SHAHID IQBAL DHILLOM (JUDICIAL MEMBER).---Titled sales tax appeal has been filed by the taxpayer calling in question the impugned Order C.No, 150 dated 20-07-2017 passed by the learned CIR (Lyallpur Zone), RTC/ Faisalabad.
2. Facts leading to the instant appeal are that during scrutiny of sales tax returns for the financial years 2016 and 2017, it was observed that the appellant is involved in evasion of sales tax worth Rs,14,119,940/- as comparative study of declared sales in the previous years 2014-2015 has revealed that the appellant has suppressed its sales in the years 2016-2017. On these basis, the learned ACIR (Unit-3, Lyallpur Zone), Faisalabad requested the CIR that blacklisting proceedings under section 21(2) of the Act against the appellant may be initiated as he is involved in tax fraud as defined under section 2(37) of the Act. Resultantly, a show-cause notice dated 18-05-2017 was issued to appellant asking him as to why he may not be suspended in terms of section 21(2) of the Act read with Rule 12 of the Sales Tax Rules, 2006 notified vide S.R.O. 555(1)/2006 dated 05-06-2006 and consequential action as warranted under law may not be taken against him. In response to show- cause notice, the appellant submitted detailed written reply supported with documentary evidences on 07-06-2017, duly contesting the charges levelled against him but during pendency of the instant case before the learned CIR, department has coercively recovered an amount of Rs, 4.8 million through CPRs' dated 15-06-2017, 20-06-2017 and 22.06.2017 on the threat of his suspension of registration and the learned CIR disposed off the case vide Order C.No, 150 dated 20-07-2017 by simply stating therein that since Unit Incharge (Unit-3) submitted that the appellant accepted the stance of the department regarding low payment of sales tax and has deposited an amount of Rs, 4.8 million therefore, proceedings of suspension of registration initiated under section 21(2) of the Act were withdrawn without considering the reply filed by the appellant and even without any assessm ent order determining the liability of sales tax as provided under section 11 of the Sales Tax Act, 1990. Now, the taxpayer being discontented and aggrieved by the said order has filed the instant appeal before this Tribunal.
3. Initiating the arguments, learned counsel for the registered person has vehemently contested that the learned CIR has given no judgment on basic legal as well as factual issues raised in the written reply and decided the case against the appellant by simply relying upon the opinion of the Unit Incharge (Unit-3) which rendered whole exercise of adjudication illegal and of no legal effect at, all. The learned counsel assailed that appellant has neither admitted any suppression of sales nor liability of sales tax either in writing or orally whereas alleged amount was coercively recovered by the department which cannot be equated with admission and confession of charges and allegations levelled against him. The alleged amount was deposited apparently to avoid criminal prosecution and suspension of his registration. The learned AR further argued that neither any show-cause notice for assessm ent of sales tax or as the case may be recovery of short levied or non-levied of sales tax under sections 11(2) and 11(3) of the Act has been issued nor any order determining liability of sales tax has so far been passed and whole exercise for recovery of sales tax has been carried out without adhering to due process of adjudication as provided under law.
Learned counsel vociferously contended that two independent proceedings under section 21(2) of the Act and under sections 11(2) and 11(3) ibid were initiated simultaneously with the same show- cause notice i,e, suspension' of registration and recovery of sales tax which could not have been initiated together. Counsel while summing up his arguments has stated that sales have been worked out on self-derived figures and self concocted formula in a mechanical fashion for which there is no room in the fiscal statutes.
4. Neither anybody has entered appearance on behalf of the department nor any request for adjournment was received, therefore we deem it appropriate to decide the case on the basis of available record and after hearing the learned AR.
5. The arguments of the learned AR has been heard, the order of the learned CIR as well as relevant provisions of law and the case laws cited by the learned AR of the taxpayer have also been perused carefully.
6. After going through the case record and relevant provisions of law, we are of the firm opinion that the appellant has neither admitted allegation of suppression of sales nor liability of sales tax whereas an amount of sales tax worth Rs, 4.8 million was coercively recovered by the department which cannot be equated with admission of charges and allegations as levelled in the impugned show-cause notice issued for suspension of registration and can also not be construed as confession of the appellant because the same was deposited ostensibly under threat of suspension of his registration and criminal prosecution apprehending physical arrest. Such mode of recovery by the revenue department, without recourse of relevant provisions of Sales Tax Act, 1990, can only be termed as extortion. It is wholesome principle of law that a person depositing amount under any fear, stress and duress could not reasonably be expected its admission by him in the event of recovery of tax unlike perpetual tax evader and habitual actor of fiscal crime. It is not needless to put this fact on record that impugned order of learned CIR is also found self- contradictory, as on one hand, it was alleged therein that the appellant is involved in tax fraud and huge evasion of sales tax worth Rs, 14,119,940/- but on the other hand, he has withdrawn proceedings of suspension of registration simply upon deposit of Rs, 4.8 million which shows that whole proceedings for suspension and blacklisting the appellant were carried out just to collect handsome amount from the appellant to fulfill huge implausible revenue targets set out for it.
7. We have observed with grave concern that neither any show-cause notice for assessment of sales tax or as the case may be recovery of short levied or non-levied of sales tax under sections 11(2) and 11(3) of the Act was issued nor any order adjudging liability of sales tax was passed and whole exercise for recovery of sales tax was carried out without adhering to due process of adjudication as provided under law. In absence of any adjudication, under the provisions of the Sales Tax Act, 1990 and proven fraudulent conduct resulting in tax evasion and tax fraud, to extort and extract recovery from the appellant through CPRs obtained under coercion is patently illegal and mala fide exercise of jurisdiction by the revenue department. It is now well-settled law that recovery of taxes from a taxpayer, without due process of adjudication of the case, which is his basic, fundamental, constitutional and natural right, cannot be equated with confession or admission of the charges itself at all which were yet to be adjudged upon. The coercive recovery from the appellant under threat of suspension of registration without final determination of legitimate liability of the appellant is illegal, without lawful jurisdiction and amounts to punishing him without due process of law as provided under section 11 of the Sales Tax Act, 1990. The ratio decidendi in judgments of Hon'ble High Court, Lahore in case of "M/s. G.M.H. Traders v. The Deputy Director, Directorate, of Intelligence, Lahore" reported as 2009 PTD 1894 and in case of "M/s. Ashraf Steel Mills v. The Director Intelligence and others" reported as (2014 PTD 1506) are the most relevant in all fours to the case at instance of the appellant.
8. In this regard we gain strength from the judgment of Hon'ble Lahore High Court in case of "M/s. Taj International (Pvt.) Ltd. and others v. The Federal Board of Revenue and others" reported at (2014 PTD 1807) wherein it was laid down as under:-- "It is settled law that recovery of tax is possible only after the tax has been duly assessed and the amount of "due tax" determined under the Act. Recovery under civil law is initiated once tax has been assessed through the civil adjudicatory process provided under the Act."
"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."
9. In another case of "Muhammad Afzal Shaheen v. Federation of Pakistan and others" reported as (2014 PTD 1919), Hon'ble High Court, Lahore has held that petitioner was never issued a show-cause notice nor was any adjudication against him, no authority vest in adjudicating officer to saddle the petitioner with any liability of impugned demand.
10. It is crystal clear beyond any shadow of doubt that provisions of section 21(2) of the Act and section 11 of the Act are distinct in nature and issuance of separate show-cause notices under these sections are precedent condition for assumption of jurisdiction. The two independent proceedings under section 21(2) of the Act and under section 11 of the Act were initiated simultaneously with a single show-cause notice i,e, suspension of registration and recovery of sales tax which could not have been initiated together. The proceedings for suspension of registration and blacklisting the taxpayer under section 21(2) of the Act could only be initiated if the taxpayer is found involved in tax fraud or it is established that he has been involved in issuance of fake and flying invoices whereas recovery of sales tax can only be made by issuing of a show- cause notice under section 11 of the Act. Therefore, we cannot endorse the illegal adjudication made in slipshod manner, without applying independent judicial mind and even without due process of law, based merely on opinions and comments of the reporting officers and detecting personnel.
11. In view of what has been stated above, particularly in the light of law, the appeal filed by the taxpayer is accepted and impugned show-cause notice and consequent order are declared to be illegal, ab initio void and are hereby set aside. Resultantly, impugned recovery of sales tax made by the department without due process of law is also declared illegal and without lawful jurisdiction.