' MUNSIF KHAN MINHAS (JUDICIAL MEMBER).---These four sales tax appeals have been filed by the taxpayer against the impugned Order-in-Appeals Nos.87, 89, 90 and 91 of 2009 dated 25-2-2010 on the following common grounds:--
(a) That the impugned show-cause notice and orders passed by both the lower forum are bad in law and contrary to the facts and circumstances of the case.
(b) That paras. 4 and 6 of the impugned order passed by learned Commissioner Inland Revenue
(A) are factually incorrect. Neither anyone from the respondent's side appeared on any date of hearing nor they filed any written comments as referred and reproduced in paras. 4 and 6 of the impugned order. This is just an afterthought and it is strongly believed that the impugned order have been prepared on dictation of the respondent (opposite party) on back and behind of the appellant in glare violation of principle of natural justice.
(c) That the audit under Rule 13(2) of S.R.O. 575(1)/2002 dated 13-8-2002 is without jurisdiction as the same was non-existent.
(d) That the learned respondent ignored the clear dictate of law of ex parte proceedings when both the respondent did not appear on any date of hearings.
(e) That, the impugned show-cause notice and subsequent orders are illegal being based upon an illegal audit.
(t) That, without prejudice, so-called audit report/observation has never been supplied to the appellant for comments in violation of mandatory provision of subsection (3) of section 25 of the Sales Tax Act, 1990.
(g) That, without prejudice, impugned show-cause notice cannot be issued under subsection (1) of section 36 ibid in absence of mentioning particularly by any collusion or deliberate act on the part of the appellant. Therefore, impugned show-cause notice is bad in law on this score as well.
(h) That, without prejudice, neither any provision as to Post Refund Audit are contained in S.R.O.
575(1) of 2002 nor any Post Refund Audit Division was established under the same S.R.O. Therefore, the so-called audit report said to be made by Post Refund Audit, is without jurisdiction hence all subsequent orders passed on this illegal report are also illegal and unlawful.
(i) That, the submissions and written arguments filed by the appellant as reproduced in paras. 3 and 5 of the impugned order dated 25-2-2010 have altogether been ignored, and even not discussed in the impugned order in clear violation of principle of natural justice.
(j) That, the impugned Order-in-Appeal has been passed in a mechanical manner when it disposes of 4 appeals having different fact and figures in one consolidated judgment.
(k) Without prejudice the impugned show-cause notice is badly time barred.
(1) Without prejudice, both the impugned orders dated 21-3-2009 and 25-2-2010 are illegal and void being based on an illegal show-cause notice.
(m) Without prejudice, both the impugned orders are also time barred within meanings of proviso to subsection (3) of section 36 of Sales Tax Act, 1990.
2. Brief facts of the case are that the taxpayer is manufacture-cum-exporter, having its manufacturing unit at Sihala Industrial Triangle, Islamabad, manufactured and exported knitwear garment during the year 2003. The manufacture-cum-export of knitwear garments was a zero rated supply under section 4 of Sales Tax Act, 1990. Meaning thereby that the input sales tax paid on purchases of raw materials used in manufacture of exported goods, was refundable under the law embodied under sections 7, 8 and 10 of the Sales Tax Act, 1990 read with S.R.O. 575(1)/2002. The registered person filed refund claim of the input tax paid thereupon for the month of March, 2003 through Sales Tax Return filed on 15-4-2003. The department carried out a thorough verification of the refund documents and after about 6 months sanctioned the refund and issued a Refund Payment Order dated 27-8-2003 to the registered person.
After about five years of payment of Refund amount, the CIR, LTU, Islamabad issued a show-cause notice to the registered person referring therein some audit report from Post Refund Audit Division which has never been supplied to the taxpayer. In the impugned show-cause notice a number of discrepancies have been pointed out in the aforesaid refund which had been sanctioned and paid to the taxpayer about 5 years earlier. The registered person contested the impugned show-cause notice in adjudication and the DCIR dropped many discrepancies; however some of these were decided against the registered person.
3. Being aggrieved with the treatment meted out by the Deputy Collector the taxpayer filed an appeal before the first appellate authority but the same had been dismissed vide impugned Order-in-Appeals Nos.87, 89, 90 and 91 dated 25-2-2010.
4. I have carefully heard the arguments of both the sides and have perused the relevant record available on file. I am of the view that according to section 36(2) the Deputy Collector issued show- cause notice after the period of three years. Section 36(1) and (2) is reproduced for ready reference: 36 Recovery of tax not levied or short-levied or erroneously refunded.---(1) Whereby 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."
The phrase "shall be served with a notice within three years of the relevant date" conveys the intention of legislature that show-cause notice and issuance of the same, within three years, is a mandatory requirement. The term "shall" used in subsection (2) of Section 36 makes the compliance of provision of law mandatory and there is no escape to it. When a period is provided by a special, statute, then any proceedings or actions taken under the provisions of special statute has to be taken within the stipulated period. Under section 36 of the Sales Tax Act, 1990, two periods of limitation have been provided for issuance of show-cause notice subsection (1), the period of limitation is five years and the cases in which this period is applicable are those where the taxpayer has either colluded with somebody for such short payment or had made some deliberate acts or omissions for short payment of the tax. Therefore the State has been given a longer period of limitation i,e, five years so that such a person should not go scot-free. Under this subsection (2) of section 36, the period of limitation for issuance of show-cause notice is restricted to three years only. Under this subsection, the grounds available for issuance of show-cause notice are inadvertence, error or some misconstruction on the part of the taxpayer meaning thereby that it was due to some innocent act of the taxpayer that the tax was either not paid or short paid.
Therefore the legislator restricted its limitation to D three years as covered under subsection (1) of section 36 of Sales Tax Act. It is thus evident from the above analysis of the two subsections that the authority who has to issue such a show-cause notice, will have to make out a case in the, show-cause notice itself that under which provision the, case falls and will also have to incorporate the grounds and reasons in his show-cause notice very clearly and explicitly so that it could be ascertained whether the show-cause notice issued falls under subsection (1) or (2) section 36 of Sales Tax Act. Failure on the part of authority issuing show-cause notice would render the show- cause notice invalid and illegal. Therefore for this reason the show-cause notice cannot be said to be a show-cause notice under subsection (1) or (2) of section 36. At the most, even if this notice is treated to be a valid notice under subsection (2) of section 36, still it is beyond the described period of limitation of three years. As the show-cause notice has been issued after the prescribed period of three years, the superstructure built on it is to be struck down. Learned First appellate authority has presumed collusion but question is as to any action has been taken against officers issuing refund. Answer is no. Hence in this scenario to stretch the limitation of five years without taking any action against the departmental officers will not be logical. In such case where there is merely a contravention and not the fraud, limitation cannot be extended to five years. Therefore both the orders passed by both the forums below are vacated and the appeals of the Registered Person are accepted on the point of limitation As Registered Person's appeals have been decided on the point of limitation therefore there is no need to adjudicate upon the other issues.
5. These four appeals filed by the registered person are disposed of in the manner as indicated above.