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Petitioner: M/s. Inbox Business Technologies Limited VS Respondent: Pakistan & others
Court Name: Sindh High Court Judge(s): Muhammad Ali Mazhar Title: M/s. Inbox Business Technologies Limited vs Pakistan & others Case No.: Suit No.2275 of 2017 Date of Judgment:2018-03-09 Reported As: 2018 SHC 540 Result: Applications disposed of
Judgment Muhammad Ali Mazhar, J: This suit for declaration and permanent injunction has been brought to challenge the show cause notice and suspension order dated 17.10.2017. The transient facts of the case are as follows:- The Government of Punjab took steps to import Laptops and in order to facilitate the import, they entered into a contract on 17.12.201 1 with the plaintiff. The salient features of contract were that the Punjab HED shall obtain exemption from FBR with regard to GST and advance tax at import stage for laptops with a further condition that in case such exemption is not obtained, the tax shall be borne by the purchaser i.e. the Punjab HED. The goods on imports were to be received by Punjab HED and then handed over to the successful bidder i.e. the plaintiff, which was to take possession of the said goods only for the purpose of delivering them to the respective instit utions. The Contract was for 100,000 laptops, subsequently through an Addendum dated 26.01.2012, 10,000 more laptops were imported by the Punjab HED and facilitated by the plaintiff. Even in terms of addendum, the Punjab Higher Education Department had to obtain exemption from the FBR and in case such exemption was not obtained, the Punjab Higher Education Department was liable to pay the amount of GST and advance tax pertaining to imports. As per contract and its Addendum, the Punjab Higher Education Department approached the FBR and vide letter dated 30.11.2011 FBR intimated to the Punjab Higher Education Department that the laptops in question imported by the Punjab Higher Education Department for public sector educational institutions are exempt from the payment of sales tax under Item 52 of Table 1 of the Sixth Schedule of the Sales Tax Act 1990 and the said Punjab Higher Education Department was also exempt from the payment of advance income tax at import stage as per SRO 947(I)/2008 dated 5.11.2008. The plaintiff was not importer which fact can be established by the letter of the Punjab Higher Education Department to the FBR dated 28.12.2011, letter by the Punjab Higher Education Department to the FBR dated 21.12.2011, letter by the FBR to the Punjab Higher Education Department dated 27.12.2011, letter by FBR to the Punjab Higher
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Education Department dated 29.12.2011, letter by Punjab Higher Education Department dated 9.2.2012 to the Deputy Collector of Customs, Allama Iqbal International Airport, wherein the last para of the said letter it has been requested that the Customs Department may facilitate the Punjab Higher Education Department in customs clearance and warehousing of the laptops. The defendant No.3 earlier issued a show cause notice for the purposes of carrying out assessment, which was followed by another show cause notice. These notices were challenged in constitution petition in which the plaintiff was directed to join the adjudication proceedings and the department should act strictly according to the law. The defendant No.2 without any show cause notice or opportunity of hearing issued a suspension order under Section 21(1) of the 1990 Act read with Rule 21(a)(i) of the Sales Tax Rules, 2006. The effect of this suspension order is that the Sales Tax Registration of the plaintiff has been suspended w.e.f. 17.10.2017 and the plaintiff is being treated as non-active taxpayer. Simultaneously the defendant No.2 has also issued a show cause notice under Section 21(2) of the 1990 Act read with Rule 12(a)(i) and Rule 12 A of the 2006 Rules as to why they should not be blacklisted. 2. The learned counsel for the plaintif f argued that the entire case of the departmen t hinges upon that the plaintif f is the actual importer of the laptops but the tax department failed to consider that the actual implementation of the contract, the conduct of parties and the provisions and subsequent correspondenc es can only determine the exact covenant. In order to resolve any ambiguity in the contract and to ascertain the real intention of the parties, the court should have resort to the correspondences, the indenture of contract and the conduct of the parties including all attending circumstances. According to Section 79 (1) of the Customs Act, 1969, it is the owner of the imported goods which has to file the goods declara tion. The Airway bills and goods declarations categorically point out that it is the Punjab HED which is the actual owner , buyer and importer of the laptops. 3. He further contended that due to some misunderstanding in the original tax return, the plaintif f declared itself to be the importer , however vide letter dated 14.07.2017, the plaintif f moved for seeking permission to revise its tax returns. Though Section 114 (6) of the 2001 Ordinance permits the revision of tax return, but unfortunately no order was passed by the learned Commissione r within 60 days of the application to file revise return dated 14.07.2017, therefore, the department cannot now rely upon the original return submitted under some misunderstanding. 4. The learned counsel further argued that the assumption of jurisdiction by the defendants in relation to the suspension of sales tax registration and blacklisting is mala fide. When FBR confirmed the tax exemption, the question of treating the plaintif f in default and lodging tax fraud proceedings including the extreme steps of suspension of sales tax registration is unwarranted. The statutory provision mean t for ordering suspension under Section 21 of the Sales Tax Act does not exclude the principles of natural justic e. If the statute itself does not exclude the principles of natural justice, the same cannot be excluded by delegated legislation. 5. It was further asserted that though Section 21(2) permits the Commissioner to blacklist or suspend the registration of a taxpayer if the said Commissioner is "satisfied" that the taxpayer/registered person has "issued fake invoice" or "has otherwise committe d tax fraud". Admittedly , no fake invoice of sales tax has been issued by the plaintif f. The term "tax fraud" has been defined in Section 2 (37) of the 1990 Act. In fact there is no determination by the department to the effect that the plaintiff had intended to commit tax fraud. The term "satisfied" employed in Section 21 (2) means an application of mind requiring determination with reasons. The term satisfaction? means satisfaction upon reasonable grounds and existence of a state of mental persuasion much higher than opinion and when used in the context of judicial proceedings the mental state has to be arrived at within the prescribed statutory provisions. The reasons given by the defendant No.2 in the impugned suspension order are vague and arbitrary. It was further contended that under Rule 12 (a) (i) of the 2006 Rules, the criteria for suspension are provided but the case of plaintiff does not fall under the incidents pointed out in sub-rule (A) to (F). With regard to the residuary category i.e. sub-rule (G), the same does not give an open- ended discretion to the learned Commissioner. The tax fraud can only be established once adjudication proceedings are finalized and the taxpayer has exhausted all appeals. It was further averred that not only the plaintiff has a strong prima facie case but also irreparable loss is being caused and shall further be caused in case the injunction as prayed is not granted as the entire business of the plaintiff has been brought to a complete
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standstill. The impugned action is against Article 18 and 23 of the Constitution, which deal with the fundamental rights to conduct business and hold property. The learned counsel for the plaintiff in support of his contention referred to the case of Malik Ghulam Jilani v. Government of West Pakistan, reported in PLD 1967 S.C. 373. The court while dilating the provisions of Defence of Pakistan Ordinance 1965, held that the word "satisfied" requires stronger ground for action than mere suspicion. In the case of Muhammad Hayat v. The Crown, reported in PLD 1951 FC 15, Per Abdul Rashid-J, while expounding the provisions of Punjab Public Safety' Act, held that words "if satisfied " are not preceded by any qualifying adverb, such as, "reasonably". In the case of Director Food, NWFP vs. M/s.Madina Flour and General Mills (Pvt.) Ltd., reported in PLD 2001 S.C. 1. The court held that discretionary decision is to be made according to rational reasons. Actions which do not meet these threshold requirements are arbitrary and might be considered as a misuse of powers. Whereas in the case of Warid Telecom (Pvt.) Limited v. Pakistan Telecommunication Authority reported in 2015 SCMR 338. The court expounded and explicated the principle and concept of natural justice. In the last case referred to by the learned counsel for the plaintiff i.e Sohail Butt v. Deputy Inspector General of Police (North) National Highway and Motorway Police, reported in 2011 SCMR 698, the court held that the word "satisfied" means existence of mental persuasion much higher than mere opinion; a mind not troubled by doubt; a mind which has reached on clear conclusion. 6. The learned counsel for the Tax Depa rtment argued that the contract in question clearly stipulates that duties and taxes as applicable at the time of supply will be paid by the bidder . The exemption was only for import of laptops and backpacks were not include d. The FBR did not provide any exemption to the plaintif f for import of laptops, however the exemption for impo rt of laptops was available to HED but the said import was not made by HED itself, and hence it is not applicable in the present case. He admitted that Import by Provincial Government is exempt from GST and Advance Income Tax but this exemption was not available to the plaintiff. The invoices were issued by Dell in the name of the plaintiff. Similarly the plaintiff made the payment for such laptops through LCs opened by them. The present proceedings only intended to charge tax on the declaration made by the plaintiff itself in the sales tax returns. The Sales Tax Act, 1990 distinguishes between imports and supply. The issue of imports is to be determined by the Customs authorities whereas the supply of the laptops is a transaction which the Inland Revenue has to tax, hence there is no bar on issuance of show cause notice in respect of supply when proceedings are underway for its purchase/import as well. He further argued that the show cause notices are well within the bounds of law as envisaged in the Sales Tax Act, 1990 and based on concrete evidence. As per Sub-section (2) of Section 21 of the Sales Tax Act, when the Commissioner is satisfied that a registered person has committed tax fraud, he may blacklist such person or suspend his registration in accordance with such procedure as the Board may by notification in the official gazette prescribe. At the time of issuing order of suspension of registration of a person, the Commissioner institutes an inquiry and an opportunity of being heard is provided after suspension. The scheme of the Act does not envisage any opportunity of being heard before suspension of the person. If the plaintiff is cleared of the charge, the suspension order will be automatically withdrawn. The case of the plaintiff squarely falls under sub-section (37) of Section 2 of the Sales Tax Act, 1990 which defines the Tax Fraud. The learned counsel in support of his contention referred to the case of Sh.Diwan Mohammad Mushtaq Ahmed vs. Central Board of Revenue, reported in [1969] Vol.XIX Taxation 198 in which the court held that the rules of natural justice are to be read as part and parcel of every statute unless and until there is a specific provision in a particular statute to the contrary. In the case of Messrs Volkart Pakistan (Private) Limited vs. Federation of Pakistan, reported in 2006 PTD 236, the court held that while examining a fiscal statute court should not be carried away with the fact that the same may be disadvantageous to some of the tax payers. If such a fiscal statute is beneficial to the country on the whole, the individual's interest should yield to the national' interest. Whereas the court in the case of Messrs Bilz (Pvt.) Ltd. vs. Deputy Commissioner of Income-Tax, Multan, reported in 2002 PTD 1, held that fiscal statute has to be construed in its true perspective and in respect of payment of tax, if it is found due against a party, then such statute cannot be interpreted liberally in order to make out a case in favour of an assessee. In the case of Lucky Cement Ltd. vs. Commissioner Income Tax, Zone Companies,
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Circle-5, Peshawar, reported in 2015 PTD 2210, it was held that a prohibitory clause, couched in the negative language should be construed and applied strictly. Court should assess and ascertain as to what was the real intent and object behind such a clause. And finally in the last case cited by the learned counsel for the tax department Messrs Pakistan Paper Products Ltd. vs. Commissioner of Income Tax, reported in 2006 PTD 1027, the court held that function of court is not to render operation of a statute redundant or interpret it in a manner which may lead to evasion of tax. 7. Heard the arguments. In fact by means of this lawsuit for declaration and permanent injunction, the plaintiff has questioned the suspension order dated 17.10.2017 passed under Section 21(2) of the Sales Tax Act, 1990 read with Rule 12(a)(i) of the Sales Tax Rules, 2006. The gist and essence of suspension order communicates that the Deputy Commissioner, Inland Revenue, Enforcement and Collection Unit, Zone-III, Large Taxpayer?s Unit, Karachi reported that the plaintiff filed monthly Sales Tax Returns for the tax periods March 2012 on 13.3.2015 and of May 2012 on 15.6.2015. The plaintiff declared taxable supply as exempt in sales tax returns whereby evaded sales tax amount of Rs.663,520,000/-. In the suspension order it was further alleged in paragraph 5 that the registered person knowingly, dishonestly or fraudulently declared sales of notebook computers and back packs as exempt in the sale tax returns, contravening the explicit duties/obligation placed on them under Sales Tax Act, 1990. While referring to Section 21(2) of the Sales Tax Act, 1990 read with Rule 12(a)(i) of the Sales Tax Rules, 2006 it is avowed that where a Commissioner is satisfied that registered person has issued fake invoices, evaded tax or committed tax fraud, registration of such person may be suspended by the Commissioner through the system without prior notice and pending further inquiry. It is further made known in the suspension order that the taxpayer will be considered as "Non Active Taxpayers" as per provision of Rule 12A read with clause (1) of Section 2 of the Sales Tax Act, 1990. 8. On the same date a show cause notice under Section 11(5) read with 11(2), 33 and 34 of the Sales Tax Act, 1990 was also issued to the plaintiff. Whereas on 23.10.2017 one more show cause notice was issued as to why action under Section 21 (2) of the Sales Tax Act, 1990 read with Rule 12(a)(i) and Rule 12A of the Sales Tax Rules, 2006 should not be initiated to blacklist the plaintiff and exclude them from the list of "Active Taxpayer" on the ground of evasion of tax or committed tax fraud. When the matter was fixed for orders on 30.10.2017 on injunction application, the court ordered that the proceedings if any for deciding the issue of blacklisting may continue by the Department but no final order shall be passed till next date of hearing and so far as the suspension order is concerned, that has already been passed, therefore, the propriety and validity of suspension order shall be taken up after notice to the defendants. 9. One more facet is also reckonable that the plaintif f has filed another Suit No.2274/2017 in which they have impugned the show cause notice dated 17.10.2017 whereby the plaintif f was called upon to show as to why the sales tax amount should not be recovered including the default surcharge and penalty . In this case also while issuing notice to the defendants as well as D.A.G. the court ordered that proceedings if any may continue but till next date of hearing no coercive action shall be taken against the plaintif f. During the course of arguments learned counsel for the plaintif f produced an Assessment Order No.03/2017-18, passed on 17.11.2017 which is almost after one month of suspension order dated 17.10.2017. A scant foretaste and preview of Assessment Order put on view that the matching invoices and figure of alleged evaded tax are mentioned as pointed out in the suspension order passed much earlier without notice and without subpoenaing any explanation. 10. Section 21 of the Sales Tax Act, 1990 accentuates and draw attention to the incidents when the extreme action of De-registration, blacklisting and suspension of registration can be taken. A mechanism has been set down by dint of which the Board or any officer, authorized in this behalf, may subject to the rules, de-register a registered person. However, sub-section (2) expand on that in the cases where the Commissioner is satisfied that a registered person is found to have issued fake invoices or has otherwise committed tax fraud, he may blacklist such person or suspend his registration in accordance with such procedure as the Board may by notification in the official Gazette, prescribe. Contemporaneously Rule 12 of the Sales Tax Rules, 2006 is also germane to blacklisting and suspension of registration which propounds a modus operandi to be followed for suspension and blacklisting distinctly. However the precondition and qualification of Commissioner?s
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satisfaction is communal in the rules as well. The foundation of structuring and reinforcing the case of suspension is provided under the head of Suspension from Clause (A) to (G). No right of appeal against the suspension is provided except that on receipt of the reply to the show cause notice after giving an opportunity of hearing to the registered person, if the Commissioner is satisfied, he may order for revoking of suspension of the registered person. Nevertheless, in the aftermath of blacklisting, a self-speaking order is required to be passed with the reasons for blacklisting which is made appealable. For the ease of reference Section 21 of the Sales Tax Act, 1990 and Rule 12 of Sales Tax Rules, 2006 concerning to the procedure of suspension and blacklisting are reproduced as under:- Section 21 of the Sales T ax Act 1990 . 21. De-registration, blacklisting and suspension of registration:- (1) The Board or any officer , authorized in this behalf, may subject to the rules, de-register a registered person or such class of registered persons not required to be registered under this Act. (2) Notwithstanding anything contained in this Act, in cases where the [Com missioner] is satisfied that a registered person is found to have issued fake invoices [* * *] or has [otherwise] committed tax fraud, he may blacklist such person or suspend his registration in accordance with such procedure as the Board may, by notification in the official Gazette, prescribe. (3) During the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales Tax refund or input tax credit, and once such person is black listed, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such black listing shall [* * *] be rejected through a self-speaking appealable order and after affording an opportunity of being heard to such person. (4) Notwithstanding anything contained in this Act, where the Board, the concerned Commissioner or any officer authorized by the Board in this behalf has reasons to believe that a registered person is engaged in issuing fake or flying invoices, claiming fraudulent input tax or refunds, does not physically exist or conduct actual business, or is committing any other fraudulent activity, the Board, concerned Commissioner or such Officer may after recording reasons in writing, block the refunds or input tax adjustments of such person and direct the concerned Commissioner having jurisdiction for further investigation and appropriate legal action. Rule 12 of the Sales T ax Rules 2006 12. Blacklisting and suspension of registration. Where the Commissioner or Board has reasons to believe that the registered person is to be suspended or blacklisted, in order to ensure that the LTUs and RTOs follow a uniform policy for suspension and blacklisting of sales tax registere d persons under section 21(2) of the Act and for subsequent proceedings in such cases, the following procedure shall be followed, namely:-- (a) SUSPENSION (i) Where a Commissioner , having jurisdiction, is satisfied that a registered person has issued fake invoices, evaded tax or committed tax fraud, registration of such person may be suspended by the Commissioner through the system, without prior notice, pending further inquiry . The basis for such satisfaction may inter alia include the following, namely:- (A) non-availability of the registered person at the given address; (B) refusal to allow access to business premises or refusal to furnish records to an authorized Inland Revenue Officer; (C) abnormal tax profile, such as taking excessive input tax adjustments, continuous carry-forwards, or sudden increase in turnover; (D) making substantial purchases from or making supplies to other blacklisted or suspended person; (E) non-filing of sales tax returns; (F) on recommendation of a commissioner of any other jurisdiction; (G) any other reason to be specified by the Commissioner;
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(ii) the suspension of registration shall take place through a written order of the Commissioner concerned, giving reasons for suspension. This order shall be endorsed to the registered person concerned, all other LTUs/RTOs, the FBR's computer system, the STARR computer system and the Customs Wing computer system for information and necessary action as per law; (iii) a registered person who does not file sales tax return for six consecutive months shall be caused to be suspended through the system without any notice; (iv) in cases, where the buyers and suppliers of any such person, whose registration is being suspended, belongs to another LTU/RT O, and these buyers/ suppliers are also required to be suspended, the Commissioner shall intimate the Chief Commissioner of the concerned LTU/RT O in whose jurisdiction such buyers/suppliers fall, in writing explaining the complete facts of the case and the reasons on the basis of which these buyers/suppliers are to be suspended, to initiate proceedings for suspension/blacklisting of the buyers/suppliers; (v) no input tax adjustment/refund shall be admissible to the registered person during the currency of suspension. Similarly , no input tax adjustment/refund shall be allowed to any other registered persons on the strength of invoices issued by such suspended person (whether issued prior to or after such suspension), during the currency of suspension; (vi) the Commissioner shall, within seven days of issuance of order of suspension, issue a show cause notice (through registered post or courier service) to the registered person to afford an opportunity of hearing with fifteen days of the issuance of such notice clearly indicating that he will be blacklisted, in case-- (A) there is no response to the notice; (B) he has not provided the required record; (C) he has not allowed access to his business record or premises; and (D) any other reason specified by the Commissioner; (vii) in case show cause notice is not issued within seven days of the order of suspension, the order of suspension shall become void ab initio; (viii) in case of non-availability of the suspended person at the given address, the notice may be affixed on the main notice Board of the LTU/RTO; (ix) on receipt of the reply to the notice and after giving an opportunity of hearing to the registered person, if the Commissioner is satisfied, he may order for revoking of suspension of the registered person. 11. At this point of time the definition of tax fraud provided under sub-section 37 of Section 2 of the Sales Tax Act, 1990 is somewhat significant which is reproduced as under:- ?(37) 'tax fraud' means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused)- (i) doing of any act or causing to do any act; or (ii) omitting to take any action or causing the omission to take any action, [including the making of taxable supplies without getting registration under this Act…
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