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Petitioner: Messrs J & P COATS PAKISTAN (PVT.) LTD., KARACHI and another VS Respondent: C.I.R., ZONE-I, LTU, KARACHI and another
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Farzana Jabeen Title:Messrs J & P COATS PAKISTAN (PVT.) LTD., KARACHI and another vs C.I.R.,
ZONE-I, LTU, KARACHI and another Case No.: F.E.As. Nos,39/KB and 37/KB of 2013 Date of Judgment:2014-06-17 Reported As: 2018 PTD (Trib.) 359 Result: Case remanded. Judgment ORDER MUHAMMAD JAWED ZAKARIA (Judicial Member):---The above two titled appeals have been filed by the person/taxpayer as well by the department against consolidated Order No,STA/14/LTU/2012 dated. 28.2.2013 passed by the Commissioner (Appeals-1), Karachi on the grounds set-forth in the Memo. of appeals. We firstly, intend to dispose of the appeal of the person/taxpayer. Taxpayer's Appeal (F.E.No,39/KB of 2013) 2. Brief facts of the case are that the appellant company [M/s. J&P Coats Pakistan (Pvt.) Limited] being registered Person, entered into a Royalty and Intellectual properties Licensing Agreement with M/s. J&P Coats Limited- UK (the Parent Company) w,e,f, January 1, 2004 for using its products, research and development and management assistance etc. as per the said agreement, the appellant company was required to pay royalty. The Department, while passing the Assessment Order as a result of Sales Tax and Federal Excise Audit for the period from July 2005 to June 2009, has levied FED of Rs, 3,840,515 under the Federal Excise Act, 2005 (FE Act), for the periods from July 2006 to December 2008. However, the royalty for the above period (i,e, from July, 2006 to December 2008) was not paid by the appellant but reversed in accounts for the income year ended December, 31, 2009. In the ground of appeal filed, the appellant is contesting the levy of FED since no royalty has been paid, therefore, FED was not leviable. Being aggrieved and dissatisfied with the order of the DCIR the appellant filed appeal before the CIR (A) who vide order mentioned supra partly confirmed the treatment of the officer below. Hence the instant appeals before this Tribunal. However, the department has agitated appeal on the ground of non-providing opportunity of hearing or without taking into account the view point of the department at the time
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of hearing before the CIR(A). 3. Mr. Asif Haroon, the learned counsel for the appellant at the very outset contended that CIR (A) erred in maintaining the levy of FED of Rs,1,422,729/= on royalty for the period July 1, 2008 to December 31, 2008 and also principally erred in not considering the fact that royalty was not paid by the appellant to the franchiser and that the franchiser has already waived the royalty on account of financial position of the appellant (franchisee), thus FED also cannot be levied. In this respect our attention has drawn to a decision of the learned ATIR, Headquarter Bench, Islamabad vide FE No, 27/IB/2001 dated May 7, 2012 wherein it has inter alia been held that the FED is payable only at the time of the payment/ remittance of franchise fee (royalty) and not on mere accrual in the books of accounts. The relevant excerpt therefrom is reproduced below for convenience: "13........ We are also persuaded by the submissions of the learned AR that FED is payable only at the time of payment/ remittance of franchisee fee and as such liability does not arise, under the law, on the basis of mere accrual. Resultantly, the appeal is accepted and the orders of both the authorities below are vacated being contrary to legal provisions of statute." 4. It was further argued that the appellant, in order to avail amnesty scheme announced by the FBR, made payment of FED of Rs,1,422,729/- under protest for six (6) months from July 2008 to December 2008; the computerized payment Receipt (CPR) in respect of this payment had been furnished to the Additional Commissioner Inland Revenue, Range-B, Zone-I, LTU, Karachi vide letter AT 2247 dated March 12, 2013. 5. The learned D.R, on the other hand, submitted that the Audit of the Sales Tax and Federal Excise records maintained by Messrs J & P Coats Pakistan (Pvt.) Ltd., Karachi for the period July-2005 to June-2010 was conducted by the Audit, Unit-03 and 4, Zone-1, LTU, Karachi and during audit, following discrepancies on part of the Registered person have been observed:-- i) That the Registered person has wrongly claimed and adjusted the amount of input tax of Rs, 603,630/- against the Sales Tax invoices issued by the blocked/black listed suppliers which is also violation of Sections 7, 8 and 8A of the Sales Tax Act, 1990 read with Rule 12 (5) of Sales Tax Rules, 2006 on part of the claimant. ii) That the Registered person has wrongly claimed and adjusted the amount of input tax Rs, 2,305,110/- against the Electricity bills, Hotel services bill and Tracker services bills which are not issued in the name of the Registered person/ claimant and also not used in the manufacture of taxable supplies which is violation of Sections 7, 8 and 8A of the Sales Tax Act, 1990. iii)That the Registered person has not paid FE Duty amounting to Rs,2,417,786/- on Royalty for the Period Prior to July-2008 and Rs, 1,422,729/- for the Period July-2008 to December-2008 which is violation of section 3 of the Federal Excise Act, 2005. 6. The learned D.R. further argued that however, a show-cause notice was issued to M/s. J&P Coats Pakistan (Pvt) Ltd, Karachi vide C.No, DCIR-3&4/ZI/LTU/JNPC/2011-12 dated 29.05.2012. The said case was decided vide Order-in-Original No, 03/2012-13 dated 30.07.2012 passed by the Deputy Commissioner Inland Revenue, Audit Unit-03 and 04, (Zone-I), Large Taxpayer Unit, Karachi under which the charges enumerated in the show-cause notice have been fully established and Messrs J&P Coats Pakistan (Pvt.) Ltd., Karachi was directed to pay Sales Tax amounting to Rs,2,908,740/- and Federal Excise Duty amounting to Rs,3,840,515/- along with default surcharge (to be calculated at the time of final payment) and penalties under sections 34 and 33 of the Sales Tax Act, 1990 and Sections 8 and 19 of the Federal Excise Act, 2005 respectively. 7. The learned D.R. submitted that being aggrieved and dissatisfied with the above said order, the Registered person has filed an appeal before the Commissioner Inland Revenue (Appeals-I), Karachi which was decided vide Order-in-Appeal No, S.T.A./14/LTU/2012 dated 28.02.2013 pertaining to issue mentioned at para (iii) above. The Commissioner (Appeal-I) vide his decision mentioned above has partly allowed the appeal in favour of the appellant and held that FE duty on Royalty for
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the period July-2006 to June-2008 is not payable, according to him, the same is not valid as per law. In respect of duty payable for the period July-2008 to December-2008, the learned DR urged that the CIR(A) has erred that FE Duty is payable on Royalty by the appellant for which the appellant has already made the payment of FE Duty of Rs, 1,422,729/- and directed the concerned tax officer to allow credit of the duty paid by the appellant. Further the default surcharged and Penalty levied/ imposed under the impugned Assessment order has also been waived by CIR (A). The learned DR pointed out that the issue regarding paras (i) and (ii) above has been decided separately by the Commissioner Inland Revenue (Appeals-I), Karachi vide Order-in-Appeal No, S.T.A./13/LTU/2012 dated 28.02.2013 for which a separate appeal is being filed by the department before ATIR. Departmental Appeal (F.E. No, 37/KB of 2012) 8. The learned D.R. argued that The Commissioner (Appeal-I) vide his decision mentioned above has partly allowed the appeal in favour of the Respondent taxpayer and held that FE duty on Royalty for the period July-2006 to June-2008 is not payable as which is not valid as per law. In respect of duty payable for the period July-2008 to December-2008, the CIR(A) has erred that FE Duty is payable on Royalty by the appellant for which the appellant has already made the payment of FE Duty of Rs, 1,422,729/- and directed the concerned tax officer to allow credit of the duty paid by the appellant. Further the default surcharged and Penalty levied/ imposed under the impugned Assessm ent order has also been waived unjustifiably by CIR(A). 9. The main emphasis of the Department is that The CIR (A) is not justified in not providing opportunity of hearing or without taking into account the view point of the department at the time of hearing before him [the CIR (A)]. 10.Dr. Ghulam Murtaza, the learned D.R. further contended that though the department has no inherent or statutory right to file an appeal before the CIR (A). However, before deciding the appeal, the CIR(A) must give an opportunity of hearing to the department or at least obtain their comments on the arguments of the person/taxpayer. The main contention of the department in this case is that the CIR(A) has partly allowed the appeal without giving an opportunity to the department and without taking into account the view point of the department and made ex parte decision without giving any chance of hearing for rebuttal and CIR(A) had even not considered judiciously, judicially and consciously the view of the department. The learned D.R. contended that CIR(A) order is nothing but ex parte decision without any notice/opportunity to the Revenue Department. The CIR (A) simply reproduced the contention of the person/taxpayer and gave the findings in slipshod manner. 11.The learned D.R. further submitted that the order-in-appeal passed by CIR(A) is not a speaking order, which is against the principle of natural justice, in this regard various judgments were cited. He argued that impugned order cannot be termed as a Judicial or quasi-judicial order and that the same is sketchy, slip-shod without application of judicial, judicious and conscious mind and devoid of reasons. The learned D.R. vehemently contended that order is not at all a specking order and cannot be called a "quasi judicial order" within the parameters set up by judge-made-law. It has been passed without giving notice to the tax department. The tenor of the order amply manifests non application of judicial mind and no reasons have been assigned by the learned CIR(A) in coming to the impugned conclusions. Even it has been enjoined upon an executive authority, as per section 24 (A) of General Clauses Act, 1897 (inserted by General Clauses Amendment Act, 1997, Act No,XI of 1997) to give reasons for making the order. Learned DR further argued that the Honorable Supreme Court of Pakistan time and again unapproved the passing of such perfunctory orders in the causes involving valuable rights of the parties. It is settled law that quasi-judicial order must be a speaking order manifesting by itself that the authority has applied its judicial mind to the issues and the points of controversy involved in the causes. Furthermore,
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when the reasons would not be forthcoming, obviously the higher appellate fora would be deprived of the views of the subordinate forum. In any way the impugned order has not properly considered the reasoning of the tax department without hearing and without opportunity of being heard to the department, hence he submitted that order of CIR (A) is not a speaking order and devoid of reasons is not sustainable in law being in contravention of law declared by the Honorable Supreme Court of Pakistan in various cases like Adamjee Jute Mills Ltd. v. The Province of East Pakistan and others (PLD 1959 SC (Pak.) 272, Gouranga Mohan Sikdar v. The Controller Import and Export and 2 others [PLD 1970 SC 158], Mollah Ejahar Ali v. Government of East Pakistan and others [PLD 1970 SC 173] and Muhammad Ibrahim Khan v. Secretary, Ministry of Labour and others [1984 SCMR 1014] etc. After insertion of section 24-A of General Clauses Act the obligation to advance reasons is now a statutory requirement and cannot be casually ignored. He also cited the reported judgment of Supreme Court of Pakistan in the case of Airport Support Services v. Airport Manager PIA 1998 SCMR 2268. He, therefore, submitted that the CIR(A) order and issues in both the cross appeal and the matter may be remanded back to the CIR(A) for proper speaking order after recording valid and solid reasons and application of judicial, judicious and conscious mind strictly in accordance with law and after giving opportunity to both the parties. The learned counsel for the appellant has not offered any argument or rebuttal of the assertion of the learned D.R regarding non-issuance of hearing notice to the Department. 12.The learned counsel for the respondent /taxpayer while rebutting the arguments of the learned D.R. submitted that the FED is chargeable under section 3 of the FE Act, which was amended through substitution of clause (d) in subsection (1) of section 3 through the Finance Act, 2008 as under: Prior to Amendment: "(d) Services, provided or rendered in Pakistan." After amendment: "(d) Services provided in Pakistan including the services originated outside but rendered in Pakistan." 13.The above-referred amendments are prima facie evidence of the fact that upto June, 30, 2008, franchise services originated outside Pakistan but rendered in Pakistan are excluded from the purview of section 3 of the FE Act. The ATIR in a case reported as 2012 PTD 144 (Trib.) has agreed that before the amendments made through Finance, Act, 2008, services originated outside Pakistan but rendered in Pakistan were not subject to FED. The relevant extract from the aforesaid decision is reproduced below for ready reference:-- "We find no justification in observation made by the learned CIRA(A) in respect of retrospective applicability of the remedial/ curative legislation as in this case the substitution in clause (d) taking the "service provided in Pakistan including the services originated outside but rendered in Pakistan" has been made through Finance Act, 2008 which can in no way be made applicable to the case of the appellant which is regarding period of 1st July, 2006 to 30.07.2007. The impugned order of the learned CIR(A) in this respect is therefore, vacated and the order in original is cancelled." 14.The learned counsel further submitted that there are two other unreported decisions bearing ITA No, CE No, 1/KB/ of 2010 dated February 1, 2011 and No, FE Nos, 30 and 31/KB/2010 Dated August 9, 2011, wherein particularly the issue of franchise services provided from outside Pakistan (prior to July 1, 2008) were involved and the Hon'ble Tribunal has held that franchise service prior to July 1, 2008 were not subject to FED, if these were rendered outside Pakistan. He vociferously contended that these case laws are squarely applicable to this case: hence the application of FED on royalty for the period upto June, 30, 2008 is not chargeable to FED. 15.In respect of Department's intention to charge Default Surcharge and Penalty under sections 8 and 19 of the FE Act, it is submitted that in order to invoke these punitive provisions, mens rea is
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necessary and the tax authorities have to prove independently, the guilty intent on the part of an assessee, which according to learned AR of person/taxpayer, the tax authorities have not proved in the appellant's case. 16.The learned counsel for the respondent taxpayer vehemently argued that Penalty/ Default Surcharge can only be invoked if it appears that the act of the person/taxpayer was calculated and there must be an element of 'mens rea' . In other words, he contended that for invoking the penalty provisions that Tax Department has to prove independently, the guilty intent on part of the assessee, which the Tax Department has not proved in the instant case. 17.We have heard the learned representatives of both the parties and perused the record of the case as well as case laws cited at bar. 18. After perusing the order of the learned CIR (A) we are persuaded to agree with the contentions made by the learned D.R. The CIR (A) being an executive /quasi judicial is always required to dilate upon all the questions of facts and law agitated before him so that the Tribunal is not handicapped in deciding the questions of fact and law, and if the CIR (A) fails to pass proper speaking, judicial and judicious order by considering all the facts and points of law raised and CIR (A) fails to apply judicial and conscious mind without valid reasons, therefore, it would amount to a negation of justice.' The CIR (A) is directed that in future no appeal should be disposed of by the CIR (A) without giving due consideration to each and every point of fact and law in terms of a speaking Order based on solid reasons and application of proper conscious and judicial mind and view point of both the parties to be considered after giving opportunity to the taxpayer as well as to the revenue. In this case it appears from impugned order that neither any notice of hearing nor any opportunity given to the department. Though department has no right of appeal before the CIR (A) despite that he is bounded duty to issue a notice to the department. The learned CIR (A) has not given any opportunity to the department while disposing of the appeal. The said provisions of section 33(2) of the Federal Excise Act, 2005 are reproduced as under:-- "33(2)- The Commissioner (Appeals) may, after giving both parties to the appeal an opportunity of being heard, pass such order as he thinks fit, confirming varying altering, setting aside or annulling the decision or order appealed against. (Underlining is ours) 19.From perusal of the above order it can be seen that the learned CIR(A) has violated the above quoted provision. The learned CIR(A) has to follow the same in letter and spirit. No party can be condemned on basis of evidence or information adduced behind his back and without any notice to him. Rule of justice demands that before any adverse order, penalty or liability is passed or imposed upon a party he should be afforded full opportunity to meet the case and rebut the evidence used against him. The public functionaries are bound to decide the controversies between the parties after application of independent mind, supported with reasons and affording them opportunity of being head. The CIR(A) while deciding an appeal is clothed with very wide powers so as to do justice to the aggrieved person and ALSO TO THE INTEREST OF THE REVENUE DEPARTMENT/STATE. 20.The learned CIR (A) has not served the notice on the department. The learned D.R. appeared without record of the assessm ent proceedings and appellate proceedings so that we are unable to ascertain as to whether any notice to the department was issued or not. However, as it is gleaned from the bare reading of the CIR (A)'s order and as contended by the D.R. notice was not issued to the department and even the comments or cross objections of the department were not obtained to support the findings of the assessing officer. Further, the learned CIR (A) after reproducing the written arguments simply given his findings in a short paragraph, which is lucidly and vividly discussed in the preceding paragraphs of this order, is violative of section 124A of General Clauses Act and the Articles 4 and 10A of Constitution of Pakistan.
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21. For the foregoing reasons, the impugned order is absolutely against the DOCTRINE OF HEARING and the PRINCIPLES OF NATURAL JUSTICE (no body be condemned unheard). We do hereby not only disapprove the method of conducting appeal by the CIR(A) which is against the basic tenet of law, procedure and doctrine of Hearing. The CIR(A)'s order is also contrary to the norms of justice and against the principles applicable to performing judicial or quasi judicial functions. In these circumstances the order of the learned CIR(A) is vacated and the appeal is remanded back to the CIR(A) with the direction to rehear the appeal de novo after giving reasonable opportunity of being heard to both the parties and decide all the issues of facts and law raised by the parties before the CIR(A), by an elaborate and speaking order must be supported by reasons and after application of judicious, judicial and conscious mind for and against as the case may be. 22. We also direct the CIR(A) that, in future no appeal should be disposed by a summary and slipshod order. The Tribunal is a final forum for deciding facts, therefore, the CIR(A) should not merely dispose of the appeals but should decide the same, meaning thereby, that, each and every point of facts and law should be given due consideration and be decided by speaking order. It is incumbent upon the CIR(A) to pass a speaking order, which was one of the exhilarating principles of the value concept, around which the principles of natural justice revolved. Order by the CIR (A) must be based upon sound, cogent and plausible reasons; and should reflect his process of thought, through introspection. The recording of reasons were the essence of a speaking order within the purview of section 24-A of the General Clauses Act and Articles 4, 5 and 10A of the Constitution of Islamic Republic of Pakistan. We may further observe that the doctrine of natural justice is a facet of fair play in action. No person including revenue department shall be saddled with a prejudicial order without being heard. In administrative law, this doctrine has been extended when any prejudicial action taken without being heard. The principles of natural justice do not supplant the law but merely supplement the law or even humanise it. If a statutory provision can be read consistent with the principles of natural justice, the court could do so, for the legislature is presumed to intend to act according to the principles of natural justice. The impugned order of the CIR(A) is in clear negation of rulings of Superior Courts wherein it is clearly held if a basic action is in violative to provision of law reproduced supra. In this particular case, it is noted that when the given periphery of notice of hearing to Department is not followed. Failure to issue notice to department what is envisaged under section 33(2) F.E. Act, 2005 results in penalising the department. We, therefore, hold that the provisions of Section 33(2) of the F.E. Act is mandatory, and not directory or regulatory. The right of notice of hearing, the basic statutory right of being heard and affording an opportunity of being heard cannot be denied to any party (person/taxpayer as well as Tax Department). Department has been deprived of his right of hearing of representation. The department was entitled to a statutory notice of appeal hearing and this having not been done by CIR(A). Authority vested with the powers to decide the case judicially has to follow the dictates of law and not to decide it at his [CIR(A)] whim or at the request of the parties concerned. An order affecting the rights of a party including revenue cannot be passed without an opportunity of hearing to that party. The Courts and quasi-judicial officers are required not only to do justice but to perform their duties in such a manner that justice is seen to have been done. In discharge of such duties no steps should be taken which may create apprehension in the mind of a litigant that justice may not be done. No party can be condemned on basis of evidence or information adduced behind his back and without any notice to him. Rule of justice demands that before any adverse order, tax/duty or penalty or liability is passed or imposed upon a party he should be afforded full opportunity to meet the case and rebut the evidence used against him. Law regarding notice to the concerned party is settled by this time and the superior judiciary of country is consistent on the question of giving notice to the concerned persons before proceeding against him, besides the applicability of principles or natural justice whereunder no one is to be
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condemned unheard. The Hon'ble Supreme Court of this country has very graciously mandated that provision of notice to the person against whom propose to proceed, has to be read in every statute irrespective of the fact that no such provision is incorporated therein. 23. According to the golden words of Lord Morris "Natural justice", it has been said in [Wiseman v. Borneman (1969) 3 All ER 275, 278], is only "fair play in action". "The principle" so far as this country is concerned, is accordingly well settled that where notice required to be given by the statute is a mandatory notice, then the failure to comply with the such mandatory requirement of the statute would render the act void abinitio as being an act performed in 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 reliance placed on the judgment of Hon'ble Supreme Court reported as 1971 SCMR 681. 24. In our humble…
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