ZAHID SIKANDAR (JUDICIAL MEMBER).----The titled appeal has been preferred by the registered person against Order No. 624 dated 23.05.2022 passed by the Commissioner Inland Revenue (Appeals-VIII) wherein the CIR(A) confirmed the impugned demand of Federal Excise Duty and sales tax amounting to Rs.898,344/- and Rs.3,546,255/- along with default surcharge and penalty amounts.
2. Brief facts of the case are that upon examination of sales tax returns of the appellant for the months from July 2014 to June 2015, it revealed that the registered person did not include the notional amount of FED while fixing the retail price hence, short paid amount of sales tax at Rs.3,546,255/- and FED at Rs.898,344/-. Accordingly, the OIR issued show-cause notice to the registered person confronting the details of alleged short paid amount of sales tax and FED in the relevant tax periods under review. The registered person was alleged to have violated various provisions of Sales Tax Act and Federal Excise Act and was called upon to show-cause as to why short paid FED and sales tax amounting to Rs.898,344/- and Rs.3,546,255/- respectively might not be recovered from the company along with default surcharge and penalty. In response, the appellant filed reply raising legal as well as factual objections but failed to satisfy the learned adjudication office. The assessing officer finalized the proceedings vide order dated 28.04.2020 and determined the following demand of FED and sales tax along with default surcharge and penalty.
Description Amount involved (Rs.)
FED under sections 14 and 14A 898, 344 Sales tax under section 11(2) 3546255 Default surcharges under section 34 of the Sales Tax Act, 1999 and under section 78 of the Federal Excise Act, 2005To be calculated at the time of recovery Penalty under sections 335 and 33(19) of the Sales Tax Act, 1990 283,699 Penalty under sections 19(1) and 19(3)(e) of the Federal Excise Act, 200594,917
3. Felt aggrieved, the registered person filed appeal before the CIR(A) which was also dismissed.
Hence, this second appeal.
4. We have heard the contentions of the learned representatives of the rival parties and have also perused the impugned orders with their able assistance.
5. It transpires from the impugned order-in-original that after examination of the record of the appellant, proceedings were initiated against the registered person alleging-short payment of sales tax and FED. The word 'duties' was inserted in section 12(4) of Federal Excise Act vide Finance Act, 2007 as well as in section 2(27) of the Sales Tax Act, 1990. It is the claim of the department that both sections 12(4) of Federal Excise Act and 2(27) of the Sales Tax Act, 1990, after amendment, envisaged after the said amendments that Retail Price Fixed By Manufacturer Inclusive of All Duties, charges and taxes other than sales tax. The appellant has violated various provisions of FEA, 2005 and STA, 1990 by making short payment of FED and sales tax.
6. Earlier on, the legislative predecessor of FEA, 2005, being the Central Excise Act, 1944, through subsection (2) of section 4 also had described 'retail price' as it was described by section 12(4) of FEA, 2005, and section 27(2) of STA 1990. The question that then came before the Hon'ble Supreme Court in a judgment reported as Pakistan through Secretary Finance and others v. Messrs Lucky Cement and others (2007 PM 1656) was as to whether in view of phrase "inclusive of all charges and taxes" employed in the above provisions, the retail price would include the excise duty leviable on the subject goods. The various Hon'ble High Courts had then upheld the contentions of the registered persons that the retail price in the context of subsection (2) of section 4 of Central Excise Act does not include excise duty. It was held mainly on grounds, firstly, that such inclusion would result in double taxation, and secondly, that the plain language of the said provisions does not allow for inclusion of excise duty in the word. 'taxes' as employed therein. The findings of the Hon'ble High Court were upheld by the Hon'ble Supreme Court of Pakistan. The apex court observed in the judgment supra that tax and duty do not generally mean the same thing and that where different words are used in a section or a subsection of a statute, the intention of legislature is not to assign them the same meaning. It was further observed that had the intention been to include the duty while computing the 'retail price' the phrase "taxes and charges" would have read "taxes, charges and duties". Consequently, the department's appeal was dismissed through the Lucky cement case.
7. The 1944 Central Excise Act was replaced by Federal Excise Act, 2005 and section 12(4) was provided in the FEA, 2005 equivalent to section 4(2) of CEA, 1944. Subsequent to the judgment of the Lucky Cement case, section 12(4) of FEA, 2005 was amended vide Finance Act, 2007. The excerpt of section 12(4) is as under: "where any goods are chargeable to a duty-on the basis of retail price, duty thereon shall be paid on the retail price fixed by the manufacturer, inclusive of all duties, charges and taxes, other than sales tax levied and collected under section 3 of the Sales Tax Act, 1990 at which any particular brand or variety of such goods should be sold to the general body of consumer or, if more than one such price is so fixed for the same brand or variety, the highest of such price and such retail price shall unless otherwise directed by the Board, be legibly, prominently and indelibly indicated on such goods, packet, container, package, cover or label of such goods".
8. Likewise, the word 'duties' was also included under section 2(27) of Sales Tax Act, 1990 vide Finance Act, 2007. The relevant except of section 2(27) of the Sales Tax Act, 1990 is as under: "Retail price, with reference to the Third Schedule, means the price fixed by the manufacturer inclusive of all duties, charges and taxes (other than sales tax) at which any particular brand or variety of any article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest or such price".
9. On the basis of the above amendments, the department again started claiming that excise duty was to be factored in while computing 'retail price' . The learned OIR held that the appellant was liable to include notional value of FED for the purpose of calculating sales tax and FED liabilities.
The learned OIR relied upon the judgments of Lucky Cement (2007 PTD 1656) and Messrs Naubahar Bottling case (W. P. No. 7457 of 2007) while applying formula for determination of both value of duty and retail price which is as under: a. Price of Production b. Profit components which include company's own margin, dealer/distributor margin and retailer margin. c. All taxes and charges d. Excise duty (notional amount)
(The aggregate of these items is treated as retail price.)
Allegedly no documentary evidence was produced by the registered person during the adjudication proceedings therefore, FED and sales tax as confronted was levied.
10. The judgment of the Hon'ble Lahore High Court in Naubahar Bottling case ibid, relied upon by the department, was set aside by the Hon'ble Supreme Court of Pakistan vide judgment dated 18.01.2021 in Civil Appeal No.1153 of 2015. The Hon'ble apex Court after exhaustively deliberated upon the issue and analyzing the Lucky Cement case supra and History of the legislation, allowed the appeal of the registered person and set aside the impugned judgment passed by the Hon'ble Lahore High Court. The relevant extract of the judgment is as follows: "The Department's valuation and methodology is clearly arbitrary, as notional excise duty has no connection whatsoever with the subject matter of excise duty, which is the manufacture of goods.
Therefore, the charge of excise duty on notional excise duty is clearly illegal and unconstitutional".
11. From the above, it is abundantly clear that the judgment which was relied upon for determination of FED and sales tax by the department i.e Naubahar case has been set aside by the Hon'ble Supreme Court. Further, the amending provisions referred above made in FEA, 2005 and STA, 1990 only effect the amount of FED and do not have any bearing on the calculation of sales tax if calculated on the basis of amending provisions.
12. The learned counsel also raised the question of limitation. This question was also agitated before the first appellate authority but the said objection was turned down by the CIR(A). Record reveals that show-cause notice was issued on 24.10.2019 and assessment order was passed on 28.04.2020, hence, after 187 days from the date of issuance of show-cause notice. The law provides a period of 120 days to the OIR to make assessment order from the date of issuance of show-cause notice or within such extended period as specified. Section 11(5) of the Sales Tax Act is reproduced below for the ready reference.
11(5): "No order under this section shall be made by an Officer of Inland Revenue unless a notice to show- cause is given within five years, of the [end of the financial year in which the relevant date falls]. To the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard.
Provided that order under this section shall be made within one hundred twenty days of issuance of show-cause notice or within such extended period and the Commissioner may, for reasons to be recorded in writing, fix period that such extended period shall in no case exceed ninety days: Provided further that any period during which the proceedings are adjoined 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."
13. The order-in-original reflects a table given in the last page which states that extension of 90 days was granted under first proviso of section 11(5) of STA, 1990 and under first proviso of section 14(2) of FEA, 2005. It is vehemently contested by the learned AR that the impugned extension of 90 days granted by CIR, Zone-I, LTU is not in accordance with law.
14. After giving anxious consideration, we are of the view that under subsection (5) of section 11 of STA, 1990 and subsection (2) of section 14 of PEA, 2005 the Commissioner is obliged to record reasons in writing for grant of extension of time. The commissioner could not extend the time according to his own choice and whims as a matter of routine without any limit or constraint. He could only do so after applying his mind and after recording reasons for such extension in writing.
The extension granted by the learned CIR without specifying the reasons speaks of the fact that it was granted only as a matter of course and on the understanding that the Commissioner has the right to grant extension. Under the said provisions, such routine extension granted by the commissioner without recording, reasons is null and void. The language of the relevant provisos are clear and explicit and no exception can be taken to the fact that the CIR is required to adhere with the condition precedent of recording reasons in writing before granting time extension in passing the assessm ent order. The said provisos are reproduced as under for ready reference: Subsection (5) of section 11 of STA, 1990 - Proviso: 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.
Subsection (g) of section 14 of FEA, 2005 - Proviso: Provided that an 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, provide that such extended period shall in no case exceed sixty days.
15. Even otherwise, after perusal of record we find that the impugned show-cause notice is hit by limitation too as prescribed in section 11 and section 14 of STA and FEA respectively. Both the provisions contained that show-cause notice to the person in default is to be issued within five years from the relevant date. The demand raised through the impugned show-cause notice is for the period 01.07.2014 to 30.09.2014 whereas the show-cause notice was issued for the said period on 24.10.2019 which is beyond five years as provided in the statute.
16. The Hon'ble Supreme Court of Pakistan in a case titled as Collector of Sales Tax v. Messrs Super Asia reported in 2017 SCMR 1427 held that the first' proviso to the section 11(5) is mandatory in nature and its non-compliance would invalidate the order. The relevant E portion of the judgment is reproduced below: "7. From the plain language of the first proviso, it is clear that the officer was bound to pass an order within the stipulated time period of forty-five days, and any extension of time by the Collector could not in any case exceed ninety days. The collector could not extend the time according to his own choice and whim, as a matter of course, routine or right, without any limit or constraint; he could only do so by applying his mind and after recording reasons for such extension in writing.
Thus the language of the first proviso was meant to restrict the officer from passing an order under section 36(3) supra whenever he wanted. It also restricted the Collector, from granting unlimited extension. The curtailing of the powers of the officer and the Collector and the negative character of the language employed in the first proviso point towards its mandatory nature. This is further supported by the fact that the first proviso was inserted into section 36(3) supra through an amendment (note:- current section 11 of the Act, on the other hand, was enacted with the proviso from its very inception in 2012). Prior to such insertion, undoubtedly there was no time limit within which the officer was required to pass orders under the said section. The insertion of the first proviso reflects the clear intention of the legislature to curb this earlier latitude conferred on the officer for passing on order under the section supra. When the legislature makes an amendment in an existing law by providing a specific procedure or time frame for performing a certain act, such provision cannot be interpreted in a way which would render it redundant or nugatory. Thus, we hold that the first proviso to section 36(3) of the Act (and the first proviso to the erstwhile section 11(4) and the current section 11(5) of the Act) is/was mandatory in nature.
9. Another aspect of the matter is that when a statute requires that a thing should be done in a particular manner or form, it has to be done in such manner. But if such provision is directory, the act done in breach thereof would not be void, even though non-compliance may entail penal consequences. However, non-compliance of a mandatory provision would invalidate such act. In this context, reference may be made to the case of Rubber House v. Excellisor Needle Industries (Pvt.) Ltd. (AIR 1989 SC 1160). Thus, having held the first proviso to section 36(3) supra to be mandatory, the natural corollary of non-compliance with its terms would be that any order passed beyond the stipulated time period would be invalid."
17. The learned CIR(A) not only erred in law by confirming the computation of the Sales Tax and FED by wrongly interpreting the relevant provisions but also failed to appreciate that the very issuance of impugned show-cause notice as well as the impugned order-in-original are hit by the time limitations provided under the law.
18. As far as the observation of the OIR regarding non-provision of documentary evidence is concerned, suffice it note that complete working was duly attached with the reply but the learned authorities by wrongly interpreting the provisions of law charged sales tax and FED which is not sustainable under the law.
19. With the above stated reasons and observations, it is declared that the orders of the learned authorities below are illegal and unlawful, F hence, are accordingly set aside. The taxpayer's appeal stands accepted.
20. We order accordingly.