MR. JUSTICE MUHAMMAD SAIR ALI.--(1) Through this appeal appellant, i.e., M/s. Zamindara Papers and Boards Mills (Pvt.) Limited, Faisalabad, has assailed Judgment dated 23.08.2001, passed by the learned Customs, Excise and Sales Tax Appellate Tribunal, Lahore, dismissing appellant's Appeal No. CE. 326/K-B/2001.
2. Concise facts giving rise to the present appeal are that upon resumption of private record by staff of Intelligence and Investigation (Customs, Excise and Sales Tax), Lahore, on their visit to appellant's premises, show cause notice dated 26.09.2000 was served by Collector (Adjudication) on the appellant. In the said show cause notice it was claimed by the Department that upon scrutiny of resumed records, it was found that a quantity of 2371284 Kilograms Liner/Box Board had been clandestinely removed from the factory without payment of central excise duty and sales tax, during the period from 9/1998 to 5/1999 and wherefor appellant had prima facie evaded Central Excise Duty amounting to Rs. 10,67,073/- and sales tax amounting to Rs. 33,61,280/- which was recoverable from the appellant. The appellant was thus charged with contravention of law and rules and was directed to show cause. Reply was submitted by the appellant. Through order in original No. CE-1/2001, dated 12.01.2001, the relevant Collector found appellant to have committed a tax fraud, directing the appellant to pay Central Excise Duty amounting to Rs. 10,67,073/- and sales tax amounting to Rs. 33,61,280/- along with additional tax in terms of Rules 7 and 10 of Central Excise Rules, 1944, read with section 3(b) of Central Excises Act, 1944, and sections 34 and 36 of the Sales Tax Act, 1990. A penalty of Rs. 21,34,146/- under Rule 210 of Central Excise Rules, 1944 and Rs.
10,08,384/- under section 37(4) of the Sales Tax Act, 1990, was also imposed upon the appellant.
Appeal filed there against was dismissed by the learned Customs, Excise and Sales Tax Appellate Tribunal, Bench-ll, Lahore, on 23.08.2001. Hence the present further appeal.
3. We have heard the learned counsel for the parties. The principal argument raised by the learned counsel for the appellant is that the show cause notice was beyond the period of limitation and was also without jurisdiction as the Notifying Authority failed to specify the rule or the law under which the show cause notice was served and if it is presumed to be under rule 10 of the Central Excise Rules. 1944, it was mandatory to specify the sub-rule and to particularize the reason in temis of the sub-rule for determination and applicability of the relevant sub-rule of rule 10 and the period of limitation prescribed thereunder. It was further argued by the learned counsel for the appellant that there was no nexus between the private record allegedly resumed by the detecting agency with the appellant to impose additional duty as penalty as well as sales tax etc. Upon the appellant whose case stood finalized and could not thus be reopened.
4. The above contentions were opposed by the learned counsel for the Department by stating that vires of the show cause notice were challenged for the first time in the present appeal and that the impugned orders had been validly passed against the appellant.
5. Having considered the submissions of the learned counsel for the parties. we find a lot of substance in the arguments of the learned counsel for the appellant that in the show cause notice neither the applicable law nor the relevant rules/sub-rules or the reasons thereof had been specified or particularized by the Notifying Authority. Paragraphs 2, 3 and 4 of the show cause notice dated' 26.09.2000. being relevant, are reproduced hereunder:-- "2. AND WHEREAS. 011 scrutiny of private records maintained by the management of the unit and (allying the same wnh prescribed central excise record of the unit, it was found that a quantity of 2371274 Kgs. of Line/Box Board manufactured by the unit was net entered in the central excise record and the same was removed clandestinely from the factory without payment of central excise duty and sake tax leviable thereon during the period from 09.90 to 05/99.
3. In view of the aforesaid position. M's. Zamindara Paper & Board Mills Ltd., Sheikhupura have prima facie evaded central excise duty amounting to Rs. 10,67,073/- and sales tax Rs. 33,61,28W- by contravening the Rules, 7. 9. 52. 52-A and 226 of the Central Excise Ruks, 1944 out with Ruk 10 of Central Excise Rules. 1944 and sections 3, 6.22, 23 and 26 of Sales Tax Act. 1990 read with sections 33, 34 and 36 ibid.
4. NOW, therefore, on the basis of the above stated fads M/s. Zantindara Paper & Board Mills Ltd., Lahore are charged with the contravention of the above said Law and Rules and arc called upon to show cause as to why central excise duly amounting to Rs. 10,67,073/. and sales as Rs. 33,61,280., should not be recovered from them under Rules 7 & 10 of Central Excise Rules. 1944. Along with additional duty and additional tax as specified under section 3-B of Central Excises Act, 1944 and section 34 of Sates Tax Act. 1990 besides taking penal action under Rule 210 of Central Excise Rules, 1944 and section 33 of Sales Tax Act. 1990."
Bare reading of the above quoted pares of show cause notice demonstrates that the appellant has been charged for evasion of central excise duty and sales tax during the period from 09/1998 to 05/1999. The said show cause notice dots not at all show as to A under which provisions of law or rules the show cause notice has been served. It also fails to particularize and specify the reasons for purported evasion of duty and sales tax. The show cause notice is too vague, too unspecific and too general to enable identification of the applicable law and rules and to bring the case against the appellant within the specific reasons and the period of limitation prescribed therein.
6. It is pertinent to note that in order in original dated 12.01.2001, it was specifically held by the Adjudicating Collector that this was a case of tax fraud committed by the appellant. Show cause also read in perspective of this conclusion show's that no such charge or allegation of tax fraud was specified by the Notifying Authority in the impugned show cause notice.
7. The learned counsel for the department has canvassed that the applicable provisions in the present case are contained in sub-rules (I), (2) and (3) of Rule 10 of Central Excise Rules, 1944. There is no doubt that show cause notice for non-levy and or short levy of excise duty can be served upon a defaulting party by the Department under above referred sub-rules of Rule 10 ibid. However, bare reading whereof makes it clear that show cause notice has to specify the reason(s) for non- levy and short-levy of the duty and such notice can only be served within the period of limitation given in the applicable sub-rule(s) that too with reference to reason specified therein. Sub-rule (I) of Rule 10 can only be invoked for service of a show cause notice for the reasons of "inadvertence, error or misconstruction", leading to non-levy. short-levy or erroneous refund of duty and such show cause notice can be served within one year of the relevant date. Under sub-rule (2) of Rule 10 ibid, a show cause notice can be issued "within three years of the relevant date", if non-levy or short-levy of duty is caused due to mis-declaration, false information or collusion. Similarly, sub-rule (3) of Rule 10 ibid can be resorted to through a show cause notice within ten years of the relevant date for non-levy or short-levy of duty occurring for reasons of "any false document, counterfeit seal or impression, fraud or any other heinous offence."
8. To put it more succinctly show cause notice can only be served under Rule 10 ibid, if-
(a) Any duty or charge has not been levied or has been short levied or has been erroneously refundaed;
(b) Such non-levy, short-levy or erroneous refund has been caused by any of the reasons cumulatively stated in sub-rules (1), (2) and (3) of Rule 10 ibid, which cumulatively reproduced are: -- Sub-rule (I): i.Inadvertence; ii.Error; iii.Misconstruction; Sub-rule(2): iv.Misdeclaration; v.False information; vi.Collusion; Sub-rule (3):vii.False document; viii.Counterfeit seal or impression: ix.Fraud; and x.Any other heinous offence.
(c) Such show cause notice is within the period of limitation prescribed in each sub-rule with reference to applicable reason of non-levy or short-levy etc. The inescapable conclusion thereto is that mere non-levy, short-levy or erroneous refund of duty or charge cannot become the basis for show cause notice. Instead a show' cause notice must be founded upon non-levy, short-levy or erroneous refund of duty or charge occasioned/caused by any of the above reasons to be within the scope and period of limitation separately prescribed in each sub-rule of Rule 10 ibid. In absence of any of the three preconditions show cause notice will be rendered illegal and without competence.
9. In the present case show cause notice alleges against the appellant evasion of duty/tax yet patently omits to state any one of 1) the ten reasons respectively prescribed in sub-rules (1), (2) and (3) of said Rule 10 ibid. The Adjudicating Collector by observing that tax fraud had been committed, and by imposing penalty upon the appellant, presumed the appellant's cast to fall in sub-rules (2) and (3) of Rule 10 ibid. In the absence of a particular allegation or charge in the show cause notice against the appellant for having E non-paid or short-paid duty/tax owing to mis- declaration, false information or collusion or by reasons of false document, counterfeit seal, fraud or heinous offence, such presumption is obviously erroneous and could not have been drawn by the Adjudicating Authority against the appellant. Since particular reasons were conspicuously and patently missing from the show cause notice, Adjudicating Authority lacked jurisdiction to imply applicability of sub-rules (2) and (3) of Rule 10 to the case of the appellant.
10. The Honourable Supreme Court of Pakistan in the case of Assistant Collector Customs and others v. M/s. Khyber Electric Lamps and others (2001 SCMR 838 = PTCL 2002 CL. 1), was pleased to pronounce the law in the matters of similar show cause notices prescribed under section 32 of the Customs Act (IV of 1969), as under:- "Show-cause notices under sub-sections (2) and (3) of section 32 of the Act are two distinct and separate types of notices and different ground and different period for service of notice in each sub-section has been prescribed. Under sub-section (2) for non-levy, short-levy or erroneous refund, specific allegations of any collusion between the assessee and the Customs Staff has to be leveled with proper particulars in the show cause notice which has to be served within three years of the relevant date whereas under sub-section (3) if non-levy, short-levy or erroneous refund is done due to inadvertence, error or mis-construction then show cause notice to the importer has to be served within six months of the non-short levy. If such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirement of sub- sections (2) and (3) of section 32 of the Act."
Further that:- "The show cause notices dated 16.05.1995 and 29.08.1995 in Civil Appeals No. 1360 and 1361 of 1997 do not speak that respondents made the declaration/statement knowingly or having reason to believe that they were untrue/false in any particular............................. And respondents were directed to deposit the short-levied amount within 7 days. It has not been alleged in the show-cause notices that the respondents knowingly or having reason to believe that documents which were false in any material particular, were filed. It is necessary under sub-section (1) of Section 32 of the Act to show that the declarant had the knowledge or had the reason to believe that declaration or statement made by him was untrue/false and in absence of such allegation notice would be vague and would not be in accordance with law. Similarly, notice under sub-section (2) of Section 32 of the Act must contain the allegation of collusiveness and notice under sub-section (3) of Section 32 of the Act should speak of inadvertence, error or misconstruction and without such allegations the notices would be defective and against law."
11. In the case of Ibrahim Textile Mills Ltd. Vs. Federation of Pakistan and others (PLD 1989 Lahore 47 - PTCL 1990 CL. 118) notices issued to exporters by Custom Authorities under Section 32(1) and (2) of Customs Act (IV of 1969) for short levied and short paid custom duties were struck down for absence of particular allegations of collusion, false declaration or inadvertence etc. Following observations of the Court in this judgment are quoted hereunder:- "The said orders do not touch the conditions precedent required for the exercise of the powers vesting in the Assistant Collector under subsection (2) of Section 32 of the Customs Act, 1969, namely, (a) whether the petitioners had made or caused to be made or delivered or caused to be delivered any declarations or statements knowing or having reason to believe that such documents or statements were false in any material particulars or (b) whether the petitioners by reason of some collusion had connived at any duty or charge being short which do not make out the conditions precedent on the basis of which they could have been passed."
12. In view of the above discussion, it is held that show cause notice served upon the appellant by the Notifying Authority was patently illegal and without lawful authority. As such, all orders based thereupon are liable to be set aside.
13. Since show cause notice was patently illegal and without lawful authority, we are of the opinion that the question of validity of this show cause notice was a pure question of law going to the root of the matter. As such there was no bar upon the appellant to raise the question qua legal fundamentals of the show cause notice in the present appeal. Reliance for this proposition is made upon the following precedents:- "Haji Abdullah Khan and others Vs. Nisar Muhammad Khan and others" (PLD 1965 S.C. 690).
"Gatron (Industries) Limited Vs. Government of Pakistan and others" (PTCL 1999 CL. 359 = 1999 SCMR 1072).
"Commissioner of Income Tax Vs. Abdul Majeed" (2000 PTD 359).
"Province of Sindh through Secretary, Public Works Department, Government of Sindh, Karachi and 6 others Vs. M/s. Royal Contractors" (1996 CLC 1205).
14. In view of foregoing observations, we accept this appeal with costs and set-aside the impugned orders as well as the show cause notice dated 26.09.2000.