The titled appeal has been filed by the appellant/registered person against Order-in-Appeal No. 20 of 2014 dated 30-09-2014 passed by the learned CIR (Appeals-II), Lahore whereby he while maintaining the Order-in-Original No. 36/2014 dated 22-08-2014 passed by the ACIR (E&C Unit- 10, Zone-IV) RTO, Lahore has upheld the demand raised against the appellant and dismissed the appeal.
2. Succinct facts leading to the instant case are that the appellant is registered under the Sales Tax Act, 1990 running its business as manufacturer engaged in making of taxable supplies of multiple steel products, agri machines and auto parts. In pursuance of an information regarding evasion of tax, a team was constituted by the CIR (Zone-IV), RTO, Lahore to conduct inquiry/investigation of the records pertaining to the periods from April, 2011 to December, 2013 under section 38 of the Act.
During the course of physical verification of the premises of the appellant, certain record and documents were collected and resumed against a resumption memo. And on the basis of record so taken into custody, it revealed that the appellant under proprietorship of Mr. Munir Ahmad acquired a premises comprising electric steel furnace and re-rolling mills located at 16-KM, Sheikhupura Road, Lahore by declaring electric reference No. .18111250906905U under so-called lease agreement from 22.01.2011 to 31.12.2013 after having collusive arrangements with the lesser/owner of the said premises. Subsequently, he claimed himself user of reference No. 24111259034801U installed at 14-KM Sheikhupura Road and got exclusion of sales tax against the said electricity reference number by concealing the facts and did not deposit a single penny into government exchequer during the period of his so called tenancy and at present is a null-filer from January, 2014 on wards with a huge carried forward. There is also found a huge difference worth Rs.173.50 million in purchases and sales values which also leads to massive closing stocks involving heavy amount of stuck up sales tax. During scrutiny of the data obtained form Messrs LESCO and record available with this office, it has been found that the appellant by claiming itself user of the electricity reference No. 24111259034801U filed a Writ Petition No. 22850/2012 in the Lahore High Court, Lahore by concealing the facts for exclusion of sales tax from monthly electricity bill being not covered under the Sales Tax Special Procedures Rules, 2007 and succeeded in obtaining Exclusion Certificates bearing C.No. 536 dated 25.02.2012 and C.No. 2000 dated 21.11.2012 However, being manufacturer to be assessed on a valorem basis @ 17% under section 3(1) read with section 7 of the Act, the registered person had to charge and to pay sales tax under the normal tax regime.
In this way, sales tax liability for the periods from April, 2011 to December, 2013 under normal tax regime by calculating production on basis of consumption of electricity units and by applying sales value Rs.73,000/- per metric ton in terms of S.R.O. 345(1)/2010 dated 24.05.2010 read with amending S.R.O. 597(1)/2012 dated 01.06.2012. The appellant therefore, succeeded in obtaining a total exclusion of sales tax worth Rs.142,480,907/- which would otherwise be payable under the special procedures in the monthly electricity bills at the specified rates against per unit of electricity consumed. However, after getting exclusion, the registered person had to charge and to pay sales tax under normal tax regime on ad valorem basis @ 17% under section 3(1) read with section 7 of the Act read with provisions of S.R.O. 345(1)/2010 dated 24.05.2010 and amending S.R.O.
597(1)/2012 dated 01.06.2012 but he did not comply with the said legal provisions.
3. Resultantly, the appellant was called upon with a show cause notice bearing C.No. 992 dated 30- 06-2014 on the basis of estimated output tax asking him as to why an amount of Rs. 282,765,155/- may not be recovered under section 11(2) of the Act along with default surcharge under section 34 of the Act and a penalty under sections 33(5) and 33(6) ibid. The appellant was also charged with the violation of sections 2(37), 3, 6, 7, 8, 22, 23, 26 and 73 of the Act. Upon adjudication proceedings, appellant was proceeded in absentia without providing him with any opportunity of hearing and case was decided on his back. The registered person feeling aggrieved by the said order filed the first appeal before the learned CIR (Appeals-II), Lahore on the grounds and with the prayer set forth therein and supported with documentary evidences attached with the memo. Of appeal but he also upheld the demand of sales tax and rejected the appeal. Still discontented, the appellant has come up in this second appeal before this Tribunal assailing the treatment accorded by both the lower fora. Learned counsel appearing on behalf of the registered person has termed the actions of both the authorities below to be illegal, void, without jurisdiction, arbitrary and contrary to the facts of the case. Initiating the arguments, learned counsel for the appellant has vehemently contested that the impugned adjudication proceedings are illegal as no hearing was provided to the appellant to confront the charges leveled against him hence; all the subsequent proceedings carried out on his back are illegal, ab initio void and also in violation of Article 10-A of the Constitution of Pakistan, 1973. Reliance in this regard was placed on (2005 SCMR 1814), (2005 SCMR 678), (PLD 1990 SC 666), (2005 SCMR 678), (2012 SCMR 1235) and (2012 CLC 1236). Learned counsel further argued that impugned show cause notice and consequent adjudication order are without jurisdiction as much as the learned adjudicating authority was not legally competent to adjudicate upon the instant case under its Territorial Jurisdictional Order No. 405 dated 16/08/2013 and in support of his contention, he placed reliance on judgments reported as (2001 SCMR 1822), (2006 SCMR 1713) and (2008 SCMR 240). He vociferously contented that the search to have practically been conducted under section 40 of the Sales Tax Act, 1990 as provisions of section 38 of the Act only empowers revenue authorities to have free access to business or manufacturing premises, registered office and any other place where any stocks, business records or documents required under this Act are kept or maintained belonging to a registered person for an inquiry or investigation in any tax fraud committed by him and such officer may, at any time, inspect the goods, stocks, records, data, documents, correspondence, accounts and statements, utility bills, bank statements, information regarding nature and sources of funds and assets with which his business is financed or any other record or documents including those which are required under any of the Federal, Provisional or local laws and may take into his custody such records, statements. By all means, purpose of section 38 of 'the Act is to make an Officer of Inland Revenue empowered to have free access to the records and documents of a registered person and to inspect it but with all freeness and consent of a registered person and never provides any high- handedness for its resumption and in all such cases where there is every apprehension that a registered person will not permit free access to the officer of inland revenue, its recourse is provided under section 40 of the Act. Any record taken into custody not with a free smile on the face of both parts should always be searched with warrant duly accorded by the Magistrate and in all such cases, provisions of section 38 of the Act for free access are not applicable as it is lagged behind search under section 40 of Act and record/documents or anything else seized in an illegal search cannot be made basis for creating demand of sales tax nor the same can be used against appellant. Reliance in this regard was placed on 2003 PTD 2037, 2009 PTD 1083 and (2005 PTD 1933) = 2005 SCMR 1166 = 2005 PTD 1933. It was submitted by the counsel that neither any search can be conducted under the provisions of section 38 of the Act nor any audit exercise can be carried out under its provisions without invoking mandatory provisions of section 25(2) of the Act and placed reliance on (2014 PTD (Trib.) 1293). Counsel vehemently contested that the appellant is regularly e-filling monthly sales tax returns under section 26 of the Act read with Rule 18 under the Normal Tax Regime at standard rates as the Fixed Tax Regime under the Rule 58H and conditional advolarent Normal Tax Regime under Rule 58MA were not applicable to appellant. He argued that the whole liability of sales tax has been created on basis of electric units vis-a-vis production of steel products worked out on its basis vis-a-vis sales and supply thereof without any corroborating evidence for clandestine removal of goods and receipt of money consideration in its respect which rendered the whole exercise presumptive and imaginative. Reliance was placed on 2000 PTD 3765.
At the end, learned counsel while summing up his arguments assailed that the show cause notice issued is defective, vague, unspecific and too general may not enable the reader or the notified person to make out or clearly identify the particular clause or subsection or the reason etc., applicable to its case and the same does not confirm to the requirement of law as multiple provisions of law have been simultaneously invoked. Reliance was placed on PLD 2013 Lah. 634 = 2013 PTD 1536 and (2012 PTD (Trib.) 1697). He contented that the impugned show cause notice and consequent adjudication order are also illegal, void ab initio and without jurisdiction as 'recovery of sales tax' cannot be made adjudged under section 11(2) of the Act always providing 'assessment of tax' without invoking relevant provisions of section 11(3) of the Act. Counsel placed reliance on (2007 PTD 2265). Learned counsel concluding his arguments submitted that heavy penalty of hundred percent of amount of tax involved under section 33(13) of the Act has been imposed and adjudged illegally in impugned adjudication order, whereas no such penalty under section 33(13) of the Act was cited and confronted in the impugned show cause notice and placed reliance on (1987 SCMR 1840). The learned A.R. Of the appellant also produced Sales Tax Returns supported with sales tax invoices, bank statements and other record in support of his contentions, declaration in the sales tax record. The compliance of provision of sales tax and discharge of sales tax liability under the Act.
On the other hand, when the learned DR was confronted with the situation cited supra, in counter arguments, he has opposed the contentions of learned counsel for the appellant and supported the orders of authorities below for the reasons recorded therein and reiterated almost the same arguments as advanced earlier at time of adjudication and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.
4. The arguments of the learned representatives of both the rival parties have been heard, the orders of the authorities below as well as relevant record and relevant provisions of law and the case laws cited by the learned AR of the taxpayer have also been perused carefully.
5. After going through the case record and relevant provisions of law, we are of the firm opinion that the appellant was not afforded adequate opportunity of being heard at original adjudication stage to present its case or to lead evidence in a manner befitting the allegations leveled in the show cause notice thus, the due process and rights of the appellant guaranteed under the Constitution of the Islamic Republic of Pakistan as well as under the Sales Tax Act, 1990 have been gravely prejudiced and the impugned adjudication order is liable to be set aside. It is now well- settled law that service of notice is a sine qua non for assumption of jurisdiction. Since, service of statutory notice is not in accordance with law, all subsequent proceedings and assessment made on the basis of such notice is also not sustainable under law. It is a wholesome principle of natural justice that no order affecting rights of a person should be passed without providing him with an opportunity of being heard and no authority and Court should adjudicate upon a right of party who was not before it or to whom no notice was given and thus, an ex parte order is no order in eye of law. The August Court of Pakistan in case of "Nazir Ahmad Panhwar v. Government of Sindh through Chief Secretary, Sindh and others" reported as (2005 SCMR 1814) held that an adverse order passed without affording an opportunity of personal hearing is to be treated as a void order. The Apex Court in another case of "Hazara (Hill Tract) Improvement Trust through Chairman and others v. Mst. Qaisra Elahi and others" reported as (2005 SCMR 678) has laid down that:-- "The principle of natural justice enshrined in the maxim "audi alteram partem" is one of the most important principles and its violation is always considered enough to vitiate even most solemn proceedings. Where adverse action is contemplated to be taken against the person/persons, he/they would have a right to defend such action, notwithstanding the fact that the statute governing their rights does not contain provision of the principles of natural justice and even in absence thereof, it is to be read/considered as a part of such statute in the interest of justice. It is important to note that the principles of natural justice are now made inbuilt part of civil contracts. This principle originates from Islamic system of justice as evidenced from historical episode when lblees was scolded for having misled Hazrat Adam (P.B.H.) into disobedience of Allah's command. Almighty Allah called upon lblees to explain his conduct and after having an explanation from him, which was found untenable, he was condemned and punished for all times to come. The principle of natural justice has to be applied in all kinds of proceedings strictly and departure therefrom, would render all subsequent actions illegal in the eye of law."
6. The Supreme Court of Pakistan in case of "Mst. Maryam Yonus v. Director of Education, Cantonment, G.H.O., Rawalpindi and 2 others" reported as (PLD 1990 SC 666) has laid down that mere absence of a provision in a statute as to notice cannot override the principle of natural justice that an order affecting the rights of a party cannot be passed without an opportunity of hearing and where the giving of a notice is a necessary condition for the proper exercise of jurisdiction then failure to comply with this requirement renders the order void and the entire proceedings which follow also become illegal. There is no doubt that impugned adjudication order was passed on back of the appellant without giving any opportunity of hearing which is in flagrant disregard of the law inasmuch as it was passed without providing the appellant with any opportunity of being heard being ex-facie violative of the principles of natural justice and fundamental rights. A person against D whom any action warranted under law is not properly heard to confront the charges leveled against him and he is not properly undergone by due process of adjudication as consciously enacted by legislation in various laws particularly in fiscal Statutes, any order passed subsequent to it, is an illegal and void order. In another case of "The Collector of Sahiwal and 2 others v. Mohammad Akhtar" reported as (1971 SCMR 681), the Hon'ble Supreme Court of Pakistan has held that the principle, so far as this country is concerned, is accordingly well settled that where a notice required to be given by the Statute is mandatory notice, then the failure to comply with such mandatory requirement of the Statute would render the act void ab initio as being an act performed in the disregard of the provisions of the Statute.
Furthermore, any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage. As such, the charges leveled in the impugned show cause notice and adjudged in the subsequent adjudication order were never confronted by the appellant therefore; all the subsequent proceedings initiated on his - back are declared illegal and nullity in the eye of law. Right of beinglE personally heard is an inseparable right of a taxpayer and cannot be al denied to him under any circumstances and violation of principles o E natur justice can be equated with violation of provisions of the statutory provisions. Admittedly, impugned adjudication order was passed on ex parte basis without providing the appellant with any opportunity of being heard which is not only against norms of natural justice but also contrary to provisions of section 11(5) of the Act as the cardinal principle of "Audi Alteram Partem i.e. No body should be condemned unheard" has not been observed in instant case. The provisions of section 11(5) of the Act has clearly provided opportunity of hearing before passing an adverse order against the taxpayer but the learned adjudicating has ignored the same. For the sake of brevity, it would be expedient, if we reproduce the relevant provisions of section 11(5) of the Act which reads as under:- "No order under this section shall be made by an Officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person in default specifying the grounds on which it is intended to proceed against him and the officer of sales tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard."
7. After incorporation of Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973, a 'fair trial' and 'due process' has now become a fundamental right of every litigant but in the instant case, whole proceedings have been carried out by the learned tax functionaries without due process of law and this act of revenue department for creating huge liability of sales tax has been done without providing the appellant with any opportunity of hearing and without confronting the material evidences collected by the department has thus violated the fundamental right of the appellant because right of due process of law like notice, opPortunity of hearing and confronting of evidences collected by the department is a fundamental right of every taxpayer as guaranteed under Article 10-A of the Constitution of the Islamic Republic of Pakistan, 1973. Any determination of rights of a person falling short of due process and fairness of facts is illegal and unconstitutional.
Any order passed or action or proceedings taken by any forum in violation of 'fair trial' and 'due process', of course, is illegal, null and void. In this regard, we gain strength from the judgment of Hon'ble Supreme Court of Pakistan in ref: "Babar Hussain Shah and another V. Mujeeb Ahmed Khan and another" (2012 SCMR 1235) wherein it was held as .,under:-- "Although from the very inception, the concept of fair trial and due process has always been the golden principles of administration of justice but after incorporation of Article 10-A in the Constitution of the Islamic Republic of Pakistan, 1973 vide 18th Amendment, it has become more important that due process should be adopted for conducting a fair trial and order passed in violation of due process may be considered to be void."
8. In another case of "Shabir Ahmed v. Kiran Khursheed and others" reported as (2012 CLC 1236), the Hon'ble Court held as under:-- "The government always has the obligation of providing a neutral decision maker one who is not inherently biased against the individual or who has not personal interest in the outcome.
Due process is now available to every person as a fundamental right and underscores procedural fairness and propriety in determining his civil or criminal rights. The procedure adopted in determining the rights of the parties must at every step-pass the test of fairness and procedural propriety and at all times must honour the law and the settled legal principles.
Article 10-A of the Constitution is not limited to a judicial trial in its strict sense but requires fairness from any forum which determines the rights of a person."
The learned adjudicating authority who has silently peeped into this case to adjudicate consciously upon it for the purpose of assessment of sales tax not paid or short paid under section 11(2) of the Act which no doubt legally empowered the Officers of Inland Revenue, Enforcement and Collection, Unit-10 for adjudication on the cases falling in his territorial jurisdiction of District Sheikhupura and Lahore, etc in this behalf but with exclusions of the Articles namely "Steel Casting, Melting, Re-rolling and Steel Pipe Manufacturing" given at bottom of Column No. 3 titled as Jurisdiction at Sr. No. 10 of Table No. 1 attached to Order .Bearing C.No. 405/Admin dated 16.08.2013 subjected as "JURISDICTION OF OFFICERS OF INLAND REVENUE IN RESPECT OF ZONE-IV, REGIONAL TAX OFFICE, LAHORE". Since, the learned adjudicating authority has wrongly assumed jurisdiction of the appellant's case despite exclusion his case therefore, the whole exercise of adjudication carried out by the ACIR (E&C Unit-10, Zone-IV), RTO, Lahore stand illegal and without jurisdiction. It is a well- settled law that an authority dealing with a matter must possess jurisdiction H to deal with same, and if such authority did not have such power, then initiation of entire proceedings would be liable to be quashed for being coram non judice and non-est. Reliance in this regard can safely be placed on the judgment of Hon'ble Supreme Court of Pakistan in case of "Ali Muhammad v. Chief Settlement Commissioner and others" reported as (2001 SCMR 1822) wherein it was laid down as under:-- "Whenever orders are passed by an officer without caring whether jurisdiction vests in him or not, it prima facie reflects on his conduct as well as competency. It is also to be noted that whenever authority is exercised in such a manner then no other inference can be drawn except that the functionary has transgressed his jurisdiction for the consideration other than judicial one and the courts ceased with such order may recommend any action against the said officer because neither the executive authorities nor judicial forums will pass a wrong order because the jurisdiction in both the capacities is conferred upon such authorities to discharge their functions in accordance with law which has bestowed authority upon them to function in the capacity and if there is abuse of power by such officer, then no hesitation should be felt in passing stringent structure against officer keeping in view norms of justice."
10. The Hon'ble Supreme Court of Pakistan in ref: "Izhar Alam Farooqi, Advocate v. Sheikh Abdul Sattar Lasi and others" (2008 SCMR 240) has held that if a mandatory condition for the exercise of a jurisdiction before Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revision equally suffers from illegality and is without jurisdiction.
Honourable Supreme Court in ref: "Faqir Abdul Majeed Khan v. Distt. Returning Officer and others"
(2006 SCMR 1713) has observed as under:- "By now, it is well settled that any order which suffers from patent illegality or is without jurisdiction, deserves to be knocked down" Ref: (PLD 1958 SC 104), (PLD 1973 SC 326), (PLD 2002 SC 630), (2003 SCMR 50), (2004 SCMR 28), (2004 SCMR 1798)."
11. On careful analysis of set of laws on the subject matter, it is crystal clear beyond any shadow of doubt that tax functionaries, in the instant case, under the garb of provisions of section 38 of the Act has conducted search of the business premises of the appellant and after obtaining records and documents have also prepared resumption memo but after plain reading of provisions of section 38 of the Act, it becomes vivid that these provisions are mere enabling provisions and had nothing to do with regular search or seizure which could only be done in accordance with the provisions of section 40 of the Act. The word "freeP access" to any property of the citizen did not mean search and seizure for the purpose of collecting evidence against him and such object could only be achieved on observing the codal formalities under section 40 of the Sales Tax Act, 1990 which ensure respect for the rights of the subject. The search and seizure by tax functionaries is the hardest hit on the person, properly and self respect of a citizen which could not be assessed to have been granted as a matter of course. Mere allegation of some tax evasion, here and there could not be allowed to be extended, to justify a storming of business premises and factories. The free access contemplated in section 38 of the Sales Tax Act, 1990, does not mean a storming of the fort of an unexpecting enemy to pill and plunder at the fancy of the victorious prince over joyed with the satisfaction of his having trampled the enemy. A visit by a tax functionary to the person or property of a citizen should not have colour and countenance of the royal wrath against a defiant adversary. Every evidence collected through an illegal means, howsoever incriminating, partakes the colour of a confession extracted through torture. It is not admissible in evidence in any legal tradition/jurisdiction of the world. It needs to be discarded. The seizure and search provisions in the Sales Tax Act, 1990 were framed in a manner which is usual in similar other taxing statutes. The provisions of section 38 of the Act without an iota of doubt are meant only to authorize an officer to have free access to a premises, accounts or record of a registered person. Their purpose was nothing but to give their visit a legal cover. It is only in such visit, without previous planning or without having the intention of taking into custody and particular material, or documents that the Officer finds some books of accounts, stocks record documents, or other information which may be required for any inquiry or investigation in any tax fraud committed by a taxpayer or his agent or any other person that he may take them into his custody. These are mere enabling provisions and have nothing to do with regular search or seizure which can only be done in accordance with the provisions of section 40 of the Act as also laid down by the Hon'ble High Court Lahore in case of "M/s. Ihsan Yousaf Textile Mills Ltd. V. The Federation of Pakistan" reported as 2003 PTD 2037. The general provisions of section 38 of the Act therefore, cannot be made to circumvent or over-ride the Constitutional guarantees of an individual, particularly those ensured to a person under Article 14(1) of the Constitution of Pakistan, 1973. The precedent relied upon by the learned counsel for the appellant certainly support his case over-whelmingly that the general provisions of section 38 are not meant for the kind of search or seizure as has been done in this case. It is now well-settled law that where general and a specific provision on a particular subject is available, the resort to general provision cannot be made to do or sustain the act. Therefore, tax functionaries cannot be allowed to act and achieve which is possible only in the conditions stated in section 40 of the Act.
The only provision which authorize a departmental officer to conduct a search and seizure is available in the Sales Tax Act, is section 40 of the Act and not under section 38 ibid.
12. The provisions of section 38 are not by, itself search and seizure provisions and these, therefore, must give way to the specific provisions of section 40 of the Act. If the stand point of the department vis-a-vis section 38 is accepted then no one can give the picture of a situation in which section 40 would be invokeable. In other words, if the interpretation of the provision as being made by the departmental representative is accepted correct then either section 38 is superfluous or vice versa, provisions of section 40 is reduced to be mere duplication. Accepting the interpretation of the DR would render the provisions of section 40 as superfluous and redundant. By passing the course available under section 40 of the Act, direct invocation of powers under section 38 of the Act in the garb of free access to the business premises of the taxpayer Is not warranted under law and is illegal and unlawful. The purpose of a visit under section 38 of the Act is just to see that proper records under the Act, Rules and Regulations are maintained, reasonable cause for a visit could, for example, arise in a situation where a registered person has filed documents in the normal course which indicate that a particular record is not being maintained or that it is not being maintained in the required manner. The basis for the visit need not be shared with the person whose premises are to be visited but must be on the department's files for production in proceedings that may be instituted by the said person. The officer designated to conduct the visit must be authorized in that regard by the Board or the Commissioner and must produce a copy of the authorization before commencing the inspection. The visit must be confined to inspecting the record and documents that are in plain sight or those that are voluntarily made available for inspection by the person(s) present at the premises on request. The record and documents taken into custody must be against a receipt signed by the officer. The officer has no power under section 38 to compel the registered person for production of any record or document that is not in plain sight or that has not been voluntarily made available as above. Any record or document taken into custody under compulsion cannot be used for any purpose whatsoever by the department against the person from whose custody the record or document has been taken by an officer into his possession. Any action that is in contravention of the foregoing will be an action that falls short of the requirement to act fairly, justly and reasonably and, therefore, wholly illegal and ab initio void. Permitting the department to benefit from such actions would also be equally illegal and void. In this view of the matter, the question that naturally arises is whether probable cause for a search can arise during a visit under section 38 of the Act and the answer is that it can, but must not be of the department's own creation. If it does, the provisions of section 40 of the Act must be strictly complied with. Reliance is placed on the judgment of Hon'ble Sindh High Court, Karachi in case of "Messrs A.M.Z. Spinning and Weaving Mills (Pvt.) Ltd v. Federation of Pakistan and 2 others" reported as 2009 PTD 1083. Even other, issuance of a summon notice bearing C. No.886 dated 29.05.2014 under section 37 of the Act put a lasting nail to the coffin of corporal of this case to make it more like a case of a search and seizure under section 40 of the Act and less of section 38 ibid for free access to records and documents. After exhaustive discussions on the issue at hand, we have no option but to hold that whole exercise of search and seizure of record/documents carried out under the garb of section 38 of the Act is illegal, void and without jurisdiction and all subsequent proceedings on its basis are also illegal and non-existent in eye of law.
13. The learned counsel in this regard has also referred to the decision of the Hon'ble Supreme Court of Pakistan in case of "The Collector of Sales Tax and Central Excise (Enforcement) and another v. Messrs Mega Tech (Pvt.) Ltd." reported as (2005 PTD 1933) = 2005 SCMR 1166 wherein after a detailed discussions, it was held that learned judge of the Hon'ble High Court, after a threadbare and in depth examination and analysis of the record, have recorded a finding of fact that the only course available to the petitioner was as contemplated under section 40 of the Act, thus, by passing of such course and direct invocation of powers under section 40-A in the garb of access to the office premises of the respondent in terms of section 38 of the Act was not warranted by law. On careful consideration of the record and analyzing 'the submissions of the learned counsel for the parties, we are in complete agreement with the view taken by Hon'ble High Court as, apparently, action taken by the petitioner department smacks of lack of bona fides and acting on personal whims. In this case, Hon'ble Supreme Court has further observed that every word used by the Legislature must be given its true meaning and the provisions construed' together in a harmonious manner. To our mind, it would not be legal and proper to apply one provision of law in isolation from the other provision as no surplusages or redundancy can be attributed to the legislative organ of the State.
14. We are not persuaded with the departmental point of view that an investigative audit exercise was carried out under the provisions of section 38 of the Act, after having heard both the sides and carefully examining the relevant provisions of section 38 and section 25 of the Act, we find that that there are no provisions in section 38 of the Act for conducting an audit of a registered person except empowering an Officer of Inland Revenue by the Board or by the Commissioner to have free access to premises, stocks, accounts and records to examine it and to take into his custody such records to inquire and to investigate cases of tax fraud but after resumption of record and documents, conduction of its audit and scrutiny thereof can only be made in a way and procedure given under section 25 of the Act read with General Order No. 3 of 2004 therefore, exercise of audit carried out under the garb of section 38 of the Act is illegal, ab initio void and without jurisdiction.
The Officer of Inland Revenue was not legally empowered by the Commissioner to conduct audit under provisions of section 25(2) of the Act and approval of the Board or the Commissioner under section 38 of the Act was only for free access to business and manufacturing premises of the registered person and its records and documents which never provides powers of conducting of an audit requiring another authority under section 25(2) of the Act. Section 38 of the Act encompassing enabling provisions to have free access to a registered person but section 25 of the Act provides a mechanism for conduction of its audit. Co-existence and co-invocation of both sections might have any meanings but provisions of section 38 of the Act alone in its sole clad are nothing for conduction of an audit without its counterpart provisions as given under subsection (2) of section 25 of the Sales, Tax Act, 1990. Reliance is placed on the judgment of Division Bench of ATIR, Lahore in case of "Messrs Sun Tube (Pvt.) Ltd, Lahore v. The CIR (R.T.0), Lahore" reported as (2014 PTD (Trib.) 1293).
15. Notwithstanding above, there is no denial on the part of department that the appellant has duly filed an application on 11.09.2012 to the learned CIR (Zone-IV), RTO, Lahore seeking exclusion from payment of sales tax @ 7% per electricity unit consumed as provided under the Rule 58H of the Special Procedures Rules, 2007 of fixed sales tax regime. In response to his application, the learned CIR (Zone-IV) after satisfaction from the inspection of the business premises and nature of business of the appellant accepted his contention and requested in writing to the Chief Executive Officer of Messrs LESCO by an Order bearing C.No. 2000 dated 21.11.2012 that to exclude sales tax from the electricity bills of the appellant as he is involved in manufacturing and casting of multiple steel products/parts other than billets, ingots and re-rolled MS products and the Sales Tax Special Procedure Rules, 2007 does not apply in his case in view of Rule 58MC of the Sales Tax Special Procedures Rules, 2007 but despite of all this, the tax functionaries adopted a formula of electricity consumption which is highly unjustified, presumptive and straightway against the very scheme of VAT mode of sales tax as enshrined in the Act. The formulae which are adopted for creation of sales tax liability might be applicable in cases of "billets and ingots" but has no vitality and sanctity in case of manufacturing of agri machines and parts thereof and also steel products and that is how exclusion from fixed to normal regime was consciously granted to the appellant by the Commissioner concerned.
16. It is not of least importance to say that the tax functionaries have compared consumption of electricity units vis-a-vis production of steel products worked out on its basis vis-a-vis sales and supply thereof which has no legal as well as factual effect because there could not be any correlation between sales and consumption of electricity. Both the variables are completely independent to each other and as such no functional relationship could be so established. Sales tax is on sale and supply of goods which necessarily entails delivery of goods or receipt of money consideration and no corroborating evidence for any clandestine removal of goods or for receipts of money consideration has been provided without which whole exercise for creating huge liability of sales tax remains in thin air and thus of no legal effect. No doubt, consumption of electricity may have any relationship with production but not, certainly not with that of sales. Since, the so-called standard ratio is defective in itself therefore, any assertion made therefrom has no legal worth and consequences. Reliance is placed on the judgment of Hon'ble Lahore High Court in case of "Messrs Avari Ltd. v. The Collector of Sales Tax and 3 others" reported as 2000 PTD 3765 wherein it was held that a person must be taxed only if he comes within the letter of law otherwise, he is free even though his case falls within the spirit of law. Fiscal statutes should be strictly construed, as for as liability to tax is concerned. In fiscal statutes, only the letter of law is to be looked into and there is no room for any intendment, equity and presumption. Conversely, department has raised exorbitant demand of sales tax merely on assumptions and presumptions without any tangible basis. The tax functionaries have failed to provide documentary or any other corroborating evidence regarding physical delivery of the goods, receipt of any consideration of money and more so, the existence of any buyer without which no supply can be effected. It is a well established principle of law that a party making an allegation must bring material evidences to prove the same and any action which is based upon no evidence is not permitted by any law of the land. This fact clearly P indicates that the whole adjudication proceedings are based on mere presumption of fact. It is well-settled law that an adjudication based on mere presumption of fact is not sustainable under Article 117 read with Article 118 of the Qanun-e-Shahadat Order, 1984. Be that as it may, provisions of section 3 of the Act would not cover capacity to produce and supply as defined in aforementioned section. The dispossession and actual transfer of goods by the manufacturer to the other party is a basic requirement to bring the goods within the charge. Unless, department is in a position to establish that the assessee did more production and same has been transferred to another party, sales tax cannot be charged. The estimate, however, strong it may be, unless is based upon some corroborating and solid evidences and reasons to believe cannot lead to creation of huge demand of sales tax. The departmental case is totally based upon hypothetical calculations without any solid proof which established beyond any shadow of doubt that impugned liability of sales tax is based on the figures and calculations, which are imaginary and presumptive without any logical and legal basis and no tax could be levied on the basis of assumption and presumption. It is now well-settled law that sales tax imposed on the basis of some assumption or presumption not warranted in law shall always be struck down.
17. The apparent superstructure of impugned show cause notice is built upon the foundations which by itself is based on mala fide wherein all the provisions of the Act whether relevant or irrelevant to the subject matter have been rushed altogether into it in a manner that is mechanical and hypothetical to deceive the person reading it that a judicial mind has been applied while composing it. Contrarily, a show cause notice is a foundational document, which is to describe the c,ase comprehensively, made out against the taxpayer by invoking relevant provisions of law and by making references on corroborating and solid evidences collected in support of the same. It is the narration of facts in the show cause notice along with supporting material evidences determining the offences attracted in a particular situation in meaningful and tangible manners.
The show cause notice is not a casual correspondence or a tool or license to commence a roving inquiry into the affairs of the taxpayer based on assumptions and speculations but it is a document of fundamental value carrying a definitive legal and factual position of the department against the taxpayer. Non-completion of pre-requisite of show cause notice and supply of the grounds or reasons in clear and explicit words, renders the notice illegal and invalid. The tax functionaries being an author of a show cause notice must cite only those sections and legal provisions thereof which are materially relevant to the subject and objectively fixed therein with proper application of judicial mind not at all in mechanical and hypothetical way. Indiscriminate citations of multiple sections, some times, in controversy and most of the time irrelevant to the subject matter always results in injustice in the name of justice as done in the instant show cause notice which is sufficient on its own feet to defeat the law and in turn the notice, illegal, ab initio void and unlawful. The person against whom proceedings are held cannot be punished for a charge different from the one, for which notice had been given expressedly or impliedly due to incompetency and inefficiency of its author to put a substance in its contents which is altogether irrelevant and immaterial to the subject would definitely render the whole exercise as illegal and ab initio void and would never end in true justice. It is now well-settled law., that where a show cause notice is vague, flawed and defective then all the subsequent proceedings on its basis would also become illegal, void and nullity in the eyes of law. Therefore, show cause notice should not be issued mechanically and hypothetically, but should exhibit a proper application of judicial mind by the issuing authority by invoking the relevant provisions of law. In the light of observations made supra, the impugned show cause notice is held to be illegal, void and unlawful. Reliance in placed on the judgment of Hon'ble High Court, Lahore in case of "Messrs Caretax v. The Collector of Sales Tax and Federal Excise, etc." reported as PLD 2013 Lah. 364 = 2013 PTD 1536 and judgment of Customs, Federal Excise and Sales Tax Appellate Tribunal, Peshawar Bench in case of "Messrs Shahzad Ghee Mills Ltd., Gadoon Amaz v. The Collector of Customs, Sales Tax and Federal Excise (Appeals), Peshawar and another" reported as (2012 PTD (Trib.) 1697).
18. There is no iota of doubt that in the instant case, the impugned show cause notice and consequent adjudication order issued under section 11(2) of the Act are illegal, void ab initio and without jurisdiction as 'recovery of sales tax' can be made under the provisions of section 11(3) of the Act providing recovery of any tax or charge has not been levied or made or has been short- levied or has been erroneously refunded whereas assessment of tax liability not paid or short paid is provided under section 11(2) ibid. A comparative study of the provisions of section 11(2) and section 11(3) of Sales Tax Act, 1.990 reveals that where a tax due on supplies has not been paid or has been short paid or has been claimed as input tax credit or refund, which is not admissible under the Act, proceedings are to be initiated under section 11(2) of the Act however, section 11(3) of the Act deals with the situation where any tax or charge has not been levied or made or has been short levied due to some collusion or deliberate act, 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. The instant case is neither a case of assessm ent of tax on the basis of any short-payment nor of non-payment therefore, assumption of jurisdiction under section 11(2) of the Act by way of issuing subject show cause notice and passing adjudication order for recovery of sales tax without invoking mandatory provisions of section 11(3) of the Act are illegal and without jurisdiction. Any order passed under section 11(2) of the Act can be equated with an assessment order determining the amount of tax actually payable by a registered person and in no way, can be purported to be a judgment for adjudging any recovery of tax or charge, non-levied or made or has been short levied in its legal semantics and jurisprudence. It is well-settled law that if the Statute enacts that certain action shall be taken in a certain manner and in no other manner, such requirement is absolute and that negate to attend or non-compliance will invalidate the whole proceedings. Reliance is placed on the judgment of Hon'ble High Court, Lahore in case of "M/s, Inam Packages, Lahore v. Appellate Tribunal Customs, Central Excise and Sales Tax, Customs House, Lahore and 2 others" reported as (2007 PTD 2265).
The ratio settled in the said judgment is reproduced hereunder:- "Show cause notice can only be served under section 36 [now section 11(3)1, if:-
(a) Any tax or charge has not been levied or has been short-levied or has been erroneously refunded;
(b) Such non-levy, short-levy or erroneous refund has been caused by the reason(s) of "some collusion or a deliberate act" under subsection (1) of section 36 of the Sales Tax Act or owing to inadvertence or error or misconstruction per subsection (2) thereof; and
(c) Within the period of five years under subsection (1) and three years under subsection (2) of section 36.
Mere non-levy, short-levy or erroneous refund of tax or charge cannot be the basis for a show cause notice. It has to be founded upon non-levy, short-levy or erroneous refund caused by any of the above reasons which being the dominant factor also determine the period of limitation thereto: In the absence of any of the three conditions or the jurisdictional facts the taxing authorities shall have no power or jurisdiction to serve a show cause notice under section 36."
19. As far as, issue of tax fraud is concerned, suffice to say that the initial burden to prove that the provisions of tax fraud were attracted, lied on the revenue department and not on the appellant. In the instant case, the department could not prove the act of tax fraud as defined under section 2(37) of the Act and for this reason, charge of tax fraud has no legal consequences in the light of judgment of honourable Sindh High Court, Karachi, in case of "Messrs Al-Hilal Motors Stores and others v. The Collector of Sales Tax and Central Excise (East), Karachi and others" cited as (2004 PTD 868). It is also a well-settled law that any act which had not been done knowingly, dishonestly or fraudulently did not come within the ambit of tax fraud.
20. We have also found that the learned adjudicating authority has imposed penalty and default surcharge in the adjudication order but neither specified amount of penalty and default surcharge nor the extent of percentage of penalty and default surcharge in the impugned show cause notice, thus, penalty and default surcharge imposed against the appellant is otherwise not recoverable with the said specification until and unless a lump-sum amount or percentage thereof given in its subsections is not confronted in the show cause notice. Moreover, the penalty proceedings being criminal one, it is mandatory for the department that specific amount of penalty and default surcharge imposed against the taxpayer must be properly confronted in the show cause notice, which is absent in the instant case. Reliance can safely be placed on the judgment of High Court, Madras reported as (AIR 1962 Madras 366). The operative part of the said judgment is reproduce hereunder for facility:- "It was contended by counsel for the respondent that no real prejudice was caused in this case because the petitioner had in his explanation admitted the contravention complained of in the show cause notice. This cannot be construed as an admission of liability to the penalty imposed under section 167(3). As I have already indicated the mere insertion of the section or the rule contravened in the show-cause notice would not be sufficient compliance with the spirit of the law. In addition, the show cause notice must also mention the penalty for the contravention of the provisions of the Act for which penal action is proposed to be taken. In this view that part of the order imposing a penalty of Rs. 500/- on the petitioner must be held to be illegal as it is not proceeded by a proper show cause notice."
21. The last but not the least that penalty under sections 33(5) and 33(6) of the Act is primarily leveled and confronted in impugned show cause notice whereas it has eventually been imposed and adjudged under section 33(13) of the Act in consequent adjudication order which renders it illegal and unlawful. No penalty under any subsection of section 33 can be imposed and adjudged against a taxpayer through an adjudication order until and unless each and every subsection is specifically mentioned and confronted in show cause notice and if any penalty is imposed without confronting relevant provisions as contained in subsections of section 33, it would definitely fall beyond the scope, stance and contents of show cause notice which would render it illegal, unlawful and void ab initio. It is now well-settled law that where any adverse finding is given in the adjudication order on the allegations or violation of provisions of law which are not incorporated and confronted in the show cause notice, the entire proceedings would be rendered as illegal and void for reason of breach of natural justice, which is also breach of law. The stance taken by learned counsel for registered person is fully supported by the ratio settled in the reported judgment of Apex Court of Pakistan in case of "The Collector Central Excise and Land Customs v.
Rahim Din" (1987 SCMR 1840). The ratio decidendi in the said judgment is as under:-- "However, we are of the opinion that it is not necessary to determine this question of law in the facts of the present case as this petition can be disposed of on the short ground that the order of adjudication being ultimately based on a ground which was not mentioned in the show cause notice, the order was palpably illegal and void on the face of it."
22. The orders impugned before us have been passed without adverting to the grounds, precedents quoted and legal objections raised by the appellant and the aspect of the case that the department has miserably failed to discharge its onus of proving the allegations and have not brought forth any evidence to establish them hence, the revenue department has failed to discharge the burden of proof therefore, impugned orders lacking such criteria are declared to be illegal, void, without lawful authority and of no legal effect. In order to maintain the sanctity of both quasi-judicial and administrative proceedings, it is necessary to maintain oversight on performance of Adjudicating Officers whose orders should not be entirely dependent on opinions and comments of the reporting officers and detecting personnel. A nonspeaking, lopsided, sketchy and slip-shod order cannot be said to meet the requirements of the judicial order, which must contain the contentions raised before the authorities by the rival parties and its reasoning based on evidential substance for passing a reasoned order in accordance with the relevant provisions of section 24-A of the General Clauses Act, 1897. It is now well-established principle of law that even officer, authority or a tax functionary making any order is required to give solid reasons and thus, any judicial findings without discussing necessary facts, case laws, legal issues involved therein and material available on record is not a judicial order and consequently is not sustainable in the eyes of law. There is onerous duty on the part of adjudicating and appellate authorities to discuss all issues and dispose off what has been argued. We can refer to volume of judgments to support the stand of the appellant that both the authorities below were needed to pass speaking orders but in order to negate the impugned orders, two landmark judgments of the Hon'ble Supreme Court in cases of "M/s. Airport Support Services v. The Airport Manager, Quaid-e-Azam International Airport, Karachi and others" (1998 SCMR 2268) and "Col. (Retd.) Ayub Ali Rana v. Dr. Carlite S. Pune and another" (PLD 2002 SC 630) and provisions of section 24-A of the General Clauses Act, 1897, are enough which clearly mandate without any reservation that solid reasons have to be given in support of conclusion drawn. In any way, the impugned orders, which are not speaking orders and devoid of reasons are not sustainable under law being in clear contravention of law declared by the Hon'ble Supreme Court as well as High Courts of Pakistan in various cases ref: "M/s. Adamjee Jute Mills Ltd. v. The Province of East Pakistan and others" (PLD 1959 SC (Pak.) 2721), "Gowanea Mohan Sikdar v. The Controller Import and Export and 2 others" (PLD 1970 SC 158), "Mollah Ejahar v.
Government of East Pakistan and others" (PLD 1970 SC 173) and "Muhammad Ibrahim Khan v. The Secretary, Ministry of Labor and others" (1984 SCMR 1014), etc.
23. Sales tax returns supported with sales tax invoices bank statements, copies of cross cheques and other sales tax record was produced before us in compliance of provision of section (73) and discharge of sales tax liability under the provisions of Sales Tax Act, 1990 which were thoroughly examined and the claim of input tax on the purchase of goods/electricity as well as output tax declared on the supply of goods in the return and discharge of sales tax liability were found in order and no factual infirmity was found in the record.
24. Keeping in view the above discuspions, particularly in the light of law, record produced before us and judgments quoted supra, the outcome is obvious that we are inclined to accept the appeal filed by the appellant/taxpayer and hold that the impugned show cause notice and consequent adjudication and appellate orders are illegal; void ab initio, without jurisdiction and thus hereby set aside. The instant appeal filed by the registered-person is accepted on the grounds and in the manners as indicated above.
25. Since, we have decided the appeal purely on legal grounds and the other grounds taken by the appellant have become only academic interest, therefore, need not be dilated upon and no comments are warranted on them.