In a representation filed by the Federal Board of Revenue (FBR) in the “Millat Tractors Refund Case” against the findings by the FTO, the President has held that FBR should process and settle the due “refund to the complainant as per the vision of Refund claims of Recognized Agricultural Tractors Manufacturers Rules,2012 notified vide SRO 363 (1) 2012 dated 13-04-2012”.
Precisely, the complainant, a manufacturer of agricultural tractors filed refund claims for the tax periods March 2021 and April 2021, as per procedure laid down in the “Refund Claims of Recognized Agricultural Tractors Manufacturers Rules, 2012”.
The complainant submitted refund applications along with prescribed documents according to the RATM Rules. The department was required to allow a refund within three days of the receipt of the refund application under Rule 2 of the RATM Rules, which was not done and the claims were still pending with the department.
Upon complaint by the manufacturers, the Federal Tax Ombudsman investigated the case and asked the FBR to file a response. In its response, the FBR argued that refunds on account of concessionary rate of 5 percent in terms of S.N0 25 of the eighth schedule to sales tax Act, 1990, were subject to the condition that the tractors were used exclusively for agricultural purposes and that pre-refund audit was necessary in order to confirm this, however, the Federal Tax Ombudsman did not find this to be correct.
It was held by the FTO that no such condition had been mentioned in the said SRO, further, the definition of Agricultural Tractors had neither been provided in the Rules nor in SRO. Moreover, since the issuance of the rules of 2012, this objection regarding the definition of Agricultural Tractor had neither been raised nor explained afterward by the FBR.
In his order, the FTO said that the purpose of said rules was to provide expeditiously and prompt sanctioning of refunds to the Tractor Industry, subject to the provisions of revolving bank guarantee as required in clause 2(c) of the SRO referred to above, securing the amount in case it was found inadmissible at a subsequent stage.
He also held that the department contention that as the SRO does not override the general refund rules, therefore, it could delay payments on account of conducting pre-refund audits, in the cases filed under the said SRO does not hold force for the reason that by doing so, it has caused “Refund Claims “of Recognized Agricultural Tractors manufacturers Rules, 2012, redundant.
Moreover, the rules only allow the department to conduct post-refund audits, rather than prep-refund audits. Therefore, conducting of pre-refund audit and delaying in settlement of refunds beyond 3 days of the filing of the claim, by the department, is against the rules and procedure and amounts to maladministration.
The President of Pakistan vide order No. 94/FTO/2021 date 25-03-2022 has confirmed that the delay in settlement of refund within three days of refund application, filed under SRO 363 dated 13-04-2012 being violative of substantive provisions of the rules and procedure is tantamount to maladministration in terms of section 2(3) (i) (a) & (ii) of the FTO Ordinance.
He noted that “no valid justification, therefore, exists to ignore the specific rules and rely upon some other rules. There is no denial of the fact that Refund Claims of recognized Agricultural Tractor Manufacturers Rules, 2012 have been framed under the Sales Tax Act, 1990 vide SRO No 363 (I) 2012 dated 13-04-2012 and are intact.
These rules cover the field of tractor manufacturing units whereas the Sales Tax Rules, 2006 are of general application. The legal position is well settled that in presence of a special law dealing with the specific case the general law becomes inapplicable.
The order provides relief to tractors manufacturers being denied due refund due to overstretching of the law interpretation in its favor by the FBR and blocking due refund of the taxpayers.