AYESHA A. MALIK, J. Through this Petition, the Petitioner has challenged the proceedings under Section 11A of the Sales Tax Act, 1990 ("Act") to recover short paid sales tax amount along with default surcharge under Section 34 of the Act, pursuant to which notice dated 17.9.2021 was issued by the Respondents and also seeks a declaration that the stated notice be declared illegal and of no lawful authority.
2. The case of the Petitioner is that it has been issued show-cause notice dated 17.9.2021 under Section 34 of the Act with respect to the tax year 2006-2007. Learned counsel for the Petitioner argued that the information for seeking the record and documents for the tax year 200607 came to an end on 30.6.2013 for the Petitioner company. As per the impugned notice, the Petitioner has been asked to provide documentary evidence of certain transactions and details of payments in the show-cause notice. In this regard, learned counsel for the Petitioner has placed reliance on the judgment of this Court dated 13.10.2021 passed in W.P. No.21602/2021 titled Pepsi Cola International (Private) Limited v. Federation of Pakistan through Secretary Revenue Division, Islamabad and others, wherein this issue has been decided with reference to the provisions of Income Tax Ordinance, 2001 ("Ordinance").
3. Report and parawise comments have been filed on behalf of the Respondents. Learned counsel for the Respondents argued that the office of the Directorate of Revenue Receipt Audit conducted an audit of the Petitioner regarding receipts and expenses for the tax period 2006-07 and pointed out that the Petitioner has paid less amount of tax instead of the due amount as indicated in its sales tax returns with a direction to recover the short paid tax amount of Rs.614,291/- along with default surcharge. Learned counsel argued that the provisions of Section 24 of the Act do not bar proceedings initiated under section 34 of the Act. Learned counsel further argued that the issue in question with respect to the tax year 2006-07 is about failure to pay tax which can be investigated by the department at any given time. He argued that the limitation period to maintain the record is for the purposes of assessm ent or any other proceedings which does not include the incidence of recovery of tax. Learned counsel explained that limitation under Section 24 of the Act with reference to retention of record and documents does not mean or suggest that proceedings under Section 34 of the Act cannot continue or that the said proceedings should be quashed.
4. Heard and record perused. The basic dispute of the Petitioner is with reference to the impugned notice issued under Section 34 of the Act. In terms of the notice dated 17.9.2021 issued by Respondent No.4 to the Petitioner for, short payment of sales tax due amount for the financial year 2006-07, the Respondents have sought from the Petitioner documentary evidence by 23.9.2021 failing which proceedings shall be initiated uncles Section 11A of the Act to recover the short paid sales tax amount along with default surcharge under Section 34 of the Act. Section 24 of the Act is reproduced as under: Retention of record and documents for six years. A person who is required to maintain any record or documents under this Act, shall retain the record and documents for a period of six years after the end of the tax period to which such record or documents relate (or till such further period the final decision in any proceedings including proceedings for assessment, appeal, revision, reference, petition and any proceedings before an Alternative Dispute Resolution Committee is finalized.
In terms of this Section, a taxpayer is required to maintain documents and accounts for a period of six years after the end of the tax year to which they relate unless there are pending proceedings before the authority or court where the tax payer may be required to produce the accounts or documents. Pending proceedings mean proceedings for assessment or amendment on assessm ent, appeal, revision, reference petition or prosecution as the case may be. In this case admittedly there is no pending proceeding. Instead the Petitioner was issued notice under Section 34 of the Act on 17.9.2021 to recover tax. It is part of due process that any recovery for tax cannot be made unless the taxpayer is given an opportunity of being heard and produced evidence. The Respondents now seek documentary evidence against the Petitioner for the tax year 2006-07 for which the Petitioner has relied on Section 24 of the Act.
5. This issue has already been decided by this Court vide judgment dated 13.10.2021 passed in W.P.
No.21602/2021 titled Pepsi Cola International (Private) Limited v. Federation of Pakistan through Secretary Revenue Division. Islamabad and others, with reference to Section 174 of the Ordinance.
The facts of this case are similar except that in the instant case the 'proceedings were initiated under the Act whereas in the cited judgment the proceedings were under the Ordinance. The Petitioner has been asked to explain and provide copies of payment proofs under the Act or else they will recover the short paid tax for the financial year 2006-07. Para-5 of the afore-referred judgment of this Court dated 13.10.2021 deals with the issue and reads as under:
8. As per the aforementioned judgments, it has been held that the taxpayer cannot be compelled to produce documents which the statute does not require it to maintain beyond six years in terms of Section 174(3) of the Ordinance. The judgment passed by the Hon'ble Sindh High Court 2013 PTD 1659 (supra) went a step further to hold that there is some obligation on the department when it initiates actions beyond the six year period and calls for documents and record which the taxpayer is not required to maintain under the law. The Court held that purpose of setting a time limit and maintaining accounts and documents is to ensure that proceedings under the Ordinance are held within time and where there is a delay, the obligation then rests on the Respondents being the relevant Commissioner to justify the cause of delay and the reasons for seeking documents beyond the six year period. In this regard I am of the opinion that there lies a burden on the department to justify delayed proceedings, especially in view of Section 174(3) of the. Ordinance.
The same is applicable with reference to Section 24 of the Act which requires a person to maintain the record for six years. Hence the reasons as noted above are fully applicable in this case.
6. Furthermore in the event that the Respondents decide to take action against the Petitioner, they will have to justify the delay and determine the liability on the basis of the information provided, if at all possible but cannot penalize the taxpayer for not producing any documentary evidence. In this regard, it is clarified that the Respondents have to discharge their burden before declaring any liability and cannot simply conclude that for want of documentary evidence and accounts, the taxpayer is rendered liable. Essentially the action under Section 24 of the Act should have been taken at the right time and any delayed action means that the burden is on the Revenue Department to justify the demand raised and the imposition of any liability.
7. Under the circumstances, the instant Petition is accepted in the above terms and the requirements for documentary evidence under the impugned notice dated 17.9.2021 issued by the Respondents are set aside. It is clarified that the proceedings under Section 24 the Act may continue.