1. MR. JUSTICE NASIM SIKANDAR.-(1). In this constitutional petition the approval by the Central Board of Revenue to conduct yet another audit of the petitioner and its suppliers and purchasers conveyed to Collector of Sales Tax, Lahore on 28.09.2002 is assailed.
2. 2.The operative part of the letter reads as under:- "1 am directed to refer to your letter C. No. IV-ST(12)Muskzar/ Misc/01/02/724, dated 02.09.2002 on the above subject and to convey the approval of the Board to conduct the audit of M/s. Muskzar Knitwear (Pvt.) Limited and its suppliers and purchasers for the last three years as desired. Board has also been pleased to recall the orders of Collector Sales Tax & Central Excise, Lahore of allowing the registered person to revise the records and monthly return on payment of penalty of Rs. 25,000/- per inventory being illegal and improper."
3. 3.The petitioner is a private limited company and is engaged in manufacture and export of knitwear garments. It is registered with the Sales Tax Department since 1996 and is receiving sales tax refunds by making zero rated exports since 1997. Also it is making local sales and supplies.
4. 4.It is alleged that an audit of the petitioner Company from January, 2001 to August, 2001, was conducted and completed on 24.11.2001.That audit resulted into creation of a demand against the petitioner of a sum of Rs. 36,381/-. That payment was settled through adjustment in the refund claimed by the petitioner. Another audit is claimed to have been conducted and completed on 12.04.2002 which did not result in any significant objection though a sum of Rs. 1,66,587/- was deducted as additional tax and penalty from the refund sanctioned against revised stocks.
5. According to the petitioner in December, 2001 it was realized that the stocks inventories given in the statements of stocks for the period February, 2001 to December, 2001 were incorrectly recorded through an inadvertence on the part of its Accountant. Therefore, a request was made to the concerned Deputy Collector for permission to revise the statements which was allowed subject to payment of Rs. 25,000/- per inventory. The said payment of Rs. 1,66,587/- included a sum of Rs.
6. 1,50,000/- as penalty for regularization of revised statements.
7. 5.Lastly, on 31.08.2002 a joint audit team completed the audit of the petitioner which was headed by Secretary/Cost Accountant Central Board of Revenue Mr. Aftab Ahmad Razzaqui who was assisted by two senior auditors of the Collectorate of Sales Tax, Lahore. It appears that the Collectorate of Lahore on 02.09.2002 made a request to Member Sales Tax, Board of Revenue to direct the on going special audit of the petitioner to proceed on certain lines. The letter of the Collectorate dated 02.09.2002 was obviously issued on the understanding that the audit was still in progress though it already stood completed on 31.08.2002.
8. 6.In the back drop of the above facts it is the case of the petitioner that the Central Board of Revenue was not justified in making a direction for another audit only days after completion of an audit supervised by the said officer who conveyed the approval of the Board by way of the impugned letter re-produced above. Second, that the alleged recalling of the order of Collector Sales Tax (factually it was Deputy Collector Refund) allowing the petitioner to revise record and monthly returns on payment of fine is totally bad in law for two reasons. In the first place the provisions of section 45-A of the Sales Tax Act, 1990 do not provide for "recalling" of an order recorded by a subordinate authority of the Board, particularly when it has already been implemented. Also no notice was given to the petitioner to plead his case. Lastly that the report by the special audit team having already been completed only days earlier Mr. Aftab Ahmad Razzaqui, the head of the audit team could not issue the impugned letter to convey the approval of the Board for yet another audit in respect of the petitioner.
9. 7.The respondent/revenue on the other hand supports the case for an audit by the local Collectorate for the various reasons and objections which were earlier pointed out in the letter of Collectorate dated 02.09.2002.
10. 8.Heard the learned counsel for the parties. Learned counsel for the petitioner Syed Mansoor Ali Shah, in support of his submissions as earlier made in the constitutional petition relies upon re.
11. Shoukat Ali and others vs. Govt, of Pakistan through Chairman, Ministry of Railways and others, (PLD 1997 S. C. 342), re. Muhammad Latif & Co. Vs. The Chief Settlement and Rehabilitation Commissioner and others, (PLD 1974 S. C. 130) and re. Mrs. Shahida Zahir Abbasi and 4 others vs. President of Pakistan, (PLJ 1996 S. C. 1361) to contend that the impugned approval by the Board is mala fide inasmuch as it is designed not only to lower the petitioner in the eyes of its suppliers and purchasers but also to throw him out of the market by making an excuse of the audit to refuse the pending refunds of millions of rupees. Also on the basis of the ratio settled in re. Abdul Hafiz Abbasi and others vs. Managing Director, Pakistan International Airlines Corporation Karachi and others, (2002 SC MR 1034) the unilateral recalling of the permission to revise the records and monthly returns on payment of fine is stated to be against the basic concept of justice and equity. It is further stated that the respondents public functionaries were required to act fairly and in accordance with law while they had done the very opposite as they disbelieved at least three audits conducted since 24.11.2001. In support of submissions made in this regard leamed counsel relies upon re. Mian Iqbal Mahmood Banday vs. Muhammad Sadiq, (PLD 1995 S. C. 251). The impugned approval dated 28.09.2002 is also stated to be violative of the provisions of section 24-A of the General Clauses Act. Reliance in that regard is placed upon re. M/s. Airport Support Services vs. The Airport Manager, Quaid-e- Azam International Airport, Karachi and others, (1998 SC MR 2268) and re. Zain Yar Khan vs. The Chief Engineer, C. R. B. C. Wapda D. A. Khan and another, (1998 SCM R 2419). Lastly, relies upon a recent judgment of this Court in re. M/s. Faisal Enterprises vs. Federation of Pakistan, (2003 PTD 899) wherein a leamed Single Bench of this Court inter alia concluded that before a direction for re-audit the Revenue should provide the tax payer all information available with it as also the reasons or the basis on which the re-audit was being directed to be held.
12. 9.Learned counsel for the respondent/revenue Mr. Ahmad Bilal Soofi, Advocate besides the aforesaid factual objections also relies upon a judgment of the Hon'ble Supreme Court of Pakistan in re. M/s. Punjab Beverage Company (Pvt.) Limited vs. Central Board of Revenue and 4 others, (2001 PTD 3929) to support his legal objection against the maintainability of the petition. It is asserted that this Court cannot probe or hold an in-depth investigation into the disputed questions of fact which obviously need recording of evidence.
13. 10.However I will not agree. There is no fact which can possibly be said to be disputed in this case.
14. All documents referred to, assailed or called into questions are either those of the revenue itself or were otherwise filed with it. There is thus no question of any probe or inquiry to grant the prayer made in this constitutional petition which reads as under:-- "(a) That the respondents be graciously directed to process and allow the refund for the months of February, June, July, August, September, October, November and December, 2001 in accordance with the Sales Tax Refund Rules, 2000.
15. (b)That the impugned order dated 28.09.2002 imposing fourth audit on the petitioner company may graciously be set aside as being tainted with mala fide.
16. (c)That the impugned order dated 28.09.2002 to the extent of recall of the order of the Deputy Collector may also be graciously set aside being in violation of section 45-A of the Sales Tax Act, 1990.
(d) Any other relief this Hon'ble Court may deem fair, just and appropriate may also be granted to the petitioner."
17. 11.As far the merits are concerned, the petitioner certainly appears to have been treated unfairly by the department. Even if the first two audits are ignored the third audit of the petitioner for the year, 2001 was conducted on 12.04.2002. That audit was conducted on a reference by Addl. Collector-II with the following observations of the Refund Division-II :~ (a)The registered person is doing the negative value addition during the local and export supplies and this element is more in the local supplies.
18. (b)The revised inventories were submitted after a lapse of 11 months and only after the discrepancies were brought to the notice of the registered person.
19. (c)The mistake made by the registered person is not procedural. An inventory statement in addition to showing the purchasers, consumption, exports etc. Also shows the closing balance available with the registered person at the end of each month. How is it possible that the registered person did not know what stocks were available with the registered person at the end of each month and suddenly in December 2001, the registered person was able to account far larger/greater amount of stocks available in say February, March, May, etc.
(d) The most important point which needs to be noted is that the registered person cannot show more stocks and lesser percentage of consumption in a revised inventory because refund has already been sanctioned to him on the percentage of consumption and stocks which he has utilized in consumption of goods/local supplies in each particular month.
20. 12.The auditors duly took note of the revised inventory statements and after analysing the same concluded that less input tax was claimed which resulted in more closing stocks. It was also noted that the revised inventory statement was accepted by the then Deputy Collector (Refunds). Before proceeding to calculate the difference of the stocks deferred as per old and new inventory and proposing additional tax and penalty at Rs. 1,66,587/- the audit team observed as under: ~ "This audit division could not find any provision in the Sales Tax Act, 1990 about the accepting or rejecting of revised inventory. Therefore, the matter was referred to the worthy Additional Collector and Collector Sales Tax & Central Excise for the decision. It has been decided by the above said authorities that as the revised inventory has already been accepted by the refund division and none of the refund orders has been re-opened, therefore, only additional tax and penalty can be imposed on the refunds sanctioned against excess stocks to the registered person. The representative of the registered person is agreed to deposit the additional tax and penalty."
21. 13.The petitioner claims to have already paid the said amount found due against it by the audit team as additional tax and penalty.
22. 14.As noted earlier the last audit was carried out by Mr. Aftab Ahmad Razzaqui, Cost Accountant/CBR with two senior auditors of the local Directorate. The period involved being September, 2001 to June, 2002. That audit was finalised on 31.08.2002 wherein the auditors made a number of recommendations and finally summarised not only the detections but also the proposed actions in the following words.
23. Summary of Detections PARA NO.PARTICULARS AMOUNT 6(I) Inadmissible input on re-dying charges. 932,889.00 6(II) Inadmissible input on printing charges. 219,470.00 6(III) Inadmissible input tax credit. 15,616.00 6(IV) Non-production of purchase invoices. 2798,990.00 6(V) Purchase from suspected registered person. 1117,500.00 6(VI) Wrong filling of Sales tax return. 12,500.00 6(VII) Less paid output tax. 581.00 6(VIII)Less charged output tax 967,268.00 6(XI) Less value addition/suppression of sales. 11,420.00 Total 17,484,814 Summary of Actions PARA NO.PARTICULARS ACTION TO BE TAKEN 3(II-B) Profile Analysis of Suppliers. Complete audit of these 1 1 units w.e.f verification of deposit of Sales Tax by the manufacturer-cum-supplier as per provision of subsection (4) of section 10 of the Sales Tax Act, 1990.
24. 3(IV) Purchase from Suspected Registered Person. Without Clearance input/refund may not be allowed.
25. 4(II) Non-V erified Shipping Bills. Without verification input/refund on these shipping bills may not be allowed.
26. 6(I) Inadmissible input on re-dying charges. Amount may be recovered as per R/P' s declaration at Annexure-B.
27. 6(II)Inadmissible input on printing charges. As Above.
28. 6(III)Inadmissible input tax credit. Audit objection may be issued to the R/P by the Sr. Auditors assisted/conducted this audit.
29. Based on reply of the R/P further action like C/Report etc. may be taken.
30. 6(IV)Non-production of purchase invoices. Without production of invoices input/refund on these invoices may not be given.
31. 6(VI)Wrong filling of Sales tax return. Audit objection may be issued to the R/P by the Sr. Auditors assisted/conducted this audit.
32. Based on reply of the R/P further action like C/Report etc. may be taken.
33. 6(VII)Less paid output tax. As Above.
34. 6(VIII)Less charged output tax. As Above.
35. 6(XI)Less value addition/suppression of sales. As Above.
36. 14A. The Sales Tax General Order No. 1 of 1999, dated 07.01.1999 and No. 9 of 1999, dated 22.09.1999 envisage the procedure to be followed in case of audit, of registered persons. In the later STGO it is directed that audit of a registered person/unit in routine will be conducted once during the financial year. However, the possibility of conducting another audit is not ruled out where exceptional circumstances exist. In the impugned letter as reproduced above no reason whatsoever has been stated for approval of a fresh audit much less to say of the existence of exceptional circumstances.
37. 15.In their reply on merits to paras 5 & 6 the revenue has claimed that "strong suspicion" existed that no refund was due and, therefore, it was being withheld subject to the outcome of audit being carried out under the impugned instructions of the CBR. Also the revenue appears to be dis- satisfied with the earlier audits conducted which obviously includes the one dated 31.08.2002 conducted jointly by the Central Board of Revenue as well as the Collectorate. The revenue in their reply has also attempted to hold out that after completion of the approved audit the petitioner will be served with a show cause notice under section 36. That means that the revenue will proceed to recover refund already received without undergoing the process of adjudication proceedings.
38. The adoption of such course per se is violative of adjudication proceedings contemplated under section 45 of the Act.
39. 16.It needs to be noted that even in the last audit report dated 31.08.2002 nothing objectionable was pointed out as regards the claim of the petitioner of his having made zero rated exports. The objection that local sales were designed to cover up zero rated supplies and consequently made wrong claim of refund may be correct but to a limited extent only. For example purchases from suspected registered persons were shown at a sum of Rs. 11,17,500/- while at least 11 suppliers of the petitioner were recommended for audit. The only reason for such recommendation being that "most of these suppliers splitting the invoices in such a way that the total of each invoice comes by Rs. 10/- to Rs. 100/- less than Rs. 50,000/- to avoid compliance of section 73 of the Sales Tax Act, 1990". That justification alone is against one of the basic principles of taxing statutes that a person can adopt all legal modes to avoid taxation. The auditors perhaps are not aware of the difference between evasion and avoidance. The proposed action in this case is all the more unjustified when the petitioner is proposed to burden with the total sum of Rs. 11,17,500/- as sales having been made from suspected person. In the report there is also no mention of the fact as to why a number of these firms were found suspected.
40. 17.The impugned letter conveying the approval for holding of a fresh audit does not assign any reason nor shown any exceptional circumstances in respect of the petitioner or its suppliers/ purchasers. In a number of similar cases it has been observed that the Sales Tax Department takes the report of an audit as gospal truth which is against law and fact, both. Most of the auditors are departmental officials with half-cooked knowledge of accounting and trans-national business transactions. Legally speaking an audit report is at best an opinion of the auditor and a material in support of the departmental version. It is nothing more than part of a charge sheet which needs to be established through the process of adjudication. A material collected during the course of audit is only an evidence to support the case of the department in adjudication proceedings.
41. 18.The petitioner is also correct in pointing out that the powers vested in CBR under section 45-A of the Sales Tax Act, 1990 could not be exercised in the manner it has been done in this case. In fact there is no concept of recalling of an order by Central Board of Revenue of a subordinate authority.
42. Learned counsel for the petitioner is also correct in pointing out that nothing appears from the record to suggest that the Board ever called for the record of the Deputy Collector (Refund) and thereafter invoked the jurisdiction. If that order was illegal then why no action has so far been taken against the officer who allowed revising of stock statements. Admittedly no action, not even a show cause notice for explanation has been issued to him.
43. 19.In view of the above facts, the case law relied upon by the learned counsel for the petitioner is relevant and supports the contentions made at the bar. The impugned letter conveying approval of the Central Board of Revenue for a fresh audit and exercise of revisional jurisdiction u/s 45-A by the Board without notice to the petitioner is declared to be without lawful authority.
20. This order will not debar the Revenue from using the audit report dated 31.08.2002 in adjudication proceedings. However, mere initiation of these proceedings will not permit the revenue to other block the refund claim of the petitioner if it is otherwise established according to law nor initiation of proceedings against the suppliers/purchasers of the petitioner till such time the adjudicating officer reaches a conclusion against the petitioner and directs action against the suppliers/purchasers.
21. Petition allowed in the above terms.