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Petitioner: Messrs MUNIR FOUNDRY VS Respondent: C.I.R. (APPEALS-II), LAHORE and others
Court Name: Appellate Tribunal Inland Revenue Judge(s): Jawaid Masood Tahir Bhatti, Fiza Muzaffar Title: Messrs MUNIR FOUNDRY vs C.I.R. (APPEALS-II), LAHORE and others Case No.: S.T.A. No.1405/LB of 2014 Date of Judgment:2014-12-09 Reported As: 2016 PTD (Trib.) 485 Result: Appeal accepted
Judgment ORDER The titled appeal has been filed by the appellant/registered person against Order-in-Appeal No. 20 of 2014 dated 30-09-2014 passed by the learned CIR (Appeals-II), Lahore whereby he while maintaining the Order-in-Original No. 36/2014 dated 22-08-2014 passed by the ACIR (E&C Unit- 10, Zone-IV) RTO, Lahore has upheld the demand raised against the appellant and dismissed the appeal. 2. Succinct facts leading to the instant case are that the appellant is registered under the Sales Tax Act, 1990 running its business as manufacturer engaged in making of taxable supplies of multiple steel products, agri machines and auto parts. In pursuance of an information regarding evasion of tax, a team was constituted by the CIR (Zone-IV), RTO, Lahore to conduct inquiry/investigation of the records pertaining to the periods from April, 2011 to December, 2013 under section 38 of the Act. During the course of physical verification of the premises of the appellant, certain record and documents were collected and resumed against a resumption memo. And on the basis of record so taken into custody, it revealed that the appellant under proprietorship of Mr. Munir Ahmad acquired a premises comprising electric steel furnace and re-rolling mills located at 16-KM, Sheikhupura Road, Lahore by declaring electric reference No. .18111250906905U under so-called lease agreement from 22.01.2011 to 31.12.2013 after having collusive arrangements with the lesser/owner of the said premises. Subsequently, he claimed himself user of reference No. 24111259034801U installed at 14-KM Sheikhupura Road and got exclusion of sales tax against the said electricity reference number by concealing the facts and did not deposit a single penny into government exchequer during the period of his so called tenancy and at present is a null-filer from January, 2014 on wards with a huge carried forward. There is also found a huge difference worth
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Rs.173.50 million in purchases and sales values which also leads to massive closing stocks involving heavy amount of stuck up sales tax. During scrutiny of the data obtained form Messrs LESCO and record available with this office, it has been found that the appellant by claiming itself user of the electricity reference No. 24111259034801U filed a Writ Petition No. 22850/2012 in the Lahore High Court, Lahore by concealing the facts for exclusion of sales tax from monthly electricity bill being not covered under the Sales Tax Special Procedures Rules, 2007 and succeeded in obtaining Exclusion Certificates bearing C.No. 536 dated 25.02.2012 and C.No. 2000 dated 21.11.2012 However, being manufacturer to be assessed on a valorem basis @ 17% under section 3(1) read with section 7 of the Act, the registered person had to charge and to pay sales tax under the normal tax regime. In this way, sales tax liability for the periods from April, 2011 to December, 2013 under normal tax regime by calculating production on basis of consumption of electricity units and by applying sales value Rs.73,000/- per metric ton in terms of S.R.O. 345(1)/2010 dated 24.05.2010 read with amending S.R.O. 597(1)/2012 dated 01.06.2012. The appellant therefore, succeeded in obtaining a total exclusion of sales tax worth Rs.142,480,907/- which would otherwise be payable under the special procedures in the monthly electricity bills at the specified rates against per unit of electricity consumed. However, after getting exclusion, the registered person had to charge and to pay sales tax under normal tax regime on ad valorem basis @ 17% under section 3(1) read with section 7 of the Act read with provisions of S.R.O. 345(1)/2010 dated 24.05.2010 and amending S.R.O. 597(1)/2012 dated 01.06.2012 but he did not comply with the said legal provisions. 3. Resultantly, the appellant was called upon with a show cause notice bearing C.No. 992 dated 30- 06-2014 on the basis of estimated output tax asking him as to why an amount of Rs. 282,765,155/- may not be recovered under section 11(2) of the Act along with default surcharge under section 34 of the Act and a penalty under sections 33(5) and 33(6) ibid. The appellant was also charged with the violation of sections 2(37), 3, 6, 7, 8, 22, 23, 26 and 73 of the Act. Upon adjudication proceedings, appellant was proceeded in absentia without providing him with any opportunity of hearing and case was decided on his back. The registered person feeling aggrieved by the said order filed the first appeal before the learned CIR (Appeals-II), Lahore on the grounds and with the prayer set forth therein and supported with documentary evidences attached with the memo. Of appeal but he also upheld the demand of sales tax and rejected the appeal. Still discontented, the appellant has come up in this second appeal before this Tribunal assailing the treatment accorded by both the lower fora. Learned counsel appearing on behalf of the registered person has termed the actions of both the authorities below to be illegal, void, without jurisdiction, arbitrary and contrary to the facts of the case. Initiating the arguments, learned counsel for the appellant has vehemently contested that the impugned adjudication proceedings are illegal as no hearing was provided to the appellant to confront the charges leveled against him hence; all the subsequent proceedings carried out on his back are illegal, ab initio void and also in violation of Article 10-A of the Constitution of Pakistan, 1973. Reliance in this regard was placed on (2005 SCMR 1814), (2005 SCMR 678), (PLD 1990 SC 666), (2005 SCMR 678), (2012 SCMR 1235) and (2012 CLC 1236). Learned counsel further argued that impugned show cause notice and consequent adjudication order are without jurisdiction as much as the learned adjudicating authority was not legally competent to adjudicate upon the instant case under its Territorial Jurisdictional Order No. 405 dated 16/08/2013 and in support of his contention, he placed reliance on judgments reported as (2001 SCMR 1822), (2006 SCMR 1713) and (2008 SCMR 240). He vociferously contented that the search to have practically been conducted under section 40 of the Sales Tax Act, 1990 as provisions of section 38 of the Act only empowers revenue authorities to have free access to business or manufacturing premises, registered office and any other place where any stocks, business records or documents required under this Act are kept or maintained belonging to a registered person for an inquiry or investigation in any tax fraud committed by him and such officer may, at any time, inspect the
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goods, stocks, records, data, documents, correspondence, accounts and statements, utility bills, bank statements, information regarding nature and sources of funds and assets with which his business is financed or any other record or documents including those which are required under any of the Federal, Provisional or local laws and may take into his custody such records, statements. By all means, purpose of section 38 of 'the Act is to make an Officer of Inland Revenue empowered to have free access to the records and documents of a registered person and to inspect it but with all freeness and consent of a registered person and never provides any high- handedness for its resumption and in all such cases where there is every apprehension that a registered person will not permit free access to the officer of inland revenue, its recourse is provided under section 40 of the Act. Any record taken into custody not with a free smile on the face of both parts should always be searched with warrant duly accorded by the Magistrate and in all such cases, provisions of section 38 of the Act for free access are not applicable as it is lagged behind search under section 40 of Act and record/documents or anything else seized in an illegal search cannot be made basis for creating demand of sales tax nor the same can be used against appellant. Reliance in this regard was placed on 2003 PTD 2037, 2009 PTD 1083 and (2005 PTD 1933) = 2005 SCMR 1166 = 2005 PTD 1933. It was submitted by the counsel that neither any search can be conducted under the provisions of section 38 of the Act nor any audit exercise can be carried out under its provisions without invoking mandatory provisions of section 25(2) of the Act and placed reliance on (2014 PTD (Trib.) 1293). Counsel vehemently contested that the appellant is regularly e-filling monthly sales tax returns under section 26 of the Act read with Rule 18 under the Normal Tax Regime at standard rates as the Fixed Tax Regime under the Rule 58H and conditional advolarent Normal Tax Regime under Rule 58MA were not applicable to appellant. He argued that the whole liability of sales tax has been created on basis of electric units vis-a-vis production of steel products worked out on its basis vis-a-vis sales and supply thereof without any corroborating evidence for clandestine removal of goods and receipt of money consideration in its respect which rendered the whole exercise presumptive and imaginative. Reliance was placed on 2000 PTD 3765. At the end, learned counsel while summing up his arguments assailed that the show cause notice issued is defective, vague, unspecific and too general may not enable the reader or the notified person to make out or clearly identify the particular clause or subsection or the reason etc., applicable to its case and the same does not confirm to the requirement of law as multiple provisions of law have been simultaneously invoked. Reliance was placed on PLD 2013 Lah. 634 = 2013 PTD 1536 and (2012 PTD (Trib.) 1697). He contented that the impugned show cause notice and consequent adjudication order are also illegal, void ab initio and without jurisdiction as 'recovery of sales tax' cannot be made adjudged under section 11(2) of the Act always providing 'assessment of tax' without invoking relevant provisions of section 11(3) of the Act. Counsel placed reliance on (2007 PTD 2265). Learned counsel concluding his arguments submitted that heavy penalty of hundred percent of amount of tax involved under section 33(13) of the Act has been imposed and adjudged illegally in impugned adjudication order, whereas no such penalty under section 33(13) of the Act was cited and confronted in the impugned show cause notice and placed reliance on (1987 SCMR 1840). The learned A.R. Of the appellant also produced Sales Tax Returns supported with sales tax invoices, bank statements and other record in support of his contentions, declaration in the sales tax record. The compliance of provision of sales tax and discharge of sales tax liability under the Act. On the other hand, when the learned DR was confronted with the situation cited supra, in counter arguments, he has opposed the contentions of learned counsel for the appellant and supported the orders of authorities below for the reasons recorded therein and reiterated almost the same arguments as advanced earlier at time of adjudication and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.
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4. The arguments of the learned representatives of both the rival parties have been heard, the orders of the authorities below as well as relevant record and relevant provisions of law and the case laws cited by the learned AR of the taxpayer have also been perused carefully. 5. After going through the case record and relevant provisions of law, we are of the firm opinion that the appellant was not afforded adequate opportunity of being heard at original adjudication stage to present its case or to lead evidence in a manner befitting the allegations leveled in the show cause notice thus, the due process and rights of the appellant guaranteed under the Constitution of the Islamic Republic of Pakistan as well as under the Sales Tax Act, 1990 have been gravely prejudiced and the impugned adjudication order is liable to be set aside. It is now well- settled law that service of notice is a sine qua non for assumption of jurisdiction. Since, service of statutory notice is not in accordance with law, all subsequent proceedings and assessment made on the basis of such notice is also not sustainable under law. It is a wholesome principle of natural justice that no order affecting rights of a person should be passed without providing him with an opportunity of being heard and no authority and Court should adjudicate upon a right of party who was not before it or to whom no notice was given and thus, an ex parte order is no order in eye of law. The August Court of Pakistan in case of "Nazir Ahmad Panhwar v. Government of Sindh through Chief Secretary, Sindh and others" reported as (2005 SCMR 1814) held that an adverse order passed without affording an opportunity of personal hearing is to be treated as a void order. The Apex Court in another case of "Hazara (Hill Tract) Improvement Trust through Chairman and others v. Mst. Qaisra Elahi and others" reported as (2005 SCMR 678) has laid down that:-- "The principle of natural justice enshrined in the maxim "audi alteram partem" is one of the most important principles and its violation is always considered enough to vitiate even most solemn proceedings. Where adverse action is contemplated to be taken against the person/persons, he/they would have a right to defend such action, notwithstanding the fact that the statute governing their rights does not contain provision of the principles of natural justice and even in absence thereof, it is to be read/considered as a part of such statute in the interest of justice. It is important to note that the principles of natural justice are now made inbuilt part of civil contracts. This principle originates from Islamic system of justice as evidenced from historical episode when lblees was scolded for having misled Hazrat Adam (P.B.H.) into disobedience of Allah's command. Almighty Allah called upon lblees to explain his conduct and after having an explanation from him, which was found untenable, he was condemned and punished for all times to come. The principle of natural justice has to be applied in all kinds of proceedings strictly and departure therefrom, would render all subsequent actions illegal in the eye of law." 6. The Supreme Court of Pakistan in case of "Mst. Maryam Yonus v. Director of Education, Cantonment, G.H.O., Rawalpindi and 2 others" reported as (PLD 1990 SC 666) has laid down that mere absence of a provision in a statute as to notice cannot override the principle of natural justice that an order affecting the rights of a party cannot be passed without an opportunity of hearing and where the giving of a notice is a necessary condition for the proper exercise of jurisdiction then failure to comply with this requirement renders the order void and the entire proceedings which follow also become illegal. There is no doubt that impugned adjudication order was passed on back of the appellant without giving any opportunity of hearing which is in flagrant disregard of the law inasmuch as it was passed without providing the appellant with any opportunity of being heard being ex-facie violative of the principles of natural justice and fundamental rights. A person against D whom any action warranted under law is not properly heard to confront the charges leveled against him and he is not properly undergone by due process of adjudication as consciously enacted by legislation in various laws particularly in fiscal Statutes, any order passed subsequent to it, is an illegal and void order. In another case of "The
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Collector of Sahiwal and 2 others v. Mohammad Akhtar" reported as (1971 SCMR 681), the Hon'ble Supreme Court of Pakistan has held that the principle, so far as this country is concerned, is accordingly well settled that where a notice required to be given by the Statute is mandatory notice, then the failure to comply with such mandatory requirement of the Statute would render the act void ab initio as being an act performed in the disregard of the provisions of the Statute. Furthermore, any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage. As such, the charges leveled in the impugned show cause notice and adjudged in the subsequent adjudication order were never confronted by the appellant therefore; all the subsequent proceedings initiated on his - back are declared illegal and nullity in the eye of law. Right of beinglE personally heard is an inseparable right of a taxpayer and cannot be al denied to him under any circumstances and violation of principles o E natur justice can be equated with violation of provisions of the statutory provisions. Admittedly, impugned adjudication order was passed on ex parte basis without providing the appellant with any opportunity of being heard which is not only against norms of natural justice but also contrary to provisions of section 11(5) of the Act as the cardinal principle of "Audi Alteram Partem i.e. No body should be condemned unheard" has not been observed in instant case. The provisions of section 11(5) of the Act has clearly provided opportunity of hearing before passing an adverse order against the taxpayer but the learned adjudicating has ignored the same. For the sake of brevity, it would be expedient, if we reproduce the relevant provisions of section 11(5) of the Act which reads as under:- "No order under this section shall be made by an Officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person in default specifying the grounds on which it is intended to proceed against him and the officer of sales tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard." 7. After incorporation of Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973, a 'fair trial' and 'due process' has now become a fundamental right of every litigant but in the instant case, whole proceedings have been carried out by the learned tax functionaries without due process of law and this act of revenue department for creating huge liability of sales tax has been done without providing the appellant with any opportunity of hearing and without confronting the material evidences collected by the department has thus violated the fundamental right of the appellant because right of due process of law like notice, opPortunity of hearing and confronting of evidences collected by the department is a fundamental right of every taxpayer as guaranteed under Article 10-A of the Constitution of the Islamic Republic of Pakistan, 1973. Any determination of rights of a person falling short of due process and fairness of facts is illegal and unconstitutional. Any order passed or action or proceedings taken by any forum in violation of 'fair trial' and 'due process', of course, is illegal, null and void. In this regard, we gain strength from the judgment of Hon'ble Supreme Court of Pakistan in ref: "Babar Hussain Shah and another V. Mujeeb Ahmed Khan and another" (2012 SCMR 1235) wherein it was held as .,under:-- "Although from the very inception, the concept of fair trial and due process has always been the golden principles of administration of justice but after incorporation of Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973 vide 18th Amendment, it has become more important that due process should be adopted for conducting a fair trial and order passed in violation of due process may be considered to be void." 8. In another case of "Shabir Ahmed v. Kiran Khursheed and others" reported as (2012 CLC 1236), the Hon'ble Court held as under:-- "The government always has the obligation of providing a neutral decision maker one who is not inherently biased against the individual or who has not personal interest in the outcome.
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Due process is now available to every person as a fundamental right and underscores procedural fairness and propriety in determining his civil or criminal rights. The procedure adopted in determining the rights of the parties must at every step-pass the test of fairness and procedural propriety and at all times must honour the law and the settled legal principles. Article 10-A of the Constitution is not limited to a judicial trial in its strict sense but requires fairness from any forum which determines the rights of a person." The learned adjudicating authority who has silently peeped into this case to adjudicate consciously upon it for the purpose of assessment of sales tax not paid or short paid under section 11(2) of the Act which no doubt legally empowered the Officers of Inland Revenue, Enforcement and Collection, Unit-10 for adjudication on the cases falling in his territorial jurisdiction of District Sheikhupura and Lahore, etc in this behalf but with exclusions of the Articles namely "Steel Casting, Melting, Re-rolling and Steel Pipe Manufacturing" given at bottom of Column No. 3 titled as Jurisdiction at Sr. No. 10 of Table No. 1 attached to Order .Bearing C.No. 405/Admin dated 16.08.2013 subjected as "JURISDICTION OF OFFICERS OF INLAND REVENUE IN RESPECT OF ZONE-IV, REGIONAL TAX OFFICE, LAHORE". Since, the learned adjudicating authority has wrongly assumed jurisdiction of the appellant's case despite exclusion his case therefore, the whole exercise of adjudication carried out by the ACIR (E&C Unit-10, Zone-IV), RTO, Lahore stand illegal and without jurisdiction. It is a well- settled law that an authority dealing with a matter must possess jurisdiction H to deal with same, and if such authority did not have such power, then initiation of entire proceedings would be liable to be quashed for being coram non judice and non-est. Reliance in this regard can safely be placed on the judgment of Hon'ble Supreme Court of Pakistan in case of "Ali Muhammad v. Chief Settlement Commissioner and others" reported as (2001 SCMR 1822) wherein it was laid down as under:-- "Whenever orders are passed by an officer without caring whether jurisdiction vests in him or not, it prima facie reflects on his conduct as well as competency. It is also to be noted that whenever authority is exercised in such a manner then no other inference can be drawn except that the functionary has transgressed his jurisdiction for the consideration other than judicial one and the courts ceased with such order may recommend any action against the said officer because neither the executive authorities nor judicial forums will pass a wrong order because the jurisdiction in both the capacities is conferred upon such authorities to discharge their functions in accordance with law which has bestowed authority upon them to function in the capacity and if there is abuse of power by such officer, then no hesitation should be felt in passing stringent structure against officer keeping in view norms of justice." 10. The Hon'ble Supreme Court of Pakistan in ref: "Izhar Alam Farooqi, Advocate v. Sheikh Abdul Sattar Lasi and others" (2008 SCMR 240) has held that if a mandatory condition for the exercise of a jurisdiction before Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revision equally suffers from illegality and is without jurisdiction. Honourable Supreme Court in ref: "Faqir Abdul Majeed Khan v. Distt. Returning Officer and others" (2006 SCMR 1713) has observed as under:- "By now, it is well settled that any order which suffers from patent illegality or is without jurisdiction, deserves to be knocked down" Ref: (PLD 1958 SC 104), (PLD 1973 SC 326), (PLD 2002 SC 630), (2003 SCMR 50), (2004 SCMR 28), (2004 SCMR 1798)." 11. On careful analysis of set of laws on the subject matter, it is crystal clear beyond any shadow of doubt that tax functionaries, in the instant case, under the garb of provisions of section 38 of the Act has conducted search of the business premises of the appellant and after obtaining records and documents have also prepared resumption memo but after plain reading of provisions of section 38 of the Act, it becomes vivid that these provisions are mere enabling provisions and had
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nothing to do with regular search or seizure which could only be done in accordance with the provisions of section 40 of the Act. The word "freeP access" to any property of the citizen did not mean search and seizure for the purpose of collecting evidence…
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