' NAZIR AHMAD, (JUDICIAL MEMBER).--- The titled appeal has been filed at the instance of registered person calling in question impugned Order-in-Appeal No, 22/2014 dated 28-06-2014 recorded by CIR (Appeals), Zone-I, Lahore.
2. Facts of the case emanating from record of the case are that consequent upon an information that registered persons/appellant had been making taxable supplies of stainless steel utensils without payment of sales tax and without getting themselves registered as required under law, a team of officials of Regional Tax Office, Gujranwala was .Constituted under supervision of Assistant Commissioner Inland Revenue, who after obtaining due approval of the competent authority, got warrant from concerned Judicial Magistrate for search at their different manufacturing premises including the one, situated at Kacha Khiali Road, Gujranwala on 13-02-2013. The records and documents, both in soft and hard copies, were taken into custody from such premises. Scrutiny of resumed manual and computerized records revealed that registered persons had made huge sales during the period from 13-02-2008 to 12-02-2013 but failed to pay sales tax as well as special excise duty under section 3 of the Sales Tax Act, 1990 and section 3A of the Federal Excise Act, 2005.
Therefore, a Criminal Case No,01/2013 was registered on 28-02-2013 against Messrs Allied Stainless Steel Kacha Khiali Road, Gujranwala, Mr. Nadeem Ahmad, Mr. Naeem Ahmad, Mr. Muhammad Saleem, Mr. Muhammad Azeem, Mr. Muhammad Naveed Ahmed, Mr. Muhammad Jamil and Mr. Tariq Mehmood. Consequently, revenue department, after taking due evidences on records, referred their case to Central Registration Office for its compulsory registration and accordingly, Sales Tax Registration Number 25-02-1244-642-14 was allotted on 05-06-2013 to Messrs Allied Stainless Steel Industry; Gujranwala as an "individual" in name of Mr. Nadeem Ahmad. On the basis of aforementioned material facts, evidences on records and investigation thereof, it was found that the appellant has violated provisions of sections 3, 6, 7, 11, 14, 22, 23, 26 and 73 of the Sales Tax Act, 1990 and have also committed tax fraud in terms of section 2(37) ibid. The violations as referred supra are punishable under sections 33(1)(2)(5)(7)(8)(11) and (13) of the Sales Tax Act, 1990 and under section (3A) of the Federal Excise Act, 2005. Resultantly, show cause notice bearing C. No, 314 dated 03-10-2013 was issued calling the appellant as to why said amounts of sales tax and special excise duty may not be recovered under section 11 of the Act along with default surcharge under section 34(1)(c) of the Act and penalties under sections 33(1)(2)(5)(7)(8)(11) and (13) ibid for above violations.
3. Upon culmination of adjudication proceedings, learned adjudicating authority, accepted the plea regarding limitation of issuance notice within five year and deleted part of amount found barred by limitation of five year, whereas adjudged rest of the liability of sales tax and special excise duty as confronted through show cause notice against appellant and also imposed hundred percent penalty on amount of tax involved under section 33(13) of the Act along with default surcharge under section 34(1)(c) vide his Order-in-Original No, 09/2013 dated 20-03-2014.
Accordingly, appellant being aggrieved filed first appeal before the CIR(Appeals), who upheld impugned liability vide his Order-in-Appeal No, 22/2014 dated 28-06-2014, hence this appeal.
4. At the very outset, Learned counsel appearing on behalf of the registered person has raised legal objection that "recovery of sales tax not levied" can't be made adjudged under section 11(2) which always provides for "assessm ent of tax" catering all such cases of assessment as plainly arising out of sales tax returns filed by a registered person and these provisions have nothing to do with cases of recovery arising out of tax fraud by way of collusive and mala fide act, shall always be adjudicated either under section' 11(3) or as the case may be under section 36(1) of the Act. Sales tax liability impugned in show cause notice endearing a period from February-2008 to June-2012 has to be adjudged under section 36(1) ibid as new provision of section 11(3) has been inserted to the Act from 1st July, 2012 without any retrospective effect and no saving clause for protection of omitted provisions Of section 36 has been given therein. He relied upon judgment of this ATIR in case of Messrs Asghar Surgical Works, Daska v. The CIR (Appeals) Gujranwala and others in S.T.A No, 1203/LB/2013 dated 01-07-2014.
5. Learned counsel has further assailed that total sales worked out from "Manual Bill Books" as well as from "Computerized Accounts" caused duplication as being another side of the same coin has been taxed twice, and even in certain situation, its effect travels beyond doubling, due to inclusion of certain additional entries on account of trade discounts, sales returns, previous debit balances.
No hard copy of records, except manual bill books, is provided by the revenue to substantiate soft data of sales retrieved from computerized accounts. This act caused duplication on one hand and arithmetical errors on other hand and has resulted into excessive liability of taxes causing double jeopardy by way of taxing the same goods, of the same persons, on the same cause, for the same period. He relied on judgment of this Appellate Tribunal reported at 2004 PTD 868.
6. Learned counsel also asserted that alleged sales also include supplies made in name of Messrs Allied Stainless Steel Industry, Gujranwala, appearing at business code No,100057 of computerized accounts, apprehending whole exercise in a way that all records and documents do not pertain to appellant, wherein certain other persons are found in making sale transactions to him. One cannot be a buyer and a seller of his own self. Not alone on this aphorism, appellant completely disowned all sales transactions shown in such records and documents as searched from different premises of different persons. He further maintained that all manual bill books as well as computerized accounts are fabricated and manipulated as neither any of bills in manual books bears name of Messrs Allied Stainless Steel Industry, Gujranwala nor any signature of its owner Mr. Nadeern Ahmed. No liability can be imposed merely on assumptions and surmises as there is no presumption as to tax and no room for any intendment in fiscal matters as settled by Hon'ble Lahore High Court, Lahore in case of Messrs Avari Hotel Ltd., reported at [2000 PTD 3765] and also followed by this Appellate Tribunal, Lahore in case of Messrs RI. Cotton Waste Factory, Faisalabad reported at [2012 PTD (Trib.) 337]. Nevertheless, no nexus is established between receipts appeared in bank accounts of different persons with that of sales shown in manual or computerized books of accounts of appellant. Bank receipts of other accused persons namely Mr. Muhammad Naeem, Mr. Muhammad Saleem, Mr. Muhammad Azeem, Mr. Muhammad Naveed Ahmed, Mr. Muhammad Jarnil and Mr. Tariq Mehmood, have nothing to do with sales purported to Messrs Allied Stainless Steel Industry, Gujranwala, who is compulsorily registered as an 'individual' in name of its proprietor Mr. Nadeem Ahmad. He relied on judgment of Hon'ble Karachi High Court case of Messrs Al-Hilal Motors Stores and others reported as 2004 PTD 868.
7. Learned counsel has vehemently urged that learned first appellate authority is wrong and not justified to suggest that appellant is an "Association of Person" (AOP). Messrs Allied Stainless Steel Industry, Gujranwala is compulsorily registered as an 'individual' instead of an (A.O.P), therefore, bank receipts and utility expenses of other accused persons as named above, have nothing to do with appellant's sales and its turnover thereof for determining his pecuniary threshold limit for registration and to impede him with burden of undue taxes and unlawful duties as all other accused persons have their separate business name and entity, their distinct national tax number and not all but in certain cases their sales tax registration number, their separate electricity, gas and other utility connection and even separate bank accounts in their names as every person has a separate legal character enjoying distinct rights and liabilities under the law. He relied on judgment of Hon'ble Lahore High Lahore in case of Messrs D.G. Khan Cement Company Ltd., v.
Federation of Pakistan, and others reported at PLD 2013 Lah. 693.
8. Learned counsel further submitted that appellant has been registered compulsorily without establishing his sales turnover by way of any bank receipts made in name of Messrs Allied Stainless Steel Industry, Gujranwala or in the name of its sole owner. Any sales receipts of other persons, cannot be clubbed with and included in annual sales/turnover of the appellant, as they all have their separate business name and entity, their distinct national tax numbers and sales tax registration number, their separate electricity, gas and other utility connections and separate bank accounts in their names. Further, neither any notice for compulsory registration was served upon the appellant nor any opportunity of hearing in this regard was provided nor any order as to whether or not he was liable to be registered compulsorily had been passed under Rules 6 of Chapter-1 titled as "Registration, Compulsory Registration and De-registration" of the Sales Tax Rules, 2006 and in absence of all this, the act of compulsory registration is illegal, unlawful and contrary to the provisions of the Sales Tax Rules, 2006.
9. Learned counsel Of appellant vehemently insisted this Tribunal to follow the principle as is laid down by Hon'ble Lahore High Court, Lahore in the Case of Messrs Taj International (Pvt.) Ltd, and others v. The Federal Board Revenue, and others as reported at [2014 PTD 18071 that criminal proceedings by way of the First Information Report lodged without any prior assessment of taxes under section 11 of the Act are unconstitutional, violative of fundamental rights and ultra vires to the Act. The act of criminalization is not prefaced with mandatory requirement of prior assessment of 'tax due' through civil adjudication as provided under section 11 of the Act, stands illegal and unlawful. In view of ratio settled therein, subject show cause notice impugned on its basis, consequent adjudication order and appellate order is also illegal, unlawful, void ab initio and ultra vires under the law as being unconstitutional and violative of fundamental rights.
10. Lastly, the Learned counsel submitted that the Learned CIR (Appeal) has misconceived to dismiss the appeal on the issue of Special Excise Duty on the ground that separate appeal has not been filed by the appellant. He vehemently argued that recovery of both levies of sales tax and special excise duty is made impugned through a consolidated show cause notice as adjudicated by way of a single order, therefore, no separate appeal for special excise duty can be mandated. If at all a separate appeal under the Sales Tax Act, 1990 and under the Federal Excise Act, 2005 was requisitioned then a separate show cause notice followed by a distinct order for each levy was mandatory to be proceeded under each of the two statutes separately.
11. Conversely, when DR appearing on behalf of the department was confronted-with the situation cited supra, she defended the departmental authorities on similar grounds and charges as leveled earlier in impugned "show cause notice as well as adjudged in consequent orders and nothing new, except to reiterate earlier set of contentions, has been put forth by her.
12. We have heard the arguments advanced by representatives of both the parties and also carefully examined factual as well as legal controversies in its true prospective with the help of relevant record available on file. The learned counsel of appellant has rightly assailed that "Recovery of Sales tax not levied" can't be made adjudged under section 11(2) which always provided for "Assessm ent of Tax". The cases of assessment made out of sales tax returns of a registered person should all the -more be adjudicated under section 11(2) of the Act and the cases of "tax fraud" as defined under section 2(37) of the Act, involving evasion of sales tax in a collusive and mala fide way, are very much precluded from the ambit and scope of section 11(2) of the Act and be always be proceeded with at the bar under specific provisions of section 11(3) or as the case may be, under section 36(1) of the Act and for it, we have hardly find any of provisions of section 11(3) or section 36(1) of the Act invoked in impugned show cause notice and consequent adjudication order which renders it illegal, unlawful and even without jurisdiction.
13. Besides, the department has miserably failed to establish any -nexus between receipts appeared in bank accounts of different persons with that of sales shown in manual as well as computerized books of accounts of appellant. Bank receipts of other accused persons as named above have been included in and clubbed with that of sales of appellant otherwise; despite the fact that all bank receipts of other persons have nothing to do with the appellant. In absence of any corroborating material evidences correlating receipt of money with that of clandestine removal of taxable goods, no tax can be levied merely on some assumptions and presumptions, whims and conjectures as 'supply' necessarily entails delivery of goods with receipt of money consideration and if any tax liability is created in this manner it would remain in thin air and unsubstantiated without any pedestal of it cemented into the ground.The reported judgment of Hon'ble Karachi High Court in case of Messrs Al-Hilal Motors Stores and other is the most relevant one having vital bearing on the fate of instant case.
14. Further, we have nothing otherwise in our mind to contradict the verdict already given in similar tax situation by Hon'ble Lahore High Lahore in case of Messrs D. G. Khan Cement Company Ltd. V.
Federation of Pakistan, and others reported at [PLD 2013 Lah. 693] wherein it has been held as under: "Every person has a separate legal character enjoying distinct rights and liabilities under law. To impose liability of one over the other is opposed to basic fundamentals of law and offends due process, logic and rationality as this act axes an innocent person for the wrongs of the other and diminishes the legal character of a person under law". ---On this very dictum, bank receipts of other persons as mentioned above, having their separate business entities, their distinct national tax numbers and separate sales tax registration number not in all but in certain, their separate electricity, gas and other utility connections and even separate bank accounts in their names, cannot be made basis for computing sales of appellant particularly when no bank receipts are attributed to him or to its sole-proprietor. That is how, under these circumstances, it is hard to establish as to whether appellant's sales 'turnover and utility threshold does exceed very pecuniary limits as required to make him liable for registration under law particularly when bank receipts and utility expenses of certain other persons, have been found included therein:
15. The reliance on the case law reported as (2013 PTD 1780) (H.C. Lah.) by the learned CIR(Appeals) is not on all fours and relevant to the case in hand as in the said judgment the Hon'ble Bench in para 8 as quoted by the Learned CIR(Appeal) in the impugned order has held as under:-- 'after obtaining search warrant carried out search of 'any place' and any place includes any third party's place and it does not restricts to the business premises of the registered person or the place of the registered person against whom an enquiry is pending. " ' is not disputed but the appellants' contention as discussed in the pre-para remains that bank receipt/ accounts as well as supplies of other persons having separate registration numbers are spate entities has illegally been clubbed in she hands of the appellant. The Learned CIR (Appeal) has not appreciated the proposition and misdirected himself as the judgment of DG Khan cement cited supra, in the circumstance is relevant. Therefore, by respectfully following the same, we hold that the Supplies/turnover and bank accounts of other persons without corroborating any nexus is not warranted under the Law.
15.(sic) It is now very easy to maintain as the principle is already settled by Honible Lahore High Lahore in its reported judgment of Messrs Taj International (Pvt.) Ltd, etc. v. The Federal Board Revenue, etc. To ensure fair trial and compliance of due process of law as enshrined under Article 4 and Article 10-A of the Constitution, by settling a ratio as under:-- .
" Collective reading of sections 11, 25(5), 33, 37A and 72B of the Act indicates that the criminalization under the Act is principally to effectuate recovery or is being largely used to effectuate recovery. There are two clear pointers i.e,, dependence of fine on the 'amount or loss of tax involved.' and the, window of compoundability available to the taxpayer who can pay the "amount of tax due along with such default surcharge and penalty as determined under the provisions of this Act. If the purpose Was simple retribution and deterrence, there was no need to load the fine with the amount or loss of tax Involved. However, if the fine under criminal prosecution is to be loaded with the amount or loss of tax, such a criminal construct must be prefaced with the mandatory requirement of assessment of tax through civil adjudication provided under section 11 of the Act. This precondition is the minimum constitutional requirement to ensure fair trial and due process under Articles 4 and 10-A of the Constitution. It has been vehemently stated it the bar, by almost all the petitioners. The department forcibly hauls up taxpayers under the threat of arrest and criminal prosecution and releases them after extraction of money (shown as the amount of tax due under section 374). In the absence of tax assessment under section 11 of the Act and without knowing the "amount or loss of tax involved," neither compoundability is possible nor the award of sentence against the taxpayer. Hence the process of hauling up taxpayers and effecting recovery of self-determined amount of sales tax by the officer of the Inland Revenue is brutally unconstitutional. "
16. Furthermore, in the case in hand as well as show cause notice dated 03-10-2013 framed on the 'basis of a criminal case registered through FIR No,01/2013 on 28-02-2013 evidences it conversely as criminal case is not prefaced with civil adjudication providing due process of assessment of tax and recovery thereof.
17. The most important issue of maintainability of appeal under the Federal Excise Act, 2005 is that there is no controversy existed on record that a consolidated appellate order is passed in consequent to a single adjudication order impugned on the basis of a single consolidated ' show cause notice for recovery of sales tax as well as special excise duty. Special Excise Duty (SED) under section 3A can only be imposed by initiating proceedings under enabling provisions of Federal Excise Act, 2005. Since, no separate order for special excise duty is existed on record and the order in original bear a single number on its face for both the levies jointly and not distinctly, therefore, we feel that no absurdity is caused in filing of a single appeal by the appellant on the same cause against the same order 'before the Learned CIR (Appeals) by the appellant. In view of all this, reliance on the judgment of Hon'ble Supreme Court of Pakistan as referred in impugned order appealed against is distinguishable and not relevant to this particular situation, hence; dismissal of appeal on this very ground is not fair and justified.
18. With regard of levy of SED, it has been observed by us that the same has been levied without issuance of show cause notice under the relevant provisions of the Federal Excise Act. In fact the Revenue Authorities during Sales Tax proceedings in the same SCN demanded SED, which in no way can be termed as justified. The SED levyable under section 3A of the Federal Excise Act is a separate levy under a separate Act and require separate proceedings.. In our considered opinion, since SED has been imposed without taking cognizance of the same, therefore, is not warranted under the Law and liable to be set-'aside on this score.
19. In view of what has been discussed hereinabove, particularly in the light of Law and the principles laid by the superior courts in various pronouncements quoted supra, impugned show cause notice is vacated and consequent orders of both authorities below are declared to be illegal, void ab initio, and nullity in the eye of law hence set aside.
20. The instant appeal filed by the taxpayer is accepted and disposed of in the way and manners as indicated above.