' The appellant was served with a show-cause notice on 17-4-2005, the preamble of which states: "it has been reported by the Assistant Collector (Legal) that during the course of Audit for the period 2002-2003 of Messrs Anwar Engineering Works, Plot No,C-17, Street No,28-B, Muhammad Road, Shershah, Karachi having Sales Tax Registration No,11-00-8708-022-82. The following discrepancies were noted....".
2. According to the show cause notice, no further inquiry was conducted by the Deputy Collector who issued the show-cause notice and vide para 2 of the show cause notice treated these discrepancies as contravention of the provisions of sections 2(44), 3, 3(1A), 6, 7, 22, 23, 26, and 73 of the Sales Tax Act asserting that these contraventions came into existence due to the deliberate act of the appellant within the framework of section 36(1) of the Sales Tax Act, 1990. The appellant vide their reply to the show cause notice dated 13-6-2005 denied the allegations contained in the show cause notice and stated that:--
(a) The audit was conducted without having any authority;
(b) The Deputy Collector initiated action on the report of the application of mind was applied by the adjudicating authority;
(c) The notice was beyond the permissible monetary limits of adjudication authorized to the Deputy Collector;
(d) That there exists no evidence on record to support the allegation, hence adjudication proceedings are illegal.
3. However, despite the reply submitted by the appellant, the matter was adjudicated by the Additional Collector who vide his orders dated 13-3-2006, upheld the charges framed against the appellant and enforced the recovery of demanded Sales Tax along with penalties. The said order was challenged by way of an appeal before the Collector (Appeals) who vide his order dated 27- 10-2007 rejected the appeal by stating that: ' ...I have carefully considered the record of the case as well as the written and verbal arguments by the learned counsel for the appellant and the DR and my findings are as follows:--
(a) The first issue relating to wastages has been correctly assessed and I do not find any argument given by the appellant which can assail the departmental version. I, therefore, main the recovery ordered on this account.
(b) The second issue regarding late payment resulting in violation of section 73 has been considered at the Board's level and the Collector have been empowered to condone such delay under STGO No,1/2004. The input in such cases is admissible as denial of the same would result in double taxation. I, therefore, allow input tax adjustment on this account. However, a penalty of 3% of the Sales Tax amount involed is imposed for violation of section 73 of the Sales Tax Act, 1990 which shall abate if the Collector concerned grants such exemption.
(c) As regards the remaining liabilities assessed in the order-in-original, I have considered the version of both sides and do not find any merit in the appellant's case. I, therefore, do not consider it necessary with the order-in-original on those issues."
4. The said order has now been challenged through the present appeal. It has now been contended by the appellant that:-
(i) The show cause notice issued is defective as the same does not conform to the requirement of law.
(ii) The officer who issued the show cause notice was not competent to issue the same.
(iii) The audit conducted by the auditor was illegal as the same was not authorized by the competent authority.
(iv) All the allegations are frivolous as no evidence to support the same exists on record and as such the proceedings are illegal.
5. On the other hand, the DR supported the impugned order for the reasons given in the show cause notice and the impugned orders.
6. Rival parties have been heard and case record examined. In order to dispose of the case the most important moot point is whether or not the show cause notice is so defective as to have no legal effect.
7. The perusal of show cause notice shows that the same has been issued in terms of powers conferred by subsection (1) of section 36 of the Sales Tax Act, 1990 which authorizes the Revenue to raise demand and recover sales tax where by reason of collusion or through a deliberate act any tax or charge has not been levied or has been short levied.
8. The perusal of show cause notice reveals that the requirements laid down by Section 36 were not met and the show cause notice does not allege that the offending acts were deliberate or there stood a collusion, even the allegations are not specific and no evidence to support the same was gathered or provided to the appellant. It is the duty of the department that pre-requisite of show cause notice and supply of grounds or reasons in clear and explicit words to ascertain that under which subsection of section 36 of Sales Tax Act, 1990 the case would fall to be discharged. But unfortunately, the perusal of show cause notice reveals that no such effort was made by the department and the show cause notice remains defective and failure to abide by the law has rendered the show cause notice invalid.
9. The issue of a faulty show cause notice was considered by the Supreme Court in the case of Caltex v. Collector (2006 SCM R 1519) and their lordships while elaborating the issue observed that:- - ' ..Under section 36 of the Sales Tax Act, 1990, the cases of non-levy of tax or short levied or erroneously refund are divided into two categories. The first category of cases in which due to deliberate act, tax is not levied or short levied or erroneously refunded, are covered by subsection
(1) of section 36 ibid whereas subsection (2) of this section covers the cases in which sales tax was not levied or short levied or erroneously refunded by reason or inadvertence, error or misconstruction. It is settled principle of law that without completion of pre-requisite of show- cause notice and supply of the grounds or reasons in clear and explicit words to ascertain that under which subsection of section 36 of Sales Tax Act, 1990, the case would fall, the demand notice may have no legal consequence and thus the failure of the authorities issuing show-cause notice to disclose such grounds and reasons may render the notice invalid. In the instance case, it is not clear that under which subsection of section 36 ibid, the show-cause notice was issued and whether the non-payment of tax was due to the collusion of deliberate act of tax payer or it was the result of inadvertence error or misconstruction. The show-cause notice carrying the defect of vagueness may not stand to the test of judicial scrutiny....-
10. This issue was also considered by the Supreme Court in the case of AC Customs v. Khyber Electric Lamps (2001 SCM R 838), and their lordships observed that a vague notice fails to meet out the requirement of law. More precisely, their lordships observed: ....It is well-settled proposition of law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all. Since prerequisite show- cause notices as required by law have not been served on the respondents, therefore, no straightforward demand notice for payment of alleged short levy could be issued. Show-cause notices under subsections (2) and (3) of section 32 of the Customs Act, 1969, are two distinct and separate types of notices as different grounds and different period for service of notice in each subsection has been prescribed. Under subsection (2) of section 32 for non-levy, short levy or erroneous refund, specific allegations of any collusion between the assessee and the Customs Staff has to be levelled with proper particulars in show-cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy, short levy or erroneous refund is done due to inadvertence, error or misconstruction then show-cause notices to the importer has to be served within six months of the non-short levy. If such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirement of subsections (2) and (3) of section 32 of the Customs Act, 1969...... "
11. From the above observations of the apex court, it is evident that the administrative authorities have to function within the frame work of law. Law is to be followed as it directs and the requirements stated in the statute are to be followed in letter and spirit.
12. However, it is the tendency of the administrative authorities that often they act on their personal whims and fail to follow the commands of law, but in such a happening they are not protracted by law and the cases made out by them are going to be defeated.
13. Having said that and in the light of fact that the show cause notice in this case is defective and does not have any legal effect, the impugned orders are set aside.