JAWAID MASOOD TAHIR BHATTI, CHAIRMAN---Captioned sales tax appeal has been filed at the instance of the registered person against the Order-in-Appeal No.62 of 2014 dated 31-1-2014 passed by the Commissioner Inland Revenue (Appeals), RTO, Faisalabad pertaining to Tax Periods 7/2011, 10/2011, 11/2011 and 12/2011 agitated the respective grounds for the, tax periods as set forth in the memo. Of grounds of appeal.
2. Briefly stated the facts, the appellant is registered as commercial importer and whole-seller having Sales Tax Registered No.08-00-5907- 005-46. As discrepancies reported through CREST, the registered person has contravened vide show-cause notice C. No.2275 dated 27-5-2013 the provisions of sections 3, 6, 7, 8, 8A, 23, 26 and 73 read with section 2(37) of the Sales Tax Act, 1990 and S.R.Os. No.283(1)/2011 dated 1-4-2011, No.1012(I)/2011 dated 4-11-2011 as amended by S.R.O.
No.1058/2011 dated 23-11-2011 as amended by S.R.O. No.1125(I)/2011 dated 31-12-2011 was called upon to show-cause as to why Sales Tax of Rs.2,668,184 may not be recovered from you under sections 11(2) and 11(3) of the Sales Tax Act, 1990 along with default surcharge and penalty under sections 34(1) and 33(11)(a)(c) of the Sales Tax Act, 1990. The registered person imported whole of the textiles fabrics and the department failed to appreciate that there is taxable supply being made at the import stage till first local supply as notified vide S.R.O. No.645(I)/2007 dated 27-6-2007. For sake of facility, it is reproduced as under:-- 'S.R.O.No.645(1)2007......... In exercise of the powers conferred by subsection (5) of section 3 of the Sales Tax Act, 1990 read with section 7A thereof, and in supersession of Notification S.R.O.
No.468(1)/2007, dated the 9th June, 2007, the Federal Government is pleased to direct that sales tax shall be levied and collected at import stage at the rate of two per cent of the value of goods imported by commercial importers in addition to the tax chargeable under subsections (1) and (2) of section 3 of the said Act and thereafter no sales tax shall be charged from the said importers on subsequent supply of goods imported by them."
The registered person imported textiles fabrics in all the tax periods duly declared in Sales Tax monthly returns in Annex-B (Goods Declaration Imports). Textile sector is zero rated hence; no loss of revenue is involved in the instant case.
3. The learned counsel contended that the appraiser while evaluation of the goods duly kept in view the S.R.Os. No.283(I)/2011 dated 1-4-2011, No.1012(I)/2011 dated 4-11-2011 and No.1058(I)/2011 dated 23-11-2011 as amended by S.R.O. No.1125(I)/2011 dated 31-12-2011. Logically, best explains the theoretical construction of trickle-down theory or economics; at zero rate taxes will in any case be zero. The conclusion, therefore, was that there must be a tax rate which maximizes tax revenues. He also produced a judgment of the Lahore High Court, Lahore reported as 2009 PTD 281; his Lordship has held that:-- "Once a consignment is out of charge after due consideration of relevant facts it becomes a past and closed transaction to the extent of its value etc. The same, therefore, should not be invoked only on the basis of the mere estimate, gossips, personal whims or feelings that the value could have been enhanced or it could fetch more taxes etc. The opening of an appraisement for the purposes of re-valuation of an earlier estimate or adopted figure would require "reason to believe" and not "reasons to suspect". For example, if one subsequently, finds that the description of the imported goods was different, H. S. Code applied was wrong as a result of misrepresenting or the number of items mentioned in GD and accepted by the Department incorrectly, etc., nobody will have any objection on the application of provisions of section 32. However, if one feels that more revenue could have been generated and thus invokes the provisions of section 32, said course was not justified. The valuation ruling cannot be considered a piece of evidence unless the same is based upon sound footings. However, on the basis of a valuation ruling, the provisions of section 32 cannot be invoked."
The learned counsel also contended that the registered person covered under S.R.O.
No.645(I)/2007 is to pay the final tax due on "fixed value addition" and not on "minimum value addition", therefore the registered person would not entitled to any such refund or set off of input tax paid by the taxpayer in relation to purchase of further goods and services used in further value addition undertaken by the registered person under section 7 of the Sales Tax Act, 1990. Question of adjustment of input tax and consequently refund of the registered person under the regime of S.R.O. No.645(I)/2007 is not tenable and liability should be considered to be a final tax liability.
Reliance was placed in a judgment of the Lahore High Court, Lahore reported as 2011 PTD 346; their Lordship has held that:-- "15. When provisions of sections 7, 7(A), 8 and 10(1) of the Act and S.R.O. No.645(1)/2006 are read in juxta position it becomes quite clear that registered person covered under S.R.O. No.645(1)/2006 is to pay the final tax due on fixed value addition and not on "minimum value addition", therefore, the petitioner would not be entitled to any such refund or set off of input tax paid by the petitioner in relation to purchase of further goods and services used in further value addition undertaken by the petitioner under section 7 of the Sales Tax Act, 1990. Further, the question of adjustment of input tax and consequently refund of the petitioner under the regime of S.R.O. 645(1)/2006 is not tenable. The liability under S.R.O. No.645(I)/2006 should be considered to be a final tax liability."
4. Arguments of the rival parties were being heard, relevant order and the law on the subject was examined carefully. The learned AR before us raised the following questions of law:-
(i) Whether the order passed beyond the time limitation prescribed under section 11(5) of the Sales Tax Act, 1990. The inordinate delay of passing order-in-original from the issuance of show-cause notice was not tenable in the eye of law?
(ii) Whether as per S.R.O. No.645(I)/2007 dated 27-6-2007 commercial importer are covered under final tax liability?
(iii) Whether the charging sections 11(2) and 11(3) are distinct in nature?
(iv) Whether the notice under section 11(3) is illegal as adjudicating officer failed to establish any collusion or deliberate act?
5. First, the learned AR draws our attention towards last three lines of Para (4) of the Order-in- Original which reads as "Note:- The case was going to be barred by time on 24-9-2013. However, the Commissioner (IR), Zone-II, RTO, Faisalabad has extended the instant show-cause notice for
(90) ninety days w.e.f. 10-9-2013 under section 11(5) of the Sales Tax Act, 1990". He argued; firstly, it is abundantly clear from the above phrase of the adjudicating officer the Order-in-Original No.423 of 2013 dated 18-11-2013 was passed, after the prescribed period as stipulated in proviso of section 11(5) of the Act, As per the provision order shall be passed within 120 days, but the order has been passed after 175 days after issuance of SCN. Secondly, it was contested that the extension in time limit has been taken on 18-11-2013 with the observation w.e.f. 10-9-2013 to extend the limitation period of the SCN. The learned Commissioner (Appeals) reject the plea taken by the registered person on limitation with the following words, "the DR was confronted with the stance of the appellant on legal issues, who during hearing submitted copy of order sheet in which proper extension was available, hence the order passed by the adjudicating office is within time". Reliance was made on a judgment of Honourable Islamabad High Court, Islamabad in a case reported as 2012 PTD 1016; their Lordship has held that:-- "Government departments cannot be put at higher pedestal when it comes to limitation. The executive functionaries, quasi and non-quasi-judicial forums/tribunals are supposed to follow the mandate of law and perform their duties, exercise their jurisdiction and execute their authority within the period provided by law. Inefficiency, slackness, incompetence and inaction on the part of executive functionaries or persons on the helm of affairs by itself is no ground to ignore the command of law of performing any act within the stipulated period.
The exception of unreasonable delay can be evaded, if statute does not prescribe the time period/limit in which act has to be performed.
Law required passing of such order within 135 days including extended/grace period---Such order had been passed after 448 days of show-cause notice with inordinate delay of 313 days--- Extension of time obtained on 20-11-2003 was patently time barred---Authority had not shown any reasonable justification for such delay."
It is well-settled principle of interpretation of statute that where a statute affects a substantive right, it operates prospectively unless by express enactment or necessary intendment retrospective operation has been given. However, statute, which is procedural in nature, operates retrospectively unless it affects an existing on the date promulgation or causes injustice or prejudice to a substantive right. Again supports from the reported judgment of the Honourable Supreme Court of Pakistan in a case reported as 2005 SCMR 492; their Lordship have held that:-- "Retrospectivity--- Requirement--- Executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied wit retrospective effect."
6. Before examining the contentions, it would be beneficial to have a glance on the proviso to section 11(5) of the Sales Tax Act, 1990. For sake of facility, it is reproduced as under:-- "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"
' Perusal of the "ORDER SHEET" clearly indicated that no start date of the order sheet is mentioned.
The adjudicating officer refers the matter for approval and relevant portion of the order sheet is as under:-- "It is submitted that the adjudication proceedings in the under mentioned cases cannot be completed within prescribed time limit of 120 days due to the following reasons:- Change in jurisdiction vide Order CIR(Zone-II0/RTO/Fsd/333 dated 31-7-2013.
Late/Incomplete transfer of record from the respective E&C unit.
Completion of other important assignments i.e. Issuance of show-cause notice in. Respect of Non Zero-Rated CREST Discrepancy cases, recovery matters adjudication proceedings in cases of non- filer etc. Scrutiny of the documents submitted by the registered persons.
In view of the above, it is, requested to extend the time limit of the following show-cause notices for 90 days from the date of expiry as the Commissioner IR is competent to extend the time limit under section 11(5) of the Sales Tax Act, 1990. Detail is as under:-- S. No. Business NameSTRN SCN No. SCN Date Date of Expiry 1.
2.
3.
8. Wajahat Textiles080055907005462275 27-5-2013 24-9-2013 44.
AC E&C 02, Zone-II File is submitted for perusal and onwards submission to the competent authority for granting approval of condonation under the section 11(5) of the Sales Tax Act, 1990.
Add CIR Forwarded for condonation under section 11(5) of the S.T. Act, 1990 as requested by the ACIR.
Submitted for- further action please.
CIR Extended for 90 days w.e.f. 10-9-2013 as proposed. Add CIR For necessary action report."
7. In this case, the allegation levelled for extension of limitation that the Commissioner has not applied his independent consideration to adjudge and reasons to be recorded in writing- extend the time limit within the statutory time,. It is well-settled. Principle where a public functionary is empowered to create liability- against a person only within the prescribed time, it is mandatory.
Reliance was placed on a case reported judgment of the honourable Supreme Court of Pakistan in a case reported as 1997 SCMR 641; their Lordship have held that:-- "40. Reference has also been made to Administrative Law by Basu, in which it has been stated that "the general rule is that where a statute directs that certain acts shall be done by a specified person; their performance by any other person is item." This rule is so well-settled that needs no further elaboration. Any authority vested with a discretion must exercise it himself by applying his independent mind uninfluenced by irrelevant and extraneous considerations. He should neither accept any dictation nor delegate his authority to any other person. Violation of these rules for exercise of discretion will render such decision illegal."
Similar view was also taken by the honourable Appellate Tribunal Inland Revenue, Lahore in a case reported as 2011 PTD (Trib.) 770; it has held that:-- "Offences and penalties---Imposition of penalty for non-submission of invoice summary along with returns in violation of S.2(5) of the Sales Tax Act, 1990---Taxpayer contended that facts of the case were never discussed in Order-in-Original which in fact was passed against another taxpayer and appellant's/taxpayer's name was included by observing that the order would apply mutatis mutandis to appellant's/taxpayer's case as well Caption of the order-in-original suggested that it was only against "A" and name of ten other registered persons were included, with one sentence's explanation that the order shall also apply to other registered persons, having identical nature.....In circumstances, all registered persons were proceeded ex parte, without any detail or reason of proceeding them in absentia---impugned order-in-appeal is also cancelled for ignoring such a glaring defect in the order-in-original. It may, however, be observed that the department can initiate fresh proceedings if limitation is available under the Sales Tax laws."
Further in Para 4 of the above citation ingredients- of fact both direct and inferential, statement of principles of law applicable to the legal terms are discussed as under:- "4. Honourable Supreme Court has held in Fasih-ud-Din Khan case (2010 SCMR 1778) that "in view of section 24-A of General Clauses Act, even public functionaries are duty bound to decide the cases after application of mind". Honourable Court has mentioned three basic ingredients of every decision, relevant part is reproduced for facility:-
(13) It is settled principle of law that decision which is not based on reason is not judgment in the eyes of law. The following are three basic ingredients of every decision:-
(i) Findings of fact both direct and inferential.
(ii) Statement of principles of law applicable to the legal terms disclosed by the facts.
(iii) The judgment passed on the combined effect of the above ingredients."
From the perusal of statutory text contained in the proviso to section 11(5) of the Act and order sheet and citations mentioned supra reflect 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. The Commissioner can extend time limit of the show-cause notice within the parameters as provided in the proviso but admittedly at no stage of the proceedings he applied his independent consideration and passed a speaking order. Hence, the impugned show-cause notice being void and initio and order passed was unlawful on the face of it.
8. After the adjudicating authority issued combined notice under sections 11(2) and 11(3), Section 11 of the Sales Tax Act, 1990 was substituted by Finance Act, 2012 dated 27-6-2012. Both the provisions i.e. Section 11(2) and section 11(3) of Sales Tax Act are distinct in nature. For sake of facility both these sections are reproduced as under:- "(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 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 reasons 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 amount specified in the notice."
Expressly provide for issuance of show-cause notices before initiation of proceedings under each section. In the instant case, section 11(3) was inserted by Finance Act, 2012 dated 27-6-2012 and the Tax Periods are pertaining to 07/2011, 10/2011, 11/2011 and 12/2011, hence; by virtue of its insertion as per the citation mentioned supra adversely affected the vested right of the registered person as such, it would not be appropriate to apply it with retrospective effect.
Reliance was also taken by the honourable Appellate Tribunal Inland Revenue, Lahore in a case of reported as 2010 PTD (Trib.) 1067; it has held that:-- "Hence the very basis for acquiring the jurisdiction by issuing a combined notice under two different sections is fatal. So we have been left with no alternative except to uphold the order of the learned CIT(A)."
9. The nutshell is that section 11(2) of the Act would only apply where person has not paid the tax due on supplies made by him and section 11(3) of the Act only be invoked on a registered person in case of his "collusion" with the tax officials or due to a "deliberate act". The show-cause notice is completely silent in regard to "collusion" or "deliberate act" on the part of the appellant. Very basis for acquiring the jurisdiction by issuing a combined notice under two different sections thus was fatal. Hence the combined notice issued under sections 11(2) and 11(3) is liable to be declared null and void. The learned AR further contends that provisions of section 11(2) and section 11(3) are even otherwise different and independent in their application and intention of legislature in this regard can also be verified from the fact that after filing a monthly sales tax return claimed input tax credit or refund which is not admissible under section 11(2). The Inland Revenue Officer shall issue the show-cause notice whereas in section 11(3) reveals that no specific charge "collusion or deliberate act" was levelled in the subject show-cause notice. In absence of any detail or proper allegation regarding "collusion or deliberate act"; it cannot be said that the notice has been issued under section 11(3) of the Act. The whole procedure regarding application of both provisions is provided separately and independently by the legislature. Therefore, simultaneous application of section 11(2) and section 11(3) is liable to be declared illegal and void ab initio on this ground also.
10. 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.
11. The appeal of the registered person is disposed of to the extent and manner indicated above.