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Petitioner: Messrs STYLO SHOES, LAHORE VS Respondent: C.I.R. ZONE-X, R.T.0.-II, LAHORE
Court Name: Appellate Tribunal Inland Revenue Judge(s): Jawaid Masood Tahir Bhatti, Fiza Muzaffar Title: Messrs STYLO SHOES, LAHORE vs C.I.R. ZONE-X, R.T.0.-II, LAHORE Case No.: S.T.A. No,261/LB of 2014 Date of Judgment:2014-12-11 Reported As: 2015 PTD (Trib.) 2172 Result: Appeal accepted
Judgment ORDER JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.---The Titled Sales Tax Appeal has been preferred by the Registered Person calling in question the impugned Appellate Order bearing No, 20 dated 20 January, 2014 passed by the learned Commissioner Inland Revenue (Appeals-III), Lahore. 2. Facts briefly stated are that the appellant (an AOP) is a registered A person, bearing NTN 2733812 and STRN 0304640006673, which is engaged in retail sales of footwear, handbags and other accessories through 85 retail outlets established in various cities of Pakistan and Azad Jammu and Kashmir The Deputy Director Intelligence and Investigation Inland Revenue, Lahore (DDII-IR) searched the business premises of the appellant on 30-4-2013 after obtaining permission from the Magistrate under section 40 of the Act on the basis that the appellant had 85 retail outlets in various cities which involved massive investment and the same needed to be probed into. Further, the website of the appellant declared it as a "manufacturer", while, it was registered as "retailer" only Moreover, it had paid sales tax amounting to Rs,54,101,882 as a "retailer", whereas it was required to pay sales tax amounting to Rs,127,841,647; hence, it had short paid sales tax amounting to Rs,73,739,765 for the period from July 2010 to June 2012. Subsequently, the Director Intelligence and Investigation Inland Revenue, Lahore (DII-IR) forwarded a Contravention report dated 16-5- 2013 to the Chief Commissioner Inland Revenue, RTO, Lahore for adjudication based on investigation made by DDII-IR under section 38 of the Act made under Case No, 04/2013 dated 16- 5-2013 detected on 8-2-2013 observing that the registered person is engaged in retail sales of leather A shoes, artificial leather shoes, leather bags and allied articles etc. And is paying turnover tax under Sales Tax Special Procedure Rules, 2007, Chapter II (Special Procedure for payment of Sales Tax by Retailers) vide S.R).O. 480(1)/2007 dated 9-6-2007, whereas w,e,f, 1-1-2012 in
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accordance with the provisions of clause (viii) of S.R.O. 1125(1)/2011 dated 31-12-2011 as amended vide S.R.O. 154(I)/2013 dated 28-2-2013, the registered persons who are solely or otherwise engaged in the retail business of goods or products of five zero rated sectors namely textile (including jute), Carpets, Leather, Sports and Surgical goods are required to pay sales tax on their retail sales (a 5% (for the period 1-1-2012 to 28-2-2013) and 2% (for the period 1-3-2013 onwards), which he failed to comply with and thus evaded sales tax amounting to Rs,192,060,185. Based on the Contravention Report, Assistant Commissioner Inland Revenue, Audit 03 Zone X, RTO II, Lahore issued Show-cause notice bearing No, 562 dated 1-6-2013 confronting the evasion of sales tax of Rs,192,060,185, as per detail given below, by stating the basis as explained in the contravention report. S.R.O. No. and DateTax Period Sales As per Record Obtained (Rs.)Sales Tax Rate Amount of Sales Tax S.R.O. 1125(I) dated 31 December, 2011Jan-12 300,822,522 5% 15,041,126 Feb-12 256,963,414 12,848,171 Mar-12 262,909,256 13,145,463 Apr-12 213,680,698 10,684,035 May-12 164,783,818 8,239,191 June-12 205,994,013 10,299,701 Jul-12 207,799,090 10,389,955 Aug-12 444,733,712 22,236,686 Sep-12 182,677,725 9,133,886 Oct-12 455,913,530 22,795,677 Nov-12 191,228,346 9,561,417 Dec-12 261,390,477 13,069,524 Jan-13 313,401,511 15,670,076 Feb-13 248,782,644 12,439,132 S.R.O. 154(I) dated 28 February, 2013Mar-13 325,307,383 2% 6,506,148 Grand Total 4,036,388,139 192,060,188 In the Notice, it was alleged that appellant violated the provisions of Sections 3, 6, 8, 22, 23 and 26 of the Sales Tax Act, 1990 read with clause (viii) of S.R.O., 1125(1)/2011 dated 31-12-2011 amended vide S.R.O. 154(1)/2013 dated 28-2-2013 and have willfully/deliberately evaded sales tax amounting to Rs,192,060,185 during the period April 2011 to March 2013 by committing tax fraud as defined under section 2(37) of the Sales Tax Act, 1990 which is recoverable from the appellant under section 11(2) of the Sales Tax Act, 1990 read with Special Procedure, 2007 along with default surcharge under section 34 to be calculated at the time of deposit besides penal action under section 33(5)(8)(11c) and (13) read with Section 2(37) of the Sales Tax Act, 1990. Subsequently, a Corrigendum was issued bearing Case No, 565 dated 5-6-2013 in exercise of powers conferred under section 57 of the Sales Tax Act, 1990 by making changes in the certain clauses of the show-cause notice. After obtaining the replies of the registered person and para wise comments of the Directorate of Intelligence and Investigation of Inland Revenue, the Deputy Commissioner Inland revenue, issued Order bearing No, 03/2013 dated 1-6-2013 by quoting the contents of entire notices, the replies filed by the appellant and the comments filed by the Directorate of Intelligence and concluded the assessm ent by stating that:- "I have gone through the facts of the case through verbal submissions Viz-a-Viz written submissions of the respondent and the department i,e, Directorate of Intelligence andst th
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Investigation (IR), Lahore, 1 am of the considered opinion that respondent wilfully/deliberately violated the provisions of Sections 3, 6, 7, 8, 22, 23 and 26 of the Sales Tax Act, 1990 read with clause (viii) of S.R.0. 1125 dated 31st December 2011- as amended vide S.R.0. 154(I)/2013 dated 28th February 2013 and evaded sales tax amounting to Rs,192,060,185 during the period from January, 2012 to March 2013 and thus committed tax fraud as defined under section 2(37) of the Sales Tax Act, 1990." Against this Order, the appellant filed appeal before the Commissioner Inland Revenue, (Appeals) who vide appellate order No,20 dated 20 January 2014 decided the appeal in the following manner:-- The upshot of above discussion is that the impugned order is found to have been passed without fulfillment of statutory requirements and giving due consideration to the contentions of the appellant. On the other hand, the appellant has also not been able to establish that it had correctly discharged its tax liability for the tax periods under consideration in accordance with law. In order to meet the ends of justice, therefore, the impugned order is remanded back to the Department to decide the matter afresh in the light of above observations. Being dissatisfied against the order of the learned CIR (Appeals), the appellant has filed the present appeal precisely on the following grounds before the Tribunal:- (1) That the appellate Order No, 20 dated 20 January, 2019 and assessment Order No, 03/2013 dated 25 September, 2013 (the impugned orders) passed by the respondent No, 1 and respondent No, 2 respectively are bad in law, without having lawful jurisdiction and against the facts of the case. (2) That the learned Commissioner Inland Revenue (Appeals) [CIR(Appeals)] has erred in- confirming the order issued under section 11(2) of the Sales Tax Act, 1990 (the Sales Tax Act) without having lawful jurisdiction. (3) hat the learned CIR(Appeals) has erred in remanding the case back to the respondent No, 2 to decide the matter afresh. The act of the CIR (Appeals) is without having lawful jurisdiction, since subsection (3) of section 458 debars the CIR (Appeals) to remand the case for de novo consideration. (4) That the learned CIR(Appeals) has erred in remanding back the Order No, 03/2013 dated 25-9- 2013 to the respondent No, 2, which was required to be annulled, in the presence of following admitted facts by the CIR (Appeal) in the Order-in-Appeal: (a) That the impugned Order is a non-speaking order and against the requirements of section 24A of the General Clauses Act, 1897. (Para 6 Page 6) (b) That the impugned Order has not been issued after application of mind. (Para 6 Page 6) (c) That the respondent No, 2 was required to issue the show-cause notice and impugned order under section 11(3) of the Sales Tax Act, 1990 (ST Act), which is mandatory provision in case of tax frauds, whereas the impugned Show-cause notice and order have been issued under section 11(2) of the Sales Tax Act (Para 10 Page 6) (d) That the respondent No, 2 has failed to provide the opportunity of personal hearing to the appellant as required under section 11(5) of the Sales Tax Act and the respondent No, 2 has misstated in the impugned order that "I have gone through the facts of the case through verbal submissions ...... ..". (Para 12 Page 6) (5) That the learned CIR(Appeals) has erred in not accepting the appeal on a fact that the basis of issuance of show-cause notice is the contravention report issued by the Deputy Director Intelligence and Investigation Inland Revenue, Lahore (DDII-IR) which is illegal, since no prior notice was, issued to the appellant under section 38(1) of the Sales Tax Act, 1990 (ST Act) before proceeding with the investigation and issuance of contravention report under section 38 of the ST Act.
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(6) That the learned CIR(Appeals) has erred in ignoring the fact that so-called search was conducted in the absence of any "Proceedings" against the appellant, which is a necessary prerequisite to obtain the search warrant by the DDII-IR; hence, the search and all subsequent proceedings standing thereon, are illegal and void ab initio. (7) That the learned CIR(Appeals) has erred in not considering the fact that according to the Contravention Report, detection had been made on 8-2-2013; therefore, obtaining search warrant thereafter on 30-4-2013 through misstatement of facts before the learned Magistrate was illegal, malicious and mala fide on the part of the DDII-IR; thus making the whole subsequent proceedings including the impugned order as illegal, and void ab initio. (8) That the learned CIR(Appeals) has erred in rejecting the ground of appeal that the order has been passed on a defective show-cause notice, which was tried to be cured by the respondent No,2 through the issuance of corrigendum to the show-cause notice under section 57 of the Sales Tax Act, under which only clerical mistakes are allowed to be corrected, whereas the respondent No, 2 made material changes in the Show-cause notice by inserting/ deleting provisions of law and facts. Hence, the impugned order is illegal and void. (9) That the learned CIR(Appeals) has erred in not adjudicating the ground of appeal that the impugned order has been issued on a date not fixed for hearing. (10) That the learned CIR(Appeals) has erred in not adjudicating the ground of appeal that the impugned order has been passed on a matter which was pending before the Federal Board of Revenue (FBR) for issuance of clarification and the appellant had made request to the DCIR to keep the proceedings pending till the issuance of clarification by the FBR; however, the DCIR without rejecting the said application, issued the impugned order which is a sheer violation of due process and fair trial and fundamental rights of the appellant protected under Articles 4 and 10A of the Constitution of Islamic Republic of Pakistan. (11) That the learned CIR(Appeals) has erred in ensuing to adjudicate the facts of the case, after adjudging that the impugned order is a non-speaking order, issued in violation of section 24A of the General Clauses Act, 1897 and section 11(5) of the Sales Tax Act and the impugned show- cause notice and order have been issued under section 11(3) of the Sales Tax Act, instead of section 11(2) of the Sales Tax Act. (12) That the learned CIR(Appeals) has erred in not adjudicating the ground that the condition (VIII) of S.R.O. 1125(1)/2011 applies to the retailers or such registered persons who are paying sales tax under Chapter-Ill of the SP Rules, whereas the appellant is paying sales tax under Chapter-II thereof and does not fall under the ambit of Chapter-III. (13) That the learned CIR(Appeals) has erred in not adjudicating the ground that the appellant is a "retailer" and required to pay the sales tax under Chapter II of the SP Rules. These rules cover all retailers making supplies from retail outlets to final consumers EXCLUDING dealers of Motorcycle, Specified Electric Goods and manufacturers cum-retailers and provide the following protection to the appellant (retailer): Rule 5(2) provides that the turnover of the retailer shall constitute value of all supplies including supplies of exempt, Zero Rated and Third Schedule items. Rule 5(6) provides that the retailers, who paid sales tax during the year 2007-08 under Chapter II, shall continue paying it under the same Chapter till further orders. However, no such order has been issued so far. Rule 6(1) declares the tax paid under these Rules as final discharge of sales tax liability. (14) That the learned CIR(Appeals) has erred in ignoring the fact that the appellant is paying sales tax under Chapter II of the SP Rules, since its promulgation in 2007 and the tax paid by it is considered discharge of its final sales tax liability; the appellant is liable to pay sales tax under
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these Rules only, till further orders, as mentioned in Rule 5(6), and no such order has been issued, directing the appellant to discontinue the payment of sales tax under the said Rules. (15) That the learned CIR(Appeals) has erred in ignoring the clarification issued by the Board vide C. No, 1(140) C/RGST/2011 dated 11th April 2011 on S.R.O. 283(1)/2011 (applicable prior to issuance of S.R.O. 1125(1)/2011 dated 31 December 2011, containing the similar conditions as provided in S.R.O. 1125) that the retailers were required to discharge their sales tax liability under Chapter II of the Rules, and only manufacturer/ wholesaler-cum-retailers were required to pay sales tax under S.R.O. 283(1)/2011. (16) That the learned CIR(Appeals) has erred in holding that the appellant falls under the five zero rated sector who are liable to pay the sales tax under S.R.O. 1125(1)/2011, instead of Chapter II of the Sales Tax Special Procedure Rules, 2007 (SP Rules). (17) That the learned CIR(Appeals) has erred in holding that the S.R.O. 1125(1)/2011 is a special legislation, whereas the payment of sales tax by retailers under Chapter-II of the SP Rules is a general legislation. (18) That the learned CIR(Appeals) has erred in ignoring the fact that the provisions of S.R.O. 1125(1)/2011 cannot be extended to the "retailers" paying sales tax under Chapter. II of the Rules, which is applicable on persons registered as manufacturers, importers, exporters and wholesalers of five zero rated sectors as mentioned in Condition (1) therein. Further, the CIR (Appeals) has erred in holding that the condition No, (I) of S.R.O. 1125(1)/2011 dated 31 December 2011 does not have an overriding effect. (19) That the learned CIR(Appeals) has erred in disregarding the settled principle of interpretation of statutes that when two interpretations of the same provisions are possible then the interpretation favorable to the taxpayer will be taken into consideration. (20) That the CIR(Appeals) has erred in disregarding the fact that the appellant is dealing in such types of footwear and other products that are not covered under the S.R.O. 1125(1)/2011. (21) That without prejudice to the above grounds, it is the settled principle of interpretation of statutes that when two interpretations of the same provisions are possible then the interpretation favorable to the taxpayer will be taken into consideration. Reliance in this regard is placed on the following judgments of the superior courts: (I) 2004 PTD 2479 (Supreme Court). (II) 1999 PTD 4138 (High Court) (III) 2000 PTD 280 (High Court) 22. That the CIR (Appeals) has erred in not adjudicating the ground, wherein the charging of default surcharge under section 34 and levying penalty under section 33(5), (8), (11c) & (13) of the Sales Tax Act was agitated. In the light of the above grounds, it is prayed to vacate the appellate order No, 20 dated 20 January 2014 and assessm ent order No, 03/2013 dated 25 September 2013 passed by the authorities below respectively by deleting the sales tax demand along with the default surcharge and penalty. 3. At the very outset of his arguments on the grounds of appeal, the learned AR contested that the Order-in-Original was issued on the basis of proceedings initiated by the Directorate of Intelligence and Investigation Inland Revenue, for investigation under section 38 of the Sales Tax Act, 1990 (the Act) which are defective due to following reasons:-- (a) The proceedings were initiated through search of the business premises without issuing any notice to the appellant. The first action taken by the staff of the Directorate was raid on the business premises of the appellant on 30-4-2013. It was mandatory upon the authorities to issue notice under section 38(1) of the Act before proceeding with the investigation and issuance of contravention report under section 38. Besides, the first notice under section 38(2) dated 14-5-2013 was served upon the appellant on 15-5-2013 for compliance within three days i,e, by 18-5-2013
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whereas submitted the Contravention Report dated 16-5-2013 for adjudication of the case. The said contravention report was issued even prior to filing of reply of notice under section 38(2), hence the show-cause notice and subsequent order based on the said contravention report are illegal. (b) The AR explained that the search was conducted in the absence of any "Proceedings" against the appellant, which was a necessary prerequisite to obtain the search warrant by the DDIIIR; hence, the search and all subsequent proceedings standing thereon, were illegal and void ab initio. (c) He explained that date of detection stated on the Contravention Report is 8-2-2013, whereas Search was made on 30-4-2013. The search warrant was obtained by explaining that registered person is paying sales tax as Retailer while it fell under the category of the manufacturer, hence the Registered Person had short paid sales tax by Rs,73,739,765, whereas during search and after obtaining all record, when it was proved to the department that the appellant was only involved in Retail activity and no manufacturing was performed, they entirely changed their stance and taken plea that it was wrongly paying sales tax under the Special Procedure for Retailers instead of paying sales tax under S.R.O. 1125(1)/2011. He explained till issuance of search warrant on 30-4-2013, the authorities were of the view that appellant was manufacturer and paying sales tax wrongly as retailer and after search, when they satisfied themselves that appellant was only a retailer, they changed their position. They even misguided the Magistrate while getting the search warrant. 4. The learned AR explained that entire proceedings undertaken by the Directorate of Intelligence and Investigation were malicious, tainted with mala fide, based on wrong facts and were carried out even without fulfilling the required legal requirements, hence, needed to be quashed. Initiation of proceedings without issuing the notice under section 38 is ab initio illegal and void as decided by the Hon. Lahore High Court in the case reported at 2013 PTD 713. Further, AR argued that all proceedings taken on the basis of illegal act shall be vitiated. Reliance was placed on 1990 PTD 389 (H.C). It is argued that the order had been passed on a defective show-cause notice, which was tried to be cured by the Assessing Officer through the issuance of corrigendum to the show-cause notice under section 57 of the Act, under which only clerical mistakes were allowed to be corrected, whereas the Officer made material changes in the Show-Cause Notice by inserting/ deleting the following contents of the Show-Cause Notice. S.No. Wording of show-Cause NoticeCorrection/insertion through Corrigendum (i) In the last sentence of 1 Para before the word "Under" the highlighted below is inserted Whereas, it has been reported to the undersigned by the Directorate of intelligence and Investigation (IR). Lahore that you, Messrs Stylo Shoes, 161-M Quaid- e-Azam Industrial Estate, in violation of provisions of clause (viii) of S.R.O. 1125(I)/2011 dates 31-12-2011 as amended vide S.R.O. 154(I)/2013 dated 28-2- 2013. You Messrs StyloWhereas, it has been reported to the undersigned by the Directorate of intelligence and Investigation (IR), Lahore that you, Messrs Stylo Shoes, 161-M, Quaid- e-Azam Industrial Estate, in violation of Provisions of Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011 as amended vide S.R.O. 154(I)/2013 dated 28-2- 2013. You Messrs stylost
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Shoes, Lahore is engaged in retail sale of leather shoes, artificial leather shoes, leather bags and allied leather article etc. and is paying turnover tax under Special Procedure 2007, Chapter II (Special Procedure for Payment of Sales tax by retailers) vide S.R.O. 480(I)/2007 dated 9- 6-2007 Under Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011, which is reproduced as under:---Shoes, Lahore is engaged in retail sale of leather shoes artificial leather shoes, leather bags and allied leather article etc. and is paying turnover tax under special Procedure 2007, Chapter II (Special Procedure for payment of sales tax by retailers) vide S.R.O. 480(I)/2007 dated 9- 6-2007. With effect from 1- 1-2002. In accordance with the provisions of clause (viii) of S.R.O. 1125(I)/2011 dated 31 December 2011 as amended by S.R.O. 154(I)/2013 dated 28 February, 2013 of the Sales Tax Act, 1990, the registered persons who are solely or otherwise engaged in the retail business of goods or products of five zero rated sectors namely Textile (including Jute), Carpets Leather, Sports and Surgical goods are required to pay sales tax at the rate of five percent ad val on their retail sales. Under Clause (Viii) of S.R.O. 1125(I)/2011 dated 31-12- 2011, which is reproduced as under:- (ii), (iii)In para 2 a new phrase highlighted below is inserted and the phrase strike through is deleted. It has also been pointed out by the Directorate that comparison of sales as per record obtained/recovered with the sales declared in the sales tax returns during investigation reveals an under declaration/suppression of sales by Rs. 45, 027, 067 (4,It has also been observed that most of the purchases by you have been made from unregistered persons. It has also been pointed out by the Directorate that comparison of sales as per record obtained/recovered with the sales declared inst th
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036, 388, 139-3, 991, 361, 072). The same has escaped taxation under special Procedure, 2007the sales tax returns during investigation reveals an under declaration/suppression of sales by Rs. 45,027,067 (4,036,388,139- 3,991,361,072) (iv), (v)In para 3, a new phrase highlighted below is inserted and the phrase strike through is deleted. In view of the above, it is clear that you Messrs Stylo Shoes, Lahore have, thus violated the Provisions of sections 3,6,7,8,22,23, and 26 of the Sales Tax Act, 1990 read with Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011 amended vide S.R.O. 154(I)/2013 dated 28- 2-2013 and have willfully /deliberately evaded sales tax amounting to Rs. 192,060,185 during the period April, 2011 to March, 2013 by committing tax fraud as defined under section 2(37) of the Sales Tax Act, 1990 which is recoverable from you under Section 11(2) of the Sales Tax Act, 1990 read with Special Procedure, 2007 along with default surcharge..............In view of above, it is clear that you Messrs Stylo Shoes, Lahore have, thus violated the Provisions of Sections 3,6,7,8,22,23 and 26 of the Sales Tax Act, 1990 read with Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011 amended vide S.R.O. 154(I)/2013 dated 28- 2-2013 and have willfully/ deliberately evaded sales tax amounting to Rs. 192,060,185 during the period January, 2012 to March, 2013 by Committing tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990 which is recoverable from you under Section 11(2) of the Sales Tax Act, 1990 along with default Surcharge...................
The learned AR explained that section 57 did not allow making such changes and prayed that order passed on the basis of amended show-cause notice is illegal and void, which is required to be cancelled. The learned AR further, explained that Assessing Officer alleged that the appellant committed tax fraud under section 2(37) and thereafter issued the Show-Cause Notice under section 11(2) the Act instead of issuing Show-Cause Notice under section 11(3) and concluded the assessment under section 11(2), which is illegal and void ab…
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