, CIR, and Add-CIR. Reliance is placed on the case law titled Commissioner
Inland Revenue vs. Muhammad Ali (2016 PTD 377), followed in an
Income Tax Reference decided on 20.01.2021 in Commissioner Inland
Revenue, LTO vs. Honda Atlas Cars (ITR No. 2455 of 2021) by relying
on 2016 PTD 377 (LHC) and 2020 PTD 1157 (SC), and finally decided by the Apex
Court in CIR, Legal, LTO vs. Honda Atlas Cars Limited
(Civil Petition No. 1129-L/2021) dated 15.11.2022, which held that no power is
available under Section 170(4) to change the nomenclature of taxable income or
tax liability.
12. The learned AR for the appellant further referred
to certain orders where the tax deducted at the import stage (Section 148) and
for services rendered (Sections 153 & 152) was scrutinized under Sections
177 and 122(5A) of the Ordinance, among other queries, including “You are
a persistent refund claimant for the last three years.” The refund
claim for WHT deducted under Section 153 was also questioned and confronted as
minimum tax but was ultimately allowed in favor of the appellant, confirming
that it is not a minimum tax for the taxpayer. Similarly, for the tax years
under appeal, senior IRS officers considered the matter and allowed the Section
152 tax as adjustable WHT while framing assessments under Sections 122(1) and
122(5A) of the Ordinance for all the years under appeal.
Additionally, the appellant's compliance with the
provisions of the Sales Tax Act, 1990, regarding imported materials/chemicals
used to perform services for Oil and Gas sector clients was questioned during a
sales tax audit under Section 25 of the Sales Tax Act, 1990. The current issue
under observation—whether the tax deducted at the import stage is final for the
appellant or adjustable against the normal tax liability—has been sufficiently
answered by predecessor IRS functionaries. They clearly disapproved of the
findings that tax deducted under Section 148 should be treated as minimum/final
tax pursuant to Section 148(7) read with clause (29C) of Section 2 of the
Ordinance.
13. We firmly believe that it is fundamental
that all statutes be applied with fairness and justice, and public
functionaries are constitutionally mandated to act in a just and fair manner.
Every public functionary is obligated to adhere to the commands of the
Constitution, and no one should suffer due to the incompetence of public
officials. Public functionaries are duty-bound to act in accordance with the
law, not according to their personal whims. Everyone must operate within the
framework of the Constitution and the law; otherwise, chaos will prevail, which
is not in the best interests of Pakistan and our nation.
14. It
is deeply troubling to note that the department conceded before the Hon’ble
Chief Justice of Islamabad High Court in W.P No. 3641/2020 by stating in their
report/comments that WHT under Section 153 is an adjustable tax in the hands of
the petitioner/taxpayer. However, despite this acknowledgment, the respondent adopted
a new position in the impugned orders, seemingly to deceive the tax system and
circumvent the course of justice as directed by the Hon’ble Chief Justice in
the unchallenged order issued in W.P No. 3641/2020 dated 20.09.2023. The
comments filed by FBR before the Hon’ble Chief Justice in WP 3641/2020 clearly
expose the reality of corruption and corrupt practices within the tax officials.
These actions suggest a blatant disregard for accountability and an attempt to
deceive the Hon’ble Chief Justice of Islamabad High Court without consequences. For
the tax years under appeal, the department did not argue before the Hon’ble
Chief Justice that either the refunds are time-barred or that WHT claimed as
refundable should be treated as final tax (not adjustable). Instead, they
submitted comments/reports stating that all these years are under litigation
before ATIR, etc.
15. It is important to emphasize here that a
refund becomes due on the date of receipt of the order in appeals.
Unfortunately, the respondents in the instant case (CIR, Add-CIR, ACIR)
blatantly disregard the binding judgments of the Hon’ble Apex Court without any
fear of accountability. During hearings, they assert that the unreported
Supreme Court order in the Honda Atlas Case is not binding on them.There is no
room for "unfettered discretion" in the fiscal laws of this country,
and arbitrary exercise of discretionary powers must be invalidated. As held in
2001 SCMR 256, discretion becomes an act of discrimination when it is
improperly or capriciously exercised, or when there is an abuse of
discretionary authority, resulting in appreciable disadvantages for the person
affected that would not have occurred otherwise. It is evident that they lack
understanding of these fundamental legal principles. Reliance may be placed on
the case titled Commissioner of Income Tax,
Islamabad vs Fauji Foundation Limited,(2023
SCMR 1694)wherein
it was observed that;-
“The business activities of the Foundation and the
decision given by the Tribunal have not been challenged by the Petitioner,
hence, there appears to be no justification in re-arguing the entire matter
again with reference to a subsequent tax year, especially when a decision has
been given on the issue in law and fact. In this regard, we find that where a
decision has been given on the same set of facts, it is binding on the
Department and they cannot re-agitate the same issue on the same facts in a
subsequent tax year. It follows that the rule of consistency must be followed
by the tax authorities, as it inspires confidence and safeguards the interests
of the assessees from arbitrary decisions.”
16. Interestingly, the respondents refuse to
acknowledge the undeniable truth. This tribunal has upheld the taxpayer's
arguments on multiple issues and granted direct relief against the unlawful
actions of LTO, Islamabad, as evident in tribunal orders bearing ITA
No.1082/IB/2019, ITA No.1256/IB/2019, ITA No.2581/IB/2022 for Tax Year 2015
dated March 27, 2023, ITA No. 480/IB/2023 for Tax Year 2017 dated October 30,
2023, and ITA No. 1093/IB/2023 dated November 21, 2023 (Sprint Oil and Gas
Services Vs CIR, LTO, Islamabad). The unchallenged order issued by ATIR in ITA
No. 2581/IB/2022 for Tax Year 2015 dated March 27, 2023, is now being contested
by the department by filing a rectification application. Adding to the
concerns, the department has chosen to remain silent on why they did not
challenge the relief granted by the CIR-Appeals, Islamabad, to the taxpayer in
cases where assessments were framed under Section 122(5A) of the Ordinance for
the same tax year. This silence is particularly notable given that the subject
matter in ITA No. 2581/IB/2022 pertained to illegal intervention under Section
170(4) of the Ordinance.
17. The impugned orders
issued under Section 170(4) of the Ordinance are merely the tip of the iceberg,
revealing a troubling situation within the FBR under the guise of tax
collection. The FBR field formations have adopted a new strategy to block
refunds, flagrantly violating High Court and Supreme Court orders. Currently,
the FBR is rejecting refunds based on two primary grounds:
1.
Time Limitation Issue: Refund
claims are being dismissed due to purported time limitations, despite
compliance with legal timelines and High Court & Supreme Court directives.
2.
Reclassification of Tax Nature: During
refund proceedings, the FBR is altering the classification of taxation to treat
adjustable/refundable tax as a final tax, unjustly denying rightful refunds in
the garb of section 170 of the Ordinance.
These
actions by the FBR are not only illegal but also undermine the integrity of
Pakistan's taxation system, particularly in the eyes of foreign investors. The
patently illegal actions by tax officials are pushing the system to the brink
of collapse, fostering an environment of distrust and financial strain for
compliant taxpayers. It is imperative for the Finance Minister and Chairman FBR
to address and resolve this issue immediately to restore fairness and legality
in tax administration. Swift action by all relevant authorities is necessary to
halt these unlawful practices and ensure taxpayer rights are upheld to preserve
Pakistan’s taxation system. Accountability strengthens institutions rather than
weakens them.
18. In the present case, the plea for refunds
likely represents just the tip of the iceberg, indicating the absence of the rule
of law, with the weaker segments of society being treated differently as
'ordinary citizens' and their constitutional rights no longer being a priority.
The facts and circumstances indicate a virtual collapse of the tax governance
system for those most in need of state and institutional protection. This case
exemplifies how regulators and public functionaries bend laws, mislead courts,
and abuse orders passed during quasi-judicial proceedings.
19. For what has been discussed above, the
answer to question No. (iii) is in negative and in favor of the appellant. The
answer to question No. (iv) is in the affirmative and also in favor of the
appellant.
ANSWER TO QUESTION NO. (v)
20. Now we come to the question No. (v). There
is no doubt that it is now settled that provisions of the Limitation Act are of
a mandatory nature and anyone filing a claim beyond the limitation period must
explain as to why the delay was caused while seeking its condonation. However,
the rational for the existence of the law of limitation is that legal controversies
come to an end, still-born disputes do not continue to be litigated and
reiterated, and that an indolent claimant bears the burden of such indolence.
However, in the fiscal statutes, the superior courts have criticized the
Revenue Department for using technicalities or limitations to deny legitimate
refunds. They emphasize that:
1.
Withholding refunds on technical grounds is
viewed unfavorably by courts. Public authorities, such as the Inland Revenue,
should not use such pleas to defeat just claims.
2.
Governments and public authorities should
avoid relying on technicalities to deny legitimate claims and should act fairly
and justly towards citizens. Courts will uphold technical pleas only if they
are well-founded and based on concrete evidence.
3.
Technicalities should not be used to deny
refunds of taxes paid by mistake or otherwise. The taxpayer is entitled not
only to a refund but also to compensation or interest on the delayed refund.
4. Tax authorities cannot seize or adjust legitimate refunds against illegal tax demands. Such actions are considered coercive and deprive taxpayers of their rightful compensation.
21. The Hon’ble Supreme Court of Pakistan in the
case titled Pfizer Laboratories Ltd. Vs. Federation of Pakistan
(PTCL 1998 CL. 354)has held that the latest judicial trend is to deprecate and
discourage withholding of a citizen's money by a public functionary on the plea
of limitation or any other technical plea if it was not legally payable by him.
The relevant extract of the judgment is reproduced below;-
"The above resume of the case-law of Indian, English,
and Pakistani jurisdictions indicates that the latest judicial trend is to
deprecate and to discourage withholding of a citizen's money by a public
functionary on the plea of limitation or on any other technical plea if it was
not legally payable by him. It is also evident that claims for the refund of
the amount paid as a tax or other levy on account of mistake as to want of
constitutional/legal backing or because of exemption are at par. It is also apparent
that such payments are held to be not covered by Rule 11 of the Central Excises
Rules, 1944, or section 27(1) of the Indian Customs Act, 1951, or section 33 of
the Act etc. The refunds of such amounts are allowed by the superior Courts
inter alia in India on the basis of section 12 of the Contract Act which
provides that "a person to whom money has been paid or anything delivered
by mistake or under coercion must repay or return it"; Such refunds can be
claimed either by filing a suit for the recovery of the amount for which the
period of limitation applicable would be three years under Article 96 of the
First Schedule to the Limitation Act (which provides period of three years from
the date mistake becomes known to the plaints or the same can be recovered
through a Constitutional petition if no disputed fact is involved. The Indian
Supreme Court and the various Indian High Courts referred to in the cited
case-law hereinabove had ordered the refund of the amounts involved in exercise
of their Constitutional jurisdiction under Article 226 of the Indian
Constitution. In Pakistan, Sindh and Lahore High Courts have also allowed the
refund of such amounts under Article 199 of the Constitution in exercise of
their constitutional jurisdiction in the cases of Ghulam Abbas v. Member
(Judicial), Central Board of Revenue (supra) and Kohinoor Industries Ltd.,
Faisalabad v. Ministry of Finance (supra), respectively."
The Supreme Court of
Pakistan, in the above case, laid down several principles:
1.
Mistaken payments, whether of fact or law,
must be repaid under section 72 of the Contract Act, 1872.
2.
Claims for refund of excess customs duties due
to inadvertence or error must be made within six months, but this does not
apply if the duty was not payable at all.
3.
If a tax is collected outside statutory
authority, limitation periods do not apply.
4.
Refunds are due when excise duty is recovered
unlawfully, regardless of any limitations or alternative remedies.
5.
Taxes paid without knowledge of an exemption
are refundable.
6.
Governments should refund wrongfully collected
taxes and should not hide behind technicalities.
7.
Money received unlawfully by the government
must be refunded, and courts can direct refunds if no factual disputes are
involved.
8.
In democratic societies, governments should
act fairly and justly, regardless of legal technicalities.
9.
Voluntarily paid but unlawfully levied taxes
are recoverable.
10.
Taxes collected under ultra vires demands are
recoverable by right.
22. The law settled by the August Supreme Court
in Pfizer Laboratories Ltd has come to be understood as part of the protection
afforded by the Constitution to the right of a citizen property as guaranteed
under Article 23 of the Constitution and has more recently been relied on in Sui
Northern Gas Pipelines Vs. Deputy Commissioner Inland Revenue,
(PTCL 2015 CL. 652) and MCB Bank Ltd. Vs Deputy Commissioner Inland
Revenue, (2015 PTD 911). In the instant matter the impugned order
for the tax year 2014 suffers from a legal infirmity for the reason that if the
claim for refund was not filed in the prescribed form within the limitation
period prescribed, it was the duty of tax authorities to facilitate the
taxpayer in the filing of such claim in the prescribed form once he had reached
out to the tax authorities for such purpose. It is important to note that
Government officials, particularly in an Islamic Republic like Pakistan or any
democratic society governed by the rule of law, are tasked with ensuring
justice and not depriving people of their rights on technical grounds. The
Objectives Resolution reflects the Pakistani people's desire to establish a
system where the principles of social justice, as outlined in Islam, are fully
respected. It acknowledges that sovereignty over the entire universe belongs
solely to Allah Almighty, and the authority delegated to the State of Pakistan
by its people is a sacred trust to be exercised within Allah's prescribed
limits. We believe that refunds are a trust (Amanah) held by public servants,
who are obligated to return them to the rightful recipients. Failing to do so
can be considered a breach of trust (Khayanat) and contrary to Islamic
teachings. Few Commandments of Allah (SWT) relevant to the issue are reproduced
below:
- Do not usurp one another's property by unjust means. (2:188)
- O Believers! Do not consume/usurp one another's property/wealth among yourselves illegally. (4: 29)
- Weigh with even scales and do not cheat others of what is rightly theirs, nor corrupt the land with evil. (26:182-183)
- Surely Allah commands you (O men in authority) that you shall render dues (“Amanah''/Amanat) unto those entitled to them and when you judge between men judge fairly. (4:58)
23. Based on the above discussion, it is
declared that any amounts collected or deducted and paid in excess of the due
tax must be refunded. The State is
not expected to get itself unduly enriched by erroneous forced or inadvertent
payments of money made by its citizens. The State is not expected to bring in
defence of limitation in respect of such payments resulting in unjust
enrichment. Justice must be served and perceived to be served in all
matters of tax collection and refunds. Therefore, the answer to question No.
(v) is in negative.
ANSWER TO QUESTION NO. (vi)
24. The role of tax
officials is crucial in maintaining the integrity and efficiency of the tax
administration system. However, when tax authorities intentionally and
deliberately violate binding judgments of the apex court, it undermines the
rule of law and erodes public trust in the judicial and administrative systems.
Such actions also tarnish the country's reputation. The case record and the
arguments presented by the respondent department reveal that tax officials are
effectively committing severe contempt by disregarding clear orders issued by
the higher judiciary regarding refunds.
25. The FBR envisions;
“To
be a modern, progressive, effective, autonomous and credible organization
for optimizing revenue by providing quality service and promoting
compliance with tax and related laws.”
and has embarked on a
mission to;
“Enhance
the capability of the tax system to collect due taxes through
application of modern techniques, providing taxpayer assistance
and by creating a motivated, satisfied, dedicated and professional
workforce”
It
cherishes the values of “Integrity, Professionalism,
Teamwork, Courtesy, Fairness, Transparency,
Responsiveness” necessary to orientate within the confines of its broader
and achieve the mission goals. It is our observation that the handling of
instant case belies the goals set forth by FBR and all the cherished values are
significantly absent.
26. We would be failing in our responsibilities
if we do not guide officers of FBR towards its avowed mission and contribute
towards creating an environment congenial to the businesses, for the economic
activity carried out by them generates revenue. It is no service to the economy
to cash-starve a business by withholding refund – refunding an amount to a
taxpayer in compliance with the orders of appellate forums is a sign of integrity,
professionalism, fairness and transparency.
27. Thus our answer to the question No. vi would
be to an emphasis to address the critical issue of the conduct of tax officials
who misuse the valuable resources of the National Exchequer (taxpayer’s money)
under the pretense of the powers granted to IRS functionaries. This leads to a
significant waste of taxpayer money in futile litigation, either by issuing
blatantly illegal orders or withholding taxpayer funds in the form of refunds.
These actions are subsequently defended to protect higher authorities responsible
for the severe maladministration of justice and the mistreatment of Pakistan’s
taxpayers. The law, as stated by the Hon’ble Supreme Court of Pakistan in the
Honda Atlas case dated November 15, 2022, is unequivocal: Section 170 of the
Income Tax Ordinance, 2001, only grants the power to verify if the claimed
refund is supported by evidence. The department cannot re-examine such
assessment orders while exercising jurisdiction under Section 170 of the Income
Tax Ordinance, 2001.
28. The deliberate disregard to the binding orders passed by the Apex Court of Pakistan represents a significant affront to the rule of law and binding precedents. Article 189 of the Constitution of Pakistan stipulates that any decision of the Supreme Court is binding on all other organs of the state. Article 4 of the Constitution of Pakistan guarantees that every individual shall be dealt with in accordance with the law, implying that public authorities must act fairly and reasonably. Article 240 of the Constitution of Pakistan provides for the establishment and regulation of services of Pakistan, ensuring accountability for misconduct. The wrongful denial of a legitimate tax refund, despite a clear verdict of the Supreme Court, violates the taxpayer's rights and amounts to harassment. Actions of this nature by a tax officer not only affect the individual taxpayer but also tarnish the country's image as a fair and just tax administration regime. This can have far-reaching consequences, including discouraging foreign investment and eroding trust in public institutions. The enforcement of a statute is not optional or a formality but mandatory. Transparency in working brigs order in the society and develops public trust on government and its functionaries. Therefore, FBR is advised to sensitize the field formations on the issue of refunds and build a confidence in them to process the refund cases in accordance with the law. The guidelines may include leading judgments on the issue discussed in this order and above all ensure a strong commitment to the “Vision, Mission and values”of FBR. Words would lose significance if not backed by a strong commitment. Thus, besides making these guidelines as compulsory part of training programs, non adherence to the guidelines, to be issued in light of judicial pronouncements, should have consequences aiming at discouraging compromising Vision, Mission and values” of FBR. These consequences may include disciplinary action against the recalcitrant officials, a red flag for field postings, payment of compensation to the taxpayer. We believe that by taking these steps, the tax administration can restore faith in its processes and reinforce the importance of upholding the rule of law.
29. Let this order be sent to
the learned Chairman and learned Member (Operation), FBR to issue instructions
to all officers adjudicating refunds under section 170 of the Ordinance to
comply with the above-said provisions of law and their mandatory nature. We have noted that the FBR had already
initiated process of streaming refunds by creating 25 posts of Commissioners IR
Refund. The FBR may circulate a copy of this order to the refund Commissioners
to sensitize them on the problems faced by the taxpayer and ensure good
practices.
CONCLUSION
i.
The appellant's appeals are accepted, and the impugned orders
passed by the assessing officer are annulled. The assessing officer is directed
to immediately issue the due refund to the appellant without any further delay
along with compensation in the light of the judgment titled Commissioner Inland Revenue vs Prime Commercial
Bank Ltd,(2023 PTD 997).
ii.
The learned Chairman FBR is advised to issue instructions to all
officers adjudicating refunds under Section 170 of the Ordinance, emphasizing
the consequences of non-adhering to the binding judgments of the superior
courts.
30. This order consists of (20) pages and each
page bears my signature.
Annexure A
M/s Sprint Oil and Gas Services,
FZC
Tax years 2013, 2014, 2016 &
2017
|
WHT DEDUCTED |
RUPEES |
TAX |
REFUND |
ASSESSMNET |
TAX |
CIR-A |
ATIR |
DUE AFTER |
APPEAL |
REFUND |
|
|
Tax Year 2017 |
|
|
29.11.2017 |
30.09.2018 |
|
926,923,389 |
05.01.2021 |
30.10.2023 |
(238,463,448) |
124/132 |
41,723,132 |
|
Import of Goods |
67,216,198 |
||||||||||
|
Services |
198,774,670 |
||||||||||
|
Cash Withdrawal, Utilities |
2,148,014 |
||||||||||
|
Tax Liability |
-29,675,434 |
||||||||||
|
|
238,463,448 |
||||||||||
|
Tax Year 2016 |
|
|
21.11.2016 |
30.09.2018 |
|
211,947,887 |
23.05.2023 |
- |
(192,649,148) |
- |
53,764,548 |
|
Import of Goods |
74,317,643 |
||||||||||
|
Services |
189,448,567 |
||||||||||
|
Cash Withdrawal, Utilities |
1,946,225 |
||||||||||
|
Tax Liability |
-73,063,287 |
||||||||||
|
|
192,649,148 |
||||||||||
|
Tax Year 2015 |
|
|
30.09.2015 |
30.09.2018 |
|
(130,582,755) |
23.05.2023 |
27.03.2023 |
(230,693,938) |
(i) (70,966,969) |
WHT 148 & 152 ALLOWED |
|
Import of Goods |
57,484,728 |
||||||||||
|
Services |
170,740,670 |
||||||||||
|
Cash Withdrawal, Utilities |
2,468,540 |
||||||||||
|
|
230,693,938 |
||||||||||
|
Tax Year 2014 |
|
|
05.12.2014 |
30.09.2018 |
|
549,484,432 |
14.09.2020 |
27.03.2023 |
(197,530,610) |
124/132 |
TIME BARRED +
WHT 152 |
|
Import of Goods |
81,086,598 |
||||||||||
|
Services |
115,292,929 |
||||||||||
|
Cash Withdrawal, Utilities |
1,151,083 |
||||||||||
|
|
197,530,610 |
||||||||||
|
Tax Year 2013 |
|
|
18.12.2013 |
19.12.2013 |
|
321,524,442 |
23.09.2019 |
27.03.2023 |
(116,218,093) |
124/132 |
WHT 152 |
|
Import of Goods |
40,409,357 |
||||||||||
|
Services |
74,896,793 |
||||||||||
|
Cash Withdrawal, Utilities |
911,943 |
||||||||||
|
|
116,218,093 |
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