1. JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.---The Titled Sales Tax Appeal has been preferred by the Registered Person calling in question the impugned Appellate Order bearing No, 20 dated 20 January, 2014 passed by the learned Commissioner Inland Revenue (Appeals-III), Lahore.
2. Facts briefly stated are that the appellant (an AOP) is a registered A person, bearing NTN 2733812 and STRN 0304640006673, which is engaged in retail sales of footwear, handbags and other accessories through 85 retail outlets established in various cities of Pakistan and Azad Jammu and Kashmir The Deputy Director Intelligence and Investigation Inland Revenue, Lahore (DDII-IR) searched the business premises of the appellant on 30-4-2013 after obtaining permission from the Magistrate under section 40 of the Act on the basis that the appellant had 85 retail outlets in various cities which involved massive investment and the same needed to be probed into. Further, the website of the appellant declared it as a "manufacturer", while, it was registered as "retailer" only Moreover, it had paid sales tax amounting to Rs,54,101,882 as a "retailer", whereas it was required to pay sales tax amounting to Rs,127,841,647; hence, it had short paid sales tax amounting to Rs,73,739,765 for the period from July 2010 to June 2012. Subsequently, the Director Intelligence and Investigation Inland Revenue, Lahore (DII-IR) forwarded a Contravention report dated 16-5- 2013 to the Chief Commissioner Inland Revenue, RTO, Lahore for adjudication based on investigation made by DDII-IR under section 38 of the Act made under Case No, 04/2013 dated 16- 5-2013 detected on 8-2-2013 observing that the registered person is engaged in retail sales of leather A shoes, artificial leather shoes, leather bags and allied articles etc. And is paying turnover tax under Sales Tax Special Procedure Rules, 2007, Chapter II (Special Procedure for payment of Sales Tax by Retailers) vide S.R).O. 480(1)/2007 dated 9-6-2007, whereas w,e,f, 1-1-2012 in accordance with the provisions of clause (viii) of S.R.O. 1125(1)/2011 dated 31-12-2011 as amended vide S.R.O. 154(I)/2013 dated 28-2-2013, the registered persons who are solely or otherwise engaged in the retail business of goods or products of five zero rated sectors namely textile (including jute), Carpets, Leather, Sports and Surgical goods are required to pay sales tax on their retail sales (a 5% (for the period 1-1-2012 to 28-2-2013) and 2% (for the period 1-3-2013 onwards), which he failed to comply with and thus evaded sales tax amounting to Rs,192,060,185. Based on the Contravention Report, Assistant Commissioner Inland Revenue, Audit 03 Zone X, RTO II, Lahore issued Show-cause notice bearing No, 562 dated 1-6-2013 confronting the evasion of sales tax of Rs,192,060,185, as per detail given below, by stating the basis as explained in the contravention report.
2. S.R.O. No. and DateTax Period Sales As per Record Obtained (Rs.)Sales Tax Rate Amount of Sales Tax S.R.O. 1125(I) dated 31 December, 2011Jan-12 300,822,522 5% 15,041,126 Feb-12 256,963,414 12,848,171 Mar-12 262,909,256 13,145,463 Apr-12 213,680,698 10,684,035 May-12 164,783,818 8,239,191 June-12 205,994,013 10,299,701 Jul-12 207,799,090 10,389,955 Aug-12 444,733,712 22,236,686 Sep-12 182,677,725 9,133,886 Oct-12 455,913,530 22,795,677 Nov-12 191,228,346 9,561,417 Dec-12 261,390,477 13,069,524 Jan-13 313,401,511 15,670,076 Feb-13 248,782,644 12,439,132 S.R.O. 154(I) dated 28 February, 2013Mar-13 325,307,383 2% 6,506,148 Grand Total 4,036,388,139 192,060,188 In the Notice, it was alleged that appellant violated the provisions of Sections 3, 6, 8, 22, 23 and 26 of the Sales Tax Act, 1990 read with clause (viii) of S.R.O., 1125(1)/2011 dated 31-12-2011 amended vide S.R.O. 154(1)/2013 dated 28-2-2013 and have willfully/deliberately evaded sales tax amounting to Rs,192,060,185 during the period April 2011 to March 2013 by committing tax fraud as defined under section 2(37) of the Sales Tax Act, 1990 which is recoverable from the appellant under section 11(2) of the Sales Tax Act, 1990 read with Special Procedure, 2007 along with default surcharge under section 34 to be calculated at the time of deposit besides penal action under section 33(5)(8)(11c) and (13) read with Section 2(37) of the Sales Tax Act, 1990. Subsequently, a Corrigendum was issued bearing Case No, 565 dated 5-6-2013 in exercise of powers conferred under section 57 of the Sales Tax Act, 1990 by making changes in the certain clauses of the show-cause notice.
3. After obtaining the replies of the registered person and para wise comments of the Directorate of Intelligence and Investigation of Inland Revenue, the Deputy Commissioner Inland revenue, issued Order bearing No, 03/2013 dated 1-6-2013 by quoting the contents of entire notices, the replies filed by the appellant and the comments filed by the Directorate of Intelligence and concluded the assessm ent by stating that:- "I have gone through the facts of the case through verbal submissions Viz-a-Viz written submissions of the respondent and the department i,e, Directorate of Intelligence andst th Investigation (IR), Lahore, 1 am of the considered opinion that respondent wilfully/deliberately violated the provisions of Sections 3, 6, 7, 8, 22, 23 and 26 of the Sales Tax Act, 1990 read with clause (viii) of S.R.0. 1125 dated 31st December 2011- as amended vide S.R.0. 154(I)/2013 dated 28th February 2013 and evaded sales tax amounting to Rs,192,060,185 during the period from January, 2012 to March 2013 and thus committed tax fraud as defined under section 2(37) of the Sales Tax Act, 1990."
4. Against this Order, the appellant filed appeal before the Commissioner Inland Revenue, (Appeals) who vide appellate order No,20 dated 20 January 2014 decided the appeal in the following manner:-- The upshot of above discussion is that the impugned order is found to have been passed without fulfillment of statutory requirements and giving due consideration to the contentions of the appellant. On the other hand, the appellant has also not been able to establish that it had correctly discharged its tax liability for the tax periods under consideration in accordance with law.
5. In order to meet the ends of justice, therefore, the impugned order is remanded back to the Department to decide the matter afresh in the light of above observations.
6. Being dissatisfied against the order of the learned CIR (Appeals), the appellant has filed the present appeal precisely on the following grounds before the Tribunal:-
(1) That the appellate Order No, 20 dated 20 January, 2019 and assessment Order No, 03/2013 dated 25 September, 2013 (the impugned orders) passed by the respondent No, 1 and respondent No, 2 respectively are bad in law, without having lawful jurisdiction and against the facts of the case.
(2) That the learned Commissioner Inland Revenue (Appeals) [CIR(Appeals)] has erred in- confirming the order issued under section 11(2) of the Sales Tax Act, 1990 (the Sales Tax Act) without having lawful jurisdiction.
(3) hat the learned CIR(Appeals) has erred in remanding the case back to the respondent No, 2 to decide the matter afresh. The act of the CIR (Appeals) is without having lawful jurisdiction, since subsection (3) of section 458 debars the CIR (Appeals) to remand the case for de novo consideration.
(4) That the learned CIR(Appeals) has erred in remanding back the Order No, 03/2013 dated 25-9- 2013 to the respondent No, 2, which was required to be annulled, in the presence of following admitted facts by the CIR (Appeal) in the Order-in-Appeal:
(a) That the impugned Order is a non-speaking order and against the requirements of section 24A of the General Clauses Act, 1897. (Para 6 Page 6)
(b) That the impugned Order has not been issued after application of mind. (Para 6 Page 6)
(c) That the respondent No, 2 was required to issue the show-cause notice and impugned order under section 11(3) of the Sales Tax Act, 1990 (ST Act), which is mandatory provision in case of tax frauds, whereas the impugned Show-cause notice and order have been issued under section 11(2) of the Sales Tax Act (Para 10 Page 6)
(d) That the respondent No, 2 has failed to provide the opportunity of personal hearing to the appellant as required under section 11(5) of the Sales Tax Act and the respondent No, 2 has misstated in the impugned order that "I have gone through the facts of the case through verbal submissions ...... ..". (Para 12 Page 6)
(5) That the learned CIR(Appeals) has erred in not accepting the appeal on a fact that the basis of issuance of show-cause notice is the contravention report issued by the Deputy Director Intelligence and Investigation Inland Revenue, Lahore (DDII-IR) which is illegal, since no prior notice was, issued to the appellant under section 38(1) of the Sales Tax Act, 1990 (ST Act) before proceeding with the investigation and issuance of contravention report under section 38 of the ST Act.
(6) That the learned CIR(Appeals) has erred in ignoring the fact that so-called search was conducted in the absence of any "Proceedings" against the appellant, which is a necessary prerequisite to obtain the search warrant by the DDII-IR; hence, the search and all subsequent proceedings standing thereon, are illegal and void ab initio.
(7) That the learned CIR(Appeals) has erred in not considering the fact that according to the Contravention Report, detection had been made on 8-2-2013; therefore, obtaining search warrant thereafter on 30-4-2013 through misstatement of facts before the learned Magistrate was illegal, malicious and mala fide on the part of the DDII-IR; thus making the whole subsequent proceedings including the impugned order as illegal, and void ab initio.
(8) That the learned CIR(Appeals) has erred in rejecting the ground of appeal that the order has been passed on a defective show-cause notice, which was tried to be cured by the respondent No,2 through the issuance of corrigendum to the show-cause notice under section 57 of the Sales Tax Act, under which only clerical mistakes are allowed to be corrected, whereas the respondent No, 2 made material changes in the Show-cause notice by inserting/ deleting provisions of law and facts. Hence, the impugned order is illegal and void.
(9) That the learned CIR(Appeals) has erred in not adjudicating the ground of appeal that the impugned order has been issued on a date not fixed for hearing.
(10) That the learned CIR(Appeals) has erred in not adjudicating the ground of appeal that the impugned order has been passed on a matter which was pending before the Federal Board of Revenue (FBR) for issuance of clarification and the appellant had made request to the DCIR to keep the proceedings pending till the issuance of clarification by the FBR; however, the DCIR without rejecting the said application, issued the impugned order which is a sheer violation of due process and fair trial and fundamental rights of the appellant protected under Articles 4 and 10A of the Constitution of Islamic Republic of Pakistan.
(11) That the learned CIR(Appeals) has erred in ensuing to adjudicate the facts of the case, after adjudging that the impugned order is a non-speaking order, issued in violation of section 24A of the General Clauses Act, 1897 and section 11(5) of the Sales Tax Act and the impugned show- cause notice and order have been issued under section 11(3) of the Sales Tax Act, instead of section 11(2) of the Sales Tax Act.
(12) That the learned CIR(Appeals) has erred in not adjudicating the ground that the condition
(VIII) of S.R.O. 1125(1)/2011 applies to the retailers or such registered persons who are paying sales tax under Chapter-Ill of the SP Rules, whereas the appellant is paying sales tax under Chapter-II thereof and does not fall under the ambit of Chapter-III.
(13) That the learned CIR(Appeals) has erred in not adjudicating the ground that the appellant is a "retailer" and required to pay the sales tax under Chapter II of the SP Rules. These rules cover all retailers making supplies from retail outlets to final consumers EXCLUDING dealers of Motorcycle, Specified Electric Goods and manufacturers cum-retailers and provide the following protection to the appellant (retailer): Rule 5(2) provides that the turnover of the retailer shall constitute value of all supplies including supplies of exempt, Zero Rated and Third Schedule items.
7. Rule 5(6) provides that the retailers, who paid sales tax during the year 2007-08 under Chapter II, shall continue paying it under the same Chapter till further orders. However, no such order has been issued so far.
8. Rule 6(1) declares the tax paid under these Rules as final discharge of sales tax liability.
(14) That the learned CIR(Appeals) has erred in ignoring the fact that the appellant is paying sales tax under Chapter II of the SP Rules, since its promulgation in 2007 and the tax paid by it is considered discharge of its final sales tax liability; the appellant is liable to pay sales tax under these Rules only, till further orders, as mentioned in Rule 5(6), and no such order has been issued, directing the appellant to discontinue the payment of sales tax under the said Rules.
(15) That the learned CIR(Appeals) has erred in ignoring the clarification issued by the Board vide C. No, 1(140) C/RGST/2011 dated 11th April 2011 on S.R.O. 283(1)/2011 (applicable prior to issuance of S.R.O. 1125(1)/2011 dated 31 December 2011, containing the similar conditions as provided in S.R.O.
9. 1125) that the retailers were required to discharge their sales tax liability under Chapter II of the Rules, and only manufacturer/ wholesaler-cum-retailers were required to pay sales tax under S.R.O. 283(1)/2011.
(16) That the learned CIR(Appeals) has erred in holding that the appellant falls under the five zero rated sector who are liable to pay the sales tax under S.R.O. 1125(1)/2011, instead of Chapter II of the Sales Tax Special Procedure Rules, 2007 (SP Rules).
(17) That the learned CIR(Appeals) has erred in holding that the S.R.O. 1125(1)/2011 is a special legislation, whereas the payment of sales tax by retailers under Chapter-II of the SP Rules is a general legislation.
(18) That the learned CIR(Appeals) has erred in ignoring the fact that the provisions of S.R.O.
10. 1125(1)/2011 cannot be extended to the "retailers" paying sales tax under Chapter. II of the Rules, which is applicable on persons registered as manufacturers, importers, exporters and wholesalers of five zero rated sectors as mentioned in Condition (1) therein. Further, the CIR (Appeals) has erred in holding that the condition No, (I) of S.R.O. 1125(1)/2011 dated 31 December 2011 does not have an overriding effect.
(19) That the learned CIR(Appeals) has erred in disregarding the settled principle of interpretation of statutes that when two interpretations of the same provisions are possible then the interpretation favorable to the taxpayer will be taken into consideration.
(20) That the CIR(Appeals) has erred in disregarding the fact that the appellant is dealing in such types of footwear and other products that are not covered under the S.R.O. 1125(1)/2011.
(21) That without prejudice to the above grounds, it is the settled principle of interpretation of statutes that when two interpretations of the same provisions are possible then the interpretation favorable to the taxpayer will be taken into consideration. Reliance in this regard is placed on the following judgments of the superior courts:
(I) 2004 PTD 2479 (Supreme Court).
(II) 1999 PTD 4138 (High Court)
(III) 2000 PTD 280 (High Court)
22. That the CIR (Appeals) has erred in not adjudicating the ground, wherein the charging of default surcharge under section 34 and levying penalty under section 33(5), (8), (11c) & (13) of the Sales Tax Act was agitated.
11. In the light of the above grounds, it is prayed to vacate the appellate order No, 20 dated 20 January 2014 and assessm ent order No, 03/2013 dated 25 September 2013 passed by the authorities below respectively by deleting the sales tax demand along with the default surcharge and penalty.
3. At the very outset of his arguments on the grounds of appeal, the learned AR contested that the Order-in-Original was issued on the basis of proceedings initiated by the Directorate of Intelligence and Investigation Inland Revenue, for investigation under section 38 of the Sales Tax Act, 1990 (the Act) which are defective due to following reasons:--
(a) The proceedings were initiated through search of the business premises without issuing any notice to the appellant. The first action taken by the staff of the Directorate was raid on the business premises of the appellant on 30-4-2013. It was mandatory upon the authorities to issue notice under section 38(1) of the Act before proceeding with the investigation and issuance of contravention report under section 38. Besides, the first notice under section 38(2) dated 14-5-2013 was served upon the appellant on 15-5-2013 for compliance within three days i,e, by 18-5-2013 whereas submitted the Contravention Report dated 16-5-2013 for adjudication of the case. The said contravention report was issued even prior to filing of reply of notice under section 38(2), hence the show-cause notice and subsequent order based on the said contravention report are illegal.
(b) The AR explained that the search was conducted in the absence of any "Proceedings" against the appellant, which was a necessary prerequisite to obtain the search warrant by the DDIIIR; hence, the search and all subsequent proceedings standing thereon, were illegal and void ab initio.
(c) He explained that date of detection stated on the Contravention Report is 8-2-2013, whereas Search was made on 30-4-2013. The search warrant was obtained by explaining that registered person is paying sales tax as Retailer while it fell under the category of the manufacturer, hence the Registered Person had short paid sales tax by Rs,73,739,765, whereas during search and after obtaining all record, when it was proved to the department that the appellant was only involved in Retail activity and no manufacturing was performed, they entirely changed their stance and taken plea that it was wrongly paying sales tax under the Special Procedure for Retailers instead of paying sales tax under S.R.O. 1125(1)/2011. He explained till issuance of search warrant on 30-4-2013, the authorities were of the view that appellant was manufacturer and paying sales tax wrongly as retailer and after search, when they satisfied themselves that appellant was only a retailer, they changed their position. They even misguided the Magistrate while getting the search warrant.
4. The learned AR explained that entire proceedings undertaken by the Directorate of Intelligence and Investigation were malicious, tainted with mala fide, based on wrong facts and were carried out even without fulfilling the required legal requirements, hence, needed to be quashed. Initiation of proceedings without issuing the notice under section 38 is ab initio illegal and void as decided by the Hon. Lahore High Court in the case reported at 2013 PTD 713. Further, AR argued that all proceedings taken on the basis of illegal act shall be vitiated. Reliance was placed on 1990 PTD 389 (H.C).
12. It is argued that the order had been passed on a defective show-cause notice, which was tried to be cured by the Assessing Officer through the issuance of corrigendum to the show-cause notice under section 57 of the Act, under which only clerical mistakes were allowed to be corrected, whereas the Officer made material changes in the Show-Cause Notice by inserting/ deleting the following contents of the Show-Cause Notice.
13. S.No. Wording of show-Cause NoticeCorrection/insertion through Corrigendum
(i) In the last sentence of 1 Para before the word "Under" the highlighted below is inserted Whereas, it has been reported to the undersigned by the Directorate of intelligence and Investigation (IR).
14. Lahore that you, Messrs Stylo Shoes, 161-M Quaid- e-Azam Industrial Estate, in violation of provisions of clause (viii) of S.R.O.
15. 1125(I)/2011 dates 31-12-2011 as amended vide S.R.O.
16. 154(I)/2013 dated 28-2- 2013. You Messrs StyloWhereas, it has been reported to the undersigned by the Directorate of intelligence and Investigation (IR), Lahore that you, Messrs Stylo Shoes, 161-M, Quaid- e-Azam Industrial Estate, in violation of Provisions of Clause (viii) of S.R.O.
17. 1125(I)/2011 dated 31-12-2011 as amended vide S.R.O.
18. 154(I)/2013 dated 28-2- 2013. You Messrs stylost Shoes, Lahore is engaged in retail sale of leather shoes, artificial leather shoes, leather bags and allied leather article etc. and is paying turnover tax under Special Procedure 2007, Chapter II (Special Procedure for Payment of Sales tax by retailers) vide S.R.O. 480(I)/2007 dated 9- 6-2007 Under Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011, which is reproduced as under:---Shoes, Lahore is engaged in retail sale of leather shoes artificial leather shoes, leather bags and allied leather article etc. and is paying turnover tax under special Procedure 2007, Chapter II (Special Procedure for payment of sales tax by retailers) vide S.R.O. 480(I)/2007 dated 9- 6-2007. With effect from 1- 1-2002. In accordance with the provisions of clause
(viii) of S.R.O. 1125(I)/2011 dated 31 December 2011 as amended by S.R.O.
19. 154(I)/2013 dated 28 February, 2013 of the Sales Tax Act, 1990, the registered persons who are solely or otherwise engaged in the retail business of goods or products of five zero rated sectors namely Textile (including Jute), Carpets Leather, Sports and Surgical goods are required to pay sales tax at the rate of five percent ad val on their retail sales.
20. Under Clause (Viii) of S.R.O.
21. 1125(I)/2011 dated 31-12- 2011, which is reproduced as under:- (ii), (iii)In para 2 a new phrase highlighted below is inserted and the phrase strike through is deleted. It has also been pointed out by the Directorate that comparison of sales as per record obtained/recovered with the sales declared in the sales tax returns during investigation reveals an under declaration/suppression of sales by Rs. 45, 027, 067 (4,It has also been observed that most of the purchases by you have been made from unregistered persons. It has also been pointed out by the Directorate that comparison of sales as per record obtained/recovered with the sales declared inst th 036, 388, 139-3, 991, 361, 072). The same has escaped taxation under special Procedure, 2007the sales tax returns during investigation reveals an under declaration/suppression of sales by Rs. 45,027,067 (4,036,388,139- 3,991,361,072)
22. (iv), (v)In para 3, a new phrase highlighted below is inserted and the phrase strike through is deleted. In view of the above, it is clear that you Messrs Stylo Shoes, Lahore have, thus violated the Provisions of sections 3,6,7,8,22,23, and 26 of the Sales Tax Act, 1990 read with Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011 amended vide S.R.O. 154(I)/2013 dated 28- 2-2013 and have willfully /deliberately evaded sales tax amounting to Rs.
23. 192,060,185 during the period April, 2011 to March, 2013 by committing tax fraud as defined under section 2(37) of the Sales Tax Act, 1990 which is recoverable from you under Section 11(2) of the Sales Tax Act, 1990 read with Special Procedure, 2007 along with default surcharge..............In view of above, it is clear that you Messrs Stylo Shoes, Lahore have, thus violated the Provisions of Sections 3,6,7,8,22,23 and 26 of the Sales Tax Act, 1990 read with Clause (viii) of S.R.O. 1125(I)/2011 dated 31-12-2011 amended vide S.R.O. 154(I)/2013 dated 28- 2-2013 and have willfully/ deliberately evaded sales tax amounting to Rs.
24. 192,060,185 during the period January, 2012 to March, 2013 by Committing tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990 which is recoverable from you under Section 11(2) of the Sales Tax Act, 1990 along with default Surcharge...................
25. The learned AR explained that section 57 did not allow making such changes and prayed that order passed on the basis of amended show-cause notice is illegal and void, which is required to be cancelled.
26. The learned AR further, explained that Assessing Officer alleged that the appellant committed tax fraud under section 2(37) and thereafter issued the Show-Cause Notice under section 11(2) the Act instead of issuing Show-Cause Notice under section 11(3) and concluded the assessment under section 11(2), which is illegal and void ab initio. He explained that cases of tax fraud, as defined in Section 2(37), can only be adjudicated under section 11(3) and if proceeded under section 11(2) are declared as unlawful.
27. The learned AR contended that law clearly distinguished the acts or circumstances for issuance of Show-Cause Notice under various subsections of Section 11. The proceedings initiated without issuing the statutory notice under section 11(3), render the whole proceedings unlawful and void ab initio. He referred that non-payment/short payment of tax was previously dealt under section 36 of the Act, which is Para Materia of Section 11 wherein the Hon. Superior courts in number of cases had held that without ascertaining the subsection under which the case would fall, render the notice invalid. He placed reliance on Caltex v. Collector (2006 SCM R 1519) and AC Customs v Khyber Electric Lamps (2001 SCM R 838), and their lordships observed that a vague notice failed to meet the requirements of law. More precisely, their lordships observed:- "...It is a 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 section (2) 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 the show-cause notice 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..."
28. He learned A.R. Avowed that by following the aforementioned judgments, this Tribunal has held in its recent judgment on the issue in a case cited as 2013 PTD (Tirb.) 228, as under:-- "8. The perusal of Show-cause notice reveals that 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 under which subsection of Section 36 of the 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 show-cause notice remains defective and failure to abide by the law had rendered the show-cause notice invalid"
29. "11. --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"
30. "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."
31. The learned AR pleaded that the superstructure raised on wrong foundation remains defective and the whole of it is likely to crumble on identification of the defect. Reliance is placed upon the case reported as Rupali Polyester Ltd. v. Collector CE and ST [2009 PTD 538].
32. The learned AR Challenged the proceedings and issuance of order, by arguing that show-cause notice was issued by the different Inland Revenue Officers whereas the final order was issued by the different Officer. The Officer who issued the order had neither issued any notice of hearing nor heard the case personally before issuing the order. The learned AR submitted the following Table summarizing the chronological history of proceedings along with the name of the Inland Revenue Officers who conducted the proceedings: Date Description Name of the IR Officer 01 June, 2013 Show-Cause Notice Issued Mr. Haroon Islam-ACIR 05 June, 2013 Corrigendum issued Mr. Haroon Islam-ACIR 07 June, 2013 Adjournment applied by AppellantMr. Haroon Islam-ACIR 17 June, 2013 AR attended the hearing Mr. Haroon Islam-ACIR 18 June, 2013 Hearing Notice issued Mr. Haroon Islam-ACIR 20 June, 2013 Reply submitted by AppellantMr. Haroon Islam-ACIR 20 June, 2013 Hearing Notice issued Mr. Haroon Islam-ACIR 20 June, 2013 AR attended the Hearing Mr. Haroon Islam-ACIR 24 June, 2013 Para wise comments forwarded to the appellantMr. Haroon Islam-ACIR 26 June, 2013 Adjournment applied by appellantMr. Haroon Islam-ACIR 28 June, 2013 Hearing notice issued Mr. Haroon Islam-ACIR 28 June, 2013 AR submitted the reply and attended the hearingMr. Haroon Islam-ACIR 11 July, 2013 Hearing notice issued Mr. Haroon Islam-ACIR 18 July, 2013 Adjournment applied by appellantMr. Haroon Islam-ACIR 22 July, 2013 Adjournment applied by appellantMr. Haroon Islam-ACIR 12 August, 2013 Appellant applied to seek Clarification from FBR 20 August, 2013 Hearing notice issued Ms. Amna Naeem 23 August, 2013 Appellant submitted to hold the Proceedings till the clarification is issued by FBRMs. Amna Naeem 25 September, 2013 Order-in- Original issued Ms. Misbah Nawaz The learned AR has submitted that the proceedings were initiated and personal hearing was afforded by Mr. Haroon Islam - ACIR. However, Ms. Amna Naeem-ACIR took a charge for a while and never heard the case personally. Thereafter, Ms. Misbah Nawaz, issued the Order-in-Original without issuance of any notice or conducting the hearing. Further, he explained that the case was never fixed for hearing on the day when the order was issued. The last hearing of the case was made on 28 June, 2013, almost three months before the date of issuance of the impugned order i,e, 25 September, 2013. He explained that the Officer who issued the order was not well versed with the case and issued the impugned order in haste, without providing opportunity of being heard and without considering the facts of the case. He further highlighted that it had been misstated in order that, "I have gone through the facts of the case through verbal submissions viz-a-viz written submissions of the respondent ." In this regard, he referred the judgment reported at 2005 PTD 165 Lahore wherein it was held that Officials/authorities dispensing justice and exercising judicial powers were supposed to apply their mind to the cases and to determine respective stances taken by the parties and after evaluating the stances to give their own verdict justified by reasons--order passed by Income Tax Appellate Tribunal was not a judicial order which was set aside and the matter was remanded to the Tribunal for deciding the appeal of assessee afresh after hearing the parties.
33. It is argued that the impugned order was issued in violation of section 11(5) as well as the principle of natural justice, which was invalid and illegal; hence, not sustainable. He placed Reliance on the cases cited as 1969 SCM R 212, PLD 1964 SC 410 and 1984 PTD 150 (Kar.), 1999 PTD 1358 and 2011 PTD 726.
34. The learned AR referred Section 24A of the General Clauses Act, 1897 which provides that power shall be exercised reasonably, fairly, justly and for the advancement of the purposes of the enactment by giving reasons for making the order. It is contended that appellant has forwarded the matter for clarification to FBR, the assessing officer was requested to hold the proceedings till clarification by FBR, but the case was proceeded and the learned CIR (Appeals) has even not adjudicated the ground taken by the appellant, which is in sheer violation of due process and fair trial and fundamental rights of the appellant protected under Articles 4 and 10A of the Constitution of Islamic Republic of Pakistan. The learned AR referred to Section 24A of the General Clauses Act, 1897 as well as the cases cited as 2010 SCM R 1778, 2010 SCM R 1475, 2010 SCM R 511, 2009 SCM R 1407, 2013 PTD 2130 ATIR. Such order for being non-Speaking and sketchy did not meet requirements of a judicial order, which must contain contentions of rival parties and its reasoning based on evidential substance. 2006 PTD 1396 Karachi, a reasonable opportunity of personal hearing or submission of reply/conunents/written arguments shall be afforded to the opposite party; all the contentions raised in the representation and the written reply/submission shall be considered and shall be disposed of by Speaking order as required under S.24-A of the General Clauses Act, 1897; He has submitted that in a case reported as 1981 PTD 210 (H.C.) following question was adjudicated by the Hon'able High Court:-- "Whether on the facts and circumstances of the case the Appellate Tribunal was justified in holding that the Income Tax Officer could go resort to section 23(4) of the Income -Tax Act only on 2-12-1971 and not on any subsequent date on which no notice was had been given to the respondent?
35. The Honoraple High Court answered the question as under:- "As stated above, in the present case the conditions required in the law are not satisfied. The Income Tax Officer has acted illegally in making ex parte assessment on a date which was not fixed for hearing without furnishing the assessee with requisite notices. We, therefore, are of the view that ex parte assessment made by him under section 23(4) of the Act on 15-12-1971 was bad in law as he could do so 2-12-1971. (underline is for explaining)
36. The above ratio has also been followed in I.T.A. No, 508/LB/2012 by this Tribunal.
20. The learned AR argued that the learned CIR(Appeals) has erred in remanding the case back to the Assessing Officer to decide the matter afresh. The act of the learned CIR (Appeals) is without having lawful jurisdiction, since subsection (3) of section 45B debars the learned CIR (Appeals) to remand the case for de novo consideration. He further explained that the learned CIR(Appeals) has erred in remanding back the Order No, 03/2013 dated 25-9-2013 to the assessing officer, which was required to be cancelled, in the presence of following admitted facts by the learned CIR (Appeal) in the Order-in-Appeal:--
(a) That the impugned Order is a non-speaking order and against the requirements of section 24A of the General Clauses Act, 1897. (Para 6 Page 6)
(b) That the impugned Order has not been issued after application of mind. (Para 6 Page 6)
(c) The Contention regarding issuance of show-cause notice under section 11(2) instead of section 11(3) is found to carry force. Comparison of two subsections indicate that deliberate nonpayment or short payment of tax on the part of a taxpayer is specifically dealt with section 11(3). The appellant was alleged to have deliberately evaded tax due from it. Therefore, the Assessing Officer was required to issue notice under section 11(3) and not under section 11(2).(Para 10 Page 6)
(d) The contention of the appellant has been considered and found valid. The adjudicating officer who passed the order merely reproduced rival stance of the detecting agency and the appellant, without giving opportunity of hearing to the appellant as required under section 11(5) of the Act, although order was passed more than one month after last date of hearing. (Para 12 Page 6)
37. The learned AR has contended that setting-aside the Order-in Original by the learned Commissioner Inland Revenue (Appeals) amount to give opportunity to the tax department to fill in lacuna, such action was deprecated by the Hon'ble superior courts. He placed reliance on the judgments reported at 2002 PTD 2379 (HC Per) and 2002-PTD-407 (HC) Kar.)
38. While explaining the issue for levy of tax, the learned AR explained that the appellant was registered under the Sales Tax law with effect from 26-12-2006 under the sole category of "Retailer" and is consistently paying sales tax under Chapter II of the Sales Tax Special Procedures for Retailers, since its promulgation in 2007. The appellant has paid the following amounts of sales tax under these procedures.
39. Period Pak Sales Tax AmountMirpur Sales Tax AmountTotal Sales Tax Jul-07 to Jun-08 4,102,257 - 4,102,257 Jul-08 to Jun-09 6,009,059 - 6,009,059 Jul-09 to June-10 11,472,100 12,752 11,484,852 Jul-10 to Jun-11 15,834,431 151,393 15,985,824 Jul-11 to Jun-12 20,786,291 165,423 20,951,715 Jun-12 to Mar-13 19,462,852 200,288 19,663,140 Total 77,666,990 529,857 78,196,846 It is contended that Rule 5(2) of these procedures provides that the turnover of a retailer shall constitute value of all supplies including supplies of exempt, Zero Rated and Third Schedule items.
40. No part of turnover has been excluded for levy of tax under these procedures. Further, Rule 6(1) declares the tax paid under these Rules as final discharge of sales tax liability. The AR emphasized that Rule 5(6) of these procedures provides that the retailers, who paid sales tax during the year 2007-2008 under Chapter II, shall continue paying it under the same Chapter till further orders.
41. However, no such order(s) were passed until 1 July, 2014.
42. The learned AR referred S.R.O. 608(1)/2014 dated 02 July , aforesaid Rules have been substituted and proviso of new Rule 5 st2014ates that:-- "provided that the retailers making supplies of finished goods of the five sectors specified in Notification No, S.R.O. 1125(1)/2011, dated 31st December, 2011 shall pay sales tax in respect of such supplies at the rates prescribed in the said Notification."
43. He focused that even today all the retailers are required to pay tax under these Special procedure including the Retailers dealing in finished goods of five specified sectors, however, it has been clarified that rate of tax on these goods will be charged as prescribed in S.R.O. 1125.
44. The learned AR contended that department has charged tax on the sales of appellant under S.R.O.
45. 1125 which is totally against the guaranteed rights provided to the appellant under Rule 5(6) of the Special Procedures. The learned AR explained that appellant was paying tax under these procedures when the rate of Sales Tax under S.R.O. 1125 on its goods was zero percent and further the appellant was not claiming the credit of any input tax.
46. The learned counsel of the appellant has argued that Scheme of Zero Rating was introduced, vide S.R.O. 535(1)/2005 dated 06 June 2005. It covered five sectors i,e, Textile, Carpets, Leather, Sports and Surgical goods, without prescribing any conditions. After that certain conditions were prescribed first time vide S.R.O. 283(1)/2011 dated 1-4-2011. Later, the currently applicable S.R.O.
47. 112502011 dated 31-12-2011 was notified, which like S.R.O. 283(1)/2011 included certain conditions, the relevant conditions provided in both S.R.Os. Are given below:-- S.R.O. 283(I)/2011 S.R.O. 1125(I)/2011
(c) Miscellaneous (I) The Benefit of this Notification shall be available to every such person doing
(i) Benefit of Zero-Rating or reduced rate shall be admissible only if the goods covered in this notification are usable and are used in the aforesaid sectors for trading and manufacturing purposes. No other sector or industry shall be entitled to the benefit of this Notification.
(b) Leather, Sports and Surgical Goods Sector
(i) Zero rating facility shall cover the whole registered supply chain covering both imports and local supplies except retailbusiness in textile (including Jute), carpets leather, sports and surgical goods sectors who is registered as
(a) manufacturer
(b) importer
(c) Exporter; and
(d) Wholesaler
(c) Miscellaneous
(ix) the composite units including wholesalers covering supplies upto retail stage shall pay sales tax @ 4% of value of supply and shall not pay other amount of upfront tax on their retail sales under any other scheme for retailers under the Sales Tax Act, 1990 or notification issued or rules made thereunder:(VIII) The Registered person who are solely or otherwise engaged in the retail business of these goods or products shall pay sales tax at the rate of five percent ad val on their retail sales and shall be entitled to input tax adjustment. They shall not be required to pay any other sales tax leviable on their such retail transactions, however, such retailers shall be liable to pay turnover tax as prescribed under Chapter III of the Sales Tax Special Procedure Rules, 2007 and the goods supplied at the rate of five per cent shall not constitute part of turnover on which the aforesaid turnover tax is to be paid.
48. The counsel argued that the assessing officer has totally erred in charging sales tax while considering the condition No, (VIII) in isolation, which was required to be read along with condition (I). He argued that condition (VIII) applies to "the registered persons", who are manufacturing or importing the products and selling these goods through Retail Sales either Solely or Otherwise. He referred that Federal Board of Revenue has already issued a clarification vide C. No, 1(140) C/ RGST/2011 dated 11th April, 2011 on S.R.O. 283(1)/2011 that the retailers were required to discharged their sales tax liability under Chapter II of the Rules, and only manufacturer/wholesaler-cum- retailers were required to pay sales tax under S.R.O. 283(1)/2011:- "In case of supplies made to retailers, tax shall be charged at the reduced rate as applicable. In case of purchase of finished goods, the retailers shall pay sales tax a 4% to the sellers and they will also be required to pay upfront tax to the extent and manner as provided under Chapter-II of the Sales Tax Special Procedure Rules, 2007. However, the registered manufacturer or wholesalers shall pay sales tax only @ 4% on the retail sales of their finished products and no other tax liability shall accrue to them on such direct retail sales"
49. It is contended that the wording of this S.R.O. 1125 has further been refined by making changes through S.R.O. 575(1)/2014 dated 26 June 2014 and the relevant clauses (I), (II) and (VIII) were recorded in the following manners, which has totally clarified the position.
(1) The benefit of this notification shall be available only to persons doing business in textiles (including jute), carpets, leather, sports and surgical goods sectors, who are registered as manufacturer, importer, exporter or wholesaler under the Sales Tax Act, 1990, and appear on the Active Taxpayers List (ATL) on the website of Federal Board of Revenue;
(II) this notification shall apply from--
(a) spinning stage onwards, in case of textile sector;
(b) production of PTA or MEG, in case of synthetic sector;
(c) regular manufacturing, in case of carpets and jute products;
(d) tannery onwards, in case of leather sector; and
(e) organized manufacturing, in case of surgical and sports goods;
(VIII) registered persons engaged in the retail sale of locally manufactured goods shall pay sales tax at the rate of five per cent on their retail sales and shall be entitled to input tax adjustment.
50. Such goods supplied at the rate of five per cent shall not constitute part of turnover for the purpose of turnover tax payable as prescribed under Chapter III of the Sales Tax Special Procedure Rules, 2007; The learned A.R. Referred that the issue stands clear when the above stated Condition No(s). (I), (II) and (V111) provided in S.R.O. 1125 are read with proviso in Clause 5 of Chapter II of the Sales Tax Special Procedure Rules, 2007, which is reproduced hereunder:--
5. Retailers required to pay tax on standard rate.---(1)Retailers specified in rule 4 shall pay sales tax at the rate specified in subsection (1) of section 3 of the Act and shall observe all the applicable provisions of the Act and rules made thereunder, including the requirement to file monthly sales tax returns in the manner prescribed in Chapter II of the Sales Tax Rules, 2006: Provided that the retailers making supplies of finished goods of the five sectors specified in Notification No, S.R.O. 1125(1)/2011, dated the 31st December, 2011 shall pay sales tax in respect of such supplies at the rates prescribed in the said Notification.
51. According to the learned A.R. That ambiguity if any in application of this S.R.O. Has clearly been removed. He submitted that the Taxation Officers and the learned Commissioner (Appeals) in number of cases allowed the taxation of retailers under Chapter II of Special Procedures for Payment of Sales Tax by Retailers instead of charging tax under S.R.O. 1125 as adopted in case of appellant. He referred the case of Chase Departments Store bearing STR No, 17-12-9999-956-46 wherein the CIR (Appeals) Zone I, Karachi after discussing the changes made in S.R.O. 1125 and Special Procedure for Payment of Sales Tax by Retailers vide Finance Act, 2014 has accepted the appeal. Further, the Deputy Commissioner accepted the chargeability under Retail Rules in case of taxpayers bearing STR No, 1703850000973 vide Order-in Original No, 19 of 2013, STR No, 1712630300246 vide Order bearing DCR No, 02/01 dated 17-12-2012 and STR No, 17-00-3797-575-13 vide Order-in-Original No, 05/2014 dated 19-2-2014.
52. It is argued that when two interpretations of the same provisions are possible then the interpretation favorable to the taxpayer will be taken. Reliance was placed on the cases reported as 2004 PTD 2479 (Supreme Court), 1999 PTD 4138 (High Court), 2000 PTD 280 (High Court).
53. The learned counsel submitted that the assessing officer has erred in holding that Condition (VIII) of S.R.O. 1125 applies to appellant, which deals with the Registered Persons dealt in Chapter (III), whereas appellant falls in Chapter (II). He also taken plea that appellant deals in foot wears that are not covered in S.R.O.
54. 1125. He referred that the assessing officer has even not allowed the credits of input taxes paid by the appellant and the amount of tax deposited by the appellant during the period.
55. Coming to levy of Default Surcharge and Penalty, he explained that even if the tax is charged under S.R.O. 1125, it cannot be taken by any stretch of imagination as will full default and therefore the provisions for levy of Default Surcharge and Penalty does not attract in this case. Reliance was placed on 90 Tax 1 (Supreme Court ), 2010 PTD (Trib.) 1515, 2005 PTD (Trib.) 1154.
5. The learned DR representing the department supported the impugned orders of the Officers below. He argued that the Officers of Directorate of Intelligence and Investigation has correctly proceeded the case. They are authorized to make any investigation in case of any tax fraud and therefore they have correctly proceeded the appellant who was making default in payment of due amount of tax. Further, the learned CIR (Appeals) has already clarified that this appeal is filed against Order under section 11(2) and not against the Investigation Proceedings. Therefore, the plea taken by the appellant is not sustainable. He further, explained that, though the learned CIR (Appeals) has correctly said that Order was required to be issued under section 11(3) instead of 11(2), yet such technicalities does not render the assessment as illegal. It does not make any difference. He further focused on the wording of Clause VIII of S.R.O. 1125 and explained that this clause covers the persons who are dealing solely in retail sales of textile, leather, carpets, sports and surgical goods. He referred that Clause (I) is independent than Clause (VIII) and both has no correlation. He argued that since the appellant is dealing in leather products it was required to pay tax under S.R.O. 1125 whereas it has paid tax under Special Procedures, therefore the assessment has correctly been made in order to recover the short payment of tax. Regarding the charging of tax on certain other retailers under Special Procedures, he commented that he is not aware of such treatment.
6. We have heard the learned representatives from both the sides and have also perused the impugned orders, the relevant available record of the case, the case-laws submitted by both the sides and relevant provisions of law. We have also carefully considered the arguments advanced by both sides and the facts of the case.
56. First of all we will discuss the issue for application of sales tax i,e, whether the appellant is liable to pay Sales Tax under S.R.O. 1125(1)/2011 or under the Special Procedure Rules for payment of Sales Tax by Retailers. We have observed that on 6-6-2005, following two schemes were introduced.
(a) S.R.O. 621(1)/2005 dated 17-6-2005 effective from 6-6-2005, Sales Tax was charged at Zero Percent on Specified goods of Leather, Textile, Carpets, Sports and Surgical goods.
(b) S.R.O. 539(I)/2005 dated 6-6-2005 Sales Tax was charged upon the Retailers of Specified Goods i,e, Leather, Textile, Carpets, Sports and Surgical goods at the rate of 2%, whereas the retailers of all other goods were subjected to Sales Tax under S.R.0. 522(1)/2005 dated 6-6-2005.
57. Subsequently, above referred S.R.O. 621 was superseded vide S.R.O. 525(I)/2006 dated 5-6-2006, wherein the import and supply of five sectors mentioned therein were continued to levy of sales tax at the rate of zero percent. At the same time vide S.R.O. 560(I)/2006 dated 5-6-2006, the Special Procedure Rules, 2006 (Chapter-III Special Procedure for payment of Sales Tax by Retailers) were issued wherein it was provided that retailers of all goods (including the retailers of specified goods) will pay sales tax at the rate of 2% of their turnover and they will not be eligible to claim any input tax. Vide Rule 147 of Special Procedure Rules, 2006, The Sales Tax Special Procedure Rules, 2005 issued vide above referred S.R.O. 522 and the Payment of Sales Tax by Retailers of Specified Goods (Special Procedure) Rules, 2005 issued vide above referred S.R.O. 539 were repealed.
58. Later, S.R.O. 509(1)/2007 dated 9-6-2007 was issued under which the import and supply of five sectors mentioned above were continued to levy of sales tax at the rate of zero percent and superseded S.R.O. 525 referred above. At the same time, S.R.O. 480(I)/2007 dated 9-6-2007 was issued through which the Special Procedure Rules, 2007 (Special Procedures for payment of Sales Tax by Retailers) were issued where in it was provided that Sales Tax shall be charged on the turnover of all retailers (at the rates provided under) which constitute the value of all supplies including supplies of exempt, Zero Rated and Third Schedule items and no part of turnover has been excluded for levy of tax under these procedures. Further, this tax shall be considered as final discharge of tax liability [Ref. Rule 6(1)] Up to 1.25 million Nil From 1.25 million to 2.5 million 0.5% More than 2.5 million 0.75% These Special Procedure Rules, 2007 remained applicable on the Statue in the same form uptill 30- 6-2014 and certain amendments were made therein vide S.R.O. 608(1)/2014 dated 2-7-2014.
59. Whereas, the Scheme of Zero rating applicable on supply and import of specified five sectors was subsequently amended vide S.R.O. 283(1)/2011 dated 1-4-2011 and then vide S.R.O. 1125(1)/2011 dated 31-12-2011.
60. We have also noted that an amendment was made in the Rule 3 of Chapter II of Special Procedures Rules, 2007 (Special Procedure for payment of Sales Tax by Retailers) vide S.R.O.
61. 01(I)/2011 dated 1-1-2011 wherein it was clarified that these rules are not applicable to manufacturer cum-retailers who sells their products through retail outlets.
62. These two regimes and clarification issued vide S.R.O. 01(1)/2011 dated 1-1-2011 clears the intention of the legislator that the person engaged in retail only are subject to levy of sales tax under the Sales Tax Special Procedure Rules issued from time to time currently applicable under the Sales Tax Special Procedure Rules, 2007. Whereas, the manufacturer cum retailers including the importers, exporters and wholesalers are required to levy and pay the sales tax under the S.R.O. 1125(1)/2011 dated 31-11-2011 and other notifications issued earlier from time to time.
63. We have further noted that Rule 5(2) of the Special Procedure Rules, 2007 covers the entire Turnover of a Retailer including the Turnover related to Exempt, Zero Rated and Third Schedule Items. This Rule does not provide any distinction by stating that any part of turnover of a Retailer including turnover of Specified Goods of five sectors would not be subject to tax under this Chapter.
64. Further, we totally agree with the submissions of AR that before making any amendment in the scheme for levy of Sales Tax on Retailers, the pre guaranteed condition prescribed under Rule 5(6) of these procedures is required to be fulfilled. It has categorically stated in this Rule that, "The retailers who have paid due amount of sales tax under this Chapter during the years 2007-2008 shall continue to operate under this Chapter till further Orders "This condition was prescribed to encourage the Retailers to register themselves and it was guaranteed that if any retailer will pay tax during 2007-2008, it would continue paying sales tax under this scheme until further Orders. We have also noted that legislator after making amendment in these procedures vide S.R.O.
65. 608(1)/2014 dated 2-7-2014 has opted to charge tax on the retailers making supplies of finished goods of five sectors under these Special Procedures prescribed for Retailers however while calculating their sales tax liability it has been prescribed that they will apply the reduce rate of tax as provided in S.R.O. 1125 as compared to normal rate of Sales Tax (i,e, 17%) applicable on other retailers. We have also minutely gone through the wording of S.R.O. 1125(1)/2011 dated 31-12-2011 and we are clear in holding that this S.R.O. Was specifically dealing with the Persons who are registered as D "manufacture" "importer" "Exporter" and "wholesaler". Clause VIII is required to be read with Clause I. We could not find any room to agree with the submissions of learned DR. That Clause (VIII) is required to be read in isolation from Clause (I). It is a settled principle that a document is to be read as a whole and not in piece or in conjunction with any other material which is not the part of document. Reliance is placed on the judgment of Lahore High Court reported at 2002 PTD 388.
66. Further in another judgment of Karachi High Court reported as 2002 PTD 804, it has been held that, "Before giving our finding on the point under consideration, it E would be appropriate to state that the established principle of interpretation of a statue is that no provision of law contained in a statute is to be considered in isolation, until and unless any section/provision is a complete code in itself an any scheme contained in statute or subordinate legislation, is to be considered in the totality of the scheme....".
67. We feel no hesitation in holding that historically the Retailers have been dealt separately from the other categories of Registered Persons i,e, "manufacture" "importer" "Exporter" and "wholesaler" and further the amendments made in the both Statues (i,e, Special Procedures for Retailers and S.R.O.
68. 1125) in July 2014 has clarified the entire ambiguity. We have also noted that this Tribunal while passing an earlier judgment in S.T.A. No, 401/LB/2014 dated 9-7-2014 accepted the departmental arguments for levy of tax on retailer Under S.R.O.
69. 1125. A perusal of above observations and findings leaves no room for any doubt that neither the relevant law as raised by the learned representative for the appellant before us, was produced nor considered and, therefore, we have no hesitation in holding that for the reasons to be given presently, the earlier judgment on the subject is per incuriam for which the law of precedence is not applicable. Reliance may be placed on PLD 1963 Kar. 280, 1995 CLC 1453 Kar. PLD 1991 Kar. 320: We have also noted that while conducting the audit under section 25 of the Act for the periods from July, 2011 to December, 2011, the department has itself accepted the stance of the appellant in Order No, 34/2014 dated 13 August 2014 that its sales are subject to sales tax under Chapter II of the Sales Tax Special Procedure Rules, 2007. In his period, S.R.O. 283(1)/2011 was applicable which contained the conditions as provided in S.R.O. 1125(1)/2011. Therefore, the act of the department while treating the different periods differently is contrail, to the law and tantamount to denial of accepted provisions of law.
70. We have further observed that in certain other cases of retailers for the period similar to this appeal, the department has accepted the treatment of the taxpayers who were paying sales tax under the special procedure for retailers instead of S.R.O. 1125(I)/2011. Reference is made to the cases highlighted by the learned AR of the appellant and quoted in Para 31 mentioned supra.
71. Therefore, the discrimination with the appellant is not tenable in the eyes of law.
72. In the light of above discussion, we conclude that the appellant being registered as Retailer was liable to pay tax under the. Special Procedures for Retailers provided under the Special Procedure Rules, 2007 and the tax charged by the assessing officer vide Order-in-Original No,03/2013 dated 1- 6-2013 under S.R.O. 1125(I)/2011 is not in accordance with the law.
73. The assessing officer has issued the show-cause notice and he assessment order under section 11(2) of the Act whereas it was alleged that the appellant has committed tax fraud as defined under section 2(37) of the Act. The AR has argued that the cases of tax fraud cannot be proceeded under section 11(2) rather can only be proceeded under section 11(3). Before we proceed on this matter, it is apt to reported the said provisions of law:- "11(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 arid 34."
74. 11(3) 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 requiring him to show cause for payment of the amount specified in the notice.
75. The concentrated study of the above provisions clarify that different situations are dealt under the both subsections. Subsection (2) provides authority to make assessment in case of a person who has not paid tax due whereas subsection (3) provides authority to make assessment in respect of a person who has not levied or short levied tax by some collusion or deliberate act. Further, the assessing officer in the case of appellant has categorically stated that the appellant has committed tax fraud as defined in section 2(37) of the Act. The term Tax Fraud has been defined in Section 2(37) in the following manner.
76. 2(37) 'tax fraud' means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused)
(i) doing of any act or causing to do any act; or
(ii) omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; or
(iii) falsifying or causing falsification the sales tax invoices, in contravention of duties or obligations imposed under this Act or rules or instructions issued there under with the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods or overstating the entitlement to tax credit or tax refund to cause loss of tax; Considering the above stated provisions of law, knowingly or deliberately default in payment of tax comes under ambit of tax fraud, for which the authority to make assessment is provided in subsection (3). We will also take guidance from the landmark judgment of honorable Supreme Court of Pakistan in the case of Caltex v. Collector (2006 SCM R 1519), elaborating :-- Under section 36 of the Sales Tax Act, 1990, the cases of non-levy of tax or short-levied or erroneously refunded are divided into two categories. The first category of cases in which due to a 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 the sales tax was not levied or short-levied or erroneously refunded by reason of inadvertence, error or misconstruction. It is a settled principle of law that without the completion of the pre-requisite of a show-cause notice and supply of the grounds, or reasons in clear and explicit words to ascertain that under which subsection of the 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 instant 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 or deliberate act of taxpayer 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...."
77. By following the ratio settled by the Honorable Supreme Court of Pakistan in the case reported above and in another judgment reported as 2001 SCM R 838 (AC Customs v. Khyber Electric Lamps), we have no choice except to hold that the show-cause notice and the assessment order issued by the assessing officer in the case of appellant under section 11(2) of the Act by holding that the appellant has committed tax fraud under section 2(37) are illegal, void and unlawful. We also agree with the submissions of AR that proceedings initiated in case of appellant without issuing the prior notice under section 38(1) does not sustain in the eyes of law and the entire superstructure built on illegal proceedings is required to be declared null and void.
78. We have noticed that Show-Cause Notice issued on 1-6-2013 under section 11(2) of the Act was subsequently amended materially vide Corrigendum dated 5-6-2013 issued under section 57 of the Act. Section 57 of the Act as applicable on the date of issuance of corrigendum only permits to correct the clerical or arithmetical error and does not allow. The material changes in the contents of the Show-Cause Notice. Said section 57 (before substitution vide Finance Act, 2013) is reproduced herein under:-- "57. Correction of clerical errors, etc. -- Clerical or arithmetical errors in any assessment, adjudication, order or decision may, at any time, be corrected by the officer of Inland Revenue who made the assessment or adjudication or passed such order or decision or by his successor in office."
79. By considering the provisions of Section 57 of the Act, we hereby decline to approve the assessm ent finalized on the basis of Show-Cause Notice which has been amended subsequently in contradiction with the provisions of section 57 of the Act.
80. Further, we have gone through the detail of proceedings submitted by the AR (not denied by the DR) and observed that assessing officer has issued the order without making any personal hearing of the case. The procedure to conclude the assessment has been prescribed in section 11(5) of the Act where in it is stated that:-- "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 ground 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."
81. In accordance with the provisions of section 11(5) quoted supra it was mandatory upon the assessing officer to personally hear the case before concluding the assessment. The assessing officer on the one part has not provided this opportunity rather stated in the order that "I have gone through the facts of the case through verbal submissions viz-a-viz written submission...." which is totally in contradiction with the record of the proceedings. Finalization of assessment without providing the opportunity of personal hearing and also in haste particularly when the request of the appellant to seek guidance from the Federal Board of Revenue was pending is nothing else except to disregard the principles of due process and fair trial, which clearly amounts to violation of the fundamental rights of the appellant protected under Articles 4 and 10A of the Constitution of Islamic Republic of Pakistan. By making reliance on the judgment reported as 1969 SCM R 212, PLD 1964 SC 410 and 1984 PTD 150 (Kar.), we have no choice except to cancel this assessment. We disapprove the order of the CIR(Appeals) for remanding back this assessment which has totally been passed in clear violation of subsections (2)(3) and (5) of section 11 of the Act. Setting aside of this judgment is nothing else except to provide an opportunity to the assessing officer to fill in the deficiencies and lacuna in the order, such action was deprecated by the superior courts in the number of cases. Reliance is placed on 2002 PTD 2379 (HC Per), 2002 PTD 407 (HC Kar.) 1999 PTD 1358 and PLD 1964 SC 410.
82. We also agree with the submissions of the AR that this is not the case of any willful default and therefore by following the judgments reported as 2004 SCM R 456 = 2004 PTD 1179, 2010 PTD (Trib.)
83. 1515, 2005 PTD (Trib.) 1154 default surcharge and penalty provisions do not attract in this case.
84. Consequently, we accepted the subject appeal and vacate the impugned orders of the officers below and the learned Commissioner Inland Revenue (Appeals).