Transcript Presentation for the Management Association of Pakistan

SEMINAR
ON
EXPERIENCE OF ADRC
Adjudication, Appeals & Mediation
Justice Mushir Alam
Director - Karachi Centre for Dispute Resolution
At Regional Tax Office, Karachi,
February9th, 2009
With the assistance of
Approved by the
HIGH COURT OF SINDH
Existing Judicial Landscape
 Pakistan follow Common Law system.
 Adversarial mode of dispute resolution.
 Commercial disputes are formally resolved
through conventional Judicial/Court
processes.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
2
Judicial Landscape and ADR
 Quite a few commercial disputes go to
Arbitration (mostly of contractual and
statutory nature).
 Arbitration is also adversarial dispute
resolution mechanism but in private
setting.
 Finality of Arbitration is reached only
when court sanctify it.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
3
Kinds of ADR prevalent in Pakistan
 Customary or traditional ADR, i.e.
- PUNCHAIYAT (Punjab)
- JIRGA (Sindh,Baluchistan,NWFP & Federally
Administered Tribal areas Bordering Afghanistan

-
Public Bodies based ADR
Arbitration Council,
ADRC,
Union Councils; and
Conciliation Courts.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
4
Why Public Bodies ADR initiatives ineffective
in Pakistan
 Introduced without research, need assessment
and awareness campaign and confidence
building measures.
 Lack of concerted efforts.
 Bureaucratic/political motives and interventions.
 Lack of institutionalization and training.
 Want of neutrality and independence.
 General lack of faith/trust in public bodies.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
5
Why adversarial system not effective in
Pakistan
Heavy Backlog: 1.5 Million Cases pending in Courts.
• Shortage of Judges: SC 17, LHC 50,SHC 28,PHC 15,BHC 6
Judiciary Punjab 649,Sindh 390,NWFP 177 & Balochistan 123.
District
•Taxing: Financial & emotional (per doing Business Report 2009 Cost of
Contract Enforcement in Pakistan involves 23.80% of the total claim).
• Time delays: Per ‘Doing Business report 2009’ 975 days (i.e 5-10 years)
consumed to enforce a contract.
• Cumbersome Procedures (per doing Business Report 2009 Contract
Enforcement in Pakistan involves 47 procedures)
Domino effect Real issue over shadowed by legal complexities, strained &
diminished future relationship
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
6
ADR-Pakistan-Global perspective
Bilateral, Regional and International landscape
 Signatories and members of bilateral, Regional and
International Treaties that entrench ADR mechanism in
one or the other form.
 Signatory to 36 bilateral Investment treaties.
ECO, SAARC, WTO, UNITRAL,WIPO, New York
Convention of 1958, MIGA and ICSID.
 “Agreement for Avoidance of Double Taxation”. Pakistan
has such agreements with 55 countries introducing
concept of “advance ruling”;.
..
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
7
Constitution of Pakistan, 1973 ADR
silver lining
 Article 153 and 154 ( Council of Common
Interest).
 Article 156 ( National Economic Council)
 Article 160 ( National Finance Commission)
 Article 184 ( SC original jurisdiction to resolve any
dispute between two or more Governments)
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
8
ADR friendly legislation in Pakistan
Small Claims and Minor Offenses Court Ordinance 2001.
• Section 102-106 of the Local Government Ordinance 2001
• Section 10 & 12 of Family Courts Act 1964
• Section 345 of Code of Criminal Procedure 1898.
• Through Finance Bill ADR drafted in following Tax Laws
- Sec. 134-A of I. T Ord. 2001 R/w Rule 231-C of the I. T Rules-02
- Sec. 47 of the Sales Tax Act 1990 and Ch. X of the S.T Rules-04
- Sec. 195-C of the Customs Act 1969, Ch.XVII of Cust. Rules 2001
- Sec. 38 of the Fed.Excise Act 2005 R/w Rule 53 of FE Rules 2005
- Section 23 of Industrial Relation Ordinance.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
9
REDRESSING GRIEVANCES OF THE
TAX PAYERS

i. Show Cause Notice is necessarily issued before making assessment/ adjudication

ii. Revision of the assessment order by the Commissioner/ Collector.

B) Formal Appeals
With the department :
i. Commissioner of Appeals or the Collector of Appeals by the taxpayers

ii. Income Tax Appellate Tribunals (functions under the Law & Justice Ministry)
(it is a Final forum to decide the question of fact - By either Party).
Superior Courts

iii. A reference on the question of law before the High Courts, raised by either Party

iv.On the issue of public importance, a constitution petition for leave to appeal
CPLA before the Supreme Court.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
10
Exploring options other than Appeals
for resolving tax disputes

C)
Alternative Dispute Resolution Mechanism
A taxpayer, during pendency of appeal, can make an application to the FBR to constitute ADR
Committee for resolution of his dispute. The Chairman as well as a Member of the Committee are
appointed from private sector, while a Member also represent the department. The recommendations
of the Committee are submitted to the Board for its appropriate order. The Board may or may not
accept the said recommendations.

D)
Federal Tax Ombudsman
Indirectly controls the mal-administration of the department’s officers and grants relief to the
taxpayers where instances of the mal-administration are pointed out.
Representation against the decision of FTO lies with the President of
Pakistan (through
Law & Justice Ministry).

E)
Representation to the Chairman, FBR.
A taxpayer may submit a representation under section 7 of the FBR Act, 2007 to the Chairman,
FBR who may issue appropriate order.
* For foreign investment/N.R companies:
* Concept of “advance ruling”; implementation of the provisions of the agreement for avoidance of
double taxation is faithfully done. Pakistan has such agreements with 55 countries.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
11
STATEMENT OF DISPOSAL AND PENDENCY OF APPEALS
(DIRECT TAXES)
PERIOD 2004-2005 TO AUGUST, 2008
Period
Opening
Balance
1st July
Addition
During the
year
Total
available
Disposal
Balance
as on
30th
June
No. of CIT
(Appeals)
2004- 2005
35,753
21,782
57,535
54,404
3,131
32
2005- 2006
3,131
11,936
15,067
14,224
843
16
2006- 2007
843
7,514
8,357
7,561
796
11
07
05
2007-2008
796
5,826
6,622
4,952
1,670
05
July to
August, 08
1,670
1,421
3,091
508
2,583
08
48,479
Justice Mushir Alam
Director KCDR dated
09-02-2009
81,64
9
First Appeal (DT)
Application
of ADRC,
First appeal
IDT
Adjudication,Appeals
& Mediation
First appeal decided
at Regional Tax Office,Karachi
= 81649
= 24696
= 106,345
12
MPRs OF COMMISSIONERS (APPEALS) FOR THE
PERIOD FROM JULY,08 TO AUGUST, 08
* During August, 08 three (03) more CsIT (A) offices established in Islamabad,
Justice
Mushir
Alam
Application of ADRC,
Lahore
& Karachi
Director KCDR
09-02-2009
dated
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
13
POSITION OF CASES PENDING IN HIGH COURTS
Direct Taxes
Indirect Taxes
Total
Opening 2005-2006
Added:
5180
239
5419
2655
517
3172
7835
756
8591
Added in 2006-2007
& 2007-2008:
310
• 5729
• 1270 Appeals filed by us
519
• 3691
• 287 Appeals filed by us
and papers examined
829
9420
Disposal in 2 years:
2914
1631
4545
Pending
2008
2815
2060
4875
August,
Major Issues:
(i)
Income Tax
(a) 122(5A)
(b) 170(4)
(ii) Valuation Customs
(iii) Vehicles tampered
(iv) Sales – Basis of production/sale value.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
14
POSITION OF CASES PENDING IN
SUPREME COURT OF PAKISTAN
DIRECT TAXES
INDIRECT TAX
TOTAL
Opening
2006
2005-
1650
1092
2742
Addition
2006
2005-
293
71
364
2006-2007 &
2007-2008
(Addition of
Appeals
during
the two years )
1778
3721
Decided
the period
3231
1222
4453
490
426
916
Pending
31.8.08
during
on
Justice Mushir Alam
Director KCDR dated
09-02-2009
485
1648
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
2263
5369
15
FIRST APPEALS
POSITION OF DISPOSAL & PENDENCY OF
APPEALS CASES (CUSTOMS, SALES TAX & FEDERAL EXCISE) FOR THE PERIOD
2004-2005 TO AUGUST, 2008
Year
Opening
Balance as on
1st July
Fresh
Institution
Available for
disposal
Cases
decided
Closing
Balance
2004-05
2434
4037
6471
5555
916
2005-06
916
4313
5229
4492
737
2006-07
737
5867
6604
4087
2517*
2517
1521
8492
1476
11009
2997
9488
+
1074
1521*
1923
2007-08
July to Aug
08
Total
24185
24696
9488 (decided cases) / 12
= 791 appeals per month
725 (monthly decisions) / 06 = 132 appeals per Collector
132 / 25 (days)
= 05 appeals decided per day per Collector
*Due to a general extension of time-limitation in adjudication cases, accorded vide
Finance Act 2006-07, in the relevant provisions of the Laws and the strict
monitoring of the time-limitations, the disposal of adjudication cases has increased
which resulted in increase in pendency of appeal cases of this period. However since
September 2007 (3894 cases) the pendency position has come down to 1521 cases,
at Justice
the end
of June,
Mushir
Alam 2008.
Application of ADRC,
16
Director KCDR
09-02-2009
dated
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
FEDRAL BOARD OF REVENUE
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
17
POSITION OF PENDENCY OF INCOME TAX CASES IN
APPEALS AS ON 31.8.08
Pendency
CIT (A)
ITAT
High Courts
Supreme Court
Total
Justice Mushir Alam
Director KCDR dated
09-02-2009
2583
4500
2815
490
Revenue Involved
(Rs. In Billion)
35.5 (B)
7 (B)
4.2 (B)
3 (B)
50 B
(approx)
Application of ADRC,
Balance 40% of tax
Adjudication,Appeals & Mediation
Rs.5 to 7 Billion net
at Regional Tax Office,Karachi
18
would be involved.
can come in
POSITION OF PENDENCY OF APPEALS
(CUSTOMS, SALES TAX AND FEDERAL EXCISE)
AS ON 31.08.2008)
Pendency (Nos)
Revenue involved (Rs.
in Billion)
Collector (Appeals)
1923
7.0 Approx
Appellate Tribunal
5247
6.3 Approx
High Courts
2060
4.2 Approx
Supreme Court
426
5.3 Approx
Total
Justice Mushir Alam
Director KCDR dated
09-02-2009
22.8 B
Balance 40% of tax involved. 2% or 19
about
Application of ADRC,
Adjudication,Appeals &Rs.4
Mediation
Billion would be recoverable
at Regional Tax Office,Karachi
D
Main Issues pending before Supreme Court
Sr.No
Issue
No. of cases
1
Amended order u/s 122(5A)
387
2
Tax credit u/s 107
23
3
Limitation for order u/s 80D & 52/86
42
4
Section 80C & 80D
29
5
FATA / PATA income tax
15
6
Pak Saudi-800 M + PakArab 2400 M and
other cases
Total
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
496
20
SYNOPSIS OF MAJOR ISSUES SETTLED THROUGH THE ASSISTANCE OF
THE LEGAL WING – FOLLOW UP OF THE ADRC / SECTION 7 OF THE FBR
ACT.
S.NO.
Issue
1. WAPDA/VOITH Hydro Kraft &
other German Companies
(ADRC related controversy)
2. Sindh Energy Ltd
3. Suo moto 15 cases of Poultry Feeds
4. Diamond Industry
(inadmissible refund claim
of Rs.200 million)
5. General Tyre rubber co.
(ADRC controversy)
6. S-Tax Extension to FATA/PATA
7. Fecto Belarus
8. M/s Ashraf/Bilour Ghee Units
(taxes & duties on manufacture
in bond)
9. Procter & Gamble
Justice Mushir Alam
Director KCDR dated
09-02-2009
Decision
Decided in our favor
Decided in our favor
-do-do-doThrough Cabinet decision, Rs.1.3 billion
realized from 9 companies
S.C refund case of Rs.493 million
settled
Issue of sales tax on retail price where the item
was not covered by the third schedule of Sales
Tax Act, 1990– settled
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
21
IDT
POSITION OF DISPOSAL & PENDENCY OF
ADJUDICATION CASES
Year
Opening
Balance
Fresh
Institution
Availabl
e for
disposal
Cases
decided
Closing
Balance
2004-05
9036
14710
23746
20982
2764
2005-06
2764
10269
13033
11485
1548
2006-07
1548
18586
20134
19272
862
* 2007-08
862
7024
7886
6935
951
Jul & Aug, 08
951
2491
3442
2234
1208
Total
53080
60908
* 6935 (decided cases) / 12 = 578 cases decided per month
578 (per month cases) / 20 = 29 cases per month per Collectorate
29 /
25 (days)
= 1.1 cases
per day per Collectorate
Justice
Mushir
Alam
Application
of ADRC,
Director KCDR
09-02-2009
dated
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
22
STATEMENT SHOWING TOTAL INSTITUTION AND
DISPOSAL OF COMPLAINTS BY
FEDERAL TAX OMBUDSMAN
YEAR
Since 2000
to
31.8.2008
Justice Mushir Alam
Director KCDR dated
09-02-2009
INSTITUTIO
N
DISPOSAL
BALANCE
11996
11421
575
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
23
SUMMARIZED POSITION OF THE DECISIONS RECEIVED
FROM THE PRESIDENT ON REPRESENTATIONS FILED
UPTO 31.08.2008 (FTO CASES)
DIRECT
TAXES
INDIRECT
TAXES
TOTAL
ACCEPTED
508
303
811
REJECTED
225
214
439
TOTAL
733
517
1250
Representations to the President are about 30 per month.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
24
TAX WISE PROGRESS ADRC (AS ON 30.06.2008)
No. of total
Applications
Received so
far
Applications
Rejected or
withdrawn
No. in which
Committee
Formed
No. in which
Recommendations Received
Recommendations not
Accepted
Recommendati
ons
Implemented
Cases Pending
with ADR
Committees
Custom
Judicial/A
DRC
259
75
184
139
28
78
45
Sales Tax
Judicial/A
DRC
960
114
846
491
95
405
355
Income
Tax
282
105
177
128
40
88
44
Total
1501*
294
1207
758
163
571
444
*It was 835 as on 30.09.2007. This shows interest in the system.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
25
ADRC regime is a hybrid.
Combination of negotiation, mediation and
arbitration.
Final decision is given by the party to the dispute
i.e, FBR. A feature that raises more question than
answer.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
26
FBR Dependent SystemADRC recommendations not binding but have to
be approved by FBR.
FBR a revenue collecting agency or Judicial
Apparatus.
FBR’s rejection of ADRC recommendations
adversely affects the neutrality of subordinate
formation.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
27
Ensuring Neutrality and Transparency-HOW?




ADRC-Secretariat to be made Independent
Institutionalized and autonomous.
Minimum and standardized ADRC members
qualification and disqualification criteria to be
prescribed. Both for Department+3rd party neutral.
Accreditation of qualified professional mediators
protocol be introduced.
Periodic performance evaluations-Research+
Development component be added.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
28
………HOW?
 Time limit to be prescribed and followed.
 Flexibility in the process- mediation-expert
evaluation-mediation-settlement
 Made part of departmental and educational
curriculum
 Training, skill development, capacity
building
 Promote/sponsor ADR institutes and centers
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
29
Commercial Mediation: Legal
Implications
• No special Law for Mediation in Pakistan.
• Section 89-A of Civil Procedure Code 1908 contains clause for referral of
a dispute pending adjudication for mediation/conciliation.
• Law Reform Act 2007 contained amendment to Section 89-A of CPC
1908. The Law was not approved by Senate of Pakistan and lapsed as a
result.
• Mediation clauses have recently been started to be drafted in commercial
contracts.
• Unless there is a special law on mediation or a detailed clause in existing
procedural law on mediation, it is difficult to see positive legal implication of
commercial mediation.
• Court ADR rules detailing mediation is ready to be issued in official
Government gazette.
• With a settlement agreement, mediation brings end to a dispute with
restricted opportunities for appeals. It brings litigation to an end.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
30
Commercial Mediation: Practical
Implication
• Judiciary lacks formal sensitization on ADR/Mediation and Case
Management.
• Lawyers stay away from requesting courts to refer disputes for
mediation.
• Clauses mentioning mediation are hardly used.
• Few Judges offer mediation option to parties as this may develop
suspicion on part of litigants and their legal counsels.
• Cost saving.
• Time saving.
• Reduction of caseload in courts.
• Continued business relationship.
• Creation of trust and sustained communication.
• Release of business assets and economic growth.
• Supports SME’s.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
31
Post IFC Intervention in Pakistan – Legal & Practical
Implication of Commercial Mediation
• MoU signed between Ministry of Law and IFC in 2005.
• MoU signed between Sindh High Court and IFC in 2005.
• Referral and Enforcement system at Sindh High Court developed with reference
to institutionalized mediations at Karachi Centre for Dispute Resolution (KCDR).
• KCDR established as first mediation centre in the country and having a complete
apparatus for itself, mediations & mediators.
• ADR rules of Sindh High Court developed and finalized.
• Section 89-A of Civil Procedure Code started to being used for referral of disputes
to KCDR for mediation.
• Judges and Lawyers being sensitized to ADR and mediation.
• Businesses attend presentations and awareness events organized on mediation.
• Commercial mediation has taken off but a sustained awareness program is
required for greater buy in of mediation and referral of disputes.
• Culture of litigation is being challenged and success stories reflect resolution of
disputes through mediation in a short span of time.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
32
Post IFC Intervention in Pakistan – Major Achievements
• IFC ADR Project trained 72 professionals of diverse fields in
commercial mediation.
• 49 professionals belonging to legal, banking, accounting and other
professions attained accreditation in mediation from CEDR (UK ).
• 12 Accredited Mediators attain status of Master Trainer.
• Mediators and Master Trainers registered at KCDR.
• Disputes worth US$ 17m resolved including trans-boundary disputes.
• Bulk Cases from banking sector referred to KCDR.
• Training for lawyers to be held in December 2008.
• 3 Specialised Trainings delivered through Master Trainers:
- 1 Conflict Resolution Course for Corporate Sector.
- 2 Training Workshops for Judicial Officers in Sindh Province of
Pakistan.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
33
Post IFC Intervention in Pakistan – Development Impact
• IFC ADR Project has made progress in a very challenging
environment.
• With a reputable Board of Governors, KCDR is becoming a well
recognised entity.
• IFC ADR Project has been building capacity of lawyers and other
professionals which was either ignored or not a priority for other
stakeholders.
• With continued intervention and support of stakeholders,
sustainability could be achieved in another 2-3 years.
• KCDR is marketing its Corporate Membership for increasing its
revenue.
• KCDR plans to establish a research and development unit so that it
can contribute to developing field of Mediation in Karachi and Pakistan.
• Beneficiaries will be able to save time and cost of litigation which is
urgently required in current economic situation.
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
34
Thank You
Q&A
Justice Mushir Alam
Director KCDR dated
09-02-2009
Application of ADRC,
Adjudication,Appeals & Mediation
at Regional Tax Office,Karachi
35