ORDER: This Full Bench has been constituted by the Chairman ATIR in the titled appeal to resolve the issues regarding audited accounts of the registered person for tax periods July 2010 to June 2015. Charges related to inadmissible input tax claimed against exempt supplies resulting into short payment of sales tax and excess claimed inadmissible input tax.
2. This case has been heard on different dates of hearing. The learned counsel for the department has initially tendered his appearance and submitted his power of attorney. On 31.03.2022, the counsel for the department appeared and the A.R argued the case and submitted written arguments in his presence. However, the counsel for the department requested for adjournment to prepare his brief The case was next fixed on 19-05-2022, but on the request of the learned counsel for the department, the case was further adjourned. Subsequently, the case was again argued by the A.R on 27-06-2022 in the presence of the department's counsel but the same was not concluded because the department's counsel again sought adjournment. Surprisingly, on 11.08.2022, the counsel for the department has withdrawn his power of attorney. However, in the interest of justice, another opportunity was granted to the department and a proper notice in this regard had been issued to the department with last chance. However, no one has tendered appearance today. Therefore, we have no other option but to dispose of the instant appeal ex- parte.
3. The facts leading to this case are that the Assistant CIR issued Show Cause Notice bearing C. No. ST/Audit-09/PESCO/I&I(AH)/ 2018/526 dated 06.02.2018 to the appellant Peshawar Electric Supply Company ("The PESCO") asking to explain as to why the principal amount of Rs. 19.027 billion alongwith default surcharge & penalty should not be recovered under Section 11(3) of the Sales Tax Act, 1990. The appellant filed reply to the above mentioned Show Cause Notice wherein charges levelled in the Show Cause Notice were denied. After the proceedings, the Assistant Commissioner I.R vide Assessm ent Order No. 13/2018 dated 31-08-2018 vacated partial demand of Rs. 13.897 billion and ordered for recovery of sales tax amounting to Rs. 5.130 billion alongwith default surcharge and penalty. On appeal by the appellant/PESCO, the learned Commissioner Inland Revenue (Appeals)
Peshawar rejected the same vide Order-in-Appeal No. 166 of 2019 dated 14.01.2019.
4. In the first round of litigation, an appeal was preferred by the appellant (PESCO) before the Appellate Tribunal Inland Revenue (the "ATIR") against the order passed by learned Commissioner Inland Revenue (Appeals) Peshawar (the "CIR(A)"), which was accepted on a technical ground vide order dated 03-08-2020. However, against that order, the department went to the Islamabad High Court, whereby the High Court vide order dated 19-01-2021, remanded back the case to the ATIR for consideration on merits.
5. The learned A.R has raised the preliminary objection the impugned Assessment order being time barred u/s 11(5) of the Sales Tax Act, 1990. He submitted that the Show Cause Notice has been issued on 06.02.2018 while the impugned Assessment order dated 31.08.2018 has been received by the appellant on 12.09.2018. He emphasized that the date of receipt of order is the crucial date to determine the period of limitation, in this respect, he placed reliance on the decisions reported as: 2022 PTD 809; PTCL 2018 CL 72 and 2007 PTD 430. In all these cases, it has been held that date of communication of order is the crucial date to determine the period of limitation.
6. He also contended that the extension granted by the Commissioner I.R is not tenable as per the latest law settled by this Tribunal and the apex court of the country. Reliance in this regard was placed on:-- PTCL 2017 CL 736 (SC);2020 PTD 147 = PTCL 2020 CL. 159 (SC); 1999 SCMR 1881; PTCL 1983 CL 46 (Supreme Court of India) and PTCL 2022 CL 281.
7. In addition, the learned A.R submitted that it is well settled principle of law that the period prescribed by Section 11(5) of the Act, 1990 ibid for completion of adjudication proceedings is mandatory and not directory. Reliance was placed on:-- PTD 1068; 2014 PTD (Trib.) 448,2017 PTD 1756; 2020 PTD 568; PTCL 2019 CL 555 and 2016 PTD 358. He stressed that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all.
In this regard, he placed reliance on:-- 2001 SCMR 838; 2003 SCMR 1505 and 2014 SCMR 1015. The learned A.R also pleaded that where an order is hit by limitation, its merits need not be discussed and in support thereof he relied on: 2009 PTD 1247 (SC); 2011 SCMR 676 and 2020 CLC Note 12.
8. The learned A.R argued that the Inland Revenue Department cannot conduct audit without strictly following the relevant provisions of the Act. He explained that the tax regulator monitor self- assessm ent, system through neutral and impartial tool of audit under section 25 or 72B of the Act.
There is no other mechanism under the Act to lift the veil of sell-assessment protecting the monthly tax return filed by the taxpayer. He also pleaded that the PESCO has been subjected to more than one audit in one year and no authorization as mentioned in the above legal provisions has been incorporated in the show cause notice and the Assessment order. Reliance in this regards was placed on a number of cases e.g. PTCL 2022 CL 56; PTCL 2021 CL 765 = 2021 PTD (Trib.)
2050; 2020 PTD (Trib.) 666; 2020 PTD (Trib.) 585; STA No. 833/LB/2018; 2019 PTD 1030; PTCL 2014 CL. 710; 2015 PTD (Trib.) 1050; 2013 PTD (Trib.) 954; 2019 PTD (Trib.) 1108; 2019 PTD (Trib.) 939; PTCL 2020 CL 6 = 2020 PTD 297; STA No. 1506/LB/2014; PTCL 2014 CL 726; STA No. 489/LB/2017 & STA No. 490/LB/2017.
9. As regards the merits of the case, the learned A.R vehemently asserted that the main allegation levelled in the Show Cause Notice relates to claiming of inadmissible input tax against exempt supplies as quoted below;
(I) Show Cause Notice (Para 06):-- "---PESCO claimed inadmissible input tax claim against exempt supplies---"
(ii) Order by the e CIR (A) (Page 10 of the paper book):-- "--This forum is also of the view that appellant has claimed input tax against supplies made by M/s NTDC to the appellant, whereas the appellant further supplied the electricity within the territory of FAT---A/PATA which were exempt from chargeability of sales tax---"
He mentioned that the sales tax was included in the electricity bills issued to consumers in Provincially Administered Tribal Areas (hereinafter referred to as 'PATA') in June 2004, but the SWAT courts stayed the recovery of such sales tax in PATA. He maintained that there is no column' in the sales tax return which caters to the peculiar situation of the PESCO's inability to collect sales tax relating to energy supplies made to PATA due to orders passed by the Courts. Resultantly PESCO showed these supplies under the exempt column. He adds that it is trite law that the order of the courts of competent jurisdiction must be obeyed and the appellant should not be made to suffer on account of such orders.
10. The learned A.R has also relied upon the earlier three judgments passed by the ATIR on the subject issue between the same parties reported as:--
(i) 2015 PTD (Trib 1112-M/s PESCO Vs. C.LR, R. T.O--(ii) STA No. 116/PB/2016--M/s PESCO Vs. C.1.R, R.T.O--(iii) PTCL 2020 CL 324-- M/s PESCO Vs. C.LR, R.T.O-- wherein the subject issue has been thoroughly examined and decided in favour of the appellant (PESCO).He further drew our attention to the FBR clarification letter C. No. 3(30) STP/99 dated 22-10- 2003 which provides that as per Section 3 of the Sales Tax Act, 1990, sales tax was charged on taxable supplies made by a registered person in PATA/FATA. Finally, he relied upon Section 72 of the Act, 1990/6/d which provides that all the officers of the Inland revenue and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. He has placed reliance on: 1992 PTD 1;2002 PTD 63; 2007 PTD 921, 2011 PTD 2042; 2016 PTD 35; 2003 PTD 2090; PTCL 2009 CL 104; 2013 PTD (Trib.) 420. He also placed reliance on the judgments reported as 1997 SCMR 209; 2011 PTD 1076; 2016 SCMR 834; 2007 SCMR 1256;2018 CLD 1233 and 2019 PTD (Trib.) 2322, wherein it has been settled that an act of government functionary or court should not prejudice anyone.
11. As regards the second issue, the learned A.R has submitted that it was alleged that during the periods March 2016, April 2016, May 2016 & August-2015, the PESCO declared/claimed excess input tax against purchases of electricity from Central Power Purchasing Agency (CPPA). He argued that the difference in the figures of amounts stopped up due to credit notes issued by CPPA for the aforesaid periods. He referred to pages 18 and 19 of the impugned Assessment order wherein the appellant had conclusively explained the same. The appellant has on record two orders C. No. 2602 dated 24.03.2017 & C. No. 3262 dated 29.06.2017 by the CIR, Zone VI, CRTO, Lahore, whereby he has condoned the delay in issuance of credit notes for the periods Dec 2015 -April 2016 and July 2015 - Nov 2015. However, it was not considered by both the fora below. He maintained that no tax can be levied on the basis of presumptions and intendment.
12. He next pleaded that it is a well settled principle of law that in case of dispute as to the exact connotations of a provision of a fiscal statute, interpretation favourable to the taxpayer is to be adopted. Reliance was placed on (1992) 66 Tax 246; 2004 STR 369/2003 PTD 760and 2013 PTD 1332.
13. The learned A.R argued that the appellant is not liable to default surcharge and penalty under section 33(5) of the Act as there is no willful evasion of sales tax. In addition, there cannot be any mensrea in the case of a public sector organization where its functionaries have not stake or benefit in short payment of taxes. In this respect he placed reliance on the judgments reported as: 2004 PTD 1179 = PTCL 2004 CL. 224; 2006 PTD 1132; PTCL 1995 CL. 415 and 2015 PTD 152.
On the basis of above arguments the learned AR has requested to allow the appeal.
14. We have perused the impugned Assessment order, the order by the learned; CIR (Appeals), the case law referred and the available record of the case. The Show Cause Notice in the instant case was issued on 06.02.2018 and the Assessment order dated 31.08.2018 has been received by PESCO on 12-09-2018. The receipt stamp on the titled page of the Assessment order establishes that the Assessm ent order was received by PESCO on 12-09-2018. In addition, the appellant has also submitted an affidavit of Mr. Yaser Naseem, PESCO, Peshawar which also endorsed the same.
Resultantly, it has been proved that the Assessment Order was received on 12-09-2018 i.e. after 218 days from' the/Show cause notice.
15. To resolve the controversy, It is important to reproduce the relevant provision of the Sales Tax Act, 1990 for ease of reference:-- Section 11(5) proviso;-- "Section 11. Assessm ent of Tax and recovery of tax not levied or short-levied or erroneously refunded:-- (1)..............................................
(2) ..............................................
(3) ..............................................
(4) ..............................................
(5) ..............................................
"Provided that order under this section shall be made within one hundred and twenty days of issuance of show cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days:" "Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding, sixty days shall be excluded from the computation of the period specified in the first proviso".
[Emphasis added] From the above, it transpires that the Assessment Order shall be passed within stipulated period of 120 days from the date of issuance of the show cause notice. Reliance in this regard is placed on: 2015 PTD 1068; 2014 PTD (Trib.) 448; 2017 PTD 1756; 2020 PTD 568; PTCL 2019 CL 555 and 2016 PTD
358. In all these cases, it has been held that the first proviso to the current section 11(5) of the Act is mandatory in nature, and the natural corollary of non-compliance with their terms would be that any order passed beyond the stipulated time period would be invalid. Suffice it to say that, if the 60 days' time excluded for adjournments is taken into account, even then the impugned Assessment order is time barred. It is trite law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all. Reliance is placed on 2001 SCMR 838; 2003 SCMR 1505; 2014 SCMR 1015; 2020 CLC 106 (LHC) and 2020 YLR 2297. It is also settled law that an order passed on the file but not communicated to the affected party within the prescribed limit could not be treated as having been passed within the prescribed period. Reliance is placed on 2022 PTD 809; PTCL 2018 CL. 72 and 2007 PTD 430.
16. As far as extension granted by the Commissioner I.R till 04.09.2018 is concerned, the appellant has asserted that the extension given by the Commissioner upto 04.09.2018 is illegal and in support thereof, the judgments of the Honorable Supreme Court reported as 1989 SCMR 1881 & PTCL 1983 CL. 46 have been referred. In these cases, it has been held; that an opportunity of being heard ought to have been given to the respondent before orders for extension were made. In addition, the issue Relating to extension granted by the Commissioner has now been thoroughly discussed by the Appellate Tribunal Inland Revenue, Islamabad in a recent decision reported as PTCL 2022 CL. 281, wherein the following dictum has been laid down:-- "The aforesaid application was accepted by the CIR on the same date without giving any justifiable reasons and without any opportunity of being heard having been given to the appellant. The appellant therefore, got no chance to resist the application for extension and to show that no sufficient cause had been shown and that therefore, no order of extension was justified or should be granted "In our opinion under such circumstances, a determination requires a judicial approach, and cannot be done ex-parte. After insertion of Article 10-A in the Constitution of Pakistan, 1973, 'fair trial" and "due process" are fundamental rights of every citizen for determination of his civil rights arid obligations. Before passing the order reason should be confronted and be given an opportunity of being heard. Reliance may be placed on in a recent judgment Sarfraz Saleem vs. FOP & others (PLD 2014 SC 232) has held:-- ............ every person, for determination of his civil rights' and obligations or in any criminal charge against him shall been entitled to a fair trial and due process."
In another case Bubar Hussain Shah and another vs. Mujeeb Ahmed Khan and another (2012 SCMR 1235), the Honorable Court has highlighted the import of Article 10A in the words:-- "11..concept of fair trail and due process has .always been the golden principles of administration of justice .but after incorporation of Article 10-A in the Constitution Islamic Republic of Pakistan, 1973 vide 18th Amendment, it has become mere important that due process should be adopted for conducting a fair trial and order passed in violation of due process might be considered to be void"
Further in the judgment titled The University of Dacca through its Vice-Chancellor and the Registrar, University of Dacca v. Zakir Ahmed, (PLD 1965 SC 90) wherein it was observed that:-- "19. Besides, it is an immutable principle that in all proceedings whether judicial or administrative, the principles of natural justice have to be observed if the proceedings might result in consequences affecting the person or property or other right of the parties concerned. Therefore, where a person is empowered to take decisions after a factual investigation into the facts which would result in consequences affecting the person, property, or any rights of any other person, then the courts have inclined generally to imply that the power so given is coupled with the duty to act in accordance with the principles of natural justice and fairness."
Therefore, we are of the considered opinion that before passing the order for extension in time under the proviso of sub section (2) of Section 14 of the Act, the affected parties must be given an opportunity of being heard and thereafter pass a speaking order. Therefore, the answer to question No. (iii) is in the negative against the department [Emphasis Supplied] In view of the above, it is now settled principle of law that prior to granting extension, it is the bounden duty of the Commissioner I.R to provide an opportunity of hearing to the affected parties.
However, in the instant case, no such opportunity has been granted which renders the extension order illegal & void. The impugned Assessment order is thus time barred and there are plethora of judgments wherein it has been settled that if the order is on the face E of it is time barred then there is no need to touch merits of the case. Reference in this regard may be made to 2009 PTD 1247; 2011 SCMR 676=2011 PLC (C.S) 856 and 2020 CLC Note 12. Hence, following these decisions, it is established that the extension, granted by the Commissioner I.R is not as per law and the Assessm ent order is not passed within the stipulated period of the Sales Tax Act, 1990 and hence is time barred.
17. We are also inclined to agree to the argument by the appellant that the tax regulators monitor self-assessm ent system through neutral and impartial tool of audit under sections 25 and 72B of the Act 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. Reference in this regard may be made to the judgments reported as PTCL 2022 CL. 56 PTCL 2021 CL. 765 = 2021 PTD (Trib.) 2050; 2020 PTD (Trib.)
666, 2020 PTD (Trib.) 585; STA No. 833/LB/2018; 2019 PTD 1030; PTCL 2014 CL 710; 2015 PTD (Trib.)
1050; 2013 PTD (Trib) 954; 2019 PTD (Trib.) 1108; 2019 PTD (Trib.) 939; PTCL 2020 CL 6 = 2020 PTD 297; STA No. 1506/LB/2014; PTCL 2014 CL 726; STA No. 489/LB/ 2017 & STA No. 490/LB/2017.
18. As regards the merits of the case, the charge levelled in the show cause notice and decided by the Assessing Officer and CIR(A) is that the PESCO claimed inadmissible input tax against exempt supplies. It has been argued on behalf of appellant/PESCO that the charges relating to claim of input tax against exempt supplies is not tenable. He explained that the sales tax was included in the electricity bills issued to the consumer in June 2004 but the Civil Judge Swat stayed its recovery on the ground that Sales Tax Act, 1990 is not applicable to PATA. He has contended that the Sales Tax Return Form does not cater to an eventuality where the courts of competent jurisdiction have stayed the recovery of sales tax. It has been explained that clarification has been sought repeatedly at the adjudication/assessment and appeal stages to guide the respondent/ PESCO as to the Column in the Return where under the relevant figures relating to output tax payable by the consumers in PATA but stayed by a court of law can be shown. However no such guidance has ever been provided and per force these supplies of electricity in PATA were shown in exempt column which are otherwise taxable supplies in view of FBR's Letter C. No. 3(30) STP/99 dated 22- 10-2003. It is settled law that a party should not be made to suffer on the account of act or omission on the part of Court. Reliance has been placed on cases reported as 1997 SCMR 209;2011 PTD 1076;2016 SCMR 834; 2007 SCMR 1256;2018 CLD 1233 and 2019 PTD (Trib.) 2322.
19. It has been pleaded by the counsel of the appellant that, earlier on the subject issue, a detailed judgment reported as 2015 PTD (Trib.) 1112 has been passed between the parties i.e. M/S PESCO VS. C.I.R, R.T.O. by the Learned Bench of Appellate Tribunal Inland Revenue vide order dated 02-06-2014, wherein it was held that:-- "--On behalf of respondent/PESCO, it has been argued by the learned counsel that the sales tax was included in the electricity bills issued to the consumer in June 2004 but the Civil Judge Swat stayed its recovery on the ground that Sales Tax Act, 1990 is not applicable to PATA while the First Appeal against that order was rejected and the case is currently pending before the Honourable Peshawar High Court. It has been argued by the learned Advocate on behalf of PESCO that the Sales Tax Return Form (the Return) does not cater to an eventuality where the courts of competent jurisdiction have stayed the recovery of sales tax. It has been explained that clarification has been sought repeatedly at the adjudication/ assessment and appeal stages to guide the respondent/PESCO as to the Column in the Return where under the relevant figures relating to output tax payable by the consumers in PATA but stayed by a court of law can be shown. It has been explained that no such guidance has ever been provided and per force these supplies of electricity in PATA were shown in exempt column which are otherwise taxable supplies in view of FBR's Letter C. No. 3(30) STP/99 dated 22.10.2003.
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 CBRs clarification dated C. No. 3(30) STP/99 dated 22-10-2003 makes such supplies as taxable and their ultimate account as taxable supplied 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 be made to suffer 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."
[Emphasis Supplied]
20. The above judgment was again followed by another order passed in STA No. 116/PB/2016, between the same parties i.e. M/S PESCO VS. R.T.O. vide order dated 23.01.2017, wherein it was held that-- "We note it with great concern that both the assessing officer as well as the CIR(A) have deviated in the instant case from the established law and procedure to follow the order of the Honorable Superior courts as well as this forum. It is observed that the clear verdict of this Tribunal based on the decision of the superior courts has been disputed by the CIR(A) and the Assessing Officer by not following the decision of the ATIR and questioning the same regardless of the legal provision and procedure.--This violation has rendered both the officers liable for appropriate action under the law. This attitude leads to repeated litigation on the same issues relating in wastage of time, denial of justice to the litigating parties and non-realization of the due revenue to the exchequer."
[Emphasis Supplied]
21. On the same footing, another judgment reported as PTCL 2020 CL 324 has been passed between the same parties i.e. M/s PESCO Vs. CIR, RTO which upheld the principle already laid down by the judgments supra in the following manner-- "There can be no cavil with the proposition that unless the Federal Government/grants exemption under section 13 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 percent 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 PA TA was exempt in the Sixth Schedule of the Act, the supplies of electricity made by the registered person to PA TA 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 supplies, 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."
22. After considering the submissions and the case laws cited above, we are of the view that the contentions of the appellant/ PESCO has per force been obliged to show the supplies of electricity in PATA under the column "exempt". 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 as charged in the Show cause notice.
23. It is obvious that the Assessing Officer and the Commissioner (Appeals) have held in a very flimsy manner that the referred judgment (2015 PTD Trib. 1112) of the learned ATIR has also not attained finality so far as the same has already been contested by the RTO in a tax reference which is pending before Honourable Peshawar High Court, Peshawar. This observation of the Revenue Officer is not sustainable in law. It is well settled principle of law that mere challenging any order before the higher forum unless stayed, cannot affect its binding force. Hence the orders already in field i.e. 2015 PTD 1112, PTCL 2020 CL 324 & STA No. 116/PB/2016, between the same parties on a same question of law are binding on the department. Reference may be made on PTCL 2020 CL 608 & PTCL 2019 CL 111. wherein it has been held that mere filing of petition before higher forum does not create any right in favour of the department, nor it restrains the j courts from following its own earlier orders, it is also well settled law that CIR(A)/AACs are bound to follow the directives of ATIR and accept their decision as precedents, abstinence of which surmounts to violation of law. It is trite law that the deviation from the earlier judgment on the "same issue" could breed a sense of L injustice and uncertainty and it could also lead to hamper trust of the litigants and the public-at- large on judiciary.
24. As far as the issue relating to inadmissible input tax on account of excess claimed at Rs.
347,681,352/-, we are inclined to agree with the contentions and evidence placed by the learned A.R whereby it has been established that the mis-match of figures of amounts occurred due to the debit & credit notes issued by the CPPA (G). It is also proved that the Commissioner Inland Revenue vide C. No. 2602 & 3262 dated 24.03.2017 & 29.06.2017 condoned the delay in issuance of credit notes for the periods Dec 2015 - April 2016 and July 2015 - Nov 2015.
25. The foregoing narrations, objective analysis of the issues involved in this appeal and the facts obtaining on record clearly demonstrate that the impugned Assessment order is time barred and the show cause notice without recourse to audit is not recognized under the Sales Tax Regime. As such, we hereby set aside the impugned show-cause notice and consequent orders of both the authorities below.
26. The titled appeal is disposed of in the manner and to the extent as dilated supra.