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Petitioner: WAK Limited VS Respondent: Customs, Excise and Sales Tax Appellate Tribunal and others
Court Name: Lahore High Court Judge(s): Shahid Karim, Tariq Saleem Sheikh Title:WAK Limited vs Customs, Excise and Sales Tax Appellate Tribunal and
others Case No.: S.T.R. No. 33 of 2005 Date of Judgment:2017-05-17 Reported As: 2017 LHC 2929 Result: Application Allowed Judgment Tariq Saleem Sheikh, J:- This is an application by way of reference under Section 47 of the Sales Tax Act, 1990 (the "Act"), which is directed against Order dated 26-11-2005 passed by the erstwhile Customs, Excise & Sales Tax Appellate Tribunal, Lahore (the "T ribunal"), in ST A No. 850/LB/2005. 2. The Petitioner holds a licence from the Ministry of Petroleum and Natural Resources, Government of Pakistan, for marketing and distribution of Liquefied Petroleum Gas (LPG) across Pakistan. It conducts marketing under the trade name of "WAK GAS". The Enforcement & Collection Wing of the Collectorate of Sales Tax, Lahore, received an information that the Petitioner had also set up a cylinder manufacturing unit and, besides marketing and distribution, it was also engaged in manufacturing and supply of cylinders without payment of sales tax. The Enforcement Wing probed into the matter and collected evidence which confirmed that it had made supplies of cylinders valuing Rs.628,335,961/- during the period 1993 to 1998 and had thus evaded sales tax in the sum of Rs.83,431,572/-. Consequent thereupon, Show Cause Notice dated 30-06-2000 was issued to the Petitioner wherein it was charged with the contravention of Sections 3, 6, 11, 22, 23 and 26 of the Act and was called upon to explain as to why the aforesaid sales tax alongwith additional tax and penalty may not be recovered from it. On 14-11-2000, a corrigendum was issued to add M/s Steel Complex to the proceedings. Further, the above- mentioned figures were revised and the total demand of the sales tax was raised to Rs.186,078,750/- alongwith additional tax and penalty. The provisions which were alleged to have been contravened were re stated as: ? Sections 3, 6, 11 (2), 22, 23, 26, 34 & 36.? The Petitioner contested the Show Cause Notice and denied its liability. The matter was adjudicated and, vide Order-in-Original dated 13-02-2001, the Adjudicating Officer ruled against it. Aggrieved, the Petitioner preferred an appeal before the Tribunal which was accepted and the case was remanded to the Adjudicating Officer for denovo consideration.
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3. During the remand proceedings the Adjudication Officer issued second corrigendum dated 18-05-2002 whereby Section 36 appearing in the first corrigendum dated 14-11-2000 was substituted with Section 36(1). The Petitioner alleged that the limitation prescribed under Section 36(1) was five years while under Section 36(2) it was three years. The corrigendum dated 18-05-2002 was illegal and was issued with the malafide intent to bring time-barred portion of the Show Cause Notice within limitation. It, therefore, moved an application before the Adjudicating Officer for its withdrawal. The Adjudicating Officer, however, refused to do so and ordered that the said application would be decided at the time of final hearing. The Petitioner challenged this order but it was maintained upto the Supreme Court. Eventually after protracted proceedings the Adjudicating Officer once again decided the matter against the Petitioner vide Order-in-Original dated 23-06-2005. The Petitioner filed an appeal (STA No. 850/LB/2005) thereagainst before the Tribunal which was dismissed on 26-11-2005. Now, this reference application before this Court. 4. The Petitioner has urged that the following questions of law emanate from the Tribunal's Order dated 26-11-2005 which require determination by this Court: I. Whether, in the facts and circumstances of the case, the learned Tribunal was right in holding that the assertions regarding misdeclaration and deliberate evasion were made in the show cause notice despite the fact that there were no such allegations in the Show Cause Notice? II. Whether the learned Tribunal was right in holding that mere contravention of certain sections of the Sales Tax Act would amount to deliberate and intentional evasion of tax despite the fact that no such allegation was levelled in the Show Cause Notice? III. Whether the learned Tribunal was right in holding that corrigendum dated 18-05-2002 was issued to correct a clerical error especially when no such assertion was made by the Department at any stage of the proceedings? IV. Whether, in the facts and circumstances of the case, the learned Tribunal was correct in law in relying on the Information Memorandum of May-1999 issued by Sidat Hyder Morshed Associates (Pvt) Ltd. (Management Consultants) especially when the said Information Memorandum itself clearly had a disclaimer? V. Whether the learned Tribunal was right in ignoring the judgment of the AJ&K High Court reported as ?PTCL 1991 CL 108? holding that in the present case income tax was not a primary source of eviden ce and whether reliance of the learned Tribunal on the income tax records was contrary to law? VI. Whether the learned Tribunal was right in relying on the receipts issued by M/s S.A. Enterprises, M/s Mahmood Traders, M/s Sohail Traders and M/s Siddique Gas Agency , especially when the said receipts were not produced before it at the time of its decision and, furthermore, when these persons filed affidavits before the learned Adjudicating Of ficer denying the said fact? VII. Whether the learned Tribunal was right in holding that as two of the buyers of the cylinders appeared for cross- examination, their statements could be believed especially when statements recorded before the Adjudicating Officer were never examined by the Tribunal and the record of the case was neve r summoned by the Tribunal to examine the said facts? VIII. Whether the learned Tribunal was right in holding that the provisions of Section 2(46) of the Sales Tax Act, 1990, were not applicable to the present case? IX. Whether the learned Tribunal erred in not discussing the fact that a committee appointed by CBR had already fixed the value of the cylinders manufactured by the Petitioner at Rs.650/- which was further reduced by another Bench of the Tribunal to Rs.488/-? Questions I, II & III 5. Learned counsel contended that the original Show Cause Notice as amended by the first corrigendum was bad in law. It was vague and from its bare reading no case of misdeclaration or deliberate tax evasion was spelt out. Further, the Show Cause Notice did not mention the specific sub-section of Section 36 under which it was issued. No demand could be created against the Petitioner on the strength of such a vague and illegal notice. For this proposition he placed reliance on "Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others? (2001 SCMR 838) and "M/s Atlas Tyres (Pvt) Limited, Sheikhupura v. Additional Collector (Adjudication) Collectorate of Central Excise, Lahore and another" (PLJ 2003 Lah 819). In the alternative, he
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argued that in the absence of relevant details and allegation of fraud, Show Cause Notice would fall under sub - section (2) and not sub-section (1) of Section 36 and being so would be barred by time. He next contended that the Adjudicating Officer had no lawful authority to issue corrigendum dated 18-05-2002 to the Show Cause Notice when the matter was subjudice before him in the remand proceedings. He argued that the sole purpose of the said corrigendum was to bring a time-barred case within the ambit of permissible time-limit. Such a corrigendum could not be issued because it deprived the Petitioner of a vested right that it had acquired on the lapse of the limitation period. On the other hand, learned counsel for the Revenue controverted these contentions and argued that the Show Cause Notice was issued within the prescribed limitation. Corrigendum dated 18-05-2002 was of a clarificatory nature and had no bearing on the case against the Petitioner. 6. The above controversy revolves around Section 36 of the Act. This Section was omitted by the Finance Act, 2012, but at the relevant time it read as under: 36. Recovery of tax not levied or short-levied or erroneously refunded.-- (1) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice. (2) Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay the amount of tax or charge or the amount of refund erroneously made shall be served with a notice within three years of the relevant date, requiring him to show cause for payment of the amount specified in the notice: Provided that where a tax or charge has not been levied under this sub-section, the amount of tax shall be recovered as tax fraction of the value of supply . (3) The officer of [Sales Tax] empowered in this behalf shall, after considering the objections of the person served with a notice to show cause under sub-se ction (1) or sub section (2), determine the amount of tax or charge payable by him and such person shall pay the amount so determined. Provided that... Provided further that... (4) For the purpose of this section, the expression ?relevant date? means-- (a) The time of payment of tax or charge as provided under Section 6; and (b) In a case where tax or charge has been erroneously refunded, the date of its refund. 7. Show cause notices under sub-sections (1) and (2) of Section 36, ibid, were two distinct notices as they dealt with two different contingencies. There were separate grounds for issuance of these notices and different limitation periods were prescribed for them. Sub-section (1) contemplated a situation where any tax or charge was either not levied or had been short-levied or had been erroneously refunded due to some collusion or a deliberate act. On the other hand, sub-section (2) was applicable where the non-levy , short-levy or erroneous refund was caused by reason of inadvertence, error or misconstruction. The limitation laid down for the show cause notice under sub- section (1) was five years while for the one under sub-section (2) it was three years. 8. Jurisprudence is now pretty settled on the point that show cause notice is a serious business and is not a casual correspondence. Its purpose is to put the person on notice about the allegations for which the authorities intend to proceed against him and to give him an opportunity to explain his position. This principle is rooted in the principles of natural justice and fair trial. In "Caretex v. Collector Sales Tax and Federal Excise and others " (2013 PTD 1536 ), this Court observed: "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 facts in the Show Cause Notice alongwith the suppor ting evidence which determines the offence attracted in a particular case. Show cause notice is not a casual correspondence or a tool or license to commence roving inquiry into the affairs of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the department against the taxpayer ."
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9. In view of the importance of a Show Cause Notice in the legal proceedings, the parameters for determining its validity have been discussed by our Courts in a number of cases. Some of them are: "The Collector Central Excise and Land Customs and others v. Rahm Din" (1987 SCMR 1840 ), "Federation of Pakistan through Secretary , Finance, Islamabad and 4 others v. Messrs Ibrahim Textile Mills Ltd and others " (1992 SCMR 1898 ), "Caltex Oil (Pakistan) Limited v. Collector , Central Excise and Sales Tax and others "[PTCL 2004 CL 494 (SC. Pak)], "Collector of Sales Tax & CE, Lahore v. Zamindara Paper & Board Mills etc." [PTCL 2007 CL 260 (SC. Pak) = 2008 SCMR 615], "Union Sport Playing Cards Company v. Collector of Customs and another " (2002 MLD 130), "The Coca Cola Export Corporation v. The Additional Collector -II (Adjudication), Collectorate of Central Excise and Sales Tax, Lahore " (PTCL 2002 CL 95), "United Exports Company through Proprietor v. Pakistan through Secretary, Ministry of Finance, Federal Secretariat, Islamabad and 3 others" (PTCL 2003 CL 224), "M/s Inam Packages, Lahore v. Appellate Tribunal Customs, C.E. and Sales Tax, Customs House, Lahore and 2 others" (PTCL 2008 CL 126 = 2007 PTD 2265), "M/s. Rupali Polyester Ltd., Lahore v. Collector of Central Excise and Sales Tax, Lahore and 6 others" [PTCL 2010 CL 143 (HC. Lah)]. Following principles may be deduced from these cases: (i) Validity of show cause notice is fundamental to the assumption of jurisdiction by the authority concerned. (ii) A show cause notice should indicate that it is a show cause which makes the respondent aware that if he does not respond to it adverse action might be taken against him. (iii) If there is any pre-requisite for the issuance of a show cause notice the same must be fulfilled. Where a statutory show cause notice is required to be served, the Department cannot proceed without it. Any demand notice issued without such statutory notice would be coram non judice . (iv) Mere allegation that a particular provision of law has been breached is not enough. The show cause notice must be specific and should not be couch ed in general terms. It should contain the essential ingredients necessary to show infarction of law . (v) The grounds or reasons must be explicitly set out. The show cause notice carrying the defect of vagueness may not stand the test of judicial scrutiny . (vi) Omission to mention in the show caus e notice the specific provision which is alleged to have been contravened is not fatal and does not ipso facto make it void. Instead of taking into consid eration technicalities, the Court should look into the matter from different angles. It should also see whether substantial compliance has been made and if any of the sub-rules has been omitted whether any prejudice has been caused to the taxpayer . (vii) If any limitation is prescribed by law the show cause notice must be served within that period. (viii) A flagrantly discrepant show cause can rebound on the entire prosecution case and can damage it extensively . (ix) A show cause notice that is issued on a wrong legal presumption is totally unlawful. Superstructure raised on wrong foundation remains defective and whole of it crumbles on identification of the said defect. (x) Where the order of adjudication that is eventually made is based on a ground which was not mentioned in the show cause notice, that order would be palpably illegal and void on the face of it. 10. With reference to Section 36 of the Act, we have already pointed out that its sub-sections (1) and (2) applied to two different eventualities. Therefore, the Show Cause Notice was required to state the necessary particulars so that the addressee was fully informed as to which provision was being invoked against him. In "Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others " (2001 SCMR 838 = PTCL 2002 CL 1) while discussing similar show cause notices under Sections 32 of the Customs Act (IV of 1969), the Hon'ble Supreme Court of Pakistan observed as under: "Show cause notices under subsections (2) and (3) of Section 32 of the Act are two distinct and separate types of notices and different ground and different period for service of notice in each sub- section has been prescribed. Under subsection (2) for non-levy , short-le vy or erroneous refund, specific allegatio ns of any collusion between the assessee and the Customs Staff has to be levelled with proper particulars in the show cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy , short-levy or misconstruction then show cause notice to the importer has to be served within six months of the non-short levy. If
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such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirements of subsections (2) and (3) of Section 32 of the Act." 11. In "Messrs Inam Packages, Lahore v. Appellate Tribunal Customs, C.E., and Sales Customs House, Lahore and 2 others " (2007 PTD 2265 ), supra, a learned Division Bench of this Court held: "8. The show cause notice though charged the Appellant with the evasion of sales tax of Rs.48,335 and generally alleged contravention of numerous provisions, yet neither the specific provision of the contravened law nor the manner of its contravention was spec ified by the Respondents. Further , the motive(s) or the reason(s) causing/occasioning the alleged evasion were also not stated under section 36 of the Sales Tax Act by the notifying authority . The show cause notice was vague, unspecific and too general to enable the reader or the notified person to make out or clearly identify the particul ar clause/subsection or the reason or the period of limitation applicable to the case of the Appellant in terms of Section 36 ibid." 12. In another case, reported as "Caretex v. Collector Sales Tax and Federal Excise and others " (2013 PTD 1536 ), supra, this Court ruled: "The legal enforceability and the jurisdictional validity of a Show Cause Notice stems from its CONTENT , i.e., the facts supported by tangible evidence referred to in the Show Cause Notice, and not from cosmetic showcasing of the statutory provisions or statutory key words like `collusion' or `deliberate act' in the Show Cause Notice." 13. In the present case, Show Cause Notice dated 30-06-2000 which was served on the Petitioner read as under: C.No. ADC manufacturing concrete documentary which confirmed payment ofGOVERNMENT OF P AKIST AN COLLECT ORA TE OF SALES T AX 56-A SHADMAN MARKET , LAHORE.(Cylinder Sales Tax. The were proceed without Adj/WAK/39/2000/367in pursuance unit) manufacture evidences supplied of Cylinders Sales Tax amountingWhereas, SHOW CAUSE NOTICEDated: 30-06-2000 M/s Wak Limited payment of Tax department Rs.62,83,35,961/-of the information received against and supplies Cylinders without as Annexure-A from the Income by M/s Wak Limited valuing to Rs.8,34,31,572/- detailed below: Period Value of Cylinders as per Income T ax Returns Rs.Excise duty @ 10% Rs.Duty paid value for Sales T ax Rs.Rate of Sales T ax Sales T ax Payable Rs. 1993-94 185266664 18526666 203793330 12.5% 25474166 1994-95 125477833 12547783 138025616-do- 17253202 1995-96 127394168 127394168 140133584-do- 17516698 1996-97 95803370 9580337 10538370715% 15807556 1997-98 37272477 37272477 40999724 18% 7379950 G. Total 571214512 57121451 628335961 83431572 A booklet published in May, 1999 in the name of Wak Limited , "Information Memorandum " for private placement of shares of Wak Limited is also enclosed for ready reference as Annexure-E. The fact of number of Cylinders depicts in para 1.13, 1.7, 2.33, & 4.7 are in conformity with figures collected from Income Tax Department. It has been alleged that M/s WAK limited has contravened the provisions of Sectio ns 3, 6, 11, 22, 23, 26 of Sales Tax Act, 1990.
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On the basis of above M/s WAK Limited, are called upon to show cause by 15-07 -2k as to why sales tax of Rs.8,34,31,572/- alongwith additional tax under Section 34 of the Sales Tax Act, 1990 to be calculated at the time of deposit should not be recovered from them. ADDITIONAL COLLECT OR-I 14. As already stated two corrigenda were issued to the above Show Cause Notice. The first corrigendum dated 14-11-2000 was to the following ef fect: COLLECTORATE OF CUSTOMS, CUSTOM C.No. ADC/Adj/Wak/39/2000/13521 In view of the revised contravention & Central Excise (E & C) Lahore amendments are made in this office dated 30-06-2000 namely:- i) In para I, the figures as Rs.1,24,05,25,000/- ii) The table of the aforesaid replaced with the following: GOVERNMENT OF PAKISTAN SALES TAX & C.EXCISE (ADJUDICATION) HOUSE LAHORE Dated: CORRIGENDUM 14-11-2000 Sales Tax the following /2000/367 may be read may be treated asreport sent by the Assistant Collector vide C.No.2030 dated 05- 10-2000, show cause notice C.No.ADC/Adj/WAK/39 Rs.62,83,35,961/- and Rs.8,34,31,572/- and Rs.18,60,78,750/- respectively. show cause notice in para 1 - TOTAL LPG CYLENDERS OWNED BY THE FIRMVALUE OF CYLINDER @ OF RS.1300/-P. PCEXCISE DUTY 10% RS.TOTAL ASSESSABLE VALUE FOR SALES T AXSALES T AX INVOL VED. 867500 1127750000 112775000 1240525000 186078750 iii) iv) REGISTEREDIn para 3, after the words section, "the following figures may be substituted namely , 3, 6, 1 1(2), 22, 23,26,34 & 36. In para 4 the amount of Rs.8,34,31,750/- may be read as Rs.18,60,78,750/-. (HAFIZ MUHAMMAD ANEES) COLLECT OR (ADJUDICA TION) & M/s Steel Complex Lahore c/o Mannan Law Associates, 85-Shahrahe-Quaid-e-Azam, Lahore.M/s WAK Limited 17-km Multan Road Hafeez Chamber, The second corrigendum dated 18-05-2002 sought to substitute "Section 36" with "Section 36(1)" in Line 2 of para (iii) of the first corrigendum dated 14-1 1-2000. 15. If Show Cause Notice dated 30-06-2000 is examined on the touchstone of the principles discussed above, it would be seen that it was quite specific. It not only stated the charge/allegation against the Petitioner but also referred to the material on which that charge was based. Although it did not expressly use the words "collusion" or "a deliberate act", the contents of the said Show Cause Notice left no doubt that the matter fell within the mischief of Section 36(1). Shortly after issuing the Show Cause Notice the Revenue realized that it had missed out Section 36(1) from the list of provisions mentioned therein which the Petitioner was alleged to have contravened. Therefore, it sought to rectify the mistake through the first corrigendum but even then the omission was not fully supplied as only Section 36 was thereby inserted in the original Show Cause Notice without referring to the
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particular sub-section [i.e. whether it was sub-section (1) or (2)] under which the Petitioner was charged. In our opinion, the original Show Cause Notice (read with first corrigendum) was valid for all legal purposes and contained the requisite particulars to inform the Petitioner that it had evaded sales tax through a deliberate act contemplated by Section 36(1). So far as the second corrigendum was concerned, it only sought to specify that sub-section (1) was attracted. In view of the fact that the Show Cause Notice was itself in order, this corrigendum did not bring any legal change or otherwise adversely affect any rights of the Petitioner. It may thus be taken as merely clarificatory. 16. The cases of Messrs Khyber Electric Lamps and Atlas Tyres (supra) relied upon by the Petitioner do not help it. In those cases the Show Cause Notices neither quoted the specific legal provisions nor the reasons on the basis of which they were issued. The Court held that they were too vague to be fairly enforced and could not lay a foundation for any legal proceedings. In the instant case, it was not so. The Show Cause Notice was quite explicit that the Petitioner had evaded sales tax through a deliberate act. More importantly the Petitioner was not misled or prejudiced because of the omission to mention the specific sub section of Section 36 under which it was being charged. This is evident from the reply that it put forth to the Show Cause Notice. In the case of ?Collector of Sales Tax & CE, Lahore v. Zamindara Paper & Board Mills etc.? (PTCL 2007 CL 260 = 2008 SCMR 615), the precise question before the Hon'ble Supreme Court of Pakistan was whether the Show Cause Notice could be declared void because the relevant sub-rule of Rule 10 of the Central Excise Rules, 1944, under which it had been issued was not particularly stated. The Apex Court observed that the Court must see whether substantial compliance of law had been made and taxpayer had not been prejudiced. 17. It is noteworthy that the law laid in Zamindara Paper & Board Mills case (supra ) was reiterated in "Collector of Sales Tax & Central Excise, Lahore v. M/s Pattoki Sugar Mills Ltd. and anothe r" (Civil Appeal No. 1444/2006) decided on 07-01-2014. {{FN}} The Hon'ble Supreme Court discussed the case of Messrs Khyber Electric Lamps and further explained: "4. We note that the learned Division Benc h of the High Court while deciding the appeals before it had proceeded on the premise which is the basis of the case of…
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