' CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).---The miscellaneous application for additional grounds and this appeal was filed by the registered person against the impugned Order-in-Appeal No.418 of 2013 dated 16-5-2013 passed by the learned Commissioner (Appeals), Faisalabad pertaining to tax periods 7/2008 to 6/2011 have agitated the respective grounds for the tax periods as set forth in the memo. Of grounds of appeal.
2. Firstly, we would like to dispose of the miscellaneous application for additional grounds. The learned A.R. Appearing on behalf of the applicant has requested to allow the following grounds which are hereby reproduced below:--
(i) That show-cause notice issued under section 11(2)(3)(4)(5) simultaneously is against the law as all the sections are distinct from each other and the learned Commissioner (Appeals) failed to give any verdict on it.
(ii) That even show-cause notice under section 11(3) is illegal as adjudication officer failed to establish any collusion deliberate act of the registered person and the Commissioner (Appeals) failed to give any verdict on it.
(iii) That the audit proceedings for the tax periods 07/2008 to 06/2011 vide show-cause notice C.
No.Audit-02/RTO/FSD/61 dated 3-8-2012 are illegal. The instructions regarding selection for audit, coverage of audit and guidelines for selection of cases for audit declared null and void by the higher court.
(iv) That the provision of section 38B of the Act only applies when the audit or inquiry or investigation is preceded against the third party; hence the entire proceedings are illegal.
(v) That the provision of section 25(2) of the Act only authorised the competent authority to conduct audit once in a year; hence conducting multiple audit is illegal.
3. The learned DR has opposed this application with the contention that above said grounds should be taken at the time of filing of appeal. On the other hand, the learned AR stated that the grounds are of purely legal in nature and can be raised at any stage before any, appellate forum. It is well settled law that such grounds can be taken at any stage before finalization of the case at any forum.
4. Resultantly the instant application of the registered person is hereby accepted and additional grounds sought to be raised is hereby allowed. The miscellaneous application stands accepted
5. Briefly stated the facts of the case are that the appellant/registered person is an individual carried on business of printing. The appellant/registered person was informed vide letter C Nos.627 and No.44 dated 23-6-2012 and dated 1-8-2012 respectively by the department that evidence/documents was required to conduct Audit under section 38B of the Sales Tax Act, 1990 for the tax period pertaining to 07/2008 to 06/2011 and called for the various documents in serial Nos.
(a) to (u) as mentioned in the show-cause notice. In response to said notice the appellant/registered person submitted the said record on 24-7-2012. Subsequently, Assistant Commissioner (IR), Audit-05, Zone-II, RTO, Faisalabad issued notice under section 25 of the Act bearing C. No. Audit-02/RTO/FSD/61 dated 3-8-2012 has contravened that during scrutiny of data and record submitted for the tax period mentioned supra, following suppliers have been suspended/blacklisted detail of which are as under:-- Sr.
No.STRN Party NameStatus Tax Period 11703870801137Kamran EnterprisesBlacklisted w.e.f.
17-5-20123/2010 21700491000773Qadeer PackagesBlacklisted w. e. f.
4-5-20129/2010 31703481900191R.S. EnterprisesBlacklisted w.e.f.
29-6-20124/2011 41703999815482Seven Star Paper LineBlacklisted w. e. f.
8-3-20121/2010 51700999975628Great InternationalBlacklisted w. e. f.
8-3-20131/2010
6. On the basis of aforesaid facts, the appellant/registered person was called upon to show-cause as to why input tax amounting to Rs.1,979,644 along with default surcharge and penalties may not be recovered from them under sections 11(2)(3)(4)(5) of the Sales Tax Act, 1990. The adjudication proceedings culminated in passing Order-in-Original No.03/2012 dated 19-10-2012 The appellant/registered person preferred appeal before the learned Commissioner Inland Revenue
(A) who after considering the submissions of the appellant/registered person partially accepted the appeal vide Order-in-Appeal No.418/2013 dated 16-5-2013 inter alia with the following observation:- "As mentioned above and after perusal of record reveals that supplier unit namely Messrs Kamran Enterprises was blacklisted on 17-5-2012 with immediate effect and not from the date of registration, whereas the purchase of the appellant relates to the period March, 2010 and April, 2010. In the case of Messrs Qadeer Packages I find that this supplier is not blacklisted as per taxpayer online verification but was blocked by the department w.e.f. 26-3-2012 and the purchase of the appellant pertain to the period April, 2010 to April, 2011, hence it is held that the purchase of the appellant from these two supplier are prior to blocking or blacklisting. In view of above, I find that the stance of the appellant to the extent of Messrs Kamran Enterprises and Messrs Qadeer Packages is supported through documentary evidence and by following the dictum laid down in the above referred judgments of the Appellate Tribunal I have no hesitation to accept the appeal on the basis of reported judgment of Honourable Tribunal reported PTCL 2011 CL 788(sic) and 2012 PTD (Trib.) 453. In the case of Messrs R. S. Enterprises, 1 find that the plea of the appellant is not convincing to me, as this unit is blacklisted from its date of registration and the appellant also failed to prove genuineness of their truncation with this supplier. This being the position the appeal of the appellant to the extent of Messrs R.S. Enterprises is rejected accordingly."
7. The said order has been challenged by way of this appeal. Heard; the contesting parties at length. From the pleadings of the parties, following issues are framed for the disposal of these appeals as per Para 2 of this order supra.
8. As regard the first and second issues, the adjudicating officer mentioned in its notice that the proceedings initiated under section 11(2)(3)(4)(5) of the Act. For sake of facility, the said section is reproduced as under:- "[11. Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded.---
(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an officer of Sales Tax shall, after a notice to show cause to such person, make an order for assessm ent of tax, including imposition of penalty and default surcharge in accordance with sections 33 and 34:
(1) Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate.
(2) Where a 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 under this Act for reasons other than those specified in subsection (1), an officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and 34.
(3) Where by reason of some collusion or a deliberate act ant (sic) 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 requiring him to show cause for payment of the amount specified in the notice.
(4) 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 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 subsection, the amount of tax shall be recovered as tax fraction of the value of supply.
(5) No order under this section shall be made by an Officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard: ' Provided that order under this section shall be made within one hundred and twenty days of issuance of show-cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days: ' Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso."
9. Reliance was made on a judgement of Honourable Lahore High Court, Lahore in a case reported as 2013 PTD 1536; their Lordship has held that:-- "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. Willful 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 rashi". (emphasis supplied).
11. "Deliberate" also means "premeditated; an act done after reflecting and weighing the matter well'. Something carefully thought out in advance.
12. "Collusion", on the other hand, means "where two persons enter into a deceitful agreement, usually secret, to defraud and gain an unfair vantage 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 employment 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 "5.
14. "Error" means "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 "6 (emphasis supplied).
15. "Misconstruction" means "an inaccurate explanation"7.
16. The above meanings clearly establish that for it to be a "deliberate act", the tax payer must have a pre-meditated or prearranged 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 that 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 jurisdiction 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 Imam Packages, Lahore v. Appellate Tribunal Customs C.E. And Sales Tax, Custom House, Lahore and 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 inadvertence 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."
10. From the perusal of statutory text contained in section 11 of the Act and citation mentioned supra reflects the following aspects that plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to be attached to the patent words which convey the plain and obvious meaning. In a taxing act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. It is, no doubt, true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter. It is important to remember the rule, which the Courts ought to obey, that, when it is desired to impose a new burden by way of taxation, it is essential that this intention should be stated in plain terms. The Courts cannot assent to the view that, if a section in a taxing statute is of doubtful and ambiguous meaning, it is possible out of that ambiguity to extract a new and added obligation not formerly cast upon the taxpayer. We have heard the learned counsel for both sides at length and perused the. Record. Provision of section 11 stipulate different conditions for issuance of notice under section 11 of the Act; firstly, the registered person fails to file the return; secondly the registered person has not paid the tax due on supplies or made short payment or has claimed input tax credit or refund which is inadmissible; thirdly specific charge of "collusion or deliberate act" was levelled in the subject show-cause notice and fourthly any inadvertence, error or misconstruction, any tax or charge has not been levelled. In absence of any detail or proper allegation regarding the above situations if assessment is made under section 11(2)(3)(4)(5) and there are reasons to believe that any of the aforementioned defects exists in assessm ent of tax. The said notice, dated 3-8-2012 under section 11 aforementioned issues to the registered person does not indicate under what subsection of the section has been issued; when confronted, the learned counsel for the department contended that as already show-cause notice was issued to the registered person; to which the appellant had submitted explanation; is understood that the notice has been issued under subsection (2)(3)(4)
(5) of section 11 of the Act, which is misconceived; as under the law, the adjudicating . Authority is required to apply his mind cautiously and to indicate the registered person under section 11(2) or 11(3) or 11(4) or 11(5) under what reason; its assessment of tax is sought; as assessment of tax in a case to some extents a penal action; so the registered person be prepared to meet the consequences of an assessm ent of tax. As the notice prima facie is defective and the error is not curable as it does not indicate the reason to reassess the already assessed tax in the hands of the registered person. Hence, the impugned show-cause notice, being illegal ab initio, the proceedings initiated on the basis of the said notice are set aside.
11. As regard third and fifth issues, the learned counsel draw over intention towards section 25(2) and section 72B of the Act, which are reproduced here-in-under below:-- "Subsection (2) of Section 25.- 9[(2) The officer of Inland Revenue authorized by .The Commissioner, on the basis of the record, obtained under subsection (1), may, once in a year, conduct audit:"
"3[72B. Selection for Audit by the Board.---(1) The Board may select persons or classes of persons for audit of tax affairs through computer ballot which may be random or parametric as the Board may deem fit.
(2) Audit of tax affairs of person selected under subsection (1) shall be conducted as per procedure given in section 25 and all the provisions of this Act shall apply accordingly.
(3) ' For removal of doubt it is hereby declared that the Board shall be deemed always to have had the power to select any persons or classes of persons for audit of tax affairs under this section.]" and relied upon the judgement of Honourable Lahore High Court, Lahore in a case reported as 2012 PTD 1815; their Lordship has held that:-- "50. Section 25(1) of STA simply provides for calling of the record by the tax regulator from a taxpayer. It is section 25(2) which provides that the officer of the inland revenue on the basis of the record obtained under subsection (1) may, once in a year conduct audit. With the insertion of section 72B through Finance Act, 2010, FBR has been empowered to select persons for audit of tax affairs through computer balloting which may be random or parametric.
51. Section 25(2) of STA, taken independently, empowers the Commissioner to pick and choose from taxpayers whose record has been called under section 25(1). The said provision vesting the Commissioner with the power to pick and choose a taxpayer for audit, without any objective criteria, is ex facie discriminatory. Additionally, the scope of selection for audit is further restricted, as section 25(2) selects the taxpayers from amongst those taxpayers whose record has been earlier called under section 25(1). This alone is inconsistent with the concept of audit discussed above. Section 25(2) provides for unguided and un-canalised power to conduct audit which, for reasons given above, is ex facie discriminatory and hence unconstitutional and illegal.
52. The constitutionality of section 25(1) of STA can be saved if it is read down, as discussed above, and read in tandem with section 72B of the STA. Hence, section 25(1) provides the machinery provision for conducting of audit of the tax affairs of a taxpayer, after it has been selected for audit by the FBR under section 72B.
53. It is clarified that rest of section 25, including subsection (1) remain intact and is not dependent on section 72B. Impugned Notice dated 14-12-2011 issued under section 25 of the STA by the Commissioner Inland Revenue (Zone-11) is therefore declared to be unconstitutional and illegal and hence set aside."
12. The learned counsel contended that it was a mandatory condition under Section 72B of the Act that before conducting an audit of registered person's tax affairs, selection must be made by the FBR. In the instant case, the learned ACIR, Audit Unit-05, Zone-II, RTO, Faisalabad has conducted audit of appellant's sales tax records under section 25 of the Act on its own will without any prior selection from the Board on the basis of random or parametric criteria under section 72B of the Act which is illegal and without jurisdiction and it is well-settled law that where the basic statutory notice is illegal and without lawful authority, the whole superstructure built on it would have to fall on the ground automatically and whatsoever proceedings in its consequences in the shape of any show-cause notice or Adjudication order or appellate order or even recovery notice shall also become illegal, unlawful and without jurisdiction. There is no provision in the Sales Tax Act, 1990 for undertaking any such reconciliation outside the ambit of "audit proceedings" under section 25 of the Act. By bare reading of above provisions of law, it becomes vivid that the provisions regarding selection of audit by the FBR were made mandatory w.e.f. 1st July, 2010 therefore, any audit exercise conducted thereafter, without adhering to due process of law by subordinate tax functionaries without selection of audit by the Board is not only illegal and unlawful but also without lawful competency and legal jurisdiction.
13. On merits, the learned counsel contended that learned Commissioner (IR) (Appeals) giving the impression that main emphasis of the learned first appellate authority was that the supplier of the appellant was declared blacklisted. However, even on this issue, we feel persuaded by the arguments advanced by the learned AR. It is matter of record that the Order-in-Original was passed on 19-10-2012 much after the tax period almost three years after the supplier unit was declared blacklisted. Scanning of the various judgments relied upon by the learned AR for the appellant/registered person in support of his contention also substantiate the view point urged by the learned AR. The judgment of Supreme Court of Pakistan reported as 2005 SCM R 492. It has been held by the apex court that:- "it is well-settled principle of law that the executive orders or notifications, which confer rights and are beneficial, would be given retrospective effect and 'those which adversely affect or invade upon vested right cannot be applied with retrospective effect."
14. Following the ratio settled in the above mentioned judgments, we are of the view that the department was not within the ambit of law while passing the order against the appellant/registered person for the reason that the supplier was blacklisted in 2012. Obviously the supplier in question was operative during the period when the business/ transaction took place.
We must further add that if it is allowed to happen then the engine of business would come to grinding halt because nobody would know with regard to fate of its business concern if the subsequent events like declaring a business blacklisted are allowed to cover the period when the other business concern with whom it was dealing with, was operative and the registered person who has been called upon to show cause entered into business transaction with the subsequently blacklisted business in good faith and as per prevailing conditions at that time.
15. Keeping in view the above discussion and the case-laws cited supra, both the orders and show- cause notice of the authorities below are declared to be illegal, void and without lawful authority and legal impropriety. We are of the considered view that all the orders are held illegal on legal as well as on facts hence is set aside.
16. As a result, the departmental appeal is dismissed being bereft of any merits.
17. The appeal of the registered person is disposed of to the extent and manner indicated above.