Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs QUETTA ELECTRIC SUPPLY CO. LTD., QUETTA VS Respondent: The COMMISSIONER INLAND REVENUE,ZONE-I, R.T.O., QUETTA
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Syed Ayaz Mehmood Title:Messrs QUETTA ELECTRIC SUPPLY CO. LTD., QUETTA vs The COMMISSIONER
INLAND REVENUE,ZONE-I, R.T.O., QUETTA Case No.: S.T.A. No,201/KB of 2017 Date of Judgment:2018-06-25 Reported As: 2019 PTD (Trib.) 228 Result: Appeal allowed Judgment ORDER MUHAMMAD JAWED ZAKARIA, (JUDICIAL MEMBER).---The appeal has been filed by the Taxpayer / Appellant assailing the order No, ST/35-2016 dated 17.5.2012 passed by the learned CIR(A) Quetta. We had already allowed the Miscellaneous Application (AG) vide order bearing M.A. (AG) No, 79/KB/2018 dated 6.2.2018 whereby the taxpayer has been allowed to raise the following additional grounds of appeal: Additional grounds of appeal "1. That without prejudice to the other grounds from 1 to 21, the learned Respondent DCIR is not competent, vested with the power and jurisdiction to issue a show-cause notice (impugned notice) under section 11 of the Sales Tax Act, 1990. 2. That without prejudice to the other grounds from 1 to 21, the learned Respondent DCIR is not competent, vested with the power and jurisdiction to pass the Order-in-Original No,02/2016 (impugned order) under section 11 of the Sales Tax Act, 1990." OTHER MAIN GROUNDS OF APPEAL S.T.A. No, 201/KB/2018 2. The learned counsel for the Appellant has taken the following main grounds of appeal in S.T.A. No, 201/KB/2017 which are reproduced as under: 1. That, Appellate Order No, ST/35-2016 of the Commissioner Inland Revenue (Appeals), Quetta and Order-in-Original No,02/ 2016 of the Deputy Commissioner Inland Revenue, Unit-I, Zone-I, RTO, Quetta are bad in law, contrary to the facts of the case and against the facts of the case. 2. That, the learned Commissioner Inland Revenue (Appeals), is, not justified to confirm the non- speaking and ex-party Order-inOriginal No, 02/2016 of the Deputy Commissioner Inland Revenue,
---
## Page 2
RTO, Quetta. 3. That, the learned CIR (A) miserably failed to consider and acknowledge the copy of receipt of the written reply dated 01/12/2016 submitted with written arguments by the Appellant to CIR(A) having inward receipt/stamp of RTO, Quetta and totally ignored the fact that despite having in hand the written reply of the Appellant, the DCIR passed the order-in-original without considering and incorporating the written reply of the Appellant, therefore, the non-speaking order-in-original passed by the learned DCIR and Appellate order of the CIR (A),are liable to be set aside. 4. That, the learned CIR (A) miserably failed to consider the fact that the learned DCIR passed the order-in-original without considering the Appellant written reply, therefore DCIR did not have any fresh material/information in hand on the basis of which the Order-in-Original No, 02/2016 has been passed and CIR (A) also described this fact in Para No, 6 of Appellate order to presumed that the DCIR may have consider the written reply of the Respondent in other parallel and identical case on the basis of which the order-in-original was passed by the DCIR, therefore, the Appellate order of CIR(A) has been based on assumption liable to be set-aside. 5. That the learned CIR (A) miserably failed to apply his judicious mind to consider that the Order- in-Original No,02/2016 passed by the DCIR is without jurisdiction because the order has been passed on the basis of the duplication of the assessment proceeding initiated on 03/09/2014 and concluded on 13/10/2014, therefore, the order passed by the learned DCIR on 01/12/2016 is without jurisdiction and beyond the limitation of one hundred and twenty days allowed to pass the order under Section 11(5) of the Sales Tax Act, 1990. 6. That, the learned CIR (Appeal) is not justified to confirm the Order-in-Original No,02/2016 of DCIR based on the hearing notices Nos, 232 dated 29/09/2016 which is time barred and issued without having jurisdiction and lawful authority. 7. That, the learned CIR(A) is not justified to confirm the order-in-original of DCIR without considering the fact and relevant provisions of the Sales Tax Act, 1990, that after the remand back of appeal by Hon'ble ATIR on 18/08/2014 the hearing of remand back cases was initiated vide hearing notice No, 162 dated 03/09/2014, which was attended by the Respondent and written explanation of the show-cause notices was submitted on 13/10/2014, therefore, the Order-in- Original No, 02/2016 passed on 01/12/2016 are time barred assessment order, liable to be set aside. 8. That, the learned CIR (A) miserably failed to apply his judicious mind and confirmed the order- in-original without considering the fact that the Hon'ble ATIR remanded the appeals back for fresh consideration on 18/08/2014 and DCIR passed the order-in-original on 01/12/2016 without considering any limitation period for passing the assessment orders and also without having any lawful reason of delay of more than two years. 9. That, without prejudice to the above grounds, the learned CIR(A) is not justified to confirm Order-in-Original No, 02/2016 of DCIR and also declared that the DCIR hold the jurisdiction for passing the order without considering that the original assessment order which has been remand back by the Hon'ble ATIR was passed by the DCIR, (Withholding Unit-I, Zone-I), therefore, in remand back cases the order-in-original passed by the DCIR, Unit-I, Zone-I, instead of DCIR (Withholding) is a void order, liable to be set-aside forthwith. 10. That, the learned Commissioner Inland Revenue (Appeals) is not justified to confirm the Order- in-Original 02/2016, which is the single/combined order of the two separate remand back matters/cases of the Hon'ble ATIR, therefore, single order for two separate remanded appeal orders is unjustified, illegal, void order. 11. That, the learned Respondent C1R (A) is not justified to confirm the illegal Order-in-Original No, 02/2016 of the DCIR, RTO, Quetta which has been passed without stating any provision of Sales Tax Act, 1990 under which the order has been passed but the default surcharge and penalties has been imposed without assessment of the principal amount of tax, therefore, order-in-original not
---
## Page 3
having any legal basis, liable to be set aside forthwith. 12. That, without prejudice to the above, the learned Respondent C1R(A) is not justified to confirm the order-in-original of DCIR, to make the appellant liable of not depositing tax of Rs,267,651,828 and Rs, 304,829,309/- collected from steel melters and re-rollers under Rule 58H of Sales Tax Special Procedures Rules, 2007, wrongly treating that it is a tax withheld by the appellant on behalf of the government which is to be deposited in the government treasury instead of adjusting it against the input tax ignoring the fact that under section 2(20)(a) any tax levied on supply of goods made by the appellant, is output tax and to determine tax liability of the appellant under section 7 the appellant is entitled to deduct input tax from the output tax which is due from the appellant for that tax period. 13. That, without prejudice to the above, the learned Respondent C1R (A) is not justified to declare that the Special Procedure for Payment of Sales Tax by Steel Melters, Re-Rollers and Ship breakers apply to the Appellant for payment and deposit of the Sales tax collected from the Steel melters and Re-rollers along with the electricity bill. 14. That, without prejudice to the above, the learned Respondent C1R(A) is not justified to declare that the penalty imposed on the basis of Sales Tax collected on all units sold as conveyed by the Finance Director of the appellant treating this action as covered under section 2(37) of the Sales Tax Act, 1990 instead of sales tax payable on these units if these units could be adopted as reduced by the Sales Tax payable on the basis of units declared by the appellant in the sales tax return as only units not declared in the sales tax returns, if any, could be treated tax fraud under section 2(37). 15. That, the learned CIR(A) is not justified to confirm the default charge of Rs,65,545,981/- without any default by the appellant. 16. That, the learned CIR(A) is not justified to confirm the penalty under section 33(5) amounting to Rs,28,624,056/- without any default by the appellant. 17. That, the learned CIR(A) is not justified to confirm penalty under section 33(6) amounting to Rs,17,174,434/- without any default by the appellant. 18. That, the learned CIR(A) is not justified to confirm the penalty under section 33(11) amounting to Rs,572,481,137/- without any default by the appellant. 19. That, the order of the Learned Commissioner Inland Revenue (Appeals), Quetta and Deputy Commissioner Inland Revenue, (Unit-I, Zone-I), RTO, Quetta are bad in law and contrary to the facts of the case due to some other reasons which may be adduced at the time of hearing. 20. That, the Appellate order passed by the Learned Commissioner Inland Revenue (Appeals) Quetta and Deputy Commissioner Inland Revenue, (Unit-I, Zone-I), RTO, Quetta may kindly be vacated. FACTS 2. Brief facts of the case as gleaned from the impugned orders are that the appellant is a registered person is an electricity distribution company engaged in making supplies of electric power to consumers. This is the 2nd round of litigation before the Honorable Appellate Tribunal Inland Revenue (ATIR). In the first round of litigation, the Honorable Division Bench of ATIR heard the three Sales Tax appeals of different periods (July 2007 to June 2009, July 2009 to March 2011 and April 2011 to June 2013) having common issues. On 18/08/2014 the ATIR vacated the orders of CIR (A) for all the three periods and remanded back all the three Order-in-Original for fresh consideration. The original Show-Cause Notices Nos, 394 and 370 for the two tax periods under this appeal (July 2009 to March 2011 and April 2011 to June 2013) were issued on 10/12/2012 and 11/10/2013. After the receipt of the remand back order of the ATIR, the ACIR, RTO, Quetta issued the hearing Notice No, 162 dated 03/09/2014 for hearing of all the three remand back cases. In response to the hearing notice No, 162. the Appellant (QESCO) submitted/filed the written reply Nos, 01, 02 and 03 dated
---
## Page 4
13/10/2014 of all of the three periods. After the receipt of written replies of the Appellant (QESCO), the ADCIR, Unit-1, RTO, Quetta passed the Order-in-Original No, 02/2014 dated 20/10/2014 for one of the case (for the period from July 2007 to June 2008) of the three remand back cases and none of the order was passed for the other two remand back cases (for the periods from July, 2009 to March, 2001 and April, 2001 to June, 2013). Again on 29/09/2016, the DCIR, Unit-1, RTO Quetta issued hearing Notice No, 232 for two of the remand back cases (for the periods from July 2009 to March, 2011 and April, 2011 to June, 2013) without keeping into consideration the earlier proceeding which was initiated on 03/09/2014 by ADCIR, Unit 1, RTO, Quetta, in response of which the Appellant (QESCO) submitted the written replies on 13/10/2014 and the ADCIR did not issue any Orders for the above cited two tax periods. The Appellant (QESCO) on 01/12/2016 submitted/filed the written reply for hearing Notice No, 232 of DCIR and challenged the jurisdiction of the Respondent DCIR, Unit-1, RTO, Quetta for hearing the cases remanded back by the Honorable ATIR on 18/08/2014. The Respondent DCIR, without taking into consideration the written reply of the Appellant (QESCO) submitted on 01/12/2016, issued Order-in-Original No,02/2016 dated 01/12/2016 against which the appellant filed appeal before the learned CIR (A) who vide order mentioned supra, rejected the appeal of the taxpayer, hence the instant appeal before this Tribunal. ARGUMENTS - TAXPAYER'S COUNSEL 3. The learned counsel exhaustively argued on the following points: JURISDICTION OF THE COMMISSIONER 4. The learned Authorised Representative (AR) of the appellant first argued on jurisdiction of the DCIR for passing the ONO and submitted that it is a well-settled principle of law that where a particular authority has exclusive vested with jurisdiction to proceed with a case, any attempt by any other authority to take cognizance of the matter or to institute or to initiate proceedings would render cognizance and proceeds illegal, void ab initio and of no legal effect. He further submitted that the Hon'ble Lahore High Court has not simply followed the judgment of Islamabad High Court but Hon'ble Lahore High Court has also given its own reasoning. The learned counsel, in support of his contentions, strongly placed reliance on the following judgments: (a) 2018 PTD 1071 (Hamza Nasir Wire v. Federation of Pakistan); (b) 2018 PTD 1251 (Punjab Beverages Limited v. FBR); S.T.A. No, 994/LB/2017 dated 2.3.2018 Messrs Fatima Fert Limited) and (d) S.T.A. No 668/LB/2017 dated 18.01.2018 (Messrs Coca Cola Beverages (Pvt.) Ltd. 5. The learned DCIR has wrongly assumed jurisdiction to make out and to adjudicate upon the instant case under Section 11 read with sections 33 and 34 of the Act, whereas the statute directs that certain acts shall be done by a specified person, his performance by any other person is impliedly prohibited therefore whole exercise of issuance of SCN and passing of ONO by the learned DCIR should be declared illegal, void ab initio and without lawful jurisdiction. 6. On other factual as well as legal grounds the learned counsel submitted as under: A. Limitation Period a. The limitation period for passing of assessment order after the issuance of show-cause notice under Section 11 (5) of the Sales Tax Act, 1990. b. The limitation period for fresh consideration and issuance of the fresh/new assessment order under Sales Tax Act, 1990,in cases where the order-in-original of assessing officer remanded back for fresh consideration by the Appellate Tribunal Inland Revenue. c. Whether, the second hearing/show-cause notice for the same period can be issued when the hearing of the earlier hearing/ Show-cause notice has been completed and written reply has been filed by the Registered Person/Tax payer and none of the order has been passed by the assessing officer within the limitation period under Section 11(5) of S.T.A., 1990. B. Penalty AND default surcharge without establishing mens rea on the part of QESCO: d. The objectivity and rationality of imposing penalty and default surcharge of 222% of the
---
## Page 5
impugned principle amount of tax by the DCIR without any willful default and mens rea on the part of the QESCO. The learned counsel also submitted following'table of calculation and working: a. Calculation of Impugned Short paid amount of Sales tax, Penalty and Default Surcharge: b. Tax periods (July 2009-March 2011) and (April 2011-June 2013) c. Impugned Short paid amount of Sales tax Rs, Million Short paid amount of Sales Tax (July 2009-Mar 2011) Rs, 267.652 Short paid amount of Sales Tax (April 2011 -June 2013) Rs, 304.829 Total Rs, 572.481 Sales tax amount not short paid but consider as short Paid by the assessing officerRs, 264.652 (There is no dispute by RTO on this amount, however the Assessing officer took wrong influence and considered this Amount as short paid amount of Sales tax because this Amount of Sales tax has already been paid along with the Regular Sales tax returns from Dec 2011 to June 2013) Net Impugned Short paid amount of Safes tax Rs, 307.829 d. Penalty and Default Surcharge Penalty under section 33 (11) 100% of Impugned Short paid amountRs, 572.481 Penalty under section 33 (6) 3% of Impugned Short paid amountRs, 17.174 Penalty under section 33 (5) 5% of Impugned Short paid amountRs, 28.624 Total: 201% of principal Rs, 618.279 Default Surcharge/Additional Tax under section 34 Rs, 65.546 Total DS and Penalty (222% of Principal) Rs, 683.825 " D. Ex-Parte and Non-Speaking Order: Ground 1, 2, 3 and 4: 7. It was submitted by the learned counsel that the learned CIR (A) did not apply his judicious mind to uphold the orders of the DCIR despite the written arguments and during hearing it has been conveyed by the appellant that the DCIR passed the Ex-Party Orders/Orders without considering the explanation and written reply submitted by the Appellant to DCIR. For this, it is submitted that: 1-aThe appellant attended the hearing before the DCIR on 30/11/2016 and argued the case. We have challenged the jurisdiction of the Respondent DCIR who after hearing, required us to file the written reply and fixed the final dated 01/12/2016 for filling of the written reply of the hearing notice. 1-bThat as required by Respondent DCIR, the written reply of the hearing notice was submitted on 01/12/2016 but it was not considered and incorporated by the learned DCIR and without deciding the basic objection of lack of Jurisdiction of the Respondent DCIR, orders has been passed which therefore, not the speaking orders. E. Duplication of the proceedings and time barred assessment: Grounds 5, 6, 7 and 8: 8. On the above grounds it was submitted that the Learned CIR in his order failed to consider that impugned orders of the DCIR are without Jurisdiction as the original Show-Cause Notices issued on 10/12/2012 and 11/10/2013 and after remand back of the case the hearing notices issued on 03/09/2014 which were duly attended and heard and written reply submitted to the officer having jurisdiction who after the receipt of the notices, duly acknowledged and drop the allegation raised in show-cause notices and passed no adveise orders. The learned CIR failed to consider that DCIR issued the notice on 29/09/2016 in already finalized and closed proceedings without having any jurisdictions in past and closed transaction/proceeding on same issue and of the same period,
---
## Page 6
which is illegal and not tenable under the law. Under Section 11(5) [(Old 11(4)] of the Sales Tax Act, 1990, the Second proviso "Provided that order under this section shall be made within one hundred and twenty days of the issuance of show-cause notice or within such extended period as the commissioner may, for the reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days." a. For order which show-cause notice should be considered for passing an order under the Second proviso of the Section 11(5) of STA, 1990. b. The time limit under Section 11(5) is mandatory: Settled Principal- Where the public functionary is empowered to create liability against a citizen the limitation is mandatory. c Mandatory settle principal of law "Where issue involved entails creation of liability against a taxpayer, the period of limitation is mandatory" d. That once a matter becomes barred by time then the subsequent enhancement in the period of limitation shall not have the effect of reopening the past and closed transaction. 2007 PTD 117 Ghandhara Nissan Diesel v. Collector of Customs). e. That, wherein notice was declared void and of no legal effect, being beyond time and all orders passed subsequently in pursuance thereto also were void. (1990 CLC 868 Pakistan International Airlines Corporation v. Central Board of Revenue, Islamabad). In support he placed reliance on: In support of his contentions the learned counsel for the appellant placed reliance on the following case laws: Case-law: High Court (i) 2008 PTD 60 Super Asia Muhammad Din v. Collector of Sales Tax, (ii) 2008 PTD 758 Hani Straw Board v. Additional Collector, (iii) 2009 PTD 1978 Leo Enterprises v. President of Pakistan (iv) 2015 PTD 1068 (H.C. Lah.) Commissioner Inland Revenue v. Messrs Azgard Nine Ltd. Tribunal (i) 2015 PTD (Trib.) 1112, (ii) 2013 PTD (Trib.) 834, (iii) 2010 PTD (Trib.) 1522, (iv) 2010 PTCL 1134 (Trib.), (v) 2009 PTD (Trib.). 1263, (vi) 2013 PTD (Trib.) 4 (vii) 2013 PTD (Trib.) 379, (viii) 2013 PTD (Trib.) 639, (ix) 2015 PTD (Trib.) 1094, (x) 2015 PTD (Trib.) 1543 (xi) 2014 PTD (Trib.) 448, (xii) 2014 PTD (Trib.) 1233, (xiii) 2013 PTD (Trib.) 537, (xiv) 2008 PTD (Trib.) 578 FBR Circular: No, 1(23) C (legal) 107 dated 06.02.2007 F. Single order for two remand back cases of different Periods without jurisdiction: Ground 10: 9. The learned counsel argued that the Honourable ATIR has remanded back the three appeals S.T.As. Nos, 41/KB/2014, 42/KB/2014 and 43/KB/2014 under Section 45(B) of the Sales Tax Act, 1990. The learned Respondent DCIR without any lawful reason and justification has passed the combined order of the two separate remand back orders and having two separate Show-Cause Notices. Therefore, the orders of the Respondent DCIR are without lawful authority and without Jurisdiction. G. Penalty and Default Surcharge without wilful default and Mens rea: Grounds 11 and 15, 16, 17, 18: 10. That the impugned default of the non-payment of the withholding tax was not due to the deliberated effort of the appellant but it was due to the technical issues of the process of filling of the online Sales tax return by the Appellant. The Sales Tax collected from the Steel melters and Re- rollers was declared by the Appellant in the relevant columns of the ST Return and by default the FBR online portal/system adjusted the amount of Sales Tax collected from steel melters with the Input tax of the Appellant. Therefore, non-payment of the impugned withholding tax was due to the technical issues and defects of the online filling of Sales tax return of the FBR Portal and not the mela fide intention of the Appellant.
---
## Page 7
a. That no one should be prejudiced by an act of the State/state functionaries. In this regard, reliance was placed on 1997 SCMR 209 The State v. Asif Adil, 2002 SCMR 134 Sajawal Khan v. Wali Muhammad and others. b. Penalty and Default Surcharge has been imposed as stereo type orders and without applying judicious mind and without any specific notice for imposition of penalty and without proof of the mala fide intention and Mens rea. c. Penalties -- No will full default and without the Mens rea -- Proof of --Mens rea is an essential ingredient in penalty proceedings taken against assessee Case-law: i. 2004 PTD 1179 (SC) = 2004 SCMR 456 D.G.Khan Cement Company Ltd. and others v. Federation of Pakistan and others ii. 2004 PTD 1048 (HC) Bhola Waving Factory v. Customs, Excise and ST AT iii. 2002 PTD (Trib.) 300 Nestle Milk Pak Ltd. v. Addl. Coll. (Adj.), Multan. iv. 2006 PTD (Trib.) 195 Messrs Cherat Cement v. Collector of Customs, Sales Tax and Central Excise (Adjudication) Rawalpindi. d. The penal action could not be taken in case where there is a difference of opinion. e. No penal action as default, if any, is not intentional. f. Penal provisions, being of criminal nature, can only be invoked where the default is intentional otherwise no penal action could be taken. Case-laws: 1. Demand of additional tax and penalty is otherwise than in accordance with law such demand being made by an impatient department with a view to achieving the target of recovery of revenue was, therefore, mala fide 1999 PTD 1892 Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others. 2005 PTD 1850 Addl. Coll. (Adj.) Multan v. Nestle Milk Pak Ltd. 2. Where the petitioner did not act malafidely with the intention to evade the tax, the imposition of penalty of an additional tax and surcharge is not justified. 1995 PTCL 415 (HC Lah.) Messrs Lone China (Pvt.) Ltd. v. Additional Secretary to the Government of Pakistan Ministry of Finance, CBR Custom. House, Karachi. 2009 PTD (Trib.) 500 Messrs Shahmurad Sugar Mills v. The Collector of Customs, Sales Tax and Federal Excise, Hyderabad. 3. No additional tax where failure to pay tax was not intentional or contumacious. 1997 PTCL 197 (CESTAT, Lah.) Pakistan Services Limited v. Collector, Central Excise and Sales Tax, Lahore. 4. Imposition of penalty and additional tax/default surcharge. Where there is no tax evasion or tax fraud etc. 2010 PTD (Trib.) 601 Collector of Sales Tax and Federal Excise, Peshawar v. Messrs Associated Industries Ltd. Nowshera and others H. Withholding taxes and Special Procedure Rules: Grounds 12, 13 and 14:
---
## Page 8
The learned counsel submitted that there is Special procedure for collection and payments of Sales Tax on electric power (Chapter-III). Special procedure for Steel melters, Re-Roller and Ship Breakers (Chapter-IX) Sales Tax Special Procedure (Withholding) Rules, 2007 58F Application dated 15.07.2007 to 28.04.2008. 58F Application dated 14.06.2014 to 04.06.2014. 58H Payment of tax. The issue treating sales tax under Rule 58H as withholding tax and person collecting this tax as withholding agent is distinguished as under:- 1) PARTIES OF EACH SUPPLY In every sale transaction (supply) there are following two parties:- '(a) (a) Supplier of goods. (b) Buyer of goods. 2) ROLE OF SUPPLIER 2.1 To collect sales tax from the buyer. Supplier of…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.