with the assistance of approved by the high court of sindh seminaron experience of adrc...

With the assistance ofApproved by the

HIGH COURT OF SINDH

SEMINAR SEMINAR

ONON

EXPERIENCE OF ADRCEXPERIENCE OF ADRC

Adjudication, Appeals & MediationAdjudication, Appeals & Mediation

Justice Mushir AlamDirector - Karachi Centre for Dispute Resolution

At Regional Tax Office, Karachi,February9th, 2009

Justice Mushir Alam Director KCDR dated 09-02-2009

Application of ADRC, Adjudication,Appeals & Mediation at Regional Tax Office,Karachi

2

Existing Judicial Landscape

Pakistan follow Common Law system.

Adversarial mode of dispute resolution.

Commercial disputes are formally resolved through conventional Judicial/Court processes.



3

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.



4

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.



5

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.



6

Why adversarial system not Why adversarial system not effective in Pakistaneffective in Pakistan

Heavy Backlog:Heavy Backlog: 1.5 Million Cases pending in Courts. 1.5 Million Cases pending in Courts.

• Shortage of Judges: Shortage of Judges: SC 17, LHC 50,SHC 28,PHC 15,BHC 6SC 17, LHC 50,SHC 28,PHC 15,BHC 6District Judiciary Punjab 649,Sindh 390,NWFP 177 & Balochistan District Judiciary Punjab 649,Sindh 390,NWFP 177 & Balochistan 123.123. •Taxing:Taxing: Financial & emotional (per doing Business Report Financial & emotional (per doing Business Report 2009 Cost of Contract Enforcement in Pakistan involves 23.80% 2009 Cost of Contract Enforcement in Pakistan involves 23.80% of the total claim).of the total claim).

• Time delays: Time delays: Per ‘Doing Business report 2009’ 975 days (i.e 5-Per ‘Doing Business report 2009’ 975 days (i.e 5-10 years) consumed to enforce a contract.10 years) consumed to enforce a contract.

• Cumbersome ProceduresCumbersome Procedures (per doing Business Report 2009 (per doing Business Report 2009 Contract Enforcement in Pakistan involves 47 procedures)Contract Enforcement in Pakistan involves 47 procedures) Domino effectDomino effect Real issue over shadowed by legal complexities, Real issue over shadowed by legal complexities, strained & diminished future relationshipstrained & diminished future relationship



7

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”;.

..



8

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)



9

ADR friendly legislation in Pakistan

Small Claims and Minor Offenses Court Ordinance Small Claims and Minor Offenses Court Ordinance 2001.2001.• Section 102-106 of the Local Government Ordinance Section 102-106 of the Local Government Ordinance 20012001• Section 10 & 12 of Family Courts Act 1964Section 10 & 12 of Family Courts Act 1964• Section 345 of Code of Criminal Procedure 1898.Section 345 of Code of Criminal Procedure 1898.

• Through Finance Bill ADR drafted in following Tax Through Finance Bill ADR drafted in following Tax LawsLaws

- Sec. 134-A of I. T Ord. 2001 R/w Rule 231-C of the I. T - Sec. 134-A of I. T Ord. 2001 R/w Rule 231-C of the I. T Rules-02 Rules-02 - Sec. 47 of the Sales Tax Act 1990 and Ch. X of the S.T - Sec. 47 of the Sales Tax Act 1990 and Ch. X of the S.T Rules-04 Rules-04 - Sec. 195-C of the Customs Act 1969, Ch.XVII of Cust. - Sec. 195-C of the Customs Act 1969, Ch.XVII of Cust. Rules 2001Rules 2001- Sec. 38 of the Fed.Excise Act 2005 R/w Rule 53 of FE - Sec. 38 of the Fed.Excise Act 2005 R/w Rule 53 of FE Rules 2005Rules 2005- Section 23 of Industrial Relation Ordinance.- Section 23 of Industrial Relation Ordinance.



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i. Show Cause Notice is necessarily issued before making assessment/ i. Show Cause Notice is necessarily issued before making assessment/ adjudicationadjudication

ii. Revision of the assessment order by the Commissioner/ Collector.ii. Revision of the assessment order by the Commissioner/ Collector.

B)B) Formal AppealsFormal Appeals With the departmentWith the department ::

i. Commissioner of Appeals or the Collector of Appeals by the taxpayersi. Commissioner of Appeals or the Collector of Appeals by the taxpayers

ii. Income Tax Appellate Tribunals (functions under the Law & Justice ii. Income Tax Appellate Tribunals (functions under the Law & Justice Ministry)Ministry)

(it is a Final forum to decide the question of fact - By either Party). (it is a Final forum to decide the question of fact - By either Party). Superior CourtsSuperior Courts

iii. A reference on the question of law before the High Courts, raised by iii. A reference on the question of law before the High Courts, raised by either Partyeither Party

iv.On the issue of public importance, a constitution petition for leave to iv.On the issue of public importance, a constitution petition for leave to appealappeal

CPLA before the Supreme Court.CPLA before the Supreme Court.

REDRESSING GRIEVANCES OF THE

TAX PAYERS



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Exploring options other than Appeals for resolving tax disputes

C)C) Alternative Dispute Resolution MechanismAlternative Dispute Resolution Mechanism

A taxpayer, during pendency of appeal, can make an application to the FBR to constitute 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 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 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 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. appropriate order. The Board may or may not accept the said recommendations.

D)D) Federal Tax OmbudsmanFederal Tax Ombudsman

Indirectly controls the mal-administration of the department’s officers and grants relief to 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.the taxpayers where instances of the mal-administration are pointed out.Representation against the decision of FTO lies with the President of Representation against the decision of FTO lies with the President of Pakistan (through Pakistan (through Law & Justice Ministry). Law & Justice Ministry).

E)E) Representation to the Chairman, FBR.Representation to the Chairman, FBR.

A taxpayer may submit a representation under section 7 of the FBR Act, 2007 to the A taxpayer may submit a representation under section 7 of the FBR Act, 2007 to the Chairman, FBR who may issue appropriate order. Chairman, FBR who may issue appropriate order.

* For foreign investment/N.R companies:* For foreign investment/N.R companies: * Concept of “advance ruling”; implementation of the provisions of the agreement for * 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 avoidance of double taxation is faithfully done. Pakistan has such agreements with 55 countries.countries.



12

STATEMENT OF DISPOSAL AND PENDENCY OF APPEALS (DIRECT TAXES)

PERIOD 2004-2005 TO AUGUST, 2008

First Appeal (DT) = 81649First appeal IDT = 24696

First appeal decided = 106,345

PeriodOpening 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 110705

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 81,649



13

MPRs OF COMMISSIONERS (APPEALS) FOR THEPERIOD FROM JULY,08 TO AUGUST, 08

* During August, 08 three (03) more CsIT (A) offices established in Islamabad, Lahore & Karachi



14

POSITION OF CASES PENDING IN HIGH COURTS

Direct Taxes Indirect Taxes Total

Opening 2005-2006Added:

5180 2395419

2655 5173172

7835 7568591

Added in 2006-2007 & 2007-2008:

310• 5729• 1270 Appeals filed by us

519• 3691• 287 Appeals filed by us and papers examined

8299420

Disposal in 2 years: 2914 1631 4545

Pending August, 2008

2815 2060 4875

Major Issues:

(i) Income Tax (a) 122(5A) (b) 170(4)

(ii) Valuation Customs(iii) Vehicles tampered(iv) Sales – Basis of production/sale value.



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POSITION OF CASES PENDING IN SUPREME COURT OF PAKISTAN

DIRECT TAXES INDIRECT TAX TOTAL

Opening 2005-2006

1650 1092 2742

Addition 2005-2006

293 71 364

2006-2007 & 2007-2008 (Addition of Appeals during the two years )

17783721

485 1648

22635369

Decided during the period

3231 1222 4453

Pending on 31.8.08

490 426 916



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FIRST APPEALSPOSITION 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*

2007-08July to Aug 08

25171521

84921476

110092997

9488 +

1074

1521*1923

Total 24185 24696

9488 (decided cases) / 12 = 791 appeals per month725 (monthly decisions) / 06 = 132 appeals per Collector132 / 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 the end of June, 2008.



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FEDRAL BOARD OF REVENUE



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POSITION OF PENDENCY OF INCOME TAX CASES IN APPEALS AS ON 31.8.08

Pendency Revenue Involved(Rs. In Billion)

CIT (A) 2583 35.5 (B)

ITAT 4500 7 (B)

High Courts 2815 4.2 (B)

Supreme Court 490 3 (B)

Total 50 B (approx)

Balance 40% of tax would be involved. Rs.5 to 7 Billion net can come in



19

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 22.8 B

Balance 40% of tax involved. 2% or about Rs.4 Billion would be recoverable



20

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 496

D



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S.NO. Issue Decision1. WAPDA/VOITH Hydro Kraft &

other German Companies Decided in our favor(ADRC related controversy)

2. Sindh Energy Ltd Decided in our favor3. Suo moto 15 cases of Poultry Feeds -do-4. Diamond Industry

(inadmissible refund claim -do-of Rs.200 million)

5. General Tyre rubber co. -do-(ADRC controversy)

6. S-Tax Extension to FATA/PATAThrough Cabinet decision, Rs.1.3 billion realized from 9 companies

7. Fecto Belarus S.C refund case of Rs.493 million8. M/s Ashraf/Bilour Ghee Units

(taxes & duties on manufacture settledin bond)

9. Procter & Gamble Issue of sales tax on retail price where the item was not covered by the third schedule of Sales

Tax Act, 1990– settled

SYNOPSIS OF MAJOR ISSUES SETTLED THROUGH THE ASSISTANCE OF THE LEGAL WING – FOLLOW UP OF THE ADRC / SECTION 7 OF THE

FBR ACT.



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POSITION OF DISPOSAL & PENDENCY OF ADJUDICATION CASES

Year Opening Balance

Fresh Institution

Available 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

IDT



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STATEMENT SHOWING TOTAL INSTITUTION AND DISPOSAL OF COMPLAINTS BY

FEDERAL TAX OMBUDSMAN

YEAR INSTITUTION

DISPOSAL BALANCE

Since 2000 to 31.8.2008

11996 11421 575



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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.



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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 Recommend-ations Received

Recommend-ations not Accepted

Recommendations Implemented

Cases Pending with ADR Committees

Custom Judicial/ADRC

259 75 184 139 28 78 45

Sales Tax Judicial/ADRC

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.



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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.



27

FBR Dependent System- ADRC 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.



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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.



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………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



30

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.



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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.



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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.



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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.



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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.



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Thank You

Q & A

with the assistance of approved by the high court of sindh seminaron experience of adrc...

Documents

regional tax office

application of adrc

constitution of pakistan

pakistan customary

adr mechanism

traditional adr

business report

adr arbitration council