JUDGMENT : MR. JUSTICE SHAMS MEHMOOD MIRZA .--(1). This judgment shall decide the present writ petition as well as connected writ petitions the details whereof are mentioned in 'Schedule-A' attached hereto.
2. The petitioners in all the petitions have called into question the notices issued under section 25 of the Sales Tax Act, 1990 (the. Act) selecting them for audit.
3. The moot question arising in these petitions relates to the interpretation of sub-sections (1) & (2) of section 25 of the Act. It is argued that section 25 requires summoning of the record or documents from the taxpayer by the Commissioner Inland Revenue in the first instance whereafter the case for audit can be selected. It is also argued that the discretion vesting in the Commissioner is not unfettered and that he is required to give reasons for selecting a case for audit. In support of their stance, the petitioners rely exclusively upon the case of Indus Motor Company Limited v . Federation of Pakistan etc.PTCL 2020 CL 06.
4. The learned counsels for the respondents including the Assistant Attorney General in reply submitted that the notices impugned in all the petitions contain detailed reasons for selecting for audit the cases of the petitioners and, therefore, the judgment in the case of Indus Motor Company is distinguishable. It is next contended that all the necessary documents are appended with the tax returns filed by the taxpayer as prescribed by section 22 of the Act and in case of discrepancies found therein the Commissioner can exercise power under section 25 of the Act. It is furthermore argued that any objections the petitioners may have in regard to the notices impugned herein can very well be taken before the Commissioner Inland Revenue and as such these petitions are not maintainable.
5. Section 25 of the Act insofar as it is relevant for resolving the controversy raised in these petitions reads as under:
25. Access to record, documents, etc.--(1) A person who is required to maintain any record or documents under this Act or any other law shall, as and when required by Commissioner , produce record or documents which are in his possession or control or in the possession or control of his agent; and where such record or documents have been kept on electronic data, he shall allow access to [the officer of Inlan d Revenue authorized by the Commissioner] and use of any machine on which such data is kept.
(2) The officer of Inland Revenue authorized by the Commissioner , on the basis of the record, obtained under sub- section (1), may , once in a year , conduct audit:
6. In Indus Motor Company's case , the learned Division Bench of Sindh High Court is dealing with notices issued under section 25 of the Act and section 45 and 46 of the Federal Excise Act, 2005 through which the plaintif fs were selected for audit and they were directed to produce the record. Repelling the argument that the expression "as and when required" appearing in sub-section (1) of section 25 requires the Commissioner to record reasons as to why access to record is necessary , it was held in the judgment that: However , I am not really Impressed with such line of argument inasmuch as sub-se ction (1) of s.25 does not speak or refers to any conduct of audit of a tax payer . It is only in respect of the authority of the Commissioner for having access to record "as and when required" and this cannot be interpreted so as to require the Commissioner to give reasons while asking for the record from the tax-payer . The words "as and when required" is dependent on something happening in future. It is contingent in nature, and after going through the tax-returns, the Commissioner is fully competent to apply his mind that the time has come for him; and it is this point of time when the true intent of the words "as and when required" can be applied and invoked. On this stage he can say that he needs to have access to the record(s).
The learned Division bench, while making note of the two impugned notices which selected the taxpayer for audit and simultaneously required it to produce the record, proceeded to analyze the import of sub-sections (1) & (2) of section 25 by holding as follows: Sub-section (1) of s.25 is only in respect of having access to the record and no more. On the other hand once the record has been furnished, the Commissi oner can then authorize an officer of Inland Revenue to conduct audit on the basis of that record as referred to in sub-section (1) of s.25 of the 1990 Act. Therefore, there does not seems to be any justification to issue two (2) notices simultaneously; one for submitting of record [presumably under sub- section (1)]; and second, [again presu mably under sub-section (2)], asking/authorizing the officer of Inland Revenue to conduct audit of a tax-payer . In my view, the use of the words in sub-section (2) of s.25 ibid "The officer of Inland Revenue authorized by the Commissioner , on the basis of the record , obtained under subsection (1), may, once in a year, conduct audit" is not without reasoning and substance. It is there to delegate powers for conducting audit; but only on the basis of the record so obtained in terms of sub-section (1) of s.25 ibid. Therefore, the Commissioner can only invoke the provis ion of sub-section (2) when he himself has obtained the record, seen it and made up his mind that the sales tax affairs of such and such tax-payer are to be audited. Similarly , in the case of 2005 Act, first he has to have access to record in terms of section 45(1) and then can have resort to section 46 ibid after going through the record so obtained and take a decision after applying his mind to conduct an audit. He has to at least make up his independent mind and that cannot be done without assigning reasons, however , brief they may be.
9. it means that though an officer of Inland Revenue can conduct audit once he was authorized by the Commissioner; but only on the basis of the record and such an opinion to proceed with the audit can only be formed by the Commissioner once he has gone through the record obtained under Section 25(1) of the 1990 Act. It is for the reason as he can only act further "on the basis of record" so obtained under s.25 (1) ibid and then delegate his authority to the officer of Inland Revenue for proceeding any further in terms of subsection (2) of s.25 of the 1990 Act.
7. The result achieved by Indus Motor Company's judgment for holding that sub-sections (1) and (2) of section 25 deal with two stages of the process relati ng to calling for record and selection for audit appeals to reason and the text of section 25 of the Act on its simple reading bears its plausibility . A combined reading of sub-sections (1) & (2) of section 25 makes it evident that summo ning of record/documents and selection for audit of a taxpayer cannot be a contemporaneous event. The opinion to be formed by the Commissioner Inland Revenue for selection for audit must be predicated upon the record/documents supplied by the taxpayer and its examination.
8. This Court, however , respectfully disagrees with the ratio of the judgment stating that the Commissioner Inland Revenue is required to give reasons while selecting the case for audit under section 25. Although the language of section 25(1) does not make it clear , it is reasonable to assume that the decision by the Commissioner Inland Revenue to require a taxpayer to produce record/documents shall necessarily be made on examination of the tax return and documents attached therewith. The expression "as and when required " used in sub-section (1) supports this hypothesis. The summoning of record/documents is not an idle exercise and must be for a purpose. It is thus at the stage of summoning the record/docu ments that the Commissioner is required to communicate reasons to the taxpayer so that he becomes aware of what is required from him and to satisfy the queries and concerns of the Commissioner , if need be. Of course, if the Commissioner is not satisfied with the record supplied and explanation offered by the taxpayer , he can select his case for audit for which he has full authority under section 25. On this construction, both sub-sections (1) & (2) are interlinked and have nexus to each other . Even otherwise, keeping in view the legal pronouncements on the nature of audit, no purpose would be served in imposing an obligation on the Commissioner to give reasons for selection of audit when section 25 does not support such a requirement. The Hon'ble Supreme Court in the case of Commissioner Inland Revenue Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and others PTCL 2018 CL 678 has reiterated the legal position that mere selection for audit does not cause any actionable injury to the taxpayer . This Court in the case of Kohinoor Sugar Mills v.
Federation of Pakistan PTCL 2018 CL 98 termed audit as an administrative exercise. It was stated that: ....These provide a mechanism to test the validity of a return filed by a taxpaye r who has been trusted by the legislature to submit his return on self-assessment basis. In case the return is found to be a correct reflection of the Income Tax affairs of the assessee, honestly , truthfully and accurately disclosed duly supported by books and records, he would have nothing to fear and no further proceedings would be required to be undertaken. However , In the event that concealment, dishonesty and misstatements are found, then the taxpayer has betrayed the trust reposed in him by the legislature in which event the department must have the requisite powers (subject to the law and safeguards available within the law) to conduct an audit to uncover illegalities and concealment that the taxpayer may have committed and recover what is lawfully due from him under the law .
Similarly , a learned Division bench of this Court in judgment reported as The Federal Board of Revenue etc. v.
M/s. Chenone Stores Limited etc. PTCL 2018 CL 141 while affirming the judgement of Kohinoor Sugar Mills case held as under: Purpose of audit has been discussed in number of cases by the Superior Courts and is held that after extending the facility of self assessment, to audit a taxpayer's declaration in the return filed under it, is the right of Tax Administrator . It is discernable from the law laid down by August Supreme Court in Media Network and Fatima Sharif Cases that selection and conduct of audit, being administrative in nature, is not detrimental to the interest of a taxpayer . State, through FBR, has a right to audit, against taxpayer's corresponding duty to make correct declarations and comply with the statutor y commands under three Federal Taxing Statutes. Findings in Chenone Stores, judgment that 'use of audit provisions for investigation, would give the department a license to carry out a roving inquiry into the affairs of any taxpayer and to fish for defaults' is against the basic concept of audit. The concept of audit, as being internationally accepted, has traveled beyond mere verification of correct reporting by taxpayer and raising revenue. Besides creating deterrence by punishing the defau lting taxpayer , an effective audit program pinpoints noncompliant trends; defects in system, ambiguities in practice and the law. On the basis of gathered information and intelligence from an effective audit, and its publication, future Tax Administration can be reshaped; necessary steps can be taken to suggest curative legislation and clarifications of ambiguous practices of course, on culmination of audit the Officer of Inland Revenue is obliged to seek explanation from the taxpayer on all the issues raised in the audit before passing on order under section 11 of the Act. The order under section 11 is itself appealable. The process thus provides enough safeguards to the taxpayer to clarify his position during and after the audit. The selection for audit per se, therefore, does not provide any cause for grievance to the taxpayer .
The examination of the impugned notices reflect that detailed reasons have been given for summoning the record/documents from the petitioners thereby satisfying the requirement of section 25 of the Act.
9. The argument put forward by the respondents that sufficient material is available with the Commissioner to select the case of a taxpayer for audit is not acceptable. In the first place, all the impugned notices require the petitioners to produce specific record which fact itself negates the stance of the respondents. Secondly , section 25 prescribes a particular procedure to be followed by the Commissioner leading up to his decision to select a case for audit. The process prescribed by section 25 must be followed in the manner stated therein.
10. In the circumstances, this writ petition along with the connected writ petitions are allowed and the impugned notices are set aside to the extent they select the petitioners for audit. The impugned notices shall be deemed to have been issued under section 25(1) of the Act. The petitioners are directed to forthwith supply all the requisite record to the Commissioner .
SHEDULE 'A'
S # Writ Petition No.Title of the writ Petition 1 48325 of 2021M/s. Samsol International v.Federation of Pakistan etc. 2 39522 of 2021M/s. Chez Tex (Pvt.) Ltd. v.Federation of Pakistan etc. 3 39516 of 2021M/s. Chez Tex (Pvt.) Ltd. v.Federation of Pakistan etc. 4 22804 of 2021M/s. Layallput chemincals & Fertilizers (Pvt.) Ltd.v.Federation of Pakistan etc. 5 22838 of 2021M/s. Layallput chemincals & Fertilizers (Pvt.) Ltd.v.Federation of Pakistan etc. 6 22801 of 2021M/s. Layallput chemincals & Fertilizers (Pvt.) Ltd.v.Federation of Pakistan etc. 7 22798 of 2021M/s. Layallput chemincals & Fertilizers (Pvt.) Ltd.v.Federation of Pakistan etc. 8 32495 of 2021M/s. Master Tile & Ceramics Industries Ltd.v.Federation of Pakistan etc. 9 18650 of 2021M/s. Suraj Fertilizer Industries (Pvt.) Ltd. v.Federation of Pakistan etc. 10 18645 of 2021M/s. Suraj Fertilizer Industries (Pvt.) Ltd. v.Federation of Pakistan etc. 11 18638 of 2021M/s. Suraj Fertilizer Industries (Pvt.) Ltd. v.Federation of Pakistan etc. 12 18627 of 2021M/s. Suraj Fertilizer Industries (Pvt.) Ltd. v.Federation of Pakistan etc. 13 39739 of 2021M/s. Millat Tractors Ltd. v.Federation of Pakistan etc. 14 35175 of 2021M/s. Millat Industrial Products Ltd. v.Federation of Pakistan etc. 15 42642 of 2021Muhammad Akram v.Federation of Pakistan etc. 16 37443 of 2021Raza Motor Industries v.Federation of Pakistan etc. 17 47597 of 2021American Electronics (SMC-Private)
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