Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs KARSAZ (PVT.) LTD., KARACHI VS Respondent: ADDITIONAL COMMISSIONER INLAND REVENUE, ZONE-II, E & C, KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Syed Ayaz Mehmood Title:Messrs KARSAZ (PVT.) LTD., KARACHI vs ADDITIONAL COMMISSIONER INLAND
REVENUE, ZONE-II, E & C, KARACHI Case No.: M.A. (AG) No,171/KB of 2018 and S.T.A. No,256/KB of 2017 Date of Judgment:2018-05-16 Reported As: 2019 PTD (Trib.) 939 Result: Order accordingly Judgment ORDER MUHAMMAD JAWED ZAKARIA, JUDIC IAL MEMBER.--- The appeal has been filed by the Taxpay er / Appellant / Applicant assailing the Order No, 67/2017 dated 22-06-2017 passed by the learn ed CIR(A) Zone-II Karachi. First we intend to dispose of the Miscellaneous Application (AG) whereby the Taxpayer has in addition to the original ground of appeal, has raised the following additional grounds of appeal: ADDITIONAL GROUNDS OF APPEAL 1. "That the prerequisites for a show-cause notice as required by law have not been served to our client, therefore no straight forward notice under section 11 of Sales Tax Act, 1990 could be issued as mentioned in Section 25(3) of Sales Tax Act, 1990 is reproduced for your reference: 25(3) After completion of the audit under this section or any other provis ion of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section 1 1. [Emphasis is ours] The learned Add. CIR has wrongly assumed jurisdiction to make out and to adjudicate upon the instant case under Section 11 of Sales Tax Act, 1990, 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 adjudication order by the learned Add.CIR may be declared illegal, void ab initio and without lawful jurisdiction. 2. That Lahore High Court in a Petition No, 37295 of 2016, Hamza Nasir v. Federation of Pakistan , decided that only Commissioner has the powers to issue the notice under section 11 of the Sales Tax Act, 1990. Lahore High
---
## Page 2
Court while deciding the above in many other petitions set the precedence followed the precedence set by Islamabad High Court in a case 2016 PTD 2332 on same issue, as under: 18. It is settled law that a delegate cannot further delegate its powers unless expre ssly authorized under the law. It is also settled law that in order to enable a person to delegate the powers or functions, there must be an authority , expressed or implied, to delegate. When power is conferred on a particular person, then that person alone has to exercise the powers and cannot transfer its exercise to another person. The august Supreme Court in the case titled 'Muhammad Ashraf Tiwana and others v. Pakistan and others' [2013 SCMR 1159] while examining the power of appointment of Commissioners vested in the Federal Government under the Securities and Exchange Commission of Pakistan Act, 1997, observed and held that it was well-settled law that a statutory delegate could not sub-delegate his or her powers. It would also be pertinent to quote relevant paragraph form the celebrated treatise titled 'De Smith's Judicial Review' Seventh Edition as follows: "a discretionary power must, in general, be exercised only by the public authority to which it has been committed. It is a well-known principle of law that when a power has been conferred to a person in circumstances indicating that trust is being placed in his individual judgment and discretion, he must exercise that power personally unless he has been expressly empowered to delegate it to another ." The Indian Supreme Court in the case titled 'Sahni Silk Mills (Pvt.) Ltd. and another v. Employee's State Insurance Corporation [(1994) 5 Supreme Court Cases 346] has held as follows:-- "By now it is almost settled that the legislature can permit any statutory authority to delegate its power to any other authority , of course, after the policy has been indicated in the statute itself within the framework of which such delegate is to exercise the power . The real problem or the controversy arises when there is sub-delegation. It is said that when Parliament has specific ally appointed authority to discharge a function, it cannot be readily presumed that it had intended that is delegate should be free to empower another person or body to act in its place." 19. In the light of the above, the order dated 23.03.2014 issued by the Commissio ner Inland Revenue was without lawful authority and jurisdiction. The board had expressly conferred the power of adjudication under the Act of 1990 on the Commissioner vide order dated 21.01.2014. The latter had no authority or jurisdiction to further delegate the power and jurisdiction of adjudication conferred by the Board vide order dated 21.01.2014. It is settled law that if the basic order is void, then any superstructure built thereon is also illegal and liable to fall. The Inland Revenue Officer was, therefore, not vested with power not had the jurisdiction to issue a show-cause notice under section 11 of the Act of 1990. The Commissioner alone was vested with power and jurisdiction under section 11 of the Act of 1990, pursuant to the Board's order dated 21.01.2014. 3. That it is humbly submitted to accept the additional grounds as a taxpayer may file / submit any additional grounds any time before the conclusion of the hearing, reliance may be placed on a Lahore High Court Judgment of Haji Meher Din v . Commissioner of Income T ax [2002 PTD 541 (LHC) to the following ef fect! "the word "additional grounds" itself implies that a ground not already taken was being stressed. There would be a number of reasons for not taking grounds in the memo. of appeal despite its availability . It can start from inadvertence to end at negligence. Whatever be the reason when a lis is pending before a Court or a judicial forum, entertainment of an additional ground should be a rule and not an exception. Unless the purpose for making of additional ground is either to delay the proceedings or is to cause embarrassing to the parties or the Presiding Officer an additional ground must not be refused provided, it is made or raised before conclusion of hearing. Even in case where a hearing is complete but the order is not announced an additional ground should not ordinarily be refused except for the reasons noted above..........." 4. That Lahore Appellate Tribunal in an Appeal I.T.A. No, 2242/LB/2016 and others Messrs Saeed Brothers Steals and Re-Rollings Mills (Pvt.) Ltd. v. CIR RTO, followed the precedent set in the case of Messrs Siddique Enterprises v. CIR (Appeal), R TO Faisalabad by Faisalabad Appellate Tribunal as under: "....we are of the considered opinion that any legal issue can be raised at any stage of adjudication of the case and the taxpayer has ,all right to raise any new or additional legal issues for the first time before the Appellate Tribunal
---
## Page 3
even though not set forth in the memorandum of appeal filed before this Tribunal or even if it had not been raised before the original stage of adjudication or at the time of first appeal before the CIR (Appeals) and when any such new or additional ground is raised before the Tribunal, it is duty bound to entertain that ground and render a decision thereon..." 2. As the above Additional grounds of appeal go to the very root of the case which do not further require any investigation of facts, therefore, we grant the above Miscellaneous Application and our findings on the above grounds will be recorded in the subsequent paras of this Order . FACTS 3. Brief facts of the case are that the Taxpayer/ appellant is duly registered under Sales Tax Act vide STRN 1223999928355 and engaged in the business of importer and trader of spare parts as well as of the machinery . It was alleged by the ADCIR the Appellant has claimed input of suspended / blacklisted taxpayers during the noticed period within the meanings of various provisions of "the Act" and the Rules made thereunder . The ADCIR as is borne out from the impugned order dated 17.3.2017, is alleged to have reviewed the consolidated record / information of multiple years submitted by appellant, and arrived at a finding that the appellant have purchased from various blacklisted / suspended taxpayer during the notice period and liable to pay Rs,15,885,818/- to the exchequer . It was further alleged by the ADCIR also alleged that "online tax profiles of the Appellant's suppliers show that suppliers of the appellant were blacklisted and the Appellant have made purchases from the suppliers during the Tax period of June-201 1 to June-2016. Thus the appellant contravened sections 3, 7, 8 and 21 of "the Act". The appellant were called upon to show-cause under section 11(2) of "the Act", as to the Sales Tax liabilities of Rs,66,733,045/- may not be recovered in addition to the liability of default surcharge under section 34 of "the Act" and as to why penalties under Sections 33(3), 33(5), (11c), and (13) of "the Act" should not be imposed for violation of sections 3, 6(1), 7A and 11 of "the Act" and have indulged in activities under purview of Section 2(37) of "the Act" ibid. In response thereto the Appellant appeared through their Legal Counsel the office of respondent on 24.11.2016, 15.12.2016, 01.02.2017, 07.02.2017, 15.02.2017, 24.02.2017 and 07.03.2017 and written as well as oral submission were made on the allegation of the "SCN" That "SCN" served to the appellant under section 11(2) of "the Act" by the Addl. Commissioner (ADCIR / Addl. CIR) without selection of case under Audit by the Commissioner Inland Revenues (CIR) under section 25 or by the Board under section 72B of "the Act". The documents were produced to the officer under the protest and case was agitated on the ground that taxpayer was neither selected by CIR and SCN under section 11(2) may be issued after a detaile d audit under section 25 of "the Act". The explanation offered by the taxpayer did not find favour with the Addl. CIR who passed the impugned order-in-original and raised a demand of Rs, 15,885,818/- as Rs, 15,596,694/-on account of purchases made from the Blacklisted Suppliers, Rs, 279,124/-on account of supplies made to the Blacklisted registered person and Rs,10,000/- on account of violation of "Annexure F" in monthly sales tax returns. Being aggrieved from the order passed by ADCIR, the taxpayer field appeal before the learned CIR (A), who vide order mentioned above remanded back the case to the Of ficer, hence, the instant appeal before this Tribunal. ARGUMENTS - TAXPAYER'S COUNSEL 4. The learned counsel exhaustively argued on the following points: JURISDICTION OF THE COMMISSIONERS 5. The learned counsel argued on jurisdiction of the Commissioner and submitt ed that it is also 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 and the Hon'b le Lahore High Court in W.P.No, 37295 of 2016. 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 W ire v. Federation of Pakistan ] b) 2018 PTD 1251 now reported as -[Punjab Beverages Limited v . FBR] c) S.T .A. No, 994/LB/2017 dated 2.3.2018 [Messrs Fatima Fen. Limited]
---
## Page 4
d) S.T .A. No, 668/LB/2017 dated 18.01.2018 [Messrs Coca Cola Beverages (Pvt.) Ltd.]. 6. The learned Add. CIR has wrongly assumed jurisdiction to make out and to adjudicate upon the instant case under Section 11 of Sales Tax Act, 1990, 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 adjudication order by the learned Add. CIR may be declared illegal, void ab initio and without lawful jurisdiction. Order-in-original ["OIO"] was passed without assuming jurisdiction as per law and without notice and / or Audit under section 25 7. The learned counsel for the taxpayer vehemently contended that the prerequisites for a show-cause notice as required by law have not been served to The tax payer/appellant, therefore no straight forward notice under section 11 of Sales Tax Act, 1990 could be issued and passed order under section 11 as mentioned in Section 25(3) of Sales Tax Act, 1990 is reproduced for ready reference:-- "25(3) After completion of the audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section 1 1," Moreover , Paragraph No, 42(b) of Sales. Tax General Order No, 3 of 2004 dated 12.06.2004 , the person whose audit has to be conducted should be informed about the audit and details of the records to be audited at least fifteen (15) days before the scheduled date of audit; that no prescribed notice/intimation was issued by the Commissioner . 8. The learned counsel argued that it is a trite law that any transgression of jurisdic tion not being a technical defect would render entire exercise of authority to be illegal and ab initio void. It has been observed that the question of jurisdiction in forum is always considered to be very important and any order passed by a court or a forum having no jurisdiction, even if it is found to be correct on merits, is not sustainable under law. The show cause is based on casual proceedings instead of the audit of the prescribed record under Section 25(3) of the Act, hence, it is vague and void and all demand stand illegal. "OIO W AS P ASSED ON DEFECTIVE SHOW -CAUSE NOTICE (SCN) 9. The show-cause notice, which is foundational document is defective in its form and substance on the followings:- - (A) LACK OF JURISDICTION The SCN served to the Appellant does not carry any reference to assuming jurisdiction under the law whereas as per due procedure of law the officer of Inland Revenue has to refer the empowering part of the law and/or delegation of power by the Commissioner whereas the whole show-cause notice is silent on it. The question of jurisdiction may be raised at any stage. Such question being very important and fundamental in nature, if a forum had no jurisdiction, the same could not be conferred upon it by even consent of parties. Court had to consider the question of jurisdiction even though not raised by the parties. Point of jurisdiction is one which is not barred even at the ultimate stage before Supreme Court. (B) ROVING INQUIR Y 10. The learned counsel submitted that in the SCN served to the appellant reflect that there is no month wise, party wise break up available with revenue and had been asked to produce the same as it was obligatory on the part of the appellant to provide all the documentary evidence particularly records. Stand of the revenue appears to be that such working should have been provided by the taxpayer as the adjudication officer had nothing on the subject and record. Such admission evidently proved SCN is nothing but a casual correspondence and a roving enquiry which is prohibited by law. There is nothing but a guess work and inferences instead of evidence, which is not sustainable under the law . There are plethora of judgments, but he mainly placed on followings judgments: 2011 PTD 808 (Trib.); 2011 PTD (T rib.) 773 In a Judgment reported as [ 2013 PTD 1536 ] Lahore High Court observed as under:-- "Show-cause Notice, is a foundational document , which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same . It is the narration of acts in the
---
## Page 5
show-cause notice along with the supporting evidence which determines the offence attracted in a particular case. Show-cause notice is not a casual correspondence or a tool or license to commen ce a roving inquiry into the affair of the taxpayer based on assumptions and speculations but is a fundamental documents that carries definitive legal and factual position of the Department against the taxpayer ." That no lawful life could be given to a show-cause notice which violated all norms of justice and fair play. In support of his arguments he also placed reliance on:-- 2011 PTD (Trib.) 808; 2013 PTD (Trib.) 2344; Abdul Rauf and others v. Abdul Hanif Khan and others , 2013 PTD 1536 . The SCN covered a period of June, 2011 to June, 2016 i,e, five years. That until July 2012 Section 36(2) remained operative and accordingly three years time has been mandated for reckoning time barred of the matter to be adjudicated, accordingly the year/period 30.06.2012 has already hit by time barred. 11. The Finance Act, 2012 has replaced the provision of Section 36 thereby delet ing the provision of the section, presently Section 11 is operative and for assessment of sales tax provisions contained in shall be operative. The impugned demand of Rs, 15,596,694/- on account of alleged input tax claimed, Rs,279,124/- on the basis of further tax is illegal and contrary to law and facts of the case, the learned counsel went on to stress that: (i) The practical cases, in support of the application of the aforesaid provision of law , were capriciously sidetracked. (ii) Even otherwise, adverse action agains t a registered person on account of defect or default of someone else is illegal. 2011 PTD (T rib.) 773 . (iii) The other issue is the choice of opting for criminal proceedings against a particular taxpayer and letting to the other . This pose a problem and amount to vesting unstructured and unregulated power in the hands of the department, once again threatening the sanctity of fair trial. Any such unguided and uncontrolled exercise of power will not withstand the constitutional test of fairness and equality under Article 25 of the Constitutional. A more wholesome, transparent and standardised system needs to be evolved by the FBR to avoid this unconstitutionality . 12. Regarding claim of input tax the learned counsel argued that in the order-in-original, the taxation officer disallowed the claim regarding input tax adjustment of the taxpayer as was found to be attributable to invoices issued by suppliers having suspended Registration / black-listed registration status. It is argued that the impugned show-cause notice was since vague, therefore not unsustainable. In this respect, it is contended that party- wise and transaction-wise detail was not confronted to the taxpayer and accordingly , the order of the Addl. CIR is liable to be vacated, being contrary to well-settled principles of law . 13. With regard to the merits, the learned counsel argued that the action of the authority below is even otherwise not lawful as at the time when transactio ns were executed with the respective suppliers they were fully complaint and active, therefore, any subsequent status assigned to such suppliers by the revenue could not disturb past and closed transactions. In this regard, reference may be made to the judgment of the Hon'ble Lahore High Court in Writ Petition No, 17135/13: Galaxy Textile Mills Ltd. v. Federation of Pakistan etc. wherein the following principles were settled:- "The status of the buyer existing at the time of supply of the goods by the petitioner shall be considered while deciding the show-cause notice and not the status attained by the buyer subsequently ." 14. He then submitted that even otherwise, the appellant has fulfilled the requirements of section 7(2)(i). (i) A registered person shall not be entitled deduct input tax from output tax unless,-- (i) in case of a claim for input tax in respect of a taxable supply made, he holds a tax invoice in his name and bearing his registration number , in respect of such supply for which a return is furnished: Provided that from the date to be notified by the Board in this respect, in addition to above, if the supplier has not declared such supply in his return or he has not paid amount of tax due as indicated in his return. 15. Challenging on jurisdictional plane, he vehemently asserted that the order-in-original, creating colossal demand of Rs, 15,885,818/- is passed without any fact finding enquiry / investigation and without ascertaining the correct facts, this is nothing but merely with a view to Meeting collection targets. It is also submitted that the impugned order , passed with mala fide intent, was by its nature an act without jurisdiction; hence, liable to be
---
## Page 6
annulled . In this connection. reliance placed on 1999 PTD 1892 Attock Cement Pakistan Ltd. v. The Collector of Customs . The Hon'ble Court has laid down the following principles:-- "The perusal of these facts and circumstances also leads us to believe that the extraordinary zeal was being shown by the respondents to somehow charge the appellant company with the amount of deductions made along with the additional tax and penalty . In our view , such demand is otherwise than in accordance with law and we cannot also help to observe that such demand was being made by an impatient department with a view to achieving the target of recovery of revenue and, therefore, in our view the demand was mala fide as well". 16. Further reliance was placed on the judgment of the Hon'ble Lahore High Court in its judgment dated 22-11- 2012 in W.P. No,3515 of 2012 titled D.G. Khan Cement Company Ltd. v. The Federation of Pakistan and others PLD 2013 Lah. 93 wherein the following principles have been laid down:-- "Every person has a separate legal character enjoying distinct rights and liabilities under the law. To impose the liability of one over the other is opposed to basic fundamentals of law and offends due process, logic and rationality . ' RETROSPECTIVE APPLICA TION OF LA W ON SUBSEQUENT BLACK LISTING OF P ARTIES 17. The learned counsel vociferously contended that during the hearings time and again and as also alleged in the show-cause notice that the appellant had purchased from the black-listed parties during the Noticed period. As per the scrutiny of record the appellant observed that all parties which have been black listed by the FBR were on active taxpayer list of FBR at the time of transactions which were made with due care and after reasonable scrutiny for which status of all parties were produced before the adjudicating officer via reply No, NHQ/Misc/ 074/02/2017 dated February 08, 2017 , which neither even appreciated nor was discussed in impugned Order . It is well-settled that subsequent black-listing of supplier could not be made a tool to deprive the registered person of a valuable right accrued in his favour for purchases or transactions made prior to the suspension of registration of such supplier . Reliance may be placed on 2011 PTD 866 : "Subsequent blacklisting of a supplier could not be made c tool to deprive the registered person of a valuable right accrued in his favou r for purpose of transactions made prior o the suspension of registration of such supplier" In this regard, the learned counsel cited the land mark judgment of August Supreme Court of Pakistan in case of "Government of Pakistan v. Messrs Village Development Organization" reported as 2005 SCMR 492 wherein it has been laid down that; it is a well-settled principle of law that the executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect 18. It was submitted by the learned counsel that learned officer erred in taxing further tax of Rs, 279,124/- being tax under section 3(1A) on the basis of Subsequent Blacklisting of the purchaser of the Appellant. The SCN was served on 18.11.2016 whereas the vendor of the Appellant blacklisted / unregistered in January 2017, it was treated as ab initio un-registered and further tax was charged while passing an Order and no such grounds were taken while issuing "SCN" which is again illegal and liable to be nipped in the bud as it is a well settled principle that the Ground which is not mentioned in SCN cannot be adjudicate. 19. The learned counsel urged that the Addl. CIR erred in appreciating that substantive laws would always be prospective while the procedural matters would be retrospective, but where the procedural laws affected past and closed transactions or existing, accrued, concluded, vested or substantive rights, the same would not be retrospective unless and until the statute expressly provided for retrospective application of…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.