This petition impugns the following order, dated 29-1-2004 passed against the petitioner by the respondent No.2, Collector Sales Tax and Central Excise: "Government of Pakistan Collectorate of Sales Tax and Central Excise Sales Tax House 4-Fane Road, Lahore
Dated Lahore the 29th January, 2004 As there exists a prima facie case of tax fraud/evasion of tax against Messrs Ayesha Textiles Registration No.3-1-5811- 005-37. Therefore, the registered person is blacklisted in terms of section 21(4) of the Sales Tax Act, 1990 and its registration is ordered to be suspended from its date of registration.
Registered:- Messrs Ayesha Textiles, 5-Tariq Colony, Paris Road, Kasur.
(Muhammad Ashraf Khan) Collector Date 29-1-2004"
2. It is contended that the aforesaid impugned order was passed without prior notice to the petitioner and contains a bald allegation without any reason whatsoever for the penalty imposed which has brought the business of the petitioner to stand still. That 18 months have elapsed since the aforesaid bare and mechanical order was passed yet no substantive grounds have since been given by the respondent No.2 or anyone subordinate to him, to apprise the petitioner why the impugned penalty of blacklisting was imposed on him.
3. In reply, the comments of the respondent-Authorities state that the impugned action under section 21(4) of the Sales Tax Act, 1990 is specifically authorized to be taken without issuance of prior show-cause notice. A number of opportunities have been given to the petitioner to explain and or reconcile the audit observations made about his business yet these have not been satisfactorily explained to date. The procedural provision under section 21(2) of the Sales Tax Act, 1990 the Sales Tax Rules, 2004 and Sales Tax General Order No.3 of 2004, all of which contemplate a prior notice of hearing, are not applicable to the present case because the impugned action, dated 29-1-2004 was taken prior to the enforcement of any of the aforesaid legal provisions.
4. Blacklisting is a very serious penalty for its paralyzing effect on the business of any commercial enterprise. As held in the case of New Jubilee Insurance Company Ltd. v. National Bank of Pakistan, Karachi (PLD 1999 SC 1126) such a step ought to be taken after serving prior notice to the affected parties. The foregoing principle as enunciated is squarely applicable in the context of, the rules of natural justice which have consistently been held to apply to all proceedings unless expressly excluded. Learned counsel for the respondents accepts that Sales Tax A General Order No.6 of 2003, dated 20-12-2003 is applicable to the facts of the case. This General Order provides for show- cause notice to be issued to a person who avoids to produce record asked for by a tax authority or otherwise delays their proceedings. However, no such show-cause notice is required for assesses who cooperate and produce record, as in the present case, so that blacklisting may be ordered against him without 'prior disclosure of grounds. This is certainly an odd dispensation and appears to have been rightly correct in Sales Tax General Order 3 of 2004 as well as Sales Tax Rules, 2004.
5. More pertinently it is observed that the said Sales Tax General Order No.6 of 2003 goes on to provide as follows in para. I (i.e): "If the Collector is satisfied that the person needs to be blacklisted or his registration/enrolment suspended, he shall issue an order for the same, mentioning reasons for such blacklisting/suspension." (Underlining supplied)
It is noticed that the impugned order in the present case gives no reasons for its bare allegation.
This is contrary to the foregoing specific requirement to supply reasons as laid down in Sales Tax General Order No.6 of 2003. The impugned action is, therefore, violative of the departmental law governing its validity and enforcement.
6. There is another feature in the case that is noteworthy. The written replies and explanations of the petitioner to the audit observations forming the basis of the impugned action have not been opined upon by the respondent No.1 or 2 to demonstrate the insufficiency, irrelevance'or falsity of such explanations. The petitioner's letters to 'the respondents, dated 19-7-2004 and 27-12-2004 giving reasons for the withdrawal and/or correction the impugned action have received no reaction at 'all by the respondents. On the other hand the respondents' comments before this Court brazenly allege a huge tax fraud of. Rs.102 million by the petitioner. This stand is being taken without there being any order by the respondent No.1 or the respondent No.2 notifying the petitioner about the said finding of tax fraud, its grounds and the manner in which it is alleged to have been committed. Apparently, the audit report has been treated by the said respondents to constitute the necessary material that furnishes the grounds of blacklisting to the petitioner. That cannot be so under the law. The power under section 21 of the Sales Tax Act is specifically vested in a senior officer of the respondent-Department and cannot be abdicated to the opinion of an auditor appointed on contract by the Department. In this case, the only basis for the impugned action against the petitioner appears to be the audit observations made by the auditor. Eighteen months have passed and yet there is no order by the departmental authority showing why those observations may be considered to be good grounds for the impugned action taken against the petitioner. The rejection of the explanation given by the petitioner cannot be done without a speaking order. Clearly the approach of the respondents to punish the petitioner with a huge penalty without serving upon him grounds of such penalty is contrary to the rules of natural justice , the spirit of the repealed section 21(4) of the Sales Tax Act, 1990 as well as the express requirement of paragraph I (i.e) of the Sales Tax General Order No.6 of 2003 that is admittedly applicable to the facts of the case.
7. This petition is accordingly allowed and the impugned order is declared to be illegal and passed without lawful authority. The respondent No.2 is directed to pass a fresh speaking order on the basis of the record showing valid and relevant grounds for taking any action against the petitioner including the imposition of the penalty of blacklisting, if it is so imposed by the new order. .