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Petitioner: Indus Motor Company Limited VS Respondent: Pakistan through Secretary Finance and JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title:Indus Motor Company Limited vs Pakistan through Secretary Finance and
JUDGMENT
Reported As: PTCL 2020 CL. 6, 2020 PTD 297, 2019 SHC 520 Result: N/A Judgment JUDGMENT Muhammad Junaid Ghaf far, J. In all three Suits, the Plaintif fs are aggrieved by notice(s) issued under Section 25 of the Sales Tax Act, 1990 ("1990 Act") and Section 45 and 46 of the Federal Excise Act, 2005, ("2005 Act") whereby , they have been selected for audit for the relevant period(s). Since only a legal issue is involved and parties do not wish to lead any evidence, the Suits have been finally heard along with listed applications on the legal issues under Order 14 Rule 2 CPC. 2. At the very outset I may state, and this is without any disrespect to any of the learned Counsel, that their arguments have been noted and recor ded in this judgment collectively for ease, convenience and to avoid overlapping, if any. They have contended that the impugned notice(s) have been issued by the Commissioner , Inland Revenue in violation of Section 25 of the 1990 Act and Sections 45 and 46 of the 2005 Act; that the notice(s) have been issued without assigning any reasons for having selected the Plaintif fs for the purposes of conducting audit; that the impugned notice(s) have been followed by another notice of the same date authorizing the Deputy Commissioner , Inland Revenue to conduct the audit; that as per settled law, and notwithstanding the fact that Section 25 of the 1990 Act and Section 46 of the 2005 Act do not specifically provide for assigning any reasons for selecting a taxpayer for conducting an audit; it is to be read in all such provisions; that the use of the words "as and when required" in s.25 ibid, mandates that a selection for audit can only be made or ordered, if needed, and for that, reasons on the basis of which the audit is being conducted have to be recorded; hence, reasons must be assigned while making such selection for audit; that in terms of Section 72B of the 1990 Act, even when the audit is to be conducted on the orders of FBR, the same is governed under a policy of FBR and is done either on random balloting basis or on the basis of certain parameters set by FBR, and therefore, the Commissioner 's discretion for selecting a person for the purposes of audit is not unfettered; that this bench in the case reported as Wateen
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Telecom Ltd. through Authorized Attorney V. Sindh through The Secretary of Ministry of Finance Government of Sindh, Karachi and 2 others (2019 PTD 1030 ) has already considered the entire case law and as to in what manner , the discretion has to be exercised by an officer and is a complete answer to the issue in hand, and therefore, may be followed in the case of the Plaintif fs as well; that sub-section (1) of Section 25 ibid provides the mechanism and manner in which access to records can be asked for, whereas, in these matters both sub-sections (1) & (2) have been invoked simultaneously , and separate notices have been issued on the same date; that sub-section (1) of Section 25 cannot be made redundant by simultaneously invoking sub-section (2) of Section 25 of the 1990 Act; that the officers must act and proceed within the manda te of law and not otherwise; that though there are judgments to the effect that a mere notice of audit is not an adverse action / order; however , the mode and manner in which a taxpayer is being selected for audit can always be impugned if it is against the mandate of law; that the judgment of the Hon'ble Supreme Court in the case of Commissioner of Inland Revenue Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and others (2018 SCMR 1328 ) is distinguishable on facts as in that matter the issue originated from the learned Lahore High Court in respect of selection for audit under a random selection policy of FBR notified in terms of s.214-C of the Income Ordinance, 2001 ("2001 Ordinance"), and powers of a Commissioner either under s.177 of the 2001 Ordinance or under s.25 of the 1990 Act, and or for that matter under s.45 & 46 of the 2005 Act, were never under consideration; that if a person has been selected for audit contrary to law and without following a due process, then the same amounts to an adverse action, which is subject to challenge; that the Court is competent to see that whether the discretion so exercised by the Commissioner is properly structured or not; that a balance has to be created in empowering the Commissioner to exercise his discretion and for that reasons must be assigned; that even otherwise, in terms of Section 24-A of the General Clauses Act, 1897 no order is sustainable without assigning reasons; that the judgments relied upon by the Defendant' s Counsel are distinguishable on facts; hence, the ratio of those judgments would not apply; that this Court is not bound by any obiter dicta / observation of the precedents, more so, when the very controversy before the Court is somewhat different in facts. In support they have relied upon the cases reported as Iqbal Hussain through Authorized Attorney v. Federation of Pakistan (2010 PTD 2338 ), Kohinoor Sugar Mills V. Federation of Pakistan and others (2018 PTD 821), Commissioner of Income Tax and others V. Messrs Media Network and others (2006 PTD 2502 ), Faisalabad Electric Supply Limited (FESCO) V. The Federation of Pakistan& others (PTCL 2019 CL 467), The Federal Board of Revenue and others v. Messrs Chenone Stores ltd. (2018 PTD 208), Defence Housing Authority V. Commissioner Inland Revenue and others (2015 PTD 2538 ), Azee Securities (Pvt.) Ltd. through Authorized Officer V. Federation of Pakistan through Secretary of Finance, Revenue Division and 3 others (2019 PTD 903), Election Commission of Pakistan V. Asif Iqbal and others (PLD 1992 SC 342) Trustees of the Port of Karachi V. Muhammad Saleem (1994 SCMR 2213 ), Muhammad Mal Khan V. Allah Yar Khan (2002 SCMR 235), Pakistan Steel Mills Corporation (Pvt.) Limited through Corporate Secretary V. Karachi Water & Sewerage Board through Chief Executive and 2 others ( 2012 CLC 577 ) and Quinn V . Leathem (1901 (A.C.) 495). 3. Again without any disrespect, and for the reasons so assigned as above, contention of the Learned Counsel appearing on behalf of the Department are also not being noted and recorded separately . They have contended that under Section 25 of the 1990 Act and Section 46 of the 2005 Act no reasons are required to be recorded for selecting a person for audit; that this Cour t is not competent to add anything in to the statute; that mere selection of audit is not an adverse action; that now self-assessment scheme is in vogue and audit is a precondition; that the facts and law in the Wateen Telecom (supra) are distinguishable; that Section 25(1) and (2) of the 1990 Act, are to be read as a whole and not separately; that powers of the Commissioner to select a person for audit are independent and cannot be linked with the selection of audit by FBR; that it is only a notice for producing documents for the purposes of audit and the Plaintif fs cannot be aggrieved by such a notice; that the words "as and when required" is to be understood to the effect that such audit can be conducted at any time; that the issuance of the two notices in question simultaneously is not illegal per-se; that when the legislature has consciously not provided for giving reasons, then the Court cannot add such words into the statute; nor can it be read into the law; that the impugned notices are issued after going through the returns filed by the taxpayers. In support they have
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relied upon the cases reported as Commissioner of Inland Revenue Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and others (2018 SCMR 1328 ) and Pakistan Petroleum Limited through Authorized Officer V . Pakistan through Secretary Finance and 4 others ( 2016 PTD 2664 ). 4. Learned Deputy Attorney General has referred to the provisions of Section 177 of the 2001 Ordinance, and has contended that where needed and intended, the legislature has provided within the statute that reasons are to be assigned; therefore, the Plaintif fs have no case insofar as the provisions of Section 25 of the 1990 Act and Section 46 of the 2005 Act are concerned; that even after conducting audit a proper notice has to be issued under Section 11 of the 1990 Act; hence, adverse order is yet to be passed; that the Plaintif fs have come before the Court prematurely and be directed to respond to the notices issued by the Department. 5. I have heard all the learned Counsel as well as learned DAG and perused the record. Since only a legal controversy is involved, on 05.03.2019 with the consent of all, the following legal issues were settled for adjudication of the entire Suit under Order 14 Rule 2 CPC and the same reads as under:- i. Whether under section 25 of the Sales Tax Act 1990 and section 45 and 46 of the Federal Excise Act 2005, the Defendant No.3 can select a taxpayer for an audit without providing any reasons for the selection? ii. Whether Letter dated 26.08.2016, issued by Defendant No.3 to Defendant No.4, amounts to selection of Plaintif f's case for audit in terms of Section 25 of the Sales Tax Act, 1990 and Sections 45 and 46 of the Federal Excise Act 2005 and can through such letter the audit be conducted of any ?subsequent unaudited period?? iii. Whether the Impugned Notice violate s the principles of due process and the law laid down by the superior courts? iv. What should the decree be? 6. The Plaintif fs in all these Suits are registered under the 1990 Act or for that matter under the 2005 Act, and are regularly filing their monthly tax returns with FBR. To that extent there appears to be no dispute. They are presently aggrieved by the impugned notices issued to them under s.25 of the 1990 Act and s.45 & 46 of the 2005 Act, whereby they have been selected for audit and have been further directed to subm it requisite documents. In some cases the notices are only in respect of the 1990 Act and in some, in addition, also under s.45 & 46 of the 2005 Act. For ease and to have a better understan ding, one notice each under both the Act issued to the Plaintif f in Suit No.2249 of 2016 are reproduced hereunder; No.CIR/Z-I/L TU/2015-16/102 Dated August 26, 2016 To The Principal Of ficer, M/s. Indus Motors Company Limited, NWS/1/P-1, Port Qasim Authority , Karachi. Subject: AUDIT UNDER SECTION 25 OF THE SALES TAX ACT, 1990 AND SECTION 45 & 46 OF THE FEDERAL EXCISE ACT, 2005 FOR THE PERIOD FROM 01.07.2014 TO 30.06.2015 -INTIMA TION REGARDING Thank you for filing of Sales Tax Returns for the period from 01.07.2014 to 30.06.2015. 2. The case of your company has been examined and found fit to be proceede d for audit of your Sales Tax & Federal Excise affairs under section 25 of the Sales Tax Act 1990 & under section 45 & 46 of the Federal Excise Act, 2005 for the period 01.06.2014 to 30.6.2015. Therefore, in exercise of powers conferred upon me under Section 25 of the Sales Tax Act, 1990 and under Section 45 & 46 of Federal Excise Act, 2005, you are hereby called upon to produce all books of accounts and other relevant record. The conc erned officer of Inland Revenue shall soon be in correspondence with you in this connection. Sd/- (DR. SHAFQUA T HUSSAIN KEHAR) Commissioner Inland Revenue Copy to: 1. The DCIR, Audit Unit-2, Audit Range-A, Zone-I, L TU, Karachi. (DR. SHAFQUA T HUSSAIN KEHAR) Commissioner Inland Revenue No.CIR/Z-I/L TU/2015-16/103 Dated August 26, 2016 To The Deputy Commissioner Inland Revenue, Audit Unit-02, Zone-I, Large Taxpayers Unit, Karachi.
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Subject: AUDIT UNDER SECTION 26 OF THE SALES TAX ACT, 1990 AND SECTION 45 & 46 OF THE FEDERAL EXCISE ACT, 2005 IN THE CASE OF M/S INDUS MOT ORS COMP ANY LIMITED, FOR THE PERIOD FROM JULY, 2014 TO JUNE, 2015 . In exercise of powers conferred upon me under section 25 of the Sales Tax Act 1990 & under section 45 & 46 of the Federal Excise Act, 2005 you are hereby authorized to proceed and finalize the Audit of the above registered person for the period July, 2014 to June, 2015 and any other subsequent unaudited period. An intimation letter has been issued to the registered person for the same vide letter dated 26.08.2016 (copy enclosed). Sd/- (DR. SHAFQUA T HUSSAIN KEHAR) Commissioner Inland Revenue Copy to: 1. The Audit Commissioner , Audit Range-A, Zone-I, Large Taxpayers Unit, Karachi along with above referred letter for supervising the finalization of the said case. 2. The Principal Of ficer, M/s. Indus Motor Company Limited, Karachi. Sd/- (DR. SHAFQUA T HUSSAIN KEHAR) Commissioner Inland Revenue 7. Perusal of the above notice(s) issued by the Commissioner and addressed to the Plaintif f in terms of s.25 of the 1990 Act and s.45 & 46 of the 2005 Act reflects that insofar as the Plaintif fs case is concerned, it is stated that "the case of your company has been examined and found fit to be proceeded for audit of your Sales Tax and Federal Excise affairs ". The conclusion drawn by the learned Commissioner is, that case has been examined and needs to be audited. At the very outset it may be observed that the impugned notice has been issued without mentioning any of the sub-sections, whereas, all sub-sections of s.25 contemplate different situations. Similar is the position under s.45 & 46 of the 2005 Act. In terms of s.25 (1) ibid it is only the access to records being maintained by the Tax payer which can be called for, and does not speak of any authority to order or conduct audit. It is only in sub- section (2) that an authority has been conferred upon the Commissioner to authorize an officer of Inland Revenue to conduct audit; but that can only be done on the basis of the record obtained in terms of sub-section (1) of s.25 ibid. Similar or more or less identical is the case under s.45 & 46 of the 2005 Act. However , this is not the case here. It is rather the inverse, as the Commissioner in his impugned notice has stated that case has already been examined and found fit for audit. This Court is at a loss, rather bemused and perplexed to take note of this finding and observations of the learned Commissioner . There does not seems to be any application of an independent mind by the Commissioner while issuing the notice in question. It appears that it has been issued with a preset mind that since he is authorized to conduct audit, it has to be done as he has selected the Plaintif f for such purposes. And it is on this ground that the precise case has been set up on behalf of the Plaintif fs through their respective Counsel, that the impugned notices for selecting the Plaintif fs for audit by respective Commissioners under Section 25 of the 1990 Act and Section 45 & 46 of the 2005 Act are notices which have been issued without any application of mind, are stereotyped in nature, illegal, unlawful and cannot be acted upon any further . Further , according to them these impugned notices of selection do not contain any reasons and are merely premised on the whim and desire of the respective Commissioners of Inland Revenue. Their further case is that since the selection, if any, is without assigning reasons, then at least it has to be done by some structured exercise of discretion which according to them is lacking in the impugned notices. Before proceeding further , it would be advantageous to refer to the relevant provisions of Section 25 of the 1990 Act, and Section 45 & 46 of the 2005 Act. "[25. Access to record, documents, etc.- [(1) A person who is required to maintain any record or documents under this Act [or any other law] shall, as and when required by [Commissioner], produce record or documents which are in his possession or control or in the possession or control of his agent; and where such record or documents have been kept on electronic data, he shall allow access to [the officer of Inland Revenue authorized by the Commissioner] and use of any machine on which such data is kept.] [(2) The officer of Inland Revenue authorized by the Commissioner , on the basis of the record, obtained under sub-section (1), may , once in a year , conduct audit: [(3)] ..............
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[(4) ***] [(4A) ***] [(5) ............. Federal Excise Act, 2005. 45. Access to records and posting of excise staff, etc.-- (1) A person who is required to maintain any record or documents under this Act or any other law shall, as and when required by the [officer of Inland Revenue] produce record or documents which are in his possession or control or in the possession or control of his agent and where such record or documents have been kept on electronic data, he shall allow access to such officer to have access and use of any machine on which such data is kept and shall facilitate such officer to retrieve whole or part of such data in such manner and to such extent as may be required by him. (2) ............. 46. [***] Audit.-- (1) The [officer of Inland Revenue] authorized by the Board [or the Commissioner] by designation may, once in a year, after giving advance notice in writing, conduct audit of the records and documents of any person registered under this Act. (2).............. [(2A) ............ (3) ............... [(4) ............. [(5) ............. (6) ............... (7) ............... (8) ............... (9) .............. (10) ............ 8. Perusal of the aforesaid provision of Section 25 of the 1990 Act reflects that a person who is required to maintain any record or documents under this Act or any other law shall, "as and when required " by the Commissioner , produce record or documents which are in his possession or control or in the possession or control of his agent and where such record or documents have been kept on electronic data, he shall allow access of the same to the officer of Inland Revenue authorized by the Commissioner and use of any machine on which such data is kept. The interpretation which has been sought on behalf of the Plaintif fs is, that the use of the words "as and when required " is not without any purpose. According to them "as and when required " is to be read as to recording reasons or at least coming to a conclusion as to why access to record is needed and the audit may or may not be conducted and for that the selection of a taxpayer cannot be done without such conclusion. However , I am not really impressed with such line of argument inasmuch as sub-section (1) of s.25 does not speak or refers to any conduct of audit of a tax payer . It is only in respect of the authority of the Commissioner for having access to record "as and when required " and this cannot be interpreted so as to require the Commissioner to give reasons while asking for the record from the tax-payer . The words "as and when required " is dependent on something happening in future. It is contingent in nature, and after going through the tax-returns, the Commissioner is fully competent to apply his mind that the time has come for him; and it is this point of time when the true intent of the words "as and when required " can be applied and invoked. On this stage he can say that he needs to have access to the record(s). To that extent I am of the view that a tax-payer canno t deny access to the record as required to be maintained under s.25 (1) of the 1990 Act, and the Commissioner 's powers cannot be curtailed or circumscribed with recording of reasons for such purposes. Similar is the position in respect of s.45 of the 2005 Act. However , this is only confined and to the extent of a proper understanding and interpretation of sub-section (1) of s.25 of the 1990 Act, or s.45 (1) of the 2005 Act as the case may be. And the matter does not end here. As noted in the above discussion, the Commissioner has not mentioned or specified as to under which sub-section of s.25 (the mentioning of sub-section of s.45 of the 2005 Act is not relevant) the impugned notice(s) have been issued, but it appears that he has resorted to at least sub-sections (1) and (2) simultaneously and this is what, was precisely
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argued by the respective learned Counsel appearing on behalf of the Department as well as learned DAG. However , to me this is not the correct approach. Sub-section (1) of s.25 is only in respect of having access to the record and no more. On the other hand once the record has been furnished, the Commissioner can then authorize an officer of Inland Revenue to conduct audit on the basis of that record as referred to in sub-section(1) of s.25 of the 1990 Act. Therefore, there does not seems to be any justification to issue two (2) notices simultaneously; one for submitting of record [presumably under sub-section (1)]; and second, [again presumably under sub-section (2)], asking / authorizing the officer of Inland Revenue to conduct audit of a tax-payer . This contention of the defendants does not appear to correct. In my view, the use of the words in sub-section (2) of s.25 ibid "The officer of Inland Revenue authorized by the Commissioner , on the basis of the record , obtained under sub-section (1), may, once in a year, conduct audit is not without reasoning and substance. It is there to delegate powers for conducting audit; but only on the basis of the record so obtained in terms of sub-section (1) of s.25 ibid. Therefore, the Commissioner can only invoke the provision of sub-section (2) when he himself has obtained the record, seen it and made up his mind that the sales tax affairs of such and such tax-payer are to be audited. Similarly in the case of 2005 Act, first he has to have access to record in terms of s.45 (1) and then can have resort to s.46 ibid after going through the recor d so obtained and take a decision after applying his mind to conduct an audit. He has to at least make up his independent mind and that cannot be done without assigning reasons, howsoever brief they may be. 9. It is also relevant to note and as rightl y contended by the learned Counsel for the Plaintif fs that subsection (1) and subsection (2) of Section 25 ibid are distinct and separate and subsection (2) can only be invoked once the exercise as contemplated in subsection (1) has been completed. Subsection (2) provides that the officer of Inland Revenue authorized by the Commissioner on the basis of their record obtained under subsection (1) may once in a year conduct audit of the taxpayer . It means that though an officer of Inland Reve nue can conduct audit once he was authorized by the Commissioner; but only on the basis of the record and such an opinion to proceed with the audit can only be formed by the Commissioner once he has gone through the record obtained under Section 25(1) of the 1990 Act. It is for the reason as he can only act further "on the basis of record " so obtained under s.25 (1) ibid and then delegate his authority to the officer of Inland Revenue for proceeding any further in terms of subsection (2) of s.25 of the 1990 Act. Similarly , in terms of s.45 of the 2005 Act, he can have access to record, and then in terms of s.46(1) once in a year, after giving advance notice in writing, conduct audit of the records and documents. Reference to the record and documents here, in my opinion is to the record to which access have been made under s.45(1). Now in all these cases, it is strange that on the very same date two separate notices were issued; one by the Commissioner Inland Revenue by exercising powers under Section 25 along with s.45 & 46 of the 2005 Act; and the second by the Officer of the Inland Revenue so authorized by the Commissioner under the same provisions. This issuance of two simultaneous notices is not reconcilable when both these provisions are read in juxtaposition. A notice under subsection (2) of s.25 cannot be issued on the very date when a notice under subsection (1) is issued for selection of a taxpayer (notwithstanding that fact that under sub-section (1) it is only the authority to have access to record) for the purpose of conducting audit of its Sales Tax affairs. Commissioner after having access and going through the record and only on the basis of the said record can authorize an officer of Inland Revenue to act any further . Once he has issued a notice under subsection (1) and has not yet received the documents so requested or demanded; he cannot invoke and exercise his powers under subsection (2) of s.25 ibid, until and unless he has gone through the record so obtained. In these circumstances, apparently issuance of both these notices on the very same date appears to be unlawful and an illegality . He can only do so in a seriatim. First a notice for access to records under sub-section (1) has to be issued, and once the record is obtained, only then he can have resort to sub-section (2) of s.25 of the 1990 Act, for selecting and ordering audit of the a tax- payer , after going through…
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