SYED MANSOOR ALI SHAH, J. - The questions of law raised in this reference are as follows:- "(i) Whether the show-cause notice issued was barred by time in terms of sub-se ction (2) of Section 36 of Sales Tax Act, 1990 being issued after the expiry of 3 years and 5 months?
(iii) Whether the payment made to the supplier of the applicant through the cheques can be termed as non- fulfilment of the procedure prescribed under Section 73 of the Sales Tax Act, 1990?"
2. Learned counsel for the petitioner submitted that Show-Cause Notice under Section 36(1) of the Sales Tax Act, 1990 ("Act") can only be issued when the department can establish that by reason of some collusion or a deliberate act any tax or charge has not been levied, etc, Notice under the said provision can be issued within five years of the relevant date. Show-Cause Notice under Section 36(2) of the Act is issued where by reason of any inadvertence, error or misconstruction any tax has not been levied, etc. Notice under the said provision can be issued within three years of the relevant date. He submits that Show-Cause Notice dated 14.2.2007 does not disclose any deliberate act or collusion and is, therefore, at best a Notice under Section 36(2) of the Act. Coming to the facts of the case, learned counsel emphasized that Section 73 of the Act was misunderstood by the petitioner and instead of making payments throug h the business account of the petitioner , banking instruments like pay orders and demand drafts were prepared by using cash. He further submits that the payment to the supplier is not disputed and has been received in the bank account of the supplier , hence there is no evasion of tax. He has placed reliance on Assistant Collector Customs, Dry Port, Peshawar and others v. Messrs Khyber Electric Lamps MFC Co. Ltd., Peshawar (ZOO"! SCMR 838) and D.G. Khan Cement Company Limited, Lahore v. Collector of Customs, Sales Tax and Central Excise, Multan and 2 others ( 2003 PTD 1797 ).
3. As far as second question of law is concerned, learned counsel submitted that as long as the petitioner has prepared pay orders and demand drafts in favour of the supplier and the money has been credited in the business account of the supplier , the requirement of Section 73 is fulfilled. Therefore, there is no violation of law on the part of the petitioner .
4. Learned counsel for the respondent department, on the other hand, submitte d that the deliberate act of the petitioner is established as he failed to produce the statement of account of the bank to establish that the payment to the supplier was made through the business account of the petitioner and it is for this reason that notice under Section 36(1) of the Act was issued to the petitioner .
5. On the second question, learned counsel for the respondent department submit ted that Section 73 of the Act is unambiguous and states that the payment has to be made through the business account of the buyer into the business account of the supplier through a banking instrument and there is no exception to the said rule in the aforesaid section.
6. We have heard learned counsel for the parties and perused the record.
7. Brief facts of the case are that Show-Cause Notice dated 14.2.2007 was issued to the petitioner , inter alia, under Section 36(1) of the Act. The relevant extracts of the. Show-Cause Notice are reproduced hereunder for reference:- GOVERNMENT OF P AKIST AN OFFICE OF THE DEPUTY COLLECT OR (ADJUDICA TION) CUST OMS, SALES T AX AND FEDERAL EXCISE (SALES T AX WING) NEAR VEHARI CHOWK, OPPOSITE AL-MEZAN ISLAMI KANT A, BAHA WALPUR ROAD, MUL TAN SHOW -CAUSE NOTICE Whereas it has been reported, to the undersigned by the auditor sales tax Multan that during the course of audit of Messrs Care Tax, Ansar Colony , Bhudla Road, Multan (hereinafter referred to as the respondent) bearing sales tax Registration No. 04-075208-734-28 for the period 2002-2003 following discrepancies have been observed:-
1. Inadmissible input tax adjustment in violation of Section 73 of the Sales T ax Act. 1990.
The respondent made payments to the suppliers through pay orders or Ds but the same were not transferred from the business bank account of the registered person and not completing the banking channel violating Section 73 of the Sales Tax Act, 1990, and made wrong input tax adjustment of Rs. 774,595. The same amount of. Sales tax is recoverable from the respondents along with additional tax and penalty under sections 34(1) and 33 of the Sales Tax Act, 1990.
2. In this way, the respondents violated the sections 2(9), 7(1) and 73 of the Sales Tax Act, 1990, additional tax under Section 34(1) of the Sales Tax Act, 1990 punishable under Section 33 of the Sales Tax Act, 1990, assessable under Section 11(2) of the Sales Tax Act, 1990, recoverable under Sections 36(1) (deliberate act) and 48 of the Sales Tax Act, 1990.
3. The Auditor , Sales Tax made out contravention case against the respondents for the violation of provisions of above-mentioned sections of the Sales Tax Act, 1990 and submitted the case papers to this of fice for adjudication.
5. Now, on the basis of above-mentioned facts the respondents are charged with violation of above-mentioned sections of Sales Tax Act, 1990 and are called upon to show cause within 10 days of the receipt of this notice as to why sales tax Rs. 774595 reported to have been evaded along with additional tax under. Section 34(1) ibid, should not be recovered from them under Section 36(1) (deliberate act) and 48 of the Sales Tax Act, 1990, and why penal action under Section 33(2)(cc) of the Sales Tax Act, 1990 should not be taken against them for violation of above- mentioned sections of Sales Tax Act, 1990.
Sd/- (Muteen Alam)
Deputy Collector (Adjudication)
In order to assess whether the aforesaid Show-Cause Notice meets the requirement of Section 36(1) of the Act and therefore could have been issued within the prescribed period of five years requires examination and review of the scope of the power envisaged under Section 36(1) and (2) of the Act.
Section 36(1) and (2) of the Act states as follow:- "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, bv 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." ( emphasis supplied).
The phrase "where by reason of..." in the above section, mandates that the tax department cannot begin to assume jurisdiction under Section 36 of the Act and issue Show- Cause Notice to a tax payer , unless and until, the tax department is seized of sufficient evidence "by reason of" which collusion, deliberate act, inadvertence, error or misconstruction is established.
8. Show-Cause Notice, is a foundational document, which is to comprehensively describe the case made out against the taxpayer by making referenc e to the evidence collected in support of the same. It is the narration of facts in the Show-Cause Notice along with the supporting evidence which determines the offence attracted in a particular case. Show-Cause Notice is not a casual correspondence or a tool or licence to commence a roving inquiry into the affair of the taxpayer base d on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the department against the taxpayer .
9. The jurisdictional threshold required for issuing Show-Cause Notice under Section 36 of the Act attains importance because of the desperate and contrasting character of the mischief envisaged in the two sub-sections of Section 36(1). It is, therefore, necessary to first understand the meaning and scope of the key words: collusion, deliberate act, inadvertence, error or misconstruction.
10. The word " deliberate as defined in Black's Law Dictionary is as under:- "Deliberate. Well advised; carefully considered; not sudden or rash; circumspect; slow in determining. Wilful rather than merely intentional. Formed, arrived at, or determined upon as a result of careful thought and weighing of considerations, as a deliberate judgment or plan. Carried on coolly and steadily , especially according to a preconceived design given to weighing facts and arguments with a view to a choice or decision; careful in considering the consequences of a step; slow in action; unhurried; characterized by reflection; dispassionate; not rash" , (emphasis supplied).
11. "Deliberate" also means "premeditated; an act done after reflecting and weighing the matter well" . Something carefully thought out in advance.
"Collusion on the other hand, means "where two persons enter into a deceitful agreement, usually secret, to defraud and gain ah unfair advantage over a third party According to the Black's Law Dictionary , "Collusion" means:- "An agreement between two or more persons to defraud a person of his rights by the forms of law, or to obtain an object forbidden by law. It implies the existence of fraud of some kind, the employ ment of fraudulent means, or of lawful means for the accomplishment of an unlawful purpose. A secret combination, conspiracy , or concert of action between two or more persons for fraudulent or deceitful purpose ." (emphasis supplied).
13. "Inadvertence" means "lack of attention, carelessness or want of care" . It means that the "doer never really meant to do what he did; he was not aware of what he was doing".
14. "Error" moans "a mistaken judgment or incorrect belief as to the existence or effect of matters of fact, or a false or mistaken conception or application of the law. A mistake of law or false or irregular application of it........ " . (emphasis supplied).
15. "Misconstruction" means "an inaccurate explanation" .
16. The above meanings clearly estab lish that for it to be a "deliberate act", the tax payer must have a premeditated or pre-arranged plan to evade tax. The evidence must show and establish a calculated stratagem or a game plan behind the transaction tailored for the specific purpose of evading tax. While "collusion" requires that1 2 3 4 5 6 7 there must be more than one person scheming to defraud or there must be a conspiracy of a fraudulent act resulting in evasion of tax. On the whole, unless there is a deliberate design or an agreement between persons to defraud the tax department and the same is clearly and perspicuously laid out in the Show-Cause Notice, mere mentioning of Section 36(1) or mentioning the words 'deliberate act' or "collusion" in the Show-Cause Notice will not vest the tax department with the jurisd iction to invoke Section 36(1) of the Act. The legal enforceability and the jurisdictional validity of a Show-Cause Notice stems from its CONTENT i.e., the facts supported by tangible evidence referred to in the Show-Cause Notice, and not from cosmetic showcasing of the statutory provisions or statutory key words like 'collusion' or 'deliberate act' in the Show-Cause Notice. Reliance with advantage is placed on Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others (2001 SCMR 838)
Caltex Oil (Pakistan) Ltd. v. Collector , Central Excise and Sales Tax and others (2005 PTD 480), Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others (2007 PTD 1804 ), D.G. Khan Cement Company Limited, 53-A Lawrence Road, Lahore v. The Collector of Customs, Sales Tax and Central Excise, Multan and 2 others (2003 PTD 1797 ), Messrs Inam Packages, Lahore v. Appellate Tribunal Customs C.E.
And Sales Tax, Custom House, Lahore and 2 others (2007 PTD 2265 ), Osman Abdul Karim Bawaney v. The Collector of Customs, Chittagong and others (PLD 1962 Dacca 162) and Collector of Central Excise, Hyderabad v.
Messrs Chemphar Drugs and Liniments, Hyderabad (AIR 1989 Supreme Court 832).
17, We have gone through the CONTENTS of the Show-Cause Notice (reproduced above) and do not find it to exhibit a premeditated or a pre-planned design to defraud the department. The reasoning given by the learned counsel for the respondent department for making out a case under Section 36(1) is the failure of the petitioner to furnish the statement of account. This submission has no force because the very case of the petitioner is that the payment was made through banking instruments by using cash and without using the business bank account as the petitioner misunderstood the provision of law and was under the impression that payment through banking instrument lead to sufficient compliance of Section 73 of the Act. The facts available on record show that pay orders and demand drafts were prepared by the petitioner by making payments in cash (other than by using its business account). The payments to the supplier were made through banking instrument and were duly credited in the account of the supplier . Thus, there has been no evasion of tax. The facts of the case as they have come before us show that it is at best a case of 'inadverte nce 1 or 'error' under Section 36(2) of the Act. In any case no prejudice has been caused to the Revenue as the tax has been admittedly paid.
18. We, therefore, are of the view that Section 36 (1) of the Act does not apply to the facts and circumstances of the case. At best, the case of the petitioner falls under Section 36(2) of the Act. Considering that the show-cause notice dated 14.2.2007 has been issued after four years and notice under Section 36(2) of the Act could only be issued within three years of the relevant date, the impugned Show - Cause Notice is also barred by time. For the reasons given above, the first question is answered in the af firmative.
19. As far as, second question of law is concerned, after the above discussion, this question is reduced to an academic question. Hence we decline to answer the same in the peculiar circumstances of this case.
20. For the reasons given above, this reference is disposed of in the above terms.
21. Office shall send a copy of this order under the seal of the Court to the learned Appellate Tribunal Inland Revenue as per Section 47(5) of the Sales Tax Act, 1990. Black's Law Dicationary Sixth Edition (at page 426). The Law Lexicon of British India by P . Ramanatha Aiyar (at page 319). www .freedictionary .com Sixth Edition (at page 264). Sixth Edition (at page 759). The Law Lexicon of British India by P . Ramanatha Aiyar (at page 570) Black's Law Dictionary Sixth Edition (at page 542). www .freedictionay .com Also at 2001 SCMR 838 .8 1 2 3 4 5 6 7 8