MR. MUHAMMAD WALI KHAN, MEMBER (TECHNICAL).-(1). This judgment disposes of two Appeal Nos. 154/ST/IB/2005 and 155/ST/IB/2005, both dated 29.04.2005 filed by M/s. Sufi Restaurant, Melody Market, Civic Center Markaz, G- 6, Islamabad and M/s. Sufi Restaurant, G-9/4 Mauve Area, Peshawar More, Islamabad (hereinafter called the appellants) respectively against the Order-in- Appeal Nos. 87/2005 and 86/2005 passed by the Collector of Customs, Sales Tax and Central Excise (Appeals), Islamabad (hereinafter called the appellate authority) as the facts and questions of law involved in both the appeals are more or less the same.
2. Briefly, facts leading to the Appeal No. 154/ST/IB/2005 and 155/ST/IB/2005 are that during the course of audit by the respondent No. 3 of the accounts of the appellants for the period of September, 1999 to June, 2000 the appellants were found to have violated the provisions of sections 3, 7, 11, 22, 23, 25, 26 and 36(1) of the Sales Tax Act, 1990 (hereinafter called the Act). They were found to have evaded sales tax of Rs. 407,313.00 in the case covered by Appeal No. 154/ST/IB/2005 and Rs. 407,313.00 in the case covered by Appeal No. 155/ST/IB/2005 respectively.
3. Accordingly, vide two separate show cause notices bearing C. No. ST/ADJ/DC4/407/01/7987 dated 09.07.2002 and C. No. ST/ADJ/DC-I/488/01/9739 dated 03.08.2002 respectively issued by the Deputy Collector, Customs, Sales Tax and Central Excise (Adjudication), Rawalpindi (hereinafter called the Adjudicating Officer), the appellants were called upon to show cause within 10 days of the issuance of those notices as to why they should not pay the evaded amount of tax indicated in each notice alongwith additional tax due under section 34 and as to why they should not be penalized under section 33 of the Act. The cases were subsequently heard by the adjudicating officer who, on the basis of arguments of both sides, came to the conclusion that non payment of the sales tax shown in the two show cause notices under reference was established. He accordingly ordered that the evaded amount of the tax under reference shall be recovered from the appellants alongwith additional tax that is due under section 34 of the Act. He also imposed a penalty equal to 3% of the amount involved under Section 33 of the Act on the appellants.
Aggrieved of the decision of the adjudicating officer, appeals were filed by the appellants with the appellate authority. However, the appellants could not succeed in obtaining a favourable decision since the appellate authority also maintained that the demand of sales tax as determined by the adjudicating officer was lawful and justified.
4. The appellants have assailed the decisions taken by the lower forums in this Tribunal.
5. Mir Ahmed Ali, Advocate appearing for the appellants argued the case at length. He mainly focused his arguments on the following points:-
(1) Reasons for invoking the provisions of section 36(1) of the Act were not given in the show cause notice which makes the show cause notice invalid.
(2) The impugned Order-in-Original is barred by limitation in that it has not been passed within the time limit prescribed in section 36(3) of the Act.
(3) The appellants do not manufacture goods but are providing food service to their customers.
Services provided by the restaurants are not liable to sales tax.
(4) SRO 1039(I)/99, dated 14.09.1999 which has been relied upon by the lower forums to create a tax liability against his clients is a subordinate legislation and does not empower the Federal Government to make parallel statutory provisions to bring any person into tax net.
(5) The adjudicating officer does not have the authority to adjudicate upon this case within the meaning of section 30 and 45 of the Act and to impose penalty and additional tax under sections 33 and 34 of the Act.
(6) Clause (b) of section 30 was amended in 2001 and territorial jurisdiction granted under SRO 448(I)/2000, dated 01.07.2000 is illegal and void as this notification preceded the amendment so made in the Act. Therefore the amendment cannot be applied retrospectively to give legal cover to this notification.
(7) The adjudicating officer does not have jurisdiction to invoke a number of provisions of the Act in the show cause notice. The show cause notice is thus coram-non-judice and illegal.
(8) The learned adjudicating officer issued notices in both the appeals for hearing of the case on 29.05.2003 and from his impugned order it does not appear that hearing took place on the said date. As such the impugned order is not maintainable.
(9) In the case of Appeal No. 155 of 2005 show cause notice was issued on 03.08.2002 and last notice of hearing received by the appellants was for 29.05.2003 but from the perusal of the impugned order of the adjudicating officer it transpires that this case was heard on 27.07.2002 i.e. Even prior to issuance of the show cause notice and no hearing appears to have taken place on 29.05.2003. These are flagrant violations of the principles of natural justice and render the impugned order invalid in the eyes of law.
It was therefore prayed by the learned counsel that the impugned orders passed by the lower forums may be set aside and the appeals may be accepted.
6. The learned Departmental Representative (DR) appearing for the respondents vehemently opposed the appeal and stated that the lower forums have passed the impugned orders after taking into consideration all the points raised by the appellants on law and facts. He stated that from the long list of grounds taken in the memo of appeal and the arguments advanced at the bar by the learned counsel for the appellants it is easily deduceable that the appellants have basically agitated the following main reasons for acceptance of their appeals:
(a) reasons for invoking the provisions of section 36 of the Act have not been given in the show cause notice; and
(b) the decision of the adjudicating officer is barred by limitation in terms of sub-section (3) of section 36 of the Act.
He stated that both the arguments are neither maintainable legally nor on factual account because reasons on the basis of which the appellants were served with the show cause notices are clearly and unambiguously mentioned in para 1 of both the show cause notices and for those reasons the appellants were found to have contravened the provisions of sub-section (1) of section 36 of the Act and have been proceeded against accordingly. Therefore it is not correct to say that reasons for invoking the provisions of section 36(1) of the Act are not given in the show cause notice. He further stated that the appellants have not denied the material facts available on record and have merely relied upon the proviso to sub-section (3) of section 36 of the Act to challenge the validity of the findings of the adjudicating officer. He stated that the proviso to sub-section (3) of section 36 of the Act is a directory provision and not mandatory as held by the Tribunal in a number of cases and the appellants have not been able to cite any decision of the superior Courts holding the proviso to sub-section (3) of the Act to be mandatory. Therefore, he claimed, the earlier decisions of the Tribunal are to be followed to maintain equity. Regarding the discrepancies pointed out by the learned counsel for the appellants as to the hearing of the case covered by Appeal No. 155 of 2005 on 27.07.2002 and non hearing of both the cases on 29.05.2003 by the adjudicating officer, he stated that common facts and law points were involved in both the cases.
Therefore the adjudicating officer applied the decision taken in the case pertaining to Appeal No. 154 of 2005, mutatis mutandis, to the case covered by Appeal No. 155 of 2005. Since hearing in the case covered by Appeal No. 154 of 2005 had taken place on 27.07.2002, it was rightly mentioned in the impugned order of the adjudicating officer, as this order basically pertains to the case in Appeal No. 154/2005. Referring to the notice for hearing on 29.05.2003 which finds no mention in the order of the adjudicating officer, he stated that this was owing to clerical mistake that this date of hearing was not mentioned in the impugned order of the adjudicating officer. This clerical mistake is apparent from the fact that the order was passed on 16.07.2003 and not before 29.05.2003. It is also apparent from the last sentence of para 4(a) of the impugned Order-in-Appeal No. 86 of 2005 dated 29.04.2005 in which it has been stated that, though 29.05.2003 has not been mentioned in the impugned order of the adjudicating officer as date of hearing, yet hearing did take place on 29.05.2003 and the learned counsel of the appellants did attend that hearing. This factual position has not been denied by the learned counsel of the appellants before the Tribunal. He claimed that clerical error cannot make a valid order invalid. Thus no illegality has been committed. He therefore prayed that the appeals may be dismissed as these do not merit consideration.
7. I have examined record of the case carefully and considered the rival arguments advanced at the bar by both sides. I take the points raised by the learned counsel for the appellants one by one.
So far as his first point is concerned, perusal of the record reveals that following reasons were made the basis of show cause notice bearing C. N. ST/ADJ/DC-I/407/01/7987, dated 09.07.2002 pertaining to Appeal No. 154/2005:-
(a) The appellants were registered since October, 1999 but they filed only 2 Sales Tax Returns for the months of October & December, 2000 and did not file 18 Sales Tax Returns upto May, 2001 as required under section 26 of the Act.
(b) They were not issuing Sales Tax Invoices (Bills) thus were contravening section 23 of the Act and SRO 1039(I)/99, dated 14th September, 1999.
(c) They made taxable supplies amounting to Rs. 3,258,500.00 as evident from their own Income Tax Return for the assessm ent year 2000-2001, but they suppressed this amount from the sales tax department thus contravened section 3 of the Act.
(d) They were not maintaining records for taxable supplies thus contravening section 22 of the Act.
(e) They failed to provide record for the year ending June 2001 thus contravened section 25 of the Act.
On the basis of above reasons the appellants were alleged to have evaded payment of sales tax amounting to Rs. 407,313.00 and were therefore charged to have contravened the provisions of sections 3, 7, 11, 22, 23, 26 and 36(1) of the Act and were asked to explain as to why this amount should not be recovered from them alongwith additional tax due under section 34 and penalty due under section 33 of the Act.
8. In the case of Appeal No. 155 of 2005, the following reasons were given in the show cause notice bearing No. ST/ADJ/DC-I/488/01/9739 dated 03.08.2002:
(i) In the Income Tax Return filed by the appellants, sales/receipts during the year July, 1999 to June, 2000 amounted to Rs. 3,780,500.00. According to calculation government dues amounting to Rs. 4251306.00 in sales tax was not paid hence recoverable from them alongwith additional tax and penalty.
(ii) The appellants has failed to maintain proper sales tax record as required under section 22 of the Sales Tax Act, 1990.
On the basis of the aforesaid reasons the appellants were alleged to have evaded sales tax of Rs.
425,306.00 and were therefore charged to have contravened the provisions of sections 3, 6, 7, 8, 11, 22, 23, 26, 36(1) and 71 of the Act and were called upon to explain as to why they should not pay the aforesaid evaded amount of sales tax alongwith additional tax due under section 34 and penalty due under section 33 of the Act for contravening the aforesaid provisions of law.
9. From the perusal of record it also reveals that the period in which the alleged evasion of the tax took place was from September, 1999 to June, 2001. It is clear from the two show cause notices that the appellants were charged to have deliberately not paid the sales tax due on the supply of food items made by them as they have been charged to have violated the provisions of sub-section (1) of section 36 of the Act. Sub-section (1) of section 36 of the Act is reproduced below: "36. Recovery of tax not levied or short-levied or erroneously refunded.-(1) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice."
10. According to section 3 of the Act, sales tax is charged, levied and paid at the rate of 15% of the value of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him and the liability to pay the tax is on the person making the supply. Sales tax is paid on self assessm ent basis by the registered person at the time of filing monthly Sales Tax Returns. Filing of Sales Tax Returns on monthly basis is mandatory and it should be filed by the 15th of the next month. This means that at the time of filing of the Sales Tax Return for a month by the 15th of the next month the sales tax due on the supplies made in the previous month should also be paid. The appellants have not denied that they are registered person under the Act. As a matter of fact they have placed on record a copy of their sales tax registration certificate which shows that they were allotted the Sales Tax Registration No. 07- 01-9801-058-29 on 06.10.1999 by the Assistant Collector (Sales Tax), Registration and Information Division, Collectorate of Sales Tax, Rawalpindi as "manufacturer" and "retailer". The appellants have not placed on record anything to show that they ever disclosed their reservation for treating them as manufacturer and retailer by the sales tax authorities. This means that they accepted their status as manufacturer and retailer of food items as no other thing was being manufactured or sold by them during the period under dispute. They have also not denied that after registration they filed two Sales Tax Returns in their above mentioned capacity in the months of October and December, 1999 as is evident from the show cause notice. Thus they, as registered person and as a taxpayer, were aware of their legal status as manufacturer and retailer of food items and their obligations under the Act to file Sales Tax Returns alongwith payment of sales tax on monthly basis on the supplies of food made as required under section 2(9), 3, 6 and 26 of the Act. They have not been able to place on record any documents showing proof of payment of the sales tax on the supplies of food items made by them as required of them under section 3 or proof of filing of monthly Sales Tax Returns as required under section 2(9), 6 and 26 of the Act for the entire period under dispute (18 months). This clearly shows that they willfully and deliberately violated the provisions of sections 2(9), 6 and 26 of the Act by not filing Sales Tax Returns on monthly basis and section 3 thereof by not paying the tax due on the supplies of food items made by them by due dates during the relevant period and caused a loss to the exchequer of Rs. 407,313.99 in sales tax in the case covered by Appeal No. 154/2005 and Rs. 425,306.00 in the case covered by Appeal No. 155/2005 respectively during the period from October, 1999 to June, 2000. The learned counsel has claimed that since reasons were not given in the two show cause notices for invoking the provisions of sub-section (1) of section 36 of the Act, the show cause notices and the entire structure of adjudication proceedings erected on it are without lawful authority and are of no legal effect. He has relied upon the judgment of Honourable Lahore High Court in the case of M/s. Zamindara Paper and Board Mills versus Collector, Central Excise and Sales Tax reported as PTCL 2004 CL. 212. However, perusal of the judgment under reference reveals that it is not relevant for the present case in that neither both the show cause notices are vague nor reasons for invoking these provisions are missing from these notices. On the contrary, the notices are very clear and the reasons for invoking sub-section (1) of section 36 of the Act have clearly been mentioned in para 1 of both the show cause notices. The notices were also issued within the prescribed time limit. Therefore it is difficult to accept the stand taken by the learned counsel of the appellants.
11. The learned counsel has attacked the impugned order of the adjudicating officer with reference to the proviso to sub-section (3) of section 36 of the Act and has claimed that the impugned order was passed by the adjudicating officer after expiry of the time limit prescribed therein. This proviso is mandatory and violation thereof has rendered the order null and void. He has relied upon the findings of the Honourable Federal Tax Ombudsman (FTO) in a Complaint No. 805/2003 (M/s. Pace International versus CBR Sales Tax Department, reported as PTCL 2005 CL. 836) to support his claim. On the other hand, the learned DR has claimed that the said proviso is directory in nature and non fulfillment thereof does not render the order invalid. He has relied upon the decisions of the Tribunal and in particular the decision taken in the case of M/s. Sandal Dye Stuff Industries (Pvt.) Ltd. Versus Collector of Sales Tax, Faisalabad and Additional Collector of Sales Tax (Adjudication), Faisalabad in which it has been held as under: "9. On the analogy of section 59(4) of the Income Tax Ordinance, 1979 (XXXI of 1979), the learned counsel for the appellant urged that since the learned adjudicating officer had violated the provision of sub-section (3) of section 36 of the Sales Tax Act, 1990, therefore the impugned order may be declared to be without jurisdiction. He has supported his argument with judgment dated 7.12.1992 passed in Writ Petition No. 4547 of 1990 by Hon'ble Mr. Justice Malik Muhammad Qayyum, the then Judge of Lahore Court, Lahore (1993) 67 Tax 233 (HC Lah).
10. The learned counsel however, lost sight of the fact that the consequences of not passing the assessm ent order within the prescribed period is given in section 59(4) of the Income Tax Ordinance, 1979 whereas no such consequence has been given in section 36 in case of passing of adjudication order beyond the prescribed period of 45 days of extended period of 90 days. This being the position, we are inclined to hold that this proviso to sub-section (3) of section 36 is only directory in nature and not mandatory. The objection of the learned counsel for the appellant, is, therefore, repelled."
12. There are no hard and fast rules to determine whether a statute is mandatory or directory. It is for the Courts to decide which provision of the law is mandatory and which is directory. Volumes of books have been written on interpretation of the statutes.
13. The book titled as "Sutherland Statutory Construction 5th Edition (Read with 2000 Cumulative Supplement)" by Norman J. Singer, based on American case laws lays down the distinction between mandatory and directory statutes as under: "There is an important distinction between directory and mandatory statutes. The violation of a directory statute is attended with no consequences, since there is a permissive element. The failure to comply with the requirements of a mandatory statute either invalidates the transaction or subjects the non compiler to the consequences stated in the statute.
This distinction grows out the fundamental difference in the intention of the legislature in enacting the two statutes. Although directory provisions are not intended by the legislature to be disregarded, the seriousness of noncompliance is not considered so great that liability automatically attaches for failure to comply. The question of compliance remains for judicial determination. If the legislature considers the provisions sufficiently important that exact compliance is required then the provision is mandatory. If the statute is merely a guide for the conduct of business and for orderly procedure rather than a limitation of power, it will be construed as directory.
There is no universal rule by which directory provisions may, under all circumstances, be distinguished from those which are mandatory. The intention of the legislature, however, should be controlling and no formalistic rule of grammar or word form should stand in the way of carrying out the legislative intent. In the words of a Minnesota Court: "Consideration must be given to the legislative history, the language of the statute, its subject matter, the importance of its provisions, their relation to the general object intended to be accomplished by the act, and, finally whether or not their is a public or private right involved.
On occasion, some Courts have said that language affirmative in form indicates that the statute is supposed to be only directory or permissive while negative language implies a prohibitory, obligatory, or mandatory provision. In particular instances this may be true, but usually the draftsman is not concerned with fine distinctions of this sort. The statute should be construed according to its subject matter and die purpose for which it was enacted." Thus, Lord Campbell said, "It is the duty of the Courts of justice to try to get at die real intention of the legislature by carefully attending to the whole scope of the statute to be construed." Lord Penzance said, "I believe, as far as any rule is concerned, you cannot safely go further than that in each case you must look to the subject matter, consider the importance of the provisions, and the relation of that provisions to the general case in that aspect decide whether the enactment is what is called imperative or directory."
In the language of the Maryland Court of Appeals:-- "The whole surroundings, the purpose of the enactment, the ends to be accomplished, the consequences that may result from one meaning rather than another, and the cardinal rule that seemingly incongruous provisions shall be made to harmonize rather than conflict, must all be considered in determining whether particular words shall have a mandatory or directory effect ascribed to them." More specifically, the Alaska Court held that where a taxpayer establishes a violation of "directory" procedures, the burden should be on the taxing authority to demonstrate substantial compliance with the requirements and purposes of the statute.
Generally those directions which do not go to the essence of the issue at hand but which deal merely with procedures are not commonly considered mandatory. Likewise, if the act is performed but not in the time or in the precise manner directed by the statute, the provisions will not be considered mandatory if the purpose of the statute has been substantially complied with and no substantial rights have been jeopardized. In the light, it has been held relating to a tax statute that while filing is mandatory, the time for filing is directory."
14. The guidelines to determine whether a statute should be given mandatory or directory status according to the author are as under: "Whether a statute should be given mandatory or less than mandatory effect is, in every case, a question of statutory construction to which all of the rules and principles of construction are applicable. There are, however, some special guidelines which are recognizable.
Certain forms and types of statutes are generally considered mandatory. Unless the context otherwise indicates the use of the word "shall" (except in its future tense) indicates a mandatory intent. Even the permissive word "may" is interpreted as mandatory when the duty is imposed upon a public official and his act is for the benefit of a private individual.
The directory character of a statute may likewise be indicated by its purpose and the manner in which its purpose is expressed. Thus, it has been said: "Where words are affirmative, and relate to the manner in which the power or jurisdiction vested in a public officer or body is to be exercised, and not to the limits of the power or jurisdiction itself, they may and often have been construed as directory;...." Likewise, where the time, or manner of performing the action directed by the statute is not essential to its purpose, provisions in regard to time or method are generally interpreted as directory only.
Something in the nature of a presumption favoring a mandatory interpretation is suggested by judicial expressions that a statute is to be so interpreted unless its directory or discretionary character "clearly appears."
Finally, it deserves to be noted that the differences between mandatory and directory, or between prohibitory and permissive, represent a continuum instead of separate, mutually exclusive characteristics, it has been said, for example, that because a statute has been classified for some purposes as directory does not mean that for all purposes it can "be ignored at will.""
15. In the book titled as "Principles of Statutory Interpretation" Ninth Edition, 2004 Justice G.P. Singh, relying on Indian case laws, says:-- "Where a statute imposes a public duty and lays down the manner in which and the time within which the duty shall be performed, injustice or inconvenience resulting from a rigid adherence to the statutory prescriptions may be a relevant factor in holding such prescriptions only directory.
In considering whether a statute is imperative, DENMAN, J. Stated "a balance may be struck between the inconvenience of sometimes rigidly adhering to, and the convenience of sometimes departing from its terms". It was held in that case that where a public officer is directed by a statute to perform a duty within a specified time the cases establish that provisions as to time are only directory. Similarly, it has been held while construing section 17(1) of the Industrial Disputes Act, 1947, that it is obligatory on the Government to publish an award, but the provision, that it should be published within thirty days, is not mandatory and an award published beyond thirty days is not invalid. A provision fixing a time, within which a public officer or authority has to act in performance of a duty, generally means that the statute considers it reasonable for the officer or authority to act within the said period. The expiry of the period without more confers no right unless the statute by a legal fiction or otherwise confers a right. Thus a provision in a Municipal Act that an application for layout should be disposed of within r particular time does not mean that the application must be deemed to have been granted after expiry of the said period unless there is a provision to that effect made in the Act. If performance of a public duty is required to be done within a specified time, which is also related to a right given to a person, the provision as to time will still be held as directory unless it is shown that the person on whom the related right is conferred is prejudiced because of the non-performance of the duty within the specified time. Thus time prescribed by Rule 7(3) of the Food Adulteration Rules, which requires that the Public Analyst 'shall within a period of forty five days' deliver to the Local (Health) Authority a report of the result of his analysis has been held to be directory unless the delay has prejudiced the right of the accused to have the samples of food analysed by the Central Food Laboratory for example when the samples become unfit for analysis because of the delay, it may be relevant to see whether the requirement of time is addressed to a party or an officer, for in the former case it may be mandatory. Further, if the statutory provision as to time is a condition for exercise of a statutory power as distinguished from a duty, the prescription as to time will be construed mandatory. But whether it be a case of statutory duty or statutory power, the statute may expressly or impliedly make the authority functus officio on expiry of the prescribed period. Further though when a public authority is required to do a certain thing within a specified period, the same is ordinarily directory, it is equally well settled that when consequence for inaction on the part of the statutory authority within the specified time is expressly provided, it must be held to be imperative.
The principle was stated by the Privy Council in the following words: "When the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts in neglect of this duty would work serious general inconvenience, or injustice to persons who have no control over those who are entrusted with the duty, and at the same time would not promote the main object of the legislature, it has been the practice to hold such provisions to be directory only". In that case the question involved was whether the omission to revise the jury lists, as directed by statute, had the effect of invalidating the verdict of the jury, and their Lordship held that the irregularities in the due revision of the jury lists did not in itself avoid the verdict of the jury. This principle was followed by the Federal Court in construing section 256 of the Government of India Act, 1935, requiring consultation between public authorities before the conferment of magisterial powers and it was held that the provision was directory. Similarly, the provision in Article 320(3)(c) of the Constitution requiring that the Public Service Commission shall be consulted on all disciplinary matters affecting a Civil Servant, has been interpreted as directory and its noncompliance was held as not vitiating the disciplinary action taken. On the same principle the provision of section 5(5) of the Patiala Income Tax Act requiring the Commissioner of Income Tax to consult the minister in charge before investing the Income-tax Officers with their functions was held to be directory. HIDAYATULLAH J., after referring to the previous case observed: "The essence of the rule is that where consultation has to be made during the performance of a public duty and an omission to do so occurs, the action cannot be regarded as altogether void, and the direction for consultation may be treated as directory and its neglect, is of no consequence to the result." "
16. Mr. M. Mahmood in his book titled as "Cannons of Construction and Interpretation of Statutes", Third Edition, 2005 has extensively cited case laws on directory provisions. The principles laid down in some of the case laws relevant to the case in hand are reproduced below:- "(1) A statute is understood to be directory when it contains matter merely of direction, but not when those directions are followed up by an express provision that, in default of following them, the facts shall be null and void. To put it differently, if the Act is directory, its disobedience does not entail any invalidity; if the Act is mandatory disobedience entails serious legal consequences amounting to the invalidity of the act done disobedience to the provision. [PLD 1974 S.C. 134]
(2) Statute is understood to be directory when it contains matters merely of direction bat not when those directions are followed up by an express provision that in default of following them the acts shall be null and void. If the provision is mandatory, disobedience entails serious legal consequences amounting to the invalidity of the act done in disobedience to the provision. [PLD 2001 S.C. 499]
(3) It is not possible to lay down a general rule of universal application in this behalf but the one in this connection is the affirmative or negative character of the language in which the t provision is couched. If it is negative that is to say, if the statute enacts that certain action shall be taken in a certain manner and in no other manner, it has been held that the requirements are absolute and that neglect to attend them will invalidate the whole procedure. If, on the other hand, the language is affirmative, it may be considered as a directory provision. Nonetheless, it appears that in several reported English cases, it has been held that an enactment, prescribing the formalities which are to be observed for validating an action, are not absolute, although expressed in negative or prohibitory language. As a general rule, statutes, which enable persons to take legal proceedings under certain specified circumstance, demand that those circumstances must be accurately obeyed, not withstanding the fact that the provisions thereof are expressed in merely affirmative language. [PLD 1971 S.C. 61]
(4) Prescription when imposed in relation to a public duty may well be regarded as intended to be directory and a failure of their strict compliance will not vitiate the result. The use of words such as 'may' and 'shall' as representing the permissive or compulsive nature respectively of the act intended to be done has long ceased to be a conclusive and unerring index to the intention of the Legislature and one may now venture to sav this as an axiomatic pronouncement without feeling the necessity of covering the ground. [PLD 1971 Kar. 535]
(5) Where the prescriptions relate to the performance of a public duty, and to invalidate acts done in neglect of them would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, without promoting the essential aims of the Legislature, such prescriptions seem to be generally understood as mere instructions for the guidance of Government and of those on whom the duty is imposed, or, in other words, as directory only. [PLD 1961 S.C. 145]
(6) A statute which requires certain things to be done but does not prescribe any result to follow or penalty [PLD 1978 S.C. (AJ & K) 118] or consequences [PLD 1978 Kar. 926] if they are not done, should be held directory [PLD 1961 S.C. 145 + 1987 PLC 593]."
17. M/s. Shaukat Mehmood and Nadeem Shaukat in their book titled as "Principles of Interpretation of Statutes", First Edition, 1990, distinguishing between mandatory directory provisions, say:- "When a statute is passed for the purpose of something to be done, it may either be a mandatory enactment, or a directory one, the difference being that mandatory enactment must be obeyed or fulfilled exactly, but it is sufficient, if a directory enactment be obeyed or fulfilled substantially. If a mandatory enactment is not strictly complied with, the thing done shall be invalid. On the other hand, if an enactment is merely directory, it is immaterial, so far as relates to the validity of the things done, whether the provisions of that enactment are strictly complied with are not."
Some of the principles, based on case laws, laid down in the book for determination whether the enactment is mandatory or directory are as follows:
(i) Consequences of disobedience stated. "Provision would be mandatory if non-observance of statutory provision is visited by consequent invalidity. It would be directory if no such consequence ensues from non-observance of statutory rule. Whether a provision is mandatory or directory in character depends upon the language in which it is couched, to be understood in the text in which that language is employed and the purpose which the provision is intended to serve. Judicial decisions have made a distinction between those provisions under which certain steps are required to be taken by law and those under which certain things are absolutely prohibited by law.
The former are directory in nature and their contravention does not vitiate the proceeding unless prejudice has been caused thereby. But the latter are mandatory and their non-compliance results in the total vitiation of the subsequent proceedings regardless of any prejudice having been caused which in such cases is presumed to have occurred. Where a directory clause is followed by a mandatory clause providing that in default of following them, the acts shall be null and void. The provision is mandatory."
(ii) No consequences of disobedience stated. "Law reports are full of cases dealing with statutory provisions which are devoid of indication of intention regarding the effect of non-compliance with them. In some of them are conditions, forms, or other attendant circumstances, prescribed by the statute which have been regarded as essential to the act or thing regulated by it and their omission has been held fatal to its validity. In others, such prescriptions have been considered as merely ) directory, the neglect of which did not affect its validity or involve any other consequence than a liability to a penalty, if any were imposed for breach of the enactment. The propriety, indeed, of over treating the provisions of any statute in the latter manner has been sometimes questioned, but it is justifiable in principle as well as abundantly established by numerous authorities. Where the legislature does not indicate its mind as to the consequence for violation of provisions, the Court has to consider whether the instruction of the Legislature is merely directory or mandatory.
This has to be construed by reference to the object intended to be achieved or other surrounding circumstances. Ordinarily where consequences of failure to comply with a direction are not stated, the direction is directory and not mandatory."
(iii) Use of word "shall". "The use of the expression "shall" or "may" in an enactment, is not always a sure guide to ascertaining whether the Legislature intended it to be directory or mandatory, unless the scheme of the Act, the purpose with which it was enacted, the end which it sought to be achieved and the possible consequences of doing or failing to do an act within the prescribed time are taken into consideration."
(iv) Public duties. "Where a statute is passed to create duties performable by any person who brings himself within the operation of the statute, the question often arises as to what liability is incurred by neglect, omission, or refusal to perform statutory duties. The question usually resolves itself into the inquiry whether the provision is mandatory or directory. The scope and object of a statute are the only guides in determining whether its provisions are directory or imperative. In the absence of an express provision, the intention of the Legislature is to be ascertained. No universal rule can be laid down for the construction of statutes as to whether any enactment shall be considered directory only or obligatory, with an implied nullification for disobedience. It is the duty of the Court to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be constructed. Where the provisions of a statute or Constitution relate to the performance of a public duty and where the invalidation of acts done in neglect of them would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, without promoting the essential aims and objects of the maker thereof such provisions are generally understood as directory only. Neglect of them may be penal but it does not affect validity of the act done in disregard of them."
(v) Delay in performing duty. "Where a statute imposes upon a public officer the duty of performing some act relating to the interests of the public, and fixes a time for the doing of such act, the requirement as to time is to be regarded as directory, and not as a limitation on the exercise of the power, unless it contains negative words, denying the exercise of the power after the time named, or unless from the character of the act to be performed, the manner of its performance, or its effect upon public interest or private rights, it must be presumed that the legislature had in contemplation that the act had better not be performed at all than he performed at any other time than that named. Therefore, if a statute relates to the performance of a public duty and not to the exercise of any power the neglect of that duty is not penal and does not affect the validity of the act done, even though that act was not performed in the manner and within the time specified.
Therefore an election held after the lapse of the statutory period within which it is directed to be held is not invalid."
(vi) Mandatory provision, disobedience of. "Mandatory provision of a statute, must be obeyed in letter and spirit. Any breach of mandatory provision results in nullification of act. Judicial decisions have made a distinction between those provisions under which certain steps are required to be taken by law and those under which certain things are absolutely prohibited by law. The former are directory in nature and their contravention does not vitiate the proceeding unless prejudice has been caused thereby. But the later are mandatory and their noncompliance results in the total vitiation of the subsequent proceedings regardless of any prejudice having been caused which in such cases is presumed to have occurred. Where a provision is absolute having an obligatory force, it carries an implied nullification for its disobedience, but where it is merely directory, its non- compliance may not be fatal unless the complaining party is able to show that the non- compliance has worked to its prejudice."
(vii) Directory Provision, non-compliance of. "Where the prescription of any Act relates to the performance of a duty by a public officer the breach of such prescription, when it does not cause any real injustice, does not invalidate the act done under the Act and therefore such prescriptions are merely directory. Mandatory or absolute provisions must be obeyed strictly. Directory provisions may be complied with substantially. As substantial observance is the main consideration, it is not correct to say that in no case its breach can create an invalidating effect on the action taken in breach of it. Ballantine's Law Dictionary, contains the observations on the basis of American Authorities, that the difference between the invalidating effect of the breach of mandatory and directory provisions is that the latter is to be determined by Courts having regard to the circumstances of each case. To treat a directory provision as entirely unnecessary or simply optional would amount to interference with legislative powers. Even when the breach of a directory provision does not create, an invalidating effect, the wrong-doer may be exposed to a penalty for his negligence. But where a directory provision is couched in words of command but the command is directory in nature and is not absolute and obligatory in the sense that its noncompliance or disobedience nullifies all the incidents connected therewith and the consequences flowing there from. The disobedience of the provision will not make the proceedings null and void."
18. After having heard the rival arguments advanced by both the parties with reference to the proviso to sub-section (3) of section 36 of the Act and having considered the case laws cited above and the views of well known jurists I am inclined to support the view point of the learned DR. The reasons being that no consequences of non adherence of the proviso to sub-section (3) of section 36 of the Act have been laid down in the Act as compared to the provisions of section 79(4) of the erstwhile Income Tax Ordinance, 1979. Neither there is anything in section 36 itself or in the other provisions of the Act that specify the consequence of nullification of the order of the adjudicating officer for noncompliance therewith, which is generally a hallmark of the statutory provisions mandatory in character. In arriving at this conclusion I also gain support from the decision of the Honourable Supreme Court of Pakistan in the case of State through DAG, Peshawar versus Panda Gul reported as PTCL 1994 CL. 322 (SC). In the reported case the issue before the august Court was whether the provisions of section 171 of the Customs Act, 1969 are mandatory or not and the august Court held that these were not mandatory since any consequence of nullification for non compliance thereof were not given in the said section itself or elsewhere in the Customs Act, 1969. Secondly, the concept of time limit is also incorporated in Article 254 of 1973 Constitution but according to this Article if any act or thing required by the Constitution to be done within the given period is not done within the time limit the doing of the act or thing after expiry of the given time limit shall not become invalid or ineffective by reason only that it was not done within the prescribed time limit. On the analogy of Article 254 of the Constitution this Tribunal has consistently held that the time limit prescribed in the proviso to sub-section (3) of section 36 of the Act is not mandatory but is a directory proviso. In the case of M/s. Innovative Trading Co.. M/s. Falcon Corporation. M/s. Moon Enterprises and M/s. Bull Agencies the Tribunal has held as under: "So far as the question of time limit is concerned, law delays are notorious not only in our country but also all over the world, including advanced countries having all modern techniques and aids, and all those, who are charged with the duty of administration of justice are making frantic efforts, to tackle this problem, in our country, the Legislature has thought proper to prescribe time limit for the decision of cases at the original, appellate and revisional stages by introducing similar provisions in many procedural laws. This concept of time limit was incorporated even in Article 254 of our 1973 Constitution but while so doing its framers played down the consequences of its non- observance by providing therein that non-observance of such limit would not render the act (for which time limit is specified) illegal. No doubt, there is no such relaxation in the proviso to section 194-B(1) of the Customs Act, 1969 prescribing time limit for the decision of the appeals by the Tribunal but while interpreting any such provision in the ordinary law like the said Act, we have to keep in view the principle incorporated in Article 254 ibid and by the process of analogical deduction we have to mitigate the rigours of drastic consequence on non-compliance of time limit. Therefore, the word "shall" as used in the proviso, in our considered opinion, is directory (and not mandatory), enjoining the Tribunal to make efforts for the decision of appeals within the prescribed time limit and we do make such efforts but due to heavy intake of fresh appeal and enormity of the pending ones before various Benches of the Tribunal, it is not possible to observe time limit so prescribed."
Thirdly, the Honourable F.T.O. Has to take cognisance of maladministration of Revenue Division or a tax employee thereof and is not the appellate forum of appeal against the decisions of the Tribunal within the meaning of section 47 of the Act. It therefore follows that unless the decision of the Tribunal is set aside by a competent appellate forum or struck down by the superior Courts in their writ jurisdiction the same shall prevail and remain effective. The learned counsel for appellants has not been able to show me any decision of the superior Courts holding a contrary view than the one taken by the Tribunal with reference to the proviso to sub-section (3) of section 36 of the Act. This means that the earlier decisions of the Tribunal have to be followed to maintain consistency and equity.
19. It is the case of the appellants that supply of food items by them does not fall within the ambit of the provisions of the Act in the capacity of taxable activities or taxable supplies for the reason that both these terms refer to goods as defined in clause (12) of section 2 of the Act. They also claim that if these terms are taken with reference to the terms "manufacture or produce" given in clause
(16) of section 2 of the Act even then it denotes preparation of goods and the activities of the appellants do not relate to or attract the definition of goods which is the basic ingredient to levy of sales tax. Controverting the contention of the appellants, the learned DR stated that the appellants are registered under the Act as manufacturer and retailer. They manufacture and sell food items in their restaurants. Preparation of food falls within the mischief of "manufacture or produce" as defined in sub-section (16) of section 2 of the Act. It is for this reason that in the sales tax registration certificate issued by the Sales Tax Authorities to the appellants, the appellants have been shown as "manufacturer" and "retailer" and they never objected to it. He pointed out that sales tax on services is charged, levied and paid under the Provincial Governments' Ordinances issued by the four Provinces and under the Islamabad Capital Territory (Tax on Services!
Ordinance. 2001. Under these Ordinances some services are chargeable to sales tax. Supply of food by restaurants is not included in these Ordinances meaning thereby that supply of food is not a "service" but "sale/supply" of goods and supply of food is not exempt from the sales tax. Therefore the claim of the appellants that supply of food by restaurants falls in the ambit of "service" within the meaning of the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 notified vide Notification No. F. 2(1)/2001-Pub., dated 18.08.2001 and is exempt from levy of sales tax is not correct, he maintained. On the contrary, he stated, supply of food falls within the ambit of "goods" which are manufactured by the appellants and no exemption of sales tax is available on the supply of food items by the restaurants.
20. Perusal of the Islamabad Capital Territory (Tax on Services) Ordinance. 2001 notified vide Notification No. F. 2(1)/2001-Pub .. Dated 18.08.2001 shows that the following services are liable to sales tax under this Ordinance:
(1) Services provided or rendered by hotels.
(2) Services provided or rendered by marriage halls and lawns.
(3) Services provided or rendered by clubs.
(4) Services provided or rendered by caterers.
(5) Advertisement on T.V. And Radio excluding advertisements:
(a) sponsored by a Government agency for health education;
(b) sponsored by the Population Welfare Division relating to education promotion campaign; and
(c) public service messages if telecast on television by World Wildlife Funds for Nature and UNICEF.
(6) Services provided by Customs agents.
(7) Services provided by ship chandlers.
(8) Services provided by stevedores.
(9) Services provided by courier services.
(10) Services provided or rendered for personal care by beauty parlours, beauty clinics and sliming clinics.
(11) Services provided or rendered by laundries and dry cleaners.
Although the appellants' case is not covered by the Ordinance under reference since it pertains to a period prior to the coming into force of this Ordinance, yet perusal of the Ordinance shows that the framers thereof were clear in their minds that supply of food by restaurants was supply of goods. Therefore omission of service provided by restaurants from the Ordinance is obvious i.e. Sale/supply of food was supply of goods for the purposes of the Act and it remained so prior to and after the issuance of the Ordinance. The terms "goods" and "manufacture or produce" have been defined under sub-sections (12) and (16) respectively of the Act. These sub-sections of the Act are reproduced below for facility of ready reference: "Section 2(12) of the Act: "goods" include every kind of movable property other than actionable claims, money, stocks, shares and securities; Section 2(16) of the Sales Tax Act, 1990: "Manufacture" or "produce" includes--
(a) any process in which an article singly or in combination with other article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product;
(b) process of printing, publishing, lithography and engraving; and
(c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repacking or preparation of goods in any other manner."
From a plain reading of the two sub-sections of section 2 of the Act as reproduced above it is crystal clear that food items fall in the definition of goods as well as in the definition of manufacture or produce. The learned counsel for the appellants has not been able to convince me how the items manufactured and sold (supplied) by his clients are exempt from levy of sales tax under the Act. The appellants, registered person under the Act, made supplies (of food items) which were not exempt from sales tax under section 13 of the Act. Thus the supplies were taxable supplies in terms of subsection (41) of section 2 of the Act. These supplies were made in the course or furtherance of taxable activity i.e. Manufacture and business in sale/supply of food carried on by them whether or not for a pecuniary profit. The fact that they got themselves registered under the Act and filed Sales Tax Returns for the months of October, 1999 and December, 1999 shows that they knew their legal obligations. Despite knowing their legal obligations they did not pay the sales tax due on such supplies and also failed to file Sales Tax Returns for the period under dispute. This amply shows that they had knowingly, deliberately and willfully failed to discharge their tax liabilities and avoided and evaded payment of the tax. Therefore I have no hesitation to hold that foods supplied by the appellants is nothing but supply of goods for the purposes of the Act and such supplies were not exempt from sales tax.
21. The learned counsel for the appellants has claimed that SRO 1039(I)/99, dated 14.09.1999 is a subordinate law and cannot overrule the provisions of the main statute to create a tax liability against the appellants. His main argument in this connection is that during the period in dispute i.e. 1999-2001 under entry No. (vii) to S. No. 3 of the Sixth Schedule to the Act exemption was available to the following items:-
(vii) Cooked food stuff, whether Respective heading or not frozen, served by clubs, messes, restaurants, hotels and other retail or wholesale outlets but excluding preserved, canned, bottled or packaged. He claims that by enlarging the definition of "food" vide sub-rule (f) of rule 2 of the Special Procedure for Supply of Food Rules, 1999 notified vide the aforesaid SRO to include baked, cooked, prepared or fresh food, ice cream, beverages or drinks, whether alcoholic or otherwise, and other eatables, whether prepared by the person supplying the same or otherwise procured from others, the Federal Government has enlarged the scope of food items liable to tax which is a parallel legislation and the Federal Government was not competent to do that. The learned DR repelling this argument has taken the stand that this is a misconceived notion that this SRO overrules the provisions of the Act. He claimed that on the contrary, it is not so. He explained that the Federal Government is empowered under section 71 of the Act to prescribe special procedure for the scope and payment of tax, registration, book keeping and invoicing requirements and returns in respect of such supplies as may be specified therein. He stated that in exercise of these powers the Federal Government framed special procedure for supply of food and notified the same as Special Procedure for Supply of Food Rules, 1999 through SRO 1039(I)/99, dated 14.09.1999. He stated that the tax on sale/supply of food stood chargeable under section 3 of the Act except those exempted under section 13 of the Act and accordingly listed under item No. (vii) of S. No. 3 of the Sixth Schedule to the Act. He stated that vide SRO 922(I)/99, dated 16.08.1999 the Federal Government withdrew the exemption from sales tax granted under the Sixth Schedule to the Act on goods listed in the said notification including the follow: "3(vii) Cooked or prepared food stuff, whether imported or supplied by restaurants (including those located in hotels and clubs and also including canteens but not including messes run on the basis of mutuality and industrial canteens for workers of a particular class) and other retail or wholesale outlets."
He further stated that the rules notified vide SRO 1039(I)/99, dated 14.09.1999 neither levied sales tax nor exempted anything from levy of sales tax. It only defined certain terms that are not mentioned in the Act and also prescribed procedure for collection and payment of the tax. Therefore these rules are part and parcel of the Act and not parallel to the Act as claimed by the appellants.
22. After taking into account the arguments advanced by both the parties and on going through the legal provisions on this issue I am of the view that the appellants have no case. Under section 3 of the Act sales tax is to be charged, levied and paid @ 15% of the value of the supply made by registered person. Taxable supply as defined in subsection (41) of section 2 means a supply other than a supply of goods which is exempt under section 13 of the Act. In order to appreciate the factual position it is necessary that the background of taxation of food items may be discussed.
The tax history shows that upto 15.08.1999 services of providing food, drinks and eatable by hotels, restaurants and clubs were subject to levy of central excise duty @ 15% ad valorem. At the same time food items of the description given in item No. (vii) of S.No. 3 of the Sixth Schedule to the Act as given in para 21 above were exempt from sales tax. On 16.08.1999 the Federal Government through SRO 924(I)/99 exempted services of providing food, drinks and eatable by hotels, restaurants and clubs from the central excise duty provided the supply of food, drinks and eatable by hotels, restaurants and clubs is subjected to sales tax under the Sales Tax Act, 1990 (the Act). At the time of the aforesaid exemption of central excise duty item No. (vii) of S. No. 3 of the Sixth Schedule to the Act read as follows:- "(vii) Cooked foodstuff, whether or not frozen, served by clubs, messes, restaurants, hotels and other retail or wholesale outlets but excluding preserved, canned, bottled or packaged."
From the above it is clear that though under the Central Excises Act, 1944 supply of food items by restaurants was treated as service, it was not so under the Sales Tax Act. Under the later Act it was sale/supply of goods because of two reasons:-
(a) food items were nothing but "goods" within the meaning of sub-section (12) of section 2 of the Act; and
(b) preparation of food was nothing but "manufacture or produce" within the meaning of sub- section (16) of section 2 of the Act.
Contrary to the definition of goods given in the Act, the Central Excises Act, 1944 did not define the term "goods" but defined "excisable goods" to mean goods specified in the First Schedule thereof which also includes services of Chapter 98. It therefore means that for the purposes of the Central Excises Act, 1944 services falling in Chapter 98 of its First Schedule were also "excisable goods". Thus the definition of "goods" under the Act had a wider scope to cover all moveable property other than actionable claims, money, stocks, shares and securities. In the case of Tata Consultancy Services versus State of Andhra Pradesh (and other appeals) reported as [2004] 137 STC Page 620 (SC) the Indian Supreme Court, while examining the meaning of "goods" given in the Andhra Pradesh General Sales Tax Act, 1957 in which the definition of "goods" was similar to the one given in the Act, has held as under:- The term "goods", for the purposes of sales tax, cannot be given a narrow meaning. Properties which are capable of being abstracted, consumed and used and or transmitted, transferred, delivered, stored or possessed, etc., are "goods" for the purposes of sales tax. The test to ascertain whether a property is "good" for the purpose of sales tax is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc."
The Central Excises Act, 1944 and the Act are two distinct legislations enacted in terms of serial Nos.
44 and 49 respectively of the Fourth Schedule to the 1973 Constitution and are independent of each other. Since food items fall within the mischief of "goods" and "manufacture or produce" in the Act, the treatment thereof as goods in the Act is absolutely lawful and in order. It is also clear from the above that the appellants had the option either to avail conditional exemption of central excise duty and pay sales tax on foodstuff sold/supplied by them with added benefit of input tax adjustment under the Act or if this was not acceptable to them then they were required to pay the central excise duty. They have paid non. Having registered themselves under the Act they had accepted the conditional exemption from central excise duty and were therefore bound to pay the sales tax which they knowingly, deliberately and willfully did not pay. A plain reading of item No.
(vii) of S. No. 3 of the Sixth Schedule to the Act as it stood on 15.08.1999 shows that it did not exempt from sales tax prepared foodstuff. It only exempted cooked foodstuff of the description given above. It therefore means that prepared (but not cooked) foodstuff like raita, salad etc. Was not exempt from sales tax either on 15.08.1999 or thereafter. However, on 16.08.1999 when central excise duty on services of providing food, drinks and other eatable by hotels, restaurants and clubs was conditionally exempted vide SRO 924(I)/99, through another SRO 922(I)/99, dated 16.08.1999 the exemption of sales tax available to a number of items listed in the Sixth Schedule to the Act including the following was withdrawn: "3(vii) Cooked or prepared foodstuff, whether imported or supplied by restaurants (including those located in hotels and clubs and also including caterers but not including mess run on the basis of mutuality and industrial canteens for workers of a particular class) and other retail or wholesale outlets."
If the two notifications referred to above i.e., one pertaining to granting conditional exemption to foodstuff of the types described therein from the central excise duty and the other pertaining to withdrawing the exemption of sales tax available to foodstuff till then are read together it becomes crystal clear that SRO 922(I)/99, dated 16.08.1999, despite the fact that it withdrew exemption of sales tax, was in fact a beneficial SRO for the taxpayers because under the central excise laws the taxpayers were not entitled to the deduction of central excise duty paid on the input goods needed for cooked or prepared foodstuff. By withdrawing exemption of sales tax on foodstuffs and exempting foodstuff from central excise duty they were made entitled to the input tax deduction from their output tax liabilities during the tax period thereby reducing their tax liabilities. SRO 1039(I)/99, dated 14.09.1999 on the other hand, neither imposes a tax nor exempts it. It only lays down procedure for collection and payment of sales tax on food items. Therefore neither SRO 1039(I)/99, dated 14.09.1999 is parallel to the Act nor sales tax has been levied under this SRO as contended by the appellants.
23. The appellants have claimed that the adjudicating officer does not have the authority to adjudicate the appellants' cases within the meaning of section 30 and 45 of the Act and to impose penalty and additional tax under section 33 and 34 thereof.
It is claimed by the appellants that clause (b) was added to section 30 of the Act in 2001. Therefore SRO 448(I)/2000, dated 10.07.2000 is ab-initio illegal and void because clause (b) to section 30 of the Act cannot be operated retrospectively to give legal cover to this notification. Hence the adjudicating officer had no jurisdiction to adjudicate the case. The learned DR stated that the issue of jurisdiction of the adjudicating officer stands settled in terms of the decision taken by this Tribunal's Bench-II, Islamabad and no illegality can be attributed to the order passed by the learned adjudicating officer. He further claimed that the decision of Bench-II under reference also takes care of the appellants claim about SRO 448(I)/2000, dated 01.07.2000.
24. After taking into consideration the rival arguments of both the parties I am of the view that the stand taken by the learned counsel for the appellants is not convincing. Before recording reasons for my disagreement with the learned counsel it would be appropriate to reproduce below sections 30 and 45 of the Act and SRO 448(I)/2000, dated 01.07.2000 to have a clear picture of the legal position: "30. Appointment of Officers.-For the purposes of the Act, the Board may, by notification in the official Gazette, appoint in relation to any area, any case or class of cases specified in the notification, any person to be:-
(a) a Collector of Sales Tax;
(b) a Collector of Sales Tax (Adjudication);
(c) an Additional Collector of Sales Tax;
(d) a Deputy Collector of Sales Tax;
(e) an Assistant Collector of Sales Tax;
(f) a Superintendent of Sales Tax;
(g) an officer of sales tax with any other designation.
45. Power of Adjudication.-in cases involving assessment of tax, charging of additional tax, imposition of penalty and recovery of amount erroneously refunded (or any other contravention) under this Act or the rules made thereunder, the jurisdiction and powers of adjudication of the Sales Tax Officers shall be as follows:-
(i) Collector Cases falling under sub-section
(2) of section 11 and section 36 of the Act without any restriction as to the amount of tax involved or amount erroneously refunded (or any other contravention).
(ii) Additional CollectorCases falling under sub-section
(2) of section 11 and section 36 of the Act provided that the amount of tax involved or the amount erroneously refunded (or any other contravention) does not exceed ten million rupees.
(iii) Deputy Collectora. Cases falling under subsection
(1) of section 1 1.
(b) Cases falling under subsection (2) of section 11 and section 36 of the Act provided that the amount erroneously refunded (or any other contravention) does not exceed two and a half million rupees.
(iv) An of ficer of Such cases as may be notified by sales tax with the Board: any other designation.
Provided that the Board may, by notification in the official Gazette, vary the jurisdiction and powers of any other officer of Sales Tax or a class of officer of Sales Tax: Provided further that the Board shall have powers to regulate the system of adjudication including transfer of cases and extension of time limit in exceptional circumstances.
Explanation.--?Ox the purpose of this section, tax means the principal amount of sales tax (other than additional tax, and in case where only additional tax is involved, the amount of additional tax)."
Notification No. SRO 448(I)/2000, dated 01.07.2000: "Notification No. S.R.O. 448(l)/2000, dated 1st July, 2000.-In exercise of the powers conferred by section 179 of the Customs Act, 1969 (IV of 1969), read with section 5 thereof, section 45 of the Sales Tax Act, 1990, read with section 30 thereof, and section 33 of the Central Excises Act, 1944 (I of 1944), and rule 4 of the Central Excise Rules, 1944, the Central Board of Revenue is pleased to direct that, subject to paragraph 2, the Collector, Collectorate of Customs, Sales Tax and Central Excise (Adjudication) specified in column (2) of the table below shall adjudicate the cases relating to areas falling in the jurisdiction of the Collector of the Collectorates mentioned in column (3) of the table:- S. No. Collector (Adjudication) Collectorate (1) (2) (3)
1. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Karachi-Ii. (i) Collectorate of Customs (Appraisement), Karachi. ii. (ii) Collectorate of Customs,Port Muhammad Bin Qasim,Karachi.
2. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Karachi-IIi. (i) Collectorate of Customs (Exports), Karachi. ii. (ii) Collectorate of Customs, Preventive, Karachi.
3. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Karachi-IIIi. (i) Collectorate of Customs, (Appraisment), Karachi. ii. (ii) Collectorate of Sales Tax and Central Excise, Karachi. (W est)
4. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Quetta.i. (i) Collectorate of Customs, Sales Tax and Central Excise, Quetta. ii. (ii) Collectorate of Customs, Sales Tax and Central Excise, Hyderabad.
5. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Faisalabadi. (i) Collectorate of Customs, Central Excise, Faisalabad. ii. (ii) Collectorate of Sales Tax, Faisalabad. iii. (iii) Collectorate of Sales Tax and Central Excise, Multan.
6. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Lahore.i. (i) Collectorate of Customs,Lahore ii. (ii) Collectorate of Sales Tax and Central Excise, Lahore. iii. (iii) Collectorate of Sales Tax and Central Excise, Gujranwala. iv. (iv) Collectorate of Customs, Sambrial/Sialkot.
7. Collector , Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Rawalpindi.i. (i) Collectorate of Customs,Rawalpindi. ii. (ii) Collectorate of Sales Tax and Central Excise, Rawalpindi. iii. (iii) Collectorate of Customs,Peshawar . iv. (iv) Collectorate of Sales Tax and Central Excise, Peshawar .
2. The cases of following categories shall not be adjudicated by the adjudicating officers of Collectorate of Customs, Sales Tax and Central Excise (Adjudication), namely:--
(a) cases involving rejection of sales tax refund;
(b) cases of involving technical violations of manifest clearance;
(c) cases involving violations of baggage rules;
(d) cases involving technical violations of import/export restrictions without the involvement of any evasion of duty or taxes;
(e) cases involving adjudication by the officers of Controller of Customs Valuation's Office;
(f) cases specifically remanded by superior Courts to the offices of the concerned Collectorates by name or by designation; and (g) cases involving routine condonations of time limit or procedural omissions.
3. The Collector, Collectorate of Customs, Sales Tax and Central Excise (Adjudication) shall specify the jurisdiction of the Additional Collectors of Customs, Sales Tax and Central Excise (Adjudication) and Deputy Collectors of Customs, Sales Tax and Central Excise (Adjudication) in the Collectorate with the prior approval of the Board."
25. A bare reading of the provisions of sections 30 and 45 of the Act together abundantly makes it clear that the Central Board of Revenue, by a notification in the official Gazette, has the power to appoint any person to be an officer of sales tax with any of the designations mentioned in section 30 in relation to any area, any case or class of cases specified in the notification and such officers, while exercising the powers of adjudication shall follow the dictates of section 45 of the Act. The Central Board of Revenue through Notification SRO No. 448(I)/2000, dated 01.07.2000 in exercise of its powers under section 45 read with section 30 of the Act has appointed Collectors in various Collectorates of (Adjudication) to adjudicate the cases relating to the area of their jurisdiction as given in column (3) of the said notification. Vide paragraph 3 of the said notification, the Collectors, Collectorates of Customs, Sales Tax and Central Excise (Adjudication) so appointed have been given the authority to specify the jurisdiction of the Additional Collectors and Deputy Collectors of Customs, Sales Tax and Central Excise (Adjudication) in their Collectorates with the prior approval of CBR. The appellants have not been able to prove how and in what manner the impugned order of the adjudicating officer is void ab-initio. The only claim that they have made is that in clause (b) of section 30 of the Act the word "Adjudication" appearing in the brakets was substituted for the word "(Appeals)" in 2001 and hence the Collectorates of Adjudication could not be created prior to this amendment and the creation of the Collectorates in 2000 was unlawful. This argument is devoid of any material substance firstly, even if clause (b) of section 30 of the Act was not amended prior to issuance of SRO 448(I)/2000, dated 01.07.2000, it was validly issued in relation to area and cases of adjudication within the given jurisdiction. Secondly, if for arguments' sake the stand of the learned counsel is taken for a moment, the validity of this SRO cannot be challenged because it was covered under clause (g) of section 30 of the Act. Thirdly, this amendment was brought in the Act because with the creation of the Adjudication Collectorates in the year 2000 the institution of Collector (Appeals) was abolished. Thus except for being only clarificatory in nature this amendment has no other bearing on the provisions of section 30 and 45 of the Act or the Notification SRO No. 448(I)/2000, dated 01.07.2000. The adjudicating officer was vested with the powers of an Officer of Sales Tax within the meaning of section 30 of the Act and he was competent to adjudicate the cases covered by the instant appeals within the meaning of section 45 of the Act read with SRO 448(I)/2000, dated 01.07.2000. A similar view was also taken by the Islamabad Bench- II of this Tribunal in Appeal No. 1745/2001 of M/s. Pir Stone and Sand Supplier, Rawalpindi versus the Additional Collector, Sales Tax, PNCA Building, Rawalpindi to which the learned DR has made a reference in his arguments. Thus no illegality has been committed by the adjudicating officer.
26. It is the claim of the appellants that the adjudicating officer does not have jurisdiction to invoke a number of provisions of the Act. Although no specific arguments have been advanced by the appellants to augment this claim yet it appears that they are of the view that the adjudicating officer cannot take cognizance of the violations of sections 3, 6, 26, 33 and 34 of the Act since he has no powers to take cognizance of violations of these provisions for imposition of penalty and additional tax. The learned DR has claimed that the adjudicating officer is vested with the power to take cognizance of these offences under subsection (2) of section 11 of the Act read with section 45 thereof and therefore the validity of his decisions cannot be put to question.
27. From perusal of the provisions of section 45 of the Act as reproduced above it is clear that the adjudicating officer is vested with the power under section 11(2) and section 36 of the Act regarding assessm ent of tax, charging of additional tax, imposition of penalty and recovery of amount erroneously refunded or any other contravention under the Act or the rules made there under. The sales tax is paid by the registered person on the self assessment basis. Where a registered person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible, sub-section (2) of section 11 empowers the adjudicating officer to make an assessment of sales tax actually payable by that person and to impose penalty under section 33 alongwith additional tax due under section 34 of the Act. Non payment or short payment or erroneous deduction of input tax from output tax or refund thereof arises out of violations of a number of the provisions of law including sections 3, 6, 7, 22, 23, 25 and 26 of the Act and sub-section (2) of section 11 and section 45 of the Act from which the Adjudicating Officer derives the power encompass all such violations. For example, if a person does not pay the tax in accordance with the provisions of the Act he violates the provisions of section 2(9), 3, 6 and 26 of the Act. Therefore when the adjudicating officer invokes these provisions of the Act in the show cause notice to determine the tax liability of the person he acts in accordance with the provisions of sub-section (2) of section 11 and section 45 of the Act because unless violations of these provisions is proved or disproved he cannot make assessment of the tax due under section 11 and 36 of the Act. Therefore it is incorrect to suggest that he cannot invoke the provisions of sections 2(9), 3, 6 and 26 of the Act since he enjoys no powers under these provisions. The august Supreme Court of Pakistan, in the case of D. G. Khan Cement Company Ltd. And others versus Federation of Pakistan and others reported as PTCL 2004 CL. 224 has held that "Harmonious construction is to be made keeping in view the different provisions of the statute after fully understanding the intention with which the same has been made and object which was intended to be achieved." Justice G.P. Singh in his book quoted above, citing from Indian case laws, says:-- "It has already been seen that a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and other parts of the statute, it is the duty of the Courts to avoid "a head on clash" between two sections of the same Act and, "whenever it is possible to do so, to construe provisions which appear to conflict so that they harmonise. It should not be lightly assumed that "Parliament had given with one hand what it took away with the other".
The provisions of one section of a statute cannot be used to defeat those of another "unless it is impossible to effect reconciliation between them". The same rule applies in regard to sub-sections of a section, in the words of GAJENDRAGADKAR, J.: "The sub-sections must be read as parts of an integral whole and as being interdependent; an attempt should be made in construing them to reconcile them if it is reasonably possible to do so, and to avoid repugnancy". As stated by VENKATARAMA AIYAR, J.: "The rule of construction is well settled that when there are in an enactment two provisions which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is what is known as the rule of harmonious construction". That, effect should be given to both, is the very essence of the rule. Thus a construction that reduces one of the provisions to a "useless lumber" or "dead letter" is not harmonious construction."
Therefore the decision of the adjudicating officer cannot be questioned on this count.
28. Coming to the last two points of the learned counsel for the appellants, it may be pointed out that the Adjudicating Officer passed the order pertaining to the case covered by Appeal No. 154/2005 and also applied the same, mutatis mutandis, to the case covered by Appeal No. 155/2005 since both the cases were directed against the appellants and in both the cases common points of law and facts were involved. In the former case show cause notice was served on the appellants on 09.07.2002 and the case came up for hearing on 27.07.2002. Thus no illegality has been committed as on 27.07.2002 this case was heard. So far as omission of mentioning 29.05.2003 as date of hearing in the impugned Order-in-Original No. 214 of 2003, dated 16.07.2003 is concerned, the impugned Order-in-Appeal No. 87 of 2005 dated 29.04.2005, in para 4(a) states that notice for 29.05.2003 was served on the appellants and their counsel also attended the hearing. Thus it is obvious that non mentioning of this was a clerical error which can be ignored as typographical error does not vitiate the order of the Adjudicating Officer. Reliance is placed on the Honourable Lahore High Court judgment in the case of M/s. Millat Tractors Ltd., Lahore versus Collector of Sales Tax and Central Excise, Lahore reported as 2003 PTD 1445.
29. While parting with this case it is necessary to dilate upon a somewhat minor issue which was not stressed at the hearing by the learned counsel for the appellants although it was agitated in the memo of appeal. The issue is whether assessment of sales tax on the basis of Income Tax Assessm ent documents is justified. From what has been discussed above, it has become crystal clear that neither the appellants filed monthly Sales Tax Returns nor paid any amount of sales tax during the period in dispute. They are running a chain of restaurants and were doing roaring business during the period under dispute as can be seen from their Income Tax Returns in which sales have been shown to the tune of millions of rupees. Despite that they avoided and evaded payment of sales tax and filing of Sales Tax Returns by due dates. This demonstrates that they knowingly, deliberately and willfully flouted the laws of the land and defrauded the exchequer of its legitimate revenue. They only sell food items since no other business has been disclosed by them.
Having known their legal obligations under the Act as registered person, their failure to file Sales Tax Returns showing monthly sales alongwith payment of sales tax due thereon amounts to tax fraud within the meaning of sub-section (37) of section 2 of the Act. The appellants have not been able to provide any lawful excuse for causing heavy tax loss to the revenue. The onus to prove that they have not committed tax fraud is on them. Therefore the sales tax authorities were justified to rely upon the records of the appellants which they filed with the Income Tax Department in the form of Income Tax Assessm ent Returns. However, while relying upon those documents due care appears to have been taken by the sales tax authorities to determine the value of supplies made by them for determination of their sales tax liabilities as the calculation of sales tax determined in the impugned orders indicates that the allowances due to the appellants have been given.
Therefore no illegality can be attributed to the orders passed by the Adjudicating Officer on the basis of the Income Tax Assessm ent documents of the appellants as the appellants were not cooperating and disclosing their actual sales in accordance with the provisions of the Act.
30. From what has been discussed above there is no doubt that the appellants have knowingly, deliberately and willfully evaded sales tax on supply of food items during the period from October, 1999 to June, 2000. I therefore have no reasons to interfere with the findings of the lower forums.
The same are accordingly upheld. The appeals fail and are dismissed accordingly.
31. Announced.
32. Parties may be informed accordingly and files may be consigned to the records.