MR. SHAHID MASOOD MANZAR, CHAIRMAN.--(1). The titled appeal has been filed by registered person against Appellate Order-in-Appeal No. 144 of 2018 passed u/s 45-B of the Sales Tax Act, 1990 by the learned Commissioner IR (Appeals), Peshawar. The tax involved under appeal for the tax period July, 2015 to May, 2016. The appellant has-raised rather lengthy grounds of appeal could not reproduced for the brevity of time.
2. Briefly stated facts of the case are that the Directorate General of Revenue Receipt Audit (DGRRA) conducted audit of the Income Tax record of the appellant for the tax period July 2015 to May 2016 and the Taxation Officer vide Assessment Order No. 02/2018 dated 18-08-2017, directed the recovery of:
(i) Short paid sales tax amounting to Rs. 2,085.302,266/- in respect of electricity supplied to the consumers in the erstwhile Provincially Administered Tribal Area (PATA).
(ii) Withholding Tax amounting to Rs. 7,886.069/- short deducted at the time of making purchases from the registered suppliers.
(iii) Penalty of Rs. 24,700/- and default surcharge of Rs. 7,835,381/-for late filing of sales tax returns relating to the audit period In addition 5% penalty and default surcharge were also imposed. Appeal filed against this order was rejected by the learned Commissioner Inland Revenue (Appeals), Peshawar vide Order-in--Appeal No. 144/2018 dated 09- 01-2018 hence this appeal.
3. On behalf of the appellant the learned AR submitted that--
(a) The DRRA has no jurisdiction to audit the records of the registered persons under the Sales Tax Act, 1990.
He explained that the Chapter VI of the Sales Tax Act, 1990 deals with the appointment of officers of sales tax and that powers which clearly shows that DGRRA staff has neither been appointed as officers of sales tax under section 30 nor have delegated powers under section 32 of the Sales Tax Act, 1990. Section 32-A, of the Sales Tax Act, 1990 provides for special audit by Chartered Accountants or Cost Accountants for conducting special audit of record; of registered persons subject to certain conditions laid down therein. The officers of the DGRRA have not been included in this section nor have been given such mandate by virtue of any other section. He emphasized that the show cause notice based on the 'allegations reported by the staff of DGRRA is illegal and the superstructure based on the same is liable to fall flat. In this respect placed reliance on the decision reported as: "(i) PTCL 2010 CL. 393--Collector of Sales tax & Central Excise Peshwar M/s Makk Beverages (Pvt.) Ltd., Peshawar -- wherein it is held that the case of petitioner-department solely tests on the audit was conducted by the Directorate General of Revenue Receipts Audit, Lahore (DRRA). The latter is a branch of Auditor General of Pakistan and its officers are neither sales tax officers under section 30 of the Act nor they are accounts of any registered unit -- Thus the whole exercise conducted by the DRRA in this particular case is quoram-non-judice."
It was explained that the judgment of the Peshawar High Court has attained finality as the department has not pressed the petition in the Supreme Court of Pakistan in Civil Petition No. 1580 of 2008 (Collector of sales tax & Central Excise, Peshawar vs. M/s. Makk Beverages & Mineral Water (Pvt.) Ltd). The learned AR has referred another case reported as "PTCL 2011 CL. 109 -- Yousaf Sugar Mills vs. Collector of Sales Tax--wherein it is held that:-- "DRRA cannot conduct audit Of a person registered under the Sales Tax Act, the whole exercise conducted by DRRA is quorum-non-judice and the show cause notice as well as order issued there under was without necessary legal validity."
In another case reported as 2010 PTD (Trib.) 1759 -- ST Appeal No. K-54 of 2009 -- it is held that the "Audit by DRRA official and their, .forwarding report to Collector of Sales Tax Audit, as well as issuance of show cause notice by the Additional Collector involve assumption of wrong jurisdiction-and as [such exercise carried out right from audit by the DRRA till passing of order by the Additional Collector was without jurisdiction"
In a case reported as 2008 PTD (Trib) 261-- Appeal No. 7 (2150) ST/IB of 2001 it has been held by the "Customs, Central Excise and Scales Tax Appellate Tribunal that Audit was conducted by audit party of Directorate General of Revenue Receipts Audit (DRRA) which was a branch of auditor General of Pakistan and its officer were neither sales tax officers under section 30 of the Sales Tax Act, 1990 nor they were authorised under the Sales tax Rules, 2005 to have access to the premises and accounts of the any registered units.
Whole exercise conducted by the staff of Directorate General of revenue Receipt Audit was coram non judice."
The learned AR argued to, even department cannot conduct audit without strictly following the relevant provisions of to Sales Tax Ac, 1990. He explained that to tax regulator monitor self-assessment, system through natural and impartial tool of audit under section 25 or 72B of the Sales Tax Act, 1990. There is no other mechanism under the Act to lift the veil of self-assessment, protecting the monthly tax return filed by the taxpayer. Reliance in this regards was placed on a case reported as "PTCL 2014 CL. 726-- Taj International (Pvt.) Ltd. etc. Vs. The Federal Board of Revenue -- wherein it is held that: "The tax regulators monitor self assessment system through neutral and impartial tool of audit under section 72B. There is no other mechanism under the Act to lift the veil of self-assessment, protecting the monthly tax return filed by the taxpayer. Once the case of a taxpayer is selected for audit under section 72B, the return is closely scrutinized and on completion of audit if any of the grounds under section 11 are attracted, an assessment order is passed against the taxpayer, adjudicating the actual tax liability -- Inquiry or investigation can be initiated on the basis of "information or sufficient material" received by the Commissioner against a taxpayer under proviso to section 25(2) of the Act."
In another case reported as PTCL 2014 CL 710 -- M/s LESCO vs. The Federal Board of Revenue etc. it is held that "the self-assessed amount of tax due by the taxpayer in its sales tax returns can only be altered through fresh assessment of tax under section 11, subject to the process of selection of a taxpayer through audit."
In this regard case reported as 2015 PTD (Trib.) 1777 -- M/s. Arif Ehsan Printers vs Commissioner Inland Revenue (Appeals) RTO, Faisalabad has been reported wherein it is held that "In the present case, Authority had conducted audit of the appellant/registered person under S. 25 of the Sales Tax on its own, without any, prior selection from the Federal Board of Revenue, on the basis of random selection from the Federal Board of Revenue, on the basis of random or parametric criteria under S. 72B of the Sales Tax Act. 1990, which was illegal and without lawful authority."
In a case reported as 2015 PTD (Trib.) 1050 -- M/s. Flame Trend vs. Commissioner Inland Revenue (Appeal-III), RTO, Lahore wherein it is observed that "No notice under Ss 25. 38 & 72-B of Sale Tax Act. 1990 was issued to registered person as per law to assume jurisdiction of the case -- Impugned Show .Cause Notice being coram non judice, and without lawful authority, superstructure built on the same should.fall .flat. Orders of the both authorities below, being illegal and void ab initito were cancelled.
In a case reported as 2013 PTD (Trib.) 954-- M/s Decent Textiles, Faisalabad vs. Commissioner (Appeals)
Inland Revenue (RTO), Faisalabad it is held that "Audit exercise carried out by the DCIR not only without prior selection by the Federal Board of Revenue under S. 72B of the Sales Ted Act, 1990 but also without lawful notice .fbr requisition of sales tax record under S. 25(1) of the-Sales Tax Act, 1990 and proper authorization of Commissioner for audit under S. 25(2) of the Sales tax Act, 1990. Whole audit exercise was illegal, unlawful and without legal jurisdiction."
The learned AR argued that it is repeatedly mentioned in the Show Cause Notice and impugned Assessment Order that the DRRA has framed the case on the basis of audit of Income Tax record of the Appellant. It is argued that Income Tax record cannot be made basis for adjudging the liability under the Sales Tax Act, 1990.
Reliance is placed on the decision reported as 2013 PTD (Trib.) 2130 -- M/s. Siddique Enterprises, Faisalabad vs CIR (Appeals) RTO. Faisalabad wherein it is held that the "Income tax return including "financial statements of a registered person was neither specified as sales tax record under S. 22 or any other provision of Sales Tax Act. 1990 nor was he legally bound to produce record of income tax return in response to show cause notice issued to him under S. 25 thereof -- Data of income tax return could be used to determine correctness of data provided by registered person in sales tax return, but same could not be used .for calculating sales tax liability against him -- Impugned assessment of sales tax was illegal." In another case reported as 2008 PTD (Trib.) 541 -- Sales Tax Appeal No. 295/LB of 2007 it is held that the "income Tax! record could not be made basis for adjudging the liability under Sales Tax Act, 1990 -- Appeal was accepted by setting aside the order as a result of which the show cause notice was set aside by the Tribunal.
As regards input tax adjustment on supply of electricity units, to Provincially Administered Tribal Area (PATA), the learned AR submitted that during the period June 2004, PESCO was making taxable supplies of electricity to PATA and did include the sales tax amount in the electricity bills issued to the consumer in PATA in June 2004, but the courts of competent jurisdiction of Swat held the recovery of such sales tax in PATA as unlawful.
There was no column in the sales tax return which caters to the particular situation of appellant's inability to collect sales tax relating to energy supplies made to PATA due to orders passed by the Courts in Swat.
Resultantly PESCO has shown these supplies under the exempt column. It was submitted that the supplies made to PATA were not exempt from tax and the FBR has clarified about 'application of Sales Tax Act, 1990 in FATA/PATA vide letter C. No. 3(30) SIP/99 dated 22-10-2003 that supplies made by the registered persons to recipients of supply in these areas are taxable and this clarification has not been with 24-05-2011. On appeal by the RTO, Peshawar the Appellate Tribunal vide order reported as 2015 PTD 1112 -- PESCO vs. CIR upheld the decision of the Commissioner Inland Revenue (Appeals), Peshawar on the subject issue as follows: "After considering the submissions from both the sides we are of the view that the respondent/PESCO has per force been obliged to show the supplies of electricity in PATA under the column "exempt" in view of the fact that such supplies have been declared as non-taxable by the courts of competent jurisdiction. It is evident that even the Department is not clear as to the placement of such supplies in the sales tax return. In such unavoidable circumstances, simple mentioning of these supplies in PATA under the "exempt' column does not render them exempt. The CBR's clarification dated C. No. 3930)STP/99 dated 22-10-2003 makes such supplies as taxable and their ultimate account as taxable supplies is not disturbed by any lacuna in the Sales Tax Return Form. It is trite law that order of the courts of competent jurisdiction must be obeyed and the Respondent/PESCO should not he made to stiller on account of such orders. Therefore, we are inclined to agree with contentions made on behalf of respondent/PESCO and findings of the learned CIR (Appeals) in this regard are upheld."
He also emphasized that this Tribunal in its recent judgment dated 23-01-2017 in Appeal STA No. 116/PB/2016 has followed its earlier decision in STA No. 96/PB/2013 and 98/PB/2013 reported as (2015 PTD 1112) on the issue that department is not clear as to the placement of such supplies to PATA in the sales tax return which were made to PATA and decided that the Tribunal earlier order should have been followed by the RTO and the Commissioner IR (Appeals). It was held that:-- "3................. This violation has rendered both the officers' liable to appropriate action under the law. This attitude leads to repeated litigation on the same issues resulting in wastage of time, denial of justice to the litigating parties and non-realization of the due revenue to the exchequer. Under the circumstances, we vacate the orders of both the authorities below......................."
As regards non-deduction of 1/5th withholding sales tax at the time of making purchases from the registered suppliers (July 2015 and May 2016 Rs. 7,886,069), the learned AR explained that the Respondent No. 3 has reduced the sales tax liability from Rs. 73 millions to Rs. 7 Millions which shows the slipshod manner in which this case has been made. The learned AR submitted that the figure in this regard have been elaborately explained and reconciled in view of the copy of Sales Tax Return of July 2015, copy of the Sales Tax Return of May 2016 and Comparative Analysis Statement and list of CPRs enclosed as Annexure VIII, IX & X of the Memo of appeal respectively. He sated that the respondent's misunderstanding has cropped up due to incorrect charging of sales tax on telecommunication services which are exempt under Rule 5(ix) of the Sales Tax Special Procedure (Withholding) Rules, 2007 notified vide SRO 660(1)/2007 dated 30-06-2007.
As regards late filing of return and late deposit of government dues the AR learned referred to Rule 14(1) & (2) of the Sales Tax Special Procedure Rules, 2007 as follows:-- "14 Filing of returns and deposit of sales tax.--(l) In case of WAPDA and KESC, sales tax levied and collected under rule 13 during a tax period shall be deposited on 'accrual basis' i.e. the amount of sales tax actually billed to the consumers or purchasers for the tax period.
(2) WAPDA and KESC shall submit the monthly return as prescribed under section 26 of the Act, by the 21st day of the month following the month in which the Metric power bill or invoice has been raised The tax due shall be deposited in the Government Treasury under the relevant-head "B02341-Sales Tax alongwith the prescribed return under Chapter II of the Sales Tax Rules, 2006.
(3) In case of an IPP, the due date for the purpose of filing monthly sales tax return aid for payment of sales tax shall be the 25th day of the month, following the month to which the sales tax invoice relates.
(4) any person other than an IPP. WAPDA or KESC who supplies electric power shall file a monthly sales tax return under section 26 of the Act and Chapter II of the Sales Tax Rules. 2006, and deposit the amount of sales tax payable for the tax period by the due date."
The learned AR explained that these rules were framed in 2007 when WAPDA and KESC were filing sales tax returns. However, PESCO though incorporated in 1998, the sales tax returns on behalf of PESCO were filed by WAPDA till 2008. He explained that WAPDA's task of supplying electricity to the consumers in Pakistan and resultant filing of sales tax returns for such supplies has already come to an end and this function has been assigned to various electricity distribution companies like PESCO, HESCO, TESCO etc. He also submitted that this judicial forum may take judicial notice of the fact that there is no electricity distribution company with the title "KESC" as it is now operating under a new name and style of K-Electric. However, the Sales Tax Special Procure Rules, 2007 have not been amended to take care of these ground realities. The learned AR submitted that PESCO being an inheritor of function of WAPDA in accordance with law is required to be treated in accordance with the procedure, applicable to WAPDA. In this respect he relied on case reported as 1999 MLD 236 Akbar Ali v Chairman A.K M.I.D.C. 1999 CLC 1198--Muhammad Akbar v. WAPDA and 3 others 1999 P.Cr.L.
728--Buner Gul v. The State to substantiate his point that where a specific provision of law would govern a situation general provision of law would stand excluded. He pointed- out that the Sales Tax authorities are now treating K-Electric as KESC On the same pattern WAPDA being no more a power distribution entity to supply electricity to the consumers, its successor organization now performing its functions would be governed by the rules previously applicable to WAPDA. According to the learned AR article 25 of the Constitution of the Islamic Republic of Pakistan, 1973 provides that all citizens are equal before law and are entitled to equal protection of law. K- Electric and PESCO 'cannot be differentiated while undertaking exactly the same functions of supply of taxable electricity to the consumers. The learned AR concluded that, in view 'of his submissions, the crucial date to file return by PESCO is 21st of the month and not 15th of a month as per assessment order. Therefore, the penalty and default surcharge based on incorrect interpretation of law are liable to be struck down.
The learned AR Has emphasized that the appellant is not liable to default surcharge and penalty under section 33(5) of the Sales Tax Act, 1990 as there is no wilful evasion of sales tax. In addition, there cannot be any mens rea in the case of a public sector organization where its functionaries have no stake or benefit short payment of taxes. In this respect he placed reliance -.
(i) 2005 PTD 1920 -- Collector of Sales Tax, Lahore vs. M/s Packages Limited, Lahore.
(ii) 2005 PTD 1978 -- Collector of Sales Tax, Faisalabad vs. Kashif Enterprises, Faisalabad.
(iii) 2005 PTD 1984 -- Collector of Sales Tax, Faisalabad vs. M/s COCA Cola. Beverages Pakistan Ltd, Faisalabad.
(iv) 2005 PTD 1995 -- Collector of Sales Tax, Faisalabad vs. National Sugar Mills Ltd.
(v) 2004 PTD 1179 (S.C)/PTCL 2004 CL. 224 -- D.G. Khan Cement Company Ltd. Vs. Federation of Pakistan.
(vi) 2006 PTD 1132. (S. C.) -- D.C.. C.E. & S.T.. Customs House, Lahore vs. M/s ICI, Pakistan Limited, Lahore.
(vii) PTCL 1995 CL 415 -- M/s Lone China (Pvt.) Ltd vs. Additional Secretary, Ministry of Finance, C.B.R., Karachi.
(viii) 2015 PTD 152 (LHC) United Sugar Mills Ltd. vs. FBR.
On the basis of above arguments the learned AR has requested to allow the appeal.
4. On behalf of the Respondents, the learned Departmental Representative, in respect of PATA issue, relied on and read para 23 of the Commissioner Inland Revenue (Appeals) order as follows: "23. As regards legal issue of audit conducted by DRRA, I am of the firm opinion that staff of DRRA is a constitutional body under the umbrella of Auditor General of Pakistan and can conduct audit of the receipts of the Federal Government of Pakistan. In the instant case the respondent department has not .followed mechanically the observations of DRRA rather they resorted to the legal course of action as prescribed under Section 30 of the sales tax act 1990 to safeguard the revenue collection of the Government of Pakistan.
Subsequently the assessment order passed by the assessing officer of respondent department has meaningfully dealt with the observations raised by DRRA under the relevant provision of Sales Tax Act, 1990.
The objection raised by the AR on this count was unjustified unlawful and is hereby rejected accordingly."
The learned DR also raised the point that in the subject case the show cause notice is not issued, by the DRRA but the assessing officer was competent to do so. He also explained that after examining the observations raised by the DRRA, the Assessing Officer reduced the liability of the registered person.
He has explained the issue relating to inadmissible input tax adjustment on supply of electricity in PATA and pointed out that these supplies shown as exempt in the sales tax return and no output tax is charged. The learned DR emphasized that input tax cannot be adjusted on such exempt supplies.
As regards non-deduction of 1/5th withholding tax the learned DR explained that the appellant has not provided the proof of deduction of 1/5th withholding lax at the time of making purchases from registered suppliers.
He has referred to rule 14(4) of the Sales Tax Special Procedure Rules 2007 and emphasized that the PESCO is required to file sales tax return by the 15th of the month as only WAPDA has been allowed to file sales tax return by 21st of a month. On the basis of above submission the learned DR has requested to upheld the impugned order and to dismiss the appeal.
5. The rival arguments and the records have been examined.
The legality of audit by DRRA and resultant action of issuing Show Cause Notice, Assessment Order and Appellate Orders have been scrutinized at various fora including the High Court. The learned DR has not rebutted the argument that the DRRA staff is alien to hierarchy of officers authorised under the Sales Tax Act, 1990 It has been repeatedly decided vide reported, orders (i) PTCL 2010 CL. 393 -- Collector of Sales Tax & Central Excise, Peshawar vs. M/s Makk Borages (Pvt.) Ltd., Peshawar) (ii) The Honourable Supreme Court of Pakistan in Civil Petition No. 1580 of 2008 (Collector of Sales Tax Central Excise, Peshawar vs. M/s Makk Beverages & Mineral Water (Pvt) Ltd) (iii) PTCL 2011 CL. 109 -- Yousaf Sugar Mills vs Collector of Sales Tax)
(iv) 2010 PTD (Trib.) 1759 -- ST Appeal No K-54 of 2009 (v) 2008 PTD (Trib) 261--Appeal No. 7(2150) ST/IB of 2001 that DRRA cannot conduct audit of a person registered under the Sales Tax Act, 1990 and the whole exercise conducted by DRRA is quorum-non-judice Following these decision, it is ordered that the Show Cause Notice, Assessment Order and impugned Order-in-Appeal based on the audit by DRRA of income. tax record of the appellant are null and void. We to also inclined to agree to the argument that the tax regulators monitor self- assessment system through neutral and impartial tool of audit under section 25 or 72B of the Sales Tax Act, 1990 and there is no other mechanism under the Act to lift the veil of self-assessment, protecting the monthly tax return filed by the taxpayer. Reliance has been made in this regard on the judgment reported as (i) PTCL 2014 CL. 726 -- Taj International (Pvt.) Ltd. etc. vs. The Federal Board of Revenue, (ii) PTCL 2014 CL 710 -- M/s LESCO vs. The Federal Board of Revenue etc, (iii) 2015 PTD (Trib.) 1777 -- M/s. Arif Ehsan Printers vs. Commissioner Inland Revenue (Appeals) RTO, Faisalabad, (iv) 2015 PTD (Trib.) 1050 -- M/s Flame Trend vs. Commissioner Inland Revenue (Appeal-HI), RTO, Lahore, (v) 2013 PTD (Trib.) 954 -- M/s Decent Textiles, Faisalabad vs. Commissioner (Appeals) Inland Revenue (RTO), Faisalabad.
The issue relating to supplies of electricity to PATA has .been already decided by this Tribunal vide its earlier judgements reported 2015 PTD 1112--PESCO vs. CIR and STA No. 116/PB/2016. The department has not controverted the FBR's letter C. No. 3(30) STP/99 dated 22-10-2003 whereunder supplies to PATA were declared to be taxable. PESCO was constrained to show these supplies in exempt column as there is no such column where taxes not collected due to orders of the court can be shown. The charges levelled in this regard are ordered to be set aside.
As regards non-deduction of 1/5th withholding tax at the time of making purchases from registered suppliers the appellant has made detailed submissions in the Memo of Appeal along with the documentary evidence especially comparative analysis statement enclosed as Annexure VIII, IX, X of the Memo of Appeal. The learned DR has only argued that proof of payment has not been provided by the appellant but has failed to show any discrepancy in the documentary evident which substantiates that the calculation discrepancy, has emanated from incorrect charging of sales tax relating to telephone bills. It is clear that telephone bills are exempt from withholding tax under rule 5(ix) of the Sales Tax Special Procedure (Withholding) Rules, 2007 notified vide SRO 660(1)/2007 dated 30-06-2007. Resultantly the factual controversy relating to reconciliation of figures is ordered to be rechecked at the assessment stage and accordingly this issue is remanded back to the Assessing Officer, As regards the issue of late filing of sales tax returns, the learned DR has argued that the PESCO was required to file return by 15th of a month under Rule 14(4) of the Sales Tax Special Procedure Rules, 2007 as only WAPDA has been allowed to file return by 21st of a month. However the appellant has explained that WAPDA has been previously filing return on behalf of M/s PESCO till 2008 though the payments were made by M/s PESCO since its incorporation in 1998. The learned AR has also argued that the Sales tax Special Procedure Rules 2007 referred to WAPDA and KESC while both these entities are not filing the sales tax returns under these rules. The distribution and sale of electricity no more falls within the domain of WAPDA and this function has been assigned in various power distribution companies like PESCO, FESCO, MEPCO etc. where Karachi Electric (K-Electric) has replaced the KESC mentioned in the rules. It is evident that the subject rules now apply to power distribution companies as inheritor Of functions of WAPDA and accordingly it is held that the relevant date for filing of sales tax return is 21st of a month as under Rule 14(2) of the Sales Tax Special Procedure Rules, 2007. It is also evident that default surcharge and penalty in not payable, where there is no wilful default as per settled law enactments vide decision reported as 2005 PTD 1920--Collector of Sales Tax, Lahore vs. M/s Packages Limited, Lahore., 2005 PTD 1978-- Collector of Sales Tax, Faisalabad vs. Kashif Enterprises, Faisalabad, 2005 PTD 1984 -- Collector of Sales Tax, Faisalabad vs. M/s. COCA Cola Beverages Pakistan Ltd., Faisalabad 2005 PTD 1995 -- Collector of Sales Tax, Faisalabad vs. National Sugar Mills Ltd., 2004 PTD 1179 (S.C.)/PTCL 2004 CL. 224 -- D.G. Khan Cement Company Ltd Vs. federation of Pakistan, 2006 PTD 1132 (S. C.) -- D.C., C.E. & S.T., Customs House, Lahore vs. ICI, Pakistan Limited, Lahore, PTCL 1995 CL 415 -- M/s Lone China (Pvt.) Ltd. vs. Additional Secretary, Ministry of Finance, C.B.R., Karachi, 2015 PTD 152 (LHC) -- United Sugar Mills Ltd vs. FBR.
Therefore following these decisions the default surcharge and penalty are deleted.
6. The appeal is disposed off in the manner reported above. Sd- (Shahid Masood Manzar) Chairman. DISSENTING NOTE AGAINST ORDER ITA NO. STA NO. 54(PB)2018 FOR THE TAX PERIOD JULY 2015 TO MAY 2016 IN CASE OF M/S PESHAWAR ELECTRONIC SUPPLY CO. MR. NADIR MUMTAZ WARRAICH, ACCOUNTANT MEMBER.--I am not inclined to agree, on point of law, with the order authored by learned Chairman in the above cited case.
7. If the proposition is to be accepted that the Directorate General of Revenue Receipt Audit lacks jurisdiction to conduct audit then the legal scenario emerging is that the subsequent action by the assessing authority does not collapse in light of a judgment of the Honorable Islamabad High Court reproduced as under: The relevant portion of the Judgment of Honorable Islamabad High Court, in the order of M/s Pak Telecom Mobile Limited Islamabad vs. Federation of Pakistan WP no 612/2018 dated 19-2-2018 therein held:--
2. Learned counsel for the petitioner submitted that the notices issued by respondent No. 4 (Deputy Commissioner Inland Revenue) are wholly-without jurisdiction; that on account of the notification dated 14.10.2015. issued by the Federal Board of Revenue; such notices could only have been issued by the Commissioner Inland Revenue: that the Commissioner Inland Revenue had not delegated his powers conferred under the Federal Excise Act, 2005 to respondent No. 4; that the Commissioner Inland Revenue had not delegated his powers conferred under the Federal Excise Act, 2005 to respondent No. 4; and that the impugned notices were therefore, without jurisdiction and liable to be declared as such.
3. ....
4. ....
5. ....
6. Ordinarily, writ jurisdiction is not available to cases where there is an adequate and specific legal remedy provided under the statute. Recently, In the case of Indus Training and Contracting Company Vs. Collector of Customs (Preventive, Karachi (2016 PTD 2355), the Hon'ble supreme Court has held as follows:-- "4. Before examining the merits of the case, we find it necessary to state that at the stage when regulatory duty was charged, the appellant ought to have challenged the same before the forum provided under the Customs Act Instead of doing Oust. the appellant Invoked the jurisdiction of the High Court under Article 199(1) of the Constitution of Pakistan. Ordinarily, the Jurisdiction of the High Courts under Article 199 of the Constitution should pot be invoked where alternative ,forum under a special law. duly empowered to decide the controversy Is available and functioning. "Where a special law provides legal remedy for the resolution of a dispute, the Intention of the legislature in creating y' such remedy is that the disputes falling within the ambit of such forum be taken only before it for resolution. The very purpose of creating a special forum is that disputes should reach expeditious resolution headed by quasi Judicial or Judicial officers -who with their specific knowledge. expertise and experience are well equipped to decide Controversies relating to a particular subject in .a shortest possible time. Therefore, in spite of such remedy being 'made available under the law, resorting to the provisions of Article 199(1) of the Constitution, as a matter of course, would not only demonstrate mistrust on the functioning of the special forum but it Is painful to know that High Court have been overburdened with a very large number of such cases. This in turn results in delays in the resolution of the dispute as a large number of cases get decided after several years. There cases out to be taken to forum provided under the Special law Instead of the High Court. Such bypass of the proper forum is contrary to the intention of the provisions of Article 199(1) of the Constitution which confers' jurisdiction on the High Court only and only when there is no adequate remedy is available under any law. where adequate forum Is fully functional, the High Courts must deprecate such tendency at the very initial slate and relegate the parties to seek remedy before the special forum created under the special law to which the controversy relates. We could have the relegated the appellant to seek remedy before the appropriate form, however, as the dispute in the pretend case is no more than twenty years old. wet for this reason only as matter of indulgence, proceed to decide the controversy on its merits."
"7. The petitioner is at liberty to agitate all the grounds available to it under the law in the proceedings before respondent No. 4. The petitioner can also raise objections to the jurisdiction of respondent No. 4 by attending the proceedings before respondent No. 4. Simply because, the petitioner attends the proceedings before respondent No. 4 does not Imply that the petitioner submits to the Jurisdiction. It out to be appreciated that till date no final order against the petitioner has been passed by respondent No. 4.
8. In view of the above these petitions are not maintainable petitions are dismissed as not maintainable. Having held that these petitions are not maintainable, there is no reason to go into the merits of the case.
8. The Sales Tax Act 1990 lays down a scheme of things alternatively and that is invoking of sections 25 or 72B in order to monitor the sales tax returns filed on a monthly basis. The edifice of the ONO does not collapse as the mechanism of a neutral and non partisan audit exists and same appears to have been carried out and if any violation of law has taken place the statutory appellate hierarchy may be approached as setting aside the impugned ONO will simply expose the RP/appellant to another round of litigation.
9. The issue relating to supplies of electricity to the Provincially Administered Tribal Areas (PATA) can not be decided by relying upon a circular of FBR which is not a substantive legislation and does not enjoy the status of subordinate legislation nor of a Rule. Till such time FBR notifies a column in the sales tax return catering to such a situation as averred in the instant case FBR's circular is not legally binding. It remains incumbent upon FBR to notify sales tax return within a period of 120 days from the date of this order else the claim of the RP/appellant will stand accepted.
10. On the issue of late filing of returns WAPDA and PESCO remain distinct corporate entities and one entity cannot file a return on behalf of another and only persons/entities/Registered Persons included specifically in Sales tax Special Procedure Rules, 2007 can be extended the benefit of due dates of filing of returns. Hence default surcharge and penalty is payable by PESCO. Sd/- (Nadir Mumtaz Warraich)
Accountant Member 11. As the difference of opinion has arisen, the following questions are formulated arising out of the appeal filed by the taxpayer/appellant relating to controversy for opinion of another Learned Member:--
(i) Whether the proceedings, Order in Original, Order of CIR (A) are ab initio null and void and without lawful authority or the appellant/Registered person could have challanged the jurisdiction of the Directorate General Of Revenue Receipt Audit to conduct audit or having audit conducted by the statutory authority, in this case the assessing authority, and should have raised the issue of jurisdiction before the assessing authority at the initial stagein light of the judgment cited above.
(ii) Whether even if the proceedings .Order in Original, Order of CIR (A) are ab initio null and void and without lawful authority the position that reverts to is that the statutory authority, in this case the assessing authority, can initiate and conduct audit under the provisions of section 25 and section 72B if any violation of law has taken place the statutory appellate hierarchy exists
(iii) Whether the issue relating to supplies of electricity to the Provincially Administered Tribal Areas Can be decided by relying upon a circular of FBR which is not a substantive legislation and does not enjoy the status of subordinate legislation nor of a Rule as till such time FBR notifies a column in the sales tax return catering to such a situation as averred in the instant case, FBR's circular is not legally binding Whether on the issue of late filing of returns by
(iv) PESCO WAPDA and PESCO remain distinct corporate entities and one entity cannot file a return on behalf of another and only persons/entities/ Registered Persons included specifically in Sales tax Special Procedure Rules, 2007 can be extended the benefit of due dates of filing of returns thus making default surcharge and penalty payable by PESCO. Sd/ (Nadir Mumtaz Warraich)
Accountant Member Sd/- (Shahid Masood Manzar)
Chairman MR. MUHAMMAD WASEEM CHAUDHARY, JUDICIAL MEMBE.--12. To resolve the difference of opinion that arose between my two learned brothers, the Hon'ble Chairman has entrusted the matter to me. The points of difference to be resolved are as under:-- Whether the proceedings, Order in Original, Order of CIR(A) are ab-initio null and void and without lawful authority or the appellant/Registered person could have challenged the jurisdiction of the Directorate General of Revenue Receipt Audit; to conduct audit or having audit conducted by the statutory authority, in this case the assessing authority, and should have raised the issue of jurisdiction before the assessing authority at the initial stage in light of the judgment cited above.
(ii) Whether even if the proceedings, Order in Original, Order of CIR(Appeals) are ab-initio null and void and without lawful authority the position that reverts to is that the statutory the position that reverts to is that the statutory authority, in this case the assessing authority, can initiate and conduct audit under the provisions of section 25 and section 72B if any violation of law has taken place the statutory appellate hierarchy exists.
(iii) Whether the issue relating to supplies, of electricity to the Provincially. Administered Tribal Areas can be decided by relying upon a circular of FBR which is not a substantive legislation and does not enjoy the status of subordinate legislation nor of a Rule as till such time FBR notifies a column in the sales tax return catering to such a situation as averred in the instant case, FBR's circular is not legally binding.
(iv) Whether on the issue of late filing of returns by PESCO, WAPDA and PESCO remain distinct corporate entities and one entity .cannot file a return on behalf of another and only persons/entities/ Registered Persons included specifically in sales Tax Special Procedure Rules, 2007 can be extended the benefit of due dates of filing of returns thus making default surcharge and penalty payable by PESCO.
13. I have perused the preceding paragraphs of the order authored by my learned colleagues and gone through the record of the case. The above referred issues no. (i) & (ii) are interlaced and revolve around the common points of law and facts. The divergence of opinion between my learned brothers is based on the proposition that audit by the Directorate General of Revenue Receipts Audit (DRRA) is interchangeable with audit under section 25 and 72B of the Sales Tax Act, 1990 (the Act). The suggestion by the learned Accountant Member is that the objection regarding lack of jurisdiction should have been raised before the assessing authority so that. The matter would have reverted to audit under section 25 and 72B of the Act. I am not inclined to concur with the suggestion. The authorities under the Act could proceed for audit according to the condition prescribed by law.
But audit by DRRA had neither nexus with audit under the provisions of the statute nor could it be pressed into service to seek the compliance with audit under the provisions of the Act. The basic point is that the edifice of order in original or other proceedings under the Sales Tax Act, 1990, (The Act) based on audit conducted by the Directorate General of Revenue Receipt Audit (DRRA) is inconsistent with the provisions of the Act. This issue was decided by this Tribunal as well as by the Hon'ble Peshawar High Court. In the judgment reported as 2011 PTD (Trib) 633 in the case of Messrs Yousef Sugar Mills, versus Collector Sales Tax and Federal Excise, LTU, Lahore, it was held: "The case of the department stood on the audit conducted by DRRA, a body which had no existence so far as the Sales Tax Law was concerned. Obviously, DRRA had no authority to check the private record of a taxpayer as it is beyond its scope and jurisdiction.," The Hon'ble Peshawar High Court held, in the judgment reported as PTCL, 2010 CL. 303 - in the case of Collector of Sales Tax c& Central : Excise, Peshawar versus M/s. Makk Beverages. (Pvt.) Ltd., Peshawar: "The case of petitioner-department solely rests, on the audit that was conducted by the Directorate General of Revenue Receipt Audit, Lahore (DRRA). The latter is a branch of Auditor General of Pakistan and its officers are neither Sales Tax officers under section 30 of the Act nor they are authorized under the Sales Tax Rules, 2005 to have access to premises and accounts of any registered unit. They do not even fall in the category of officers mentioned in section 2(28) of the Central Excises Act, 1944. The staff of DRRA is non-existent authority as for private registered units are concerned and they cannot have access to their books of accounts and other record under the Sales Tax/Central Excise laws".
In the case sited as (2003) 88 Tax 1 (S.C Pak), The Hon'ble Supreme Court of Pakistan affirmed the judgment of the Division Bench of the Hon'ble High Court of Sindh whereby the Constitutional Petition No. D-1926 of 2000 was upheld. The Hon'ble Sindh High Court held that action of the department based on proceedings without lawful authority was unsustainable: In the light of the above case law, there remains no ambiguity that the Order-in-Original and the Order of CIR (A) were void and consequent proceedings, too, were unlawful. It is also settled law that the question of jurisdiction may be raised at any stage of proceedings. The Hon'ble Supreme Court of Pakistan I held in the judgment cited as PLD 1965 Supreme Court 443 that the question of jurisdiction can be raised at the very last stage, even if the point was not raised at any early stage. The question of raising of jurisdictional objection at the commencement of proceedings would arise only if determination of jurisdiction would C require factual enquiry and no such issue arises in the instant case.
14. The answer to the issue no. (ii) is the consequence of the conclusion of the issue no. (i). If an order is void ab initio, it is not an order covered under the provision of the Act. No superstructure can legally be built on a void foundation. The Hon'ble Sindh High Court held, in the judgment cited as 1990 PTD 389: "if on the basis of void order subsequent order have been passed either by the same authority or by other authorities, the whole series of such orders, together with the super structure of rights and obligations built upon them, must fall to the ground because such orders have as little legal foundation as the void order on which they are grounded." In view of the above settled legal position, a void order is neither sustainable nor it may be source of further proceedings. As far as the question of initiating and conduct of audit under the provisions of section 25 and section 72B of the Act is concerned that is an independent action and has to follow the conditions envisaged under the said provisions. Such audit proceedings cannot flow as the consequence of un-sustainability of void proceedings or orders. The learned Accountant Member did not question DRRA's lack of jurisdiction to conduct audit under the Act. I, therefore, agree to the proposition that a void order/proceedings could not be made the foundation of further proceedings giving rise to another round of litigation.
15. The issue no. (iii) pertains to the adjustment of input tax on supplies of electricity made to PATA. There can be no controversy that liability to pay tax arises by virtue of charging section alone. Liability to pay Sales Tax is neither dependent on the Circular of FBR nor on the format of the Return of Sales Tax. If the Circular of FBR or format of return is inconsistent with the charging section, it has not to be followed because FBR's circular/ declaration in the return is not determinative of legal liability of the taxpayer. The Hon'ble Peshawar High Court held, in the judgment cited as 2004 PTD 1994 "The income tax officer is under a duty to .apply the law notwithstanding the claim of an assessee, even if the result would be favourable to the assessee, in the same way as he would decline assessee's claim for concession if not admissible under the law". There can be no cavil with the proposition that unless the Federal Government/grants exemption under section 13 F of Act, exemption cannot be presumed simply for the reason that the registered person was somehow showing certain supplies as exempt in to its return of Sales Tax Section 2(41) defines taxable supply as under:-- "Taxable supply" means a supply of taxable goods made {by an importer, manufacturer, wholesaler (including dealer), distributor or retailer; other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4:"
The above definition of taxable supplies is quite unambiguous and unless notification of exemption was issued under section. 13 of Act or electricity supply to PATA was exempt in the Sixth Schedule of the Act, the supplies of electricity made by the registered person to PATA were taxable and input tax incurred for the purpose of making such taxable supplies was adjustable against the output tax under the provision of the Act. The charge of tax under section 3 of the Act read with section 6 thereof makes the registered person liable to pay sales tax irrespective of the status of the purchaser. The registered person making supplies of electricity from taxable territory of Pakistan was chargeable to tax and was not entitled to any exemption unless it was granted under the provision of the Act. Since the registered person were making taxable supply of electricity, it was entitled to adjustment of input tax/and the controversy regarding the FBR Circular or the format of the return would have no bearing on the legal position.
16. In the issue no. (iv) The learned Accountant Member pointed out that PESCO and WAPDA are distinct entities. PESCO was, therefore, cannot avail extension of time in terms of Rule 14(2) of Sale Tax Special Procedure Rules, 2007 14(2) which allowed WAPDA and KESC to file returns by the 21st day of the month following the month in which the electric bill are invoice has been raised. According to the view, the appellant PESCO was covered under section 26 of the Act read with Rule 14(4) of the aforesaid Rules. The appellant PESCO is the successor of WAPDA and during the period, it was not independently registered, WAPDA was liable to act on its behalf. The appellant/PESCO was registered after the enforcement of the Sales Tax Special procedure Rules, 2007, its name therefore could not specifically be mentioned in the aforesaid special procedure Rules, 2007. Being the successor of WAPDA and continuing the same business activity it was covered under the Sales Tax Special Procedure Rules. 2007, and not under the general provision of the Act.
Since WAPDA was required to pay tax on accrual basis in terms of Rule 14(1). WAPDA was allowed to file returns by 21st day of the month instead of the 15th day because gathering of information from millions of electricity bills required extension of time for filing of monthly sales tax return. The appellant/PESCO, being successor of WAPDA was placed in the same situation. The appellant PESCO, follows the same special provision. It, therefore, can't be subjected to general provision of Rule '14(4) because according to settled law special provisions exclude the operation of general provisions. Requiring the appellant to file tax return under section 26 of the Act and pay tax under section 6 read with section 2(9) may result into huge loss of revenue. In such an event, payment of tax would not be required on accrual basis but on receipt basis which would always be lower than the billed amounts. Besides, the Department can't blow hot and cold and place PESCO in the footing of WAPDA under Rule 14(1) and treat it discriminately under rule 14(4). If mode of tax applicable to WAPDA is being applied to PECO being successor of WAPDA, there can be no justification for treating it not successor of WAPDA in term of Rule 14(2). Special procedure was prescribed for WAPDA, which is beneficial to revenue. Special and general procedure can't be simultaneously applied to the case of PESCO while it is successor of WAPDA and containing the same business and in view of settled law special law excludes the operation of general law. Reliance is placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as PLD 1997 Supreme Court 84. Even if were is an ambiguity in the interpretation of law, it is to be resolved in forever of the taxpayer. The treatment of PESCO as the successor of WAPDA places both the predecessor and the successor on the same footing. If the appellant is treated as successor under Rule 14(1) and otherwise under Rule 14(2), illegal consequences would follow. It is in the interest of Revenue PESCO as the successor of WAPDA because otherwise PESCO would not be required to pay tax on accrual basis. Charging sales tax on accrual basis from PESCO in the capacity of successor of WAPDA and subjecting it to default surcharge and penalty by denying it the status of the successor of WAPDA will result in mutually exclusive consequences and double jeopardy to the appellant/PESCO.
17. With the above observations on all the four issues, I agree with the findings of my learned brother Mr. Chairman, which are in conformity with the earlier judgments of this Tribunal, Higher Courts and principles of law enunciated by Hon'ble Supreme Court of Pakistan. The points of difference of opinion between my learned brothers are answered in the above terms.
18. Resultantly, the appeal filed by registered person is decided in the above terms.