FINDINGS/DECISION JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN. - The Deputy Collector Central Excise and Sales Tax issued show-cause notice dated 1.4.2003 to the complainant which was served on 4.4.2003. It was stated that during the course of audit it was noted that the complainant availed area exemption under S.R.O. 561 (I)/94, dated 9.6.1994. The complainant was thus liable to pay , sales tax from 22.6.1999 but they started paying it from 26.9.1999. Admittedly there was a default for payment of sales tax for 7 days amounting to Rs. 5,47,254/- which was paid. The Deputy Collector issued a show-cause notice dated 1.4.2003 which reads as follows:-- GOVERNMENT OF PAKISTAN COLLECTORATE OF CUSTOMS, CENTRAL EXCISE & SALES TAX (ADJUDICATION) CUSTOMS HOUSE, JAMRUD ROAD, PESHAWAR C. No. ST-DC(Adj)82/2003/904. Dated: 1.4.2003.
SHOW-CAUSE NOTICE Whereas it has been reported to the undersigned by the Collectorate of Sales Tax & Central Excise, Peshawar vide contravention Report No. ST(Contra) (sic) that during the course of audit of Messrs.
Tops Food and Beverage Ind., Hattar, the audit team noted that the registered person availed area exemption under S.R.O. 561 (l)/94, dated 9.6.1994. The registered person started its trial production on 22.6.1994 according to their RG- 1 Register.
2. After availing five years exemption the registered person was liable to pay sales tax from 22.6.1999, but they started paying s&les tax from 29.6.1999. Thus the registered person claimed invalid exemption for seven days, It is liable to pay sales tax for this period amounting to Rs.
5,47,254/- as principal amount under Section 36(1) and Rs. 6,90,612/- as addl. Tax (updated at the time of payment) under Section 34 of the Sales Tax Act, 1990.
Contravention case framed against the unit under Sections 3, 33(2cc), 34 and 36(1) of the Sales Tax Act, 1990 and submitted for adjudication.
3. Now, therefore, the said Messrs Tops Food and Beverage Plot No. 1411, Phase-Ill, I.E., Hattar are hereby called upon to show cause within 15 days of the issuance of this notice as to why the amount stated in above para may not be recovered from them alongwith additional tax and penalties and why penal action should not be taken against them for violation of law mentioned above. They would produce all evidence documentary or otherwise in support of their defence within the period specified above failing which the case shall be decided on the basis of evidence placed on record.
4. They should also state in their written statement whether they would like to be heard in person or through their duly authorized representative or counsel, and if so, they or their duly authorized representative or counsel should appear before the undersigned for hearing on 16.4.2003 at 11.00 a.m.
(Sd/-)
DEPUTY COLLECTOR (ADJ)
REGISTERED: Messrs Tops Food and Beverages Plot No. 1411, Phase-III, I.E., Hattar Copy to:
1. The Collector (Adjudication) Customs, .Central Excise and Sales Tax, Peshawar.
2. The Assistant Collector, (Audit-ll), Sales Tax and C. Excise, Peshawar with the request too direct Mr. Fawad Saeed, Sr. Auditor to attend the hearing , on the time, date and venue as specified above.
DEPUTY COLLECTOR (ADJ)
The complainant submitted his reply dated 27.5.2003 in which facts do not seem to have been disputed, It was, however, submitted that the department should have noted the default and could have recovered within 3 years. The complainant has objected to show-cause notice on the ground that in the facts and circumstances of the cause notice should have been served within 3 years and not 5 years purported to be under Section 36(1) of the Sales Tax Act. The complainant has challenged the legality of the notice demanding tax and additional tax as well.
2. In reply the department submitted that reference to Section 36(2) is incorrect because the unit wilfully and not by mistake avoided payment of Government tax for one week. The contravention was framed against the unit under Section 36(1) and not under Section 36(2) of the Sales Tax Act/ 1990 and thus the show-cause notice .Is within time, It was the duty of the unit to inform the Assistant Collector at least the 15 days before the set up, of the unit and it was duty to be aware on which date the exemption expired. The department has justified the action taken against the complainant.
3. Mr. M. Zafar Iqbal representative for the complainant's has contended that notice served on the complainant is illegal and no action can be taken on his basis. His main objection is that the notice could not be, issued under sub-section (1) of Section 36. According to him notice issued under sub- section (1) of Section 36 is not time- barred. The department has reiterated its stand as stated above. The main question for consideration is whether the notice issued by the department is contrary to law and illegal. To appreciate the contention of the parties Section 36 its sub-section (1) and sub-section (2) which are relevant to the controversy is reproduced is under:- "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.
(2) Where, by reason of any inadvertence, error or misconstruction, 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 the amount of tax or charge or the amount of refund erroneously made shall be served, with a notice within three years of the relevant date, requiring him to show cause for payment of the amount specified in the notice: Provided that, where a tax or charge has not been levied under this sub-section, the amount of tax shall be recovered as tax fraction of the value of supply."
It can be observed that sub-section (1) and sub-section (2) provide for different contingencies based on different facts and circumstances. Sub-section (1) can be applied where by reason of some collusion or a deliberate act any tax or charge has not been levied or made whereas sub- section (2) applies to cases where by reason of any advertence, error or misconstruction, any tax or charge has not been levied, In sub-section (1) there are two ingredients viz. (1) collusion or (2) a deliberate act, for non-levy or not making payment.
Whereas sub-section (2) speaks of non-payment due to inadvertence, error or misconstruction.
The departmental case is that the complainant's case falls under sub-section
(1) Section 36 and not under sub-section (2). Section 32 of the Customs Act is identical to the provision of Section 36. It came for consideration before the Supreme Court of Pakistan in case of Assistant Collector and others v. Messrs Khyber Electrics Lamps (2001 SCM R 838). It was observed that where the unit is charged for any act as specified in subsection (1) or (2) the same should be specifically mentioned. In sub-section (1) there are two situations as specified above and unless it is clearly specified in a notices that the nonpayment was due to collusion or due to deliberate act of the defaulter it will be possible for the unit to defend itself properly. This defect in the notice was specifically discussed and pointed out by the Supreme Court where with reference to the Section 32 of the Customs Act, it was observed as follows:- "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 subsection (2) of Section 32 of the Act must contain the allegation of collusiveness and notice under subsection (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."
Applying the principle laid down by the-Supreme Court it is obvious that notice under Section 36(1) of the Sales Tax Act, 1990 is defective, vague and not according to law. The notice being illegal, as held by the Supreme Court the same has no legal effect, It is, therefore, recommended that:-
(i) The show-cause notice being illegal, the entire proceeding is without jurisdiction and pf no legal effect.
(ii) The Collector passed the order to cancel the impugned notices, proceeding taken and order if any passed in pursuance of impugned notice.
(iii) Compliance to be reported within 30 days.