The titled sales tax appeal at the instance of the registered person has been directed against the appellate order dated 29.05.2012 recorded by CIR (Appeals-III), Lahore.
2. The facts in brief leading to the instant appeal are that on the basis of an information it came to the notice of the Revenue department that the registered person/appellant is declaring less supplies as per sales tax return as compared to the market survey. Therefore, a team of officials was deputed at the business premises of the registered person under section 40B of the Sales Tax Act, 1990 (hereinafter called the Act') by the FBR for a period of 28 days, who reported supplies made by the registered person at Rs.2,582,736/- showing average per day value of supplies at Rs.92,240/-. On the basis of said report, it was concluded by the adjudicating officer that during the period from July 2010 to June 2011, the registered person had suppressed the value of supplies by 748%. Therefore, proceedings were initiated which culminated in passing of Order-in-Original bearing No.10/2011 dated 15.12.2011, wherein the registered person was ordered to pay sales tax amounting to Rs.5,048,517/- along with default surcharge, 100% penalty under section 33(13) of the Act as well as Special Excise Duty at Rs.427,557/-. Feeling aggrieved, the registered person preferred appeal before CIR (Appeals-III) Lahore, who partly accepted the appeal by reducing the estimated supplies to half with the direction to recalculate the default surcharge accordingly. Still discontented, the registered person has come up in further appeal before this Tribunal on the strength of following grounds taken as per memo of appeal:-
(i) That the order of the Commissioner Inland Revenue (Appeals-III) Lahore was bad in law and against the facts of the case.
(ii) That the Commissioner Inland Revenue (Appeals-III) was not justified to confirm the estimation of the figures of supplies upto Rs.16,833,989/- for twelve periods against assessed figure of suppliers of Rs.33,667,795/-.
(iii) That the Commissioner Inland Revenue (Appeals-III) was not justified to confirm the ex-parte action of the Assistant Commissioner Inland Revenue although the impugned order was passed unilaterally without providing an opportunity of being heard.
(iv) That the Commissioner Inland Revenue (Appeals-III) has wrongly interpreted the section 11 of the Sales Tax Act, 1990, although the said section covers the assessment of the tax period which is one month not the twelve months.
(v) That the Commissioner Inland Revenue (Appeals-III) was not justified to confirm the penalties imposed under the Sales Tax Act, 1990 and the Federal Excise Act, 2005.
3. The learned counsel has termed the action of authorities below to be arbitrary and contrary to law. Explaining his view point, he submits that the department was not justified to estimate the sales/supplies on the basis of report of the monitoring team deputed on the business premises under section 40B of the Act, which relates to period from 27.06.2011 to 24.07.2011 and on the basis of this report, the declared supplies for the period from July 2010 to June 2011 were considered to be as suppressed supplies. According to the learned counsel, the Sales Tax Act, 1990, restricts that period to only one month and not a year, therefore, if any discrepancy was appearing in any declared results of the registered person in any tax period only to that extent the taxation officer was required to amend the same. Learned counsel heavily relied on sections 2(4), 11 and 25 of the Act. As per section 11 only a tax period consisting one month can be amended whereas for rest of the previous period the department can conduct audit proceedings under section 25 of the Act.
Concluding his arguments, learned counsel further submits that the learned CIR (Appeals) was also not justified to reduce the estimated supplies/sales to half of it. According to him, such reduction is also without any basis.
4. On the other hand, the learned DR appearing on behalf of the department has fully supported the orders passed by both authorities below simply reiterating the basis evolved therein.
5. Arguments heard and record perused. The learned counsel for the appellant has raised the question of taxability of past/previous period and according to him the department can only assess a tax period in case of non-levy, short-levy and erroneously refunded tax. The procedure for assessm ent is provided under section 11 of the Act whereas the definition of tax period is available in section 2(43) of the Act. For clarity, both the sections are reproduced as under:- Section 2(43):- 'Tax Period' means a period of one month or such other period as the Federal Government may by notification in the official Gazette, specify; Section 11:-
(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an Officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessm ent of tax, including imposition of penalty and default surcharge in accordance with sections 33 and 34: Provided that where a person required to file a tax return tiles the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge - and penalty, the notice to show cause and the order of assessment shall abate.
(2) Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in subsection (I), an Officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and 34.
6. Cumulative reading of the above reveals that as per Sales Tax Act, the tax period consists of one month and every taxpayer/registered person is required to file a return for a tax period on the 15th of next month of the tax period and in case the department finds that any registered person fails to file return or short levied tax or he has been refunded erroneously in that eventuality, can assess the correct amount of tax whereas in case of previous periods the department is empowered to conduct audit on the basis of record once in a year.
7. It can also be gathered from above that it is only the period of one month in which if tax is not paid due to non-filing of return or if return filed, short levied of tax can be subject to assessment and not for a year i.e. 12 tax periods. The law does not empower the tax authorities to pass an order for 12 tax periods in the garb of monitoring instead of one month. However, if the department was of the view that registered person has paid short tax, consisting of more than one tax period, the law gives power to the department to conduct audit for the previous tax periods and levy correct tax evaded by the registered person.
8. The monitoring was conducted under section 40-B of the Act on the instruction of the Board which pertains to the period July 201,1. The department should have watched and observed the return filed ,for the above said period and if the declaration of the registered person was not in accordance with the data collected by the monitoring team, then only the return for the said period could be said to be understated by the registered person and the department could have initiated the proceedings in accordance with law. The law does not empower the revenue/ department to initiate proceedings on the basis of monitoring conducted during the tax period to reopen and proceed for the previous tax periods for the reason that firstly the information was only available for the tax period in which the monitoring was conducted and secondly the monitoring was not relevant to the past and closed tax periods and, thus data collected could not be a tool for the proceedings of the previous tax periods. Since the department has got no exact and definite figures of supplies for the previous periods, therefore, on the basis of information of one tax period to which data relates the previous tax periods could not be proceeded. Therefore, in our considered view the department should have looked into the return file for the tax periods in which monitoring was conducted and if the declared supplies of the taxpayer were /not in accordance with the supplies made, then the department was at liberty to initiate proceedings for that tax period only.
9. In our considered view, the adjudicating authority has misdirected himself by taking the whole year consisting of 12 tax periods for amendment instead of one tax period. If at all in the result of monitoring the department was of the opinion that the registered person/appellant had declared wrong results or short paid taxes, the best course as per law was to point Out a period consisting of one month in which the particulars were wrongly declared. By now it is also settled by the Appellate forums in a number of judgments that Sales Tax cannot be charged on presumptions and surmises. Reliance is placed on 2004 PTD 868 recorded in the case of Messrs Hilal Motors and others v. CST and CE Karachi.
10. For what has been stated above, the ONO as well as the impugned order are not sustainable in the eye of law as such are liable to be set-aside. The appeal of the registered person is accepted and disposed of accordingly. Sd/- Sd/- (Muhammad Akram Tahir) (Nazir Ahmad)
Accountant Member Judicial Member DISSENTING NOTE
11. I have gone through the proposed order of my learned brother, the learned Judicial Member and with utmost respect, is not inclined to agree with the findings arrived at by him. The learned Juridical Member has held that the department can only assess that tax period in which non-levy, short-levy and erroneously refunded tax has been observed, therefore, action taken for the past and closed tax periods is not sustainable. Relying on Section 2(43) and Section 11 of the Act, it is held that the monitoring under section 40B of the Sales Tax Act, 1990 was made for 28 days with effect from 27.06.2011 to 24.07.2011 hence the department can take action for that tax period only and was not empowered to pass order for the past and closed tax periods on that basis and if the department wants to pass order for the whole year (12 tax periods) audit is necessary. The impugned order is, therefore, set aside with the following findings:-
(i) That the law does not empower the tax authorities to pass order for 12 months in the garb of monitoring;
(ii) The monitoring was conducted under section 40B of the Act for July 2011, therefore, return for the said tax period could be said to have been understated and proceedings can only be initiated for the said period;
(iii) If the department was of the view that the registered person has paid short tax for more than one tax periods then audit should be conducted in order to levy the correct amount of tax; and
(iv) The monitoring was not relevant for the past and closed tax periods and the data collected could not be used as a tool for the said tax periods;
12. In my humble opinion the learned Judicial Member has lost sight of the important fact that monitoring was conducted with a view that the appellant was involved in suppressing the supplies.
The crux of the matter is that considering the supplies declared by the appellant for the tax periods from July, 2010 to June, 2011 at Rs.39,70,636/- as understated, a Monitoring Team was deputed at the business premises of the appellant under section 40B of the Sales Tax Act, 1990. The Team carried out monitoring for 28 days and ultimately observed that the registered person had made supplies to the tune of Rs.25,82,736/- complying thereby that average supply comes to Rs.92,240/-.
From the said statistics it was observed that the appellant had suppressed the value of supplies by 748% during the periods from July, 2010 to June, 2011 and resultantly the supplies were estimated in the light of the monitoring results. It may be correct that supplies estimated on the basis of monitoring conducted in July, 2011 could be little harsh but it definitely provides a solid basis for measuring the business activities volume of a registered person for the earlier and previous tax periods. Therefore, I am of the considered opinion that the Taxation Officer was legally justified in estimating the supplies for the previous 12 tax periods. However, the learned CIR(A) taking care of the contention that the estimated supplies were excessive reduced the same to some extent which, is perfectly legal and no further exception to the impugned order is warranted.
13. So far as the other findings that order can only be passed for the said tax period in which the monitoring was conducted and if the Revenue intended to take action for whole of the year (12 tax periods) the audit was necessary, are concerned I do not find myself in agreement with the preposition. Neither the law has put any restriction nor such type of decision is appealing to mind. It is a normal routine that a spot inquiry is always conducted in order to measure the volume of business activities and the assessm ent is to be framed on the basis of findings/ results of the said inquiry. I have come across thousands of cases during my service whereby such practice has been adopted and also passed the test of appeals. Therefore, I least subscribe to the decision made by my learned brother. Even otherwise Section 11(2) of the Act laid down that where a person has not paid the tax due on the 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 the reasons other than those specified in subsection (1), Officer of the Inland Revenue shall, after a notice to show cause to such person, make an order for assessme nt of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with Sections 33 and 34." Perusal of this Section reveals that the law has not imposed any such said restriction, therefore, in my opinion the department is empowered to pass an order for more than one tax periods and in the instant case the Order-in- Original has rightly been passed. As such no further interference in the impugned order is warranted. The appeal merits dismissal and it is so ordered.
Sd/- Muhammad Akram Tahir Accountant Member
14. Since a difference of opinion has arisen the case is referred to the Hon'ble Chairperson for the nomination of the Third Member to resolve the following controversies:--
(i) Whether in the facts and circumstances of the case the monitoring conducted for a particular tax period can make basis for estimating supplies for the earlier and previous tax periods and, if so, the action of the Revenue was justified or not?;
(ii) Whether in the facts and circumstances of the case the monitoring was relevant only for that tax period in which it was conducted?;
(iii) Whether in the facts and circumstances of the case the law has put any restriction against passing orders for more than one tax periods?; and
(iv) Whether in the facts and circumstances of the case for taking action for more than one tax periods audit is necessary?
Sd/- Sd/- (Nazir Ahmad) (Muhammad Akram Tahir)
Judicial Member Accountant Member I have gone through the dissenting note of my learned brother (Accountant Member). He has proposed four questions to be resolved by the Referee Member. In my considered opinion, the following question also requires to be referred to the third member for his valuable "Whether in the facts and circumstances of the case supplies can be estimated for the previous tax periods in the absence of any solid evidence/information relevant to the said tax period in the light of ratio settled by the Hon'ble Karachi High Court in the case of Messrs Al-Hilal Motors and others v. CST&CE Karachi reported as 2004 PTD 868.
Sd/- Sd/- (Muhammad Akram Tahir) (Nazir Ahmad)
Accountant Member Judicial Member Jamil Akhter Baig, F.C.A. For Appellant.
Mrs. Ghazala Hameed Razi,D.R. For Respondent.
Date of hearing: 1st October, 2014.
15. MUHAMMAD WASEEM CHAUDHARY, JUDICIAL MEMBER.---The matter has been entrusted to me by the honourable Chairman for resolving the difference of opinion by my two learned brothers which has arisen while deciding the above titled appeal. The questions raised by my learned brother, Accountant Member are as under:--
(i) Whether in the facts and circumstances of the case the monitoring conducted for a particular tax period can make basis for estimating supplies for the earlier and previous tax periods and, if so, the action of the Revenue was justified or not?
(ii) Whether in the facts and circumstances of the case the monitoring was relevant only for that tax period in which it was conducted?
(iii) Whether in the facts and circumstances of the case the law has put any restriction against passing orders for more than one tax periods?, and
(iv) Whether in the facts and circumstances of the case for taking action for more than one tax periods audit is necessary?
Answer
16. The definition of a 'tax period is exclusive in nature and means a period of 'one month' or such period as the Federal Government may by notification in the official Gazette, specify. In the circumstances of the case, a tax period consists of one month only and no specification notification has been issued for prescribing a specific period.
17. Each tax period is an independent period and has to be treated as separate unit. The monitoring conducted for a particular tax period for estimation of supplies is relevant only for the said tax period. In my opinion, it cannot be made basis for earlier or subsequent tax periods as there are a number of factors on the basis of which the quantum of supplies during a tax period depends. If the department has definite information about the suppression of supplies in any preceding or succeeding period, it can take action under the relevant provisions of the Sales Tax Act, 1990 but the supplies declared in the other tax periods cannot be changed on the basis of estimation alone on the basis of facts not relating to those tax periods.
18. Question two is corollary to the first question and I am of the considered opinion that the monitoring conducted for one tax period is relevant only for that tax period and not for the other tax periods.
19. The question that 'whether in the facts and circumstances of the case the law has put any restriction against passing orders for more than one tax periods' is to be seen in the light of Article 4(2)(a) of the constitution which states that no action detrimental to the life, liberty, H body, reputation or property of any person shall be taken except in accordance with law. It means every action of a government functionary has to be in accordance with law. It is an established principle of the law of taxation that an assessee can be subjected to tax under a provision of law, which is unambiguous and clear. A functionary has to state the provision of law on the basis of which his action is based upon because otherwise the action will be arbitrary and having no legal foundation to stand upon.
Question iv Whether in the facts and circumstances of the case for taking action for more than one tax periods audit is necessary?
The supplies declared in a particular tax period by the registered person are sacrosanct unless proved to be a wrong declaration by a positive evidence showing or indicating suppression of supplies, inflated claim of input adjustment, etc. The definite information has to come in the hands of the adjudicating authority whether as a result of audit or otherwise. For obtaining information relevant to a tax period, audit of that tax period would be necessary if it was not otherwise available with the department.
20. Additional question of law framed by my learned Judicial Member Whether in the facts and circumstances of the case supplies can be estimated for the previous tax periods in the absence of any solid evidence/information relevant to the said tax period in the light of ratio settled by the Hon'ble Karachi High Court in the case of Messrs Al-Hilal Motors and others v. CST & CE Karachi reported as 2004 PTD 868.
21. The Hon'ble Karachi High Court has reiterated the time honoured judicial principle that there is no room for any intendment and there is no presumption as to tax. In the absence of any deeming provision the revenue is required to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which the' sales tax imposed on the basis of some assumption or presumption not warranted in law shall always be struck down. In the instant case, to apply inference drawn from one tax period to the other tax periods is mere an assumption that the sales would have been suppressed in the other tax periods which were not under monitoring.
22. With the above observation I fully agreed with the view point of my learned brother Judicial Member and answer the question No.1 and question No.3 in negative and question No.2 and question No.4 in affirmative both in favour of the registered person/appellant. Question raised by my learned brother Judicial Member in affirmative. Therefore, the findings given by my learned brother the Judicial Member in the shape of judgment authored by learned Judicial Member is fully endorsed which are well reasoned and as per law and facts of the case.
23. As a result the appeal of the registered person succeeds.
Sd/- (Muhammad Waseem Ch.)
Judicial Member