KTBA’s Workshop on Sindh Sales Tax on Services Audit, Penalties, Recovery & Remedies Saturday, 24th September 2011 19 November, 2018

A U D I T

Audit – Relevant Definitions under Section 2 Arrears & Sales Tax: includes principal, default surcharge, fine, penalties, etc. Document: Includes electronic data, computer program, any medium of data storage Inter-bank Rate: KIBOR prevalent on 1st day of each quarter Tax fraud: Replica of definition as per S-2(37) of ST Act

Audit Proceedings - Section 28 Audit by officer not below the rank of an Assistant Commissioner SRB Investigative audit in case of information regarding tax fraud or evasion of tax by authorized officer by Commissioner Prior notice for audit requiring to produce records or documents Records include statutory records under any other law Audit to be conducted once in a year unless tax fraud is established or special audit initiated Audit observation pointing out contraventions – 21 days time to respond by registered person Audit report showing demand of tax/violation of law to be issued by officer of SRB

Audit Proceedings - Section 28 Cont’d…….. AC-SRB may pass an order under section 23 or section 47 and establish tax demand alongwith default surcharge and penalty. S-23 & 47 requires issue of show cause notice and adjudication Voluntary compliance for payment of tax waives penalty: --Before issue of audit notice, no penalty payable --Before SCN, 20% penalty payable with revision of return --After SCN, 50% penalty with revision of return Section 25 of Sales Tax Act, revision of return not prescribed in voluntary payments allowing waiver of penalty. Order issued within 120 days is further extendable for 60 days excluding time taken for adjournment of proceeding of stay/ADR

Special Audit – Section 29 Board may appoint Chartered Accountant or Cost & Management Accountant by notification for special Audit. Special audit of the same period allowed, already audited by SRB under section 28 of Sindh Act. Special Auditor empowered as officer of SRB Scope of special audit in accordance with TOR as per Rule 47.

Transition – Section 83 Sindh Sales Tax Ordinance, 2000 repealed Officer of SRB empowered to make/initiate assessment of open tax periods effective from 01 July, 2011 Scope of taxation not to enhance for prior periods Pending litigations not to be affected Sales tax arrears under repealed Ordinance to be recovered by SRB No saving provided for excisable services brought under Provincial ambit

Gearing-up for Audit Prescribed records be maintained efficiently with adequacy Application of Sindh Sales Tax Withholding Rules Input adjustments made in accordance with Rules Audited accounts along-with certificate of auditor on sales tax due Pre-audit of records could be a catalyst

Offences & Penalties

Penalties – Section 43 Not in derogation of penal actions under other laws Section references are illustrative 14 different offences mentioned in penalty table excluding the following punishable offences u/s 33 of ST Act : - Failure to issue a tax invoice Unauthorized issuance of tax invoice Failure to notify changes of material nature Repetition of erroneous calculation in return Failure to make payment under section 73 of ST Act Offence by Sales Tax Officer Failure to furnish information required by FBR 10

Penalties under Sales Tax Act, 1990 Penalties under Sindh Act, 2011 Penalties – Section 43 Offences Penalties under Sales Tax Act, 1990 Penalties under Sindh Act, 2011 Failure to deposit tax Higher of Rs. 10,000 or 5% of tax provided Rs. 500 per day if tax is deposited within 15 days. Higher of Rs. 10,000 or 5% of total tax payable (if default is more than 3 days) Failure to produce records Rs. 5,000, Rs. 10,000 or Rs. 50,000 Rs. 5000 for Cos. And Rs. 1000 for others. In case of non-submission for 60 days then excessive penalty of non-maintenance of records shall apply. Tax fraud Higher of Rs. 25,000 or 100% of tax involved. Maximum Rs. 500,000 but not less than Rs. 25,000 or 100% of tax payable. 11

Default Surcharge – Section 44 Replica of S-34 of ST Act Applies in addition to penalty, whether tax default is willful or otherwise Also in the nature of penalty on delay caused in payment of principal General rate is KIBOR plus 3% p.a of tax due Separate rate in case of tax fraud, i.e. 2% per month of tax evaded Tax due does not include penalty Reckoned from 16th day of the month following due date of tax period until the date of actual payment 12

Waiver of Penalty & Default Surcharge-Section 45 Board empowered to grant exemption with approval of Government by notification Reference of S-34 & 35 not correct Generally, applicable for amnesty schemes/relief allowed due to common inadvertence. 13

Other Provisions Compounding of offences (S-46) Power summon persons to give evidence and produce documents in enquiries (S-48) Power to arrest and prosecute (S-49) Procedure to be followed on arrest of a person (S-50) Authorized officers to have access to premises, stocks, accounts and records (S-51) Obligation to produce documents and provide information Searches under warrant (S-52) Posting of SRB officer at business premises (S-54) 14

Recovery

Recovery of tax not levied or short levied (S-47) Different from S-36 of ST Act as by bare reading it triggers due to inadvertence miscalculation on the part of SRB officer. Show cause notice required to be served within 5 years of date of payment of tax. Demand is established after review of objections. Order to be passed within 120 days, extendable by 60 days excluding time taken for adjournment due to stay/ADR not exceeding 30 days. Erroneous refunds not covered May not be invoked for cases of tax frauds, until drafting errors rectified.

Recovery of Arrears S-66 SRB officer may deduct the amount of money owing to the person as in the control of SRB By issue of notice to any person who holds any money on account of the person-in-default Attach bank accounts of the person by notice in writing Seal the person’s business premises Attach and sell movable or immovable property of the person/guarantor/bank/financial institution, etc. SRB officer have the powers of civil court as under the Code of Civil procedures 1908 Provisions of Land Revenue Act, 1967 applicable for recovery of arrears

Appeals / Remedies

Appeals before Commissioner (Appeals)-SRB Sections 57 & 58 read with Rule 57 of Sindh Rules Orders passed under sections 13,18,19 or 38 are appealable. These references should have been as 23, 28 & 47 of Sindh Act. Appeal be filed within 30 days of the receipt of decision/order. However, 30 days from service of notice if appeal relates to any assessment (not clear) Fee is Rs.1,000 (for Cos.) and Rs.200 (for others) Discretion of Commissioner (Appeals) to admit appeal after expiration of 30 days Rule-57 provides Form SST-5A requiring specified attachments with appeal memo.

Appeal – Procedure Advance notice of hearing Additional ground of appeal may be filed before hearing Grant of interim stay upto 15 days, during which notice of hearing on stay application. Stay may be extendable / varied / vacated for further 45 days will be served Commissioner (Appeals) call for information/cause enquire from SRB officer

Appeal- Decision No remand back for denovo consideration Tax demand cannot be increased without awarding opportunity of showing cause Decision be made in 120 days of filing of appeal, further extendable for 60 days, which excludes period of 30 days of adjournment Deemed relief if no order passed within prescribed timeframe Time of adjournment also to be excluded from 4 months’ time.

Appellate Tribunal- Appointment Independent from ATIR [defined u/s 2(2) of Sindh Act] Chairperson, Judicial and Accountant Members to be appointed as per prescribed qualification/experience Chairperson shall be a Judicial member Single bench can be formed in case tax demand is not more than Rs.5 million Provisions catering difference of opinion between members

Appellate Tribunal- Appeal Appellate orders including stay order are appealable by taxpayer as well as by SRB Officer Appeal be filed within 60 days of service of order-in- appeal Appeal fee is invariably Rs. 2,000 Discretion to admit appeal beyond 60 days Power to call for information and cause enquiries Ex-parte decision if hearing not attended

Appellate Tribunal- Appeal Cont’d….. Decision within 60 days of filing of appeal Power to remand back the case to SRB for enquiry/action Forms prescribed under Rule-58 as SST-SB Interim stay against demand for 30 days, further extendable by 60 days

Reference to High Court (S-63) Reference application within 60 days of communication of order of Tribunal by aggrieved person or officer of SRB, not below DC duly authorized Statement of question of law along-with facts be filed Honorable HC shall decide the question of law to modify the Tribunal’s order Fee is Rs.1,000 by the aggrieved person only Section 98 of Code of Civil Procedure 1908 and Section 5 of Limitation Act, 1908 shall be applicable DC-SRB can request the HC within 30 days of the judgment for orders for postponement of refund of tax, paid in excess of demand as per order of Tribunal, stating leave to appeal to be filed before the Supreme Court

Alternate Dispute Resolution ADR is administrative forum for settlement of disputes Board shall not appoint ADR committee where criminal proceedings initiated or interpretation of question of law involving larger revenue impact/industry issue Committee is appointed within 30 days consisting officer of SRB not below DC and private sector member ADRC may conduct enquiry/audit or seek expert opinion to finalize recommendations to Board within 90 days of constitution

Alternate Dispute Resolution New committee formed for further 90 days, otherwise matter be taken up with appellate forum Board has to pass order within 45 days Mandatory to submit order before appellate/litigation forum Procedures to submit application for ADR provided under Rules, requiring disclosure of amount of tax the applicant agrees to deposit Board may allow rectification of recommendations on factual grounds Committee shall furnish revised recommendations within prescribed time.

Other Remedies Ombudsman for maladministration Removal of difficulty under Section 74 for initial 5 years Correction of clerical or arithmetic errors under section 76 Revision by SRB Revision by Board

Revision by Commissioner SRB Order of officer of SRB can be challenged for rectification Discretion to revise order – Not mandatory for Commissioner Order of Commissioner (Appeals) cannot be revised No enhancement of demand without providing opportunity of hearing Time limitation prescribed under sub-section (4) of S-55 Option not viable for aggrieved persons exercising right to appeal

Revision by Board By its own motion and not on application by RP Revision of Order is made if Board is not satisfied with the Order of Officer of SRB No revision where appeal is pending before Commissioner (Appeals) or resolution under ADR is sought. No Order after 5 years of the date of impugned Order/ decision.

THANK YOU Mazhar Saleem Shah Senior manager KPMG Taseer Hadi & Co. 24 September 2011