ANWAAR HUSSAIN, J. This Intra Court Appeal, under section 3(2) of Law Reforms Ordinance (XII of 1972) ("the Ordinance") lays challenge to the order dated 16.07.2021 passed by the learned Single Judge in Constitutional Petition No.46287/2021 by virtue of which the said Petition filed by the appellant against order dated 21.04.2021 ("Order-in-Original") passed by the Inland Revenue Officer, Unit-09, Chiniot ("the respondent") was dismissed.
2. The facts which are relevant for the decisions of this appeal are that the respondent, through Order-in-Original, imposed a penalty of Rs.1.0 million on the appellant under section 33(25) for contravening subsection (9A) of section 3 read with section 40C of the Sales Tax Act, 1990 ("the Act"), for not integrating the business of the appellant through installation of point of sales (POS) software with the computer system of the Federal Board of Revenue, inter alia, for effective monitoring, tracking, reporting or recording of sales as well as production. Order-in-Original was challenged through constitutional petition which the learned Single Judge dismissed on the ground that as the appellant failed to establish that he has complied with the legal requirements envisaged under subsection (9A) of section 3 read with section 40C of the Act, hence, the respondent Department was justified in imposing penalty under section 33(25) of the Act and principle of audi alterm partum was not violated as show-cause notice was issued to the appellant who joined the proceedings through a counsel but later opted not to submit any reply.
3. Learned counsel for the appellant submits that section 11 of the Act lays down the adjudicatory mechanism the invocation whereof is a necessary step rather sine qua non for the attraction of penal provisions of section 33(25), however, as the mechanism and procedure laid down under section 11 has not been traversed through, therefore, the imposition of penalty is illegal and unlawful. Further contends that the appellant was not obligated to integrate for the purposes of monitoring under the Act being not a TIER-1 Retailer. Even then, registration has been compulsorily affected under the Act as TIER-1 Retailer on 04.03.2021 in respect of which appeal of the appellant is pending before the learned Appellate Tribunal Inland Revenue, Lahore and without waiting for the outcome, the show cause notice for imposition of penalty was issued that culminated into passing of the Order-in-Original, which is not justified and sustainable under the law.
4. Conversely, learned counsel for the respondent contends that the Order-in-Original was appealable and the appellant preferred an appeal against the same, however, the same was later withdrawn and, hence, the present Intra Court Appeal is not maintainable in terms of section 3 of the Ordinance. Learned counsel for the respondents acknowledges that the. show cause-notice dated 19.03.2021 issued to the appellant was not in terms of section 11 of the Act, rather the appellant was required to explain as to why the penalty may not be imposed under the provisions of section 33(25) of the Act on account of non-compliance of subsection (9A) of section 3 read with section 40C of the Act.
5. Arguments heard. Record perused.
6. Before proceeding on the merits of the case, it is imperative to determine the issue of maintainability of this appeal in the first instance. The jurisprudence in respect of proviso to subsection (2) of section 3 of the Ordinance is well settled and an appeal is incompetent only if the petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (hereinafter "the Constitution") arose out of "proceedings" in which the law applicable provides for at least one appeal, revision or review before any forum against the Order-in-Original. The words "proceedings" as well as "Original Order", as used in the Ordinance, are two distinctive stages and, for purpose of the maintainability of the appeal under the Ordinance, it has to be seen whether the constitutional petition arises out of proceedings which would culminate into an Order-in-Original and from which an appeal, revision or review is available. In the instant case, admittedly, the show-cause notice was issued under section 33(25) read with subsection (9A) of section 3 and section 40C of the Act as well as Rules inserted through SRO No. 1203(1)/2019 dated 10.10.2019 and the proceedings were carried out thereunder which culminated into passing of Order-in-Original and the Act does not give any statutory right of appeal to the person against the order passed under section 33 of the Act. Section 45B of the Act deals with orders, which are appealable and perusal thereof clearly brings forth that proceedings under section 33(25) of the Act and the order passed thereunder does not fall under the scope of subsection (2) of section 3 of the Ordinance. For facility of reference, section 45B is reproduced hereunder: "Any person, other than the Sales Tax Department, aggrieved by any decision or order passed under section 10, 11 25, 36 or 66, by an officer of Inland Revenue may, within thirty days of the date of receipt of such decision or order, prefer appeal to the Commissioner Inland Revenue (Appeals)."
(Emphasis supplied)
The proceedings carried out by the respondent leading to the passing of Order-in-Original was by way of issuance of show-cause notice under section 33(25) of the Act and not under Section 11 and the Order-in-Original was not thus appealable in terms of Section 45B of the Act, therefore, this ICA is maintainable. Case reported as "Federal Board of Revenue through Chairman, Islamabad and others v. Abdul Ghani and another" (2021 SCMR 1154) is referred in this regard.
7. As regards the merits of the case, the instant case involves the legal question as to whether the respondent could issue show-cause notice under section 33(25) read with subsection (9A) of section 3 as well as section 40C of the Act and impose penalty without first finalizing whether the appellant was required to be registered as TIER-1 Retailer under the Act and without recourse to section 11 of the Act.
8. In order to answer the question, it is imperative to examine the provisions of the Act relevant to the controversy. For ease of reference, section 33(25) of the Act is reproduced hereunder: S.No.Offences PenaltiesSection of the Act to which Offences has reference (1) (2) (3)
25.Any person, who is required to integrate his business for monitoring, tracking, reporting or recording of sales, production and similar business transactions with the Board or its computerized system, fails to get himself registered under the Act, and if registered, fails to integrate in the manner as required under law.Such person shall be liable to pay a penalty up to one million rupees, and if continues to commit the same offence after a period of two months after imposition of penalty as aforesaid, his business premises shall be sealed till such time he integrates his business in the manner as stipulated under subsection (9A) of section 3 or section 40C, as the case may be.Subsection (9A) of section 3 and section 40C Subsection (9A) of section 3 reads as under: "Section 3(9A). Notwithstanding anything contained in this Act, Tier-1 retailers shall pay sales tax at the rate as applicable to the goods sold under relevant provisions of this Act or a notification issued there under: Provided that the customers of a Tier-I retailer shall be entitled to receive a cash back of up to five percent of the tax involved, from such date, in the manner and to the extent, as may be prescribed by the Board: Provided further that from such date, and in such mode and manner, as prescribed by the Board, all Tier-1 retailers shall integrate their retail outlets with Board's computerized -system for real- time reporting of sales."
(Emphasis supplied)
Similarly, Section 40C states as under: "Section 40C. Monitoring or Tracking by Electronic or other means.
1) Subject to such conditions, restrictions, and procedures, as it may being fit to impose or specified, the Board may, by notification in the official Gazette, specify any registered person or class of registered persons or any goods or class of goods in respect of which monitoring or tracking of production, sales, clearances, stocks or any other related activity may be implemented through electronic or other means as may be prescribed.
2) From such date as may be prescribed by the Board, no taxable goods shall be removed or sold by the manufacturer or any other person without affixing tax stamp, banderole stickers, labels, barcodes etc. in any such form, style and manner as may be prescribed by the Board in this behalf.
3) Such tax stamps, banderols, stickers, labels, barcodes etc., shall be acquired by the registered person referred to in subsection (2) from a licensee appointed by the Board for the purpose, against price approved by the Board, which shall include the cost of equipment installed by such licensee in the premises of the said registered person."
Perusal of subsection (9A) of section 3 brings forth that it applies to all TIER-1 Retailers and second proviso to subsection (9A) of section 3 stipulates that all TIER-1 Retailers shall integrate their retail outlets with Board's computerized system in the mode and manner prescribed by the Board.
Consequently, the Board has inserted Chapter XIV-AA in the Sales Tax Rules, 2006 ("the Rules") through SRO No. 1203(1)/2019 dated 10.10.2019 and online integration of the TIER-1 Retailers is governed by the said Chapter read with the provisions of the Act. By virtue of amendment effected through SRO No.1203 (I)/ 2019, dated 10.10.2019, Rule 150ZEF pertaining to non-compliance or contravention of said chapter, has been amended in the following manner: "150ZEF. Consequences of non-compliance or contravention:- The integrated supplier who is found to have tampered with the system or made sales in the manner otherwise than as prescribed in this Chapter, or who contravenes any of the provisions of this Chapter, shall in accordance with sub-section (6) of Section 8B of the Act no more be eligible for the reduced rate, if otherwise applicable, and his input tax shall be reduced in terms of that subsection (6) of Section 8B. An appealable order to this effect shall be made by the Officer Inland Revenue having jurisdiction after giving an opportunity of being heard, besides imposing penalty as applicable and ordering recovery of tax amount due under the Act."
(Emphasis supplied)
Rule 15OZEF categorically states that contravention of any of the Provisions of this Chapter is to entail disentitlement rather reduction of input tax in consonance with subsection (6) of section 8B which states as under: "(6). In case a Tier-I retailer does not integrate his retail outlet in the manner as prescribed under subsection (9A) of section 3, during a tax period or part thereof, the adjustable input tax for whole of that tax period shall be reduced by 15%."
Thus, the scheme of law viz. TIER-1 Retailers is that penalty under Section 33(25) is an ultimate step which requires its procedural underpinning envisaged under the Act and Rules. It is clear from the above provisions that only TIER-1 Retailer falls within the mischief of the provisions of subsection (9A) of section 3 and none else which implies that in order to invoke penal consequences under section 33(25), it is imperative that it is first determined that such a retailer falls within the clutches of the definition of TIER-1. The definition of TIER-1 Retailer has been provided under section 2(43A) as under: "Tier-I Retailer: means a retailer falling in any one or more of the following categories, namely:- a) a retailer operating as a unit of a national or international chain of stores; b) a retailer operating in an air-conditioned shopping mall, plaza or center, excluding kiosks; c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds rupees twelve hundred thousand; d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers; e) a retailer, whose shop measures one thousand square feet in area or more; and f) any other person or class of persons as prescribed by the Board."
Perusal of the definition of TIER-1 Retailer reproduced above reflects that an exhaustive list of categories of retailers who fall within, the clutches of TIER-1 Retailers has been provided and only those who strictly fall within the conditions stipulated for qualifying as TIER-1 Retailer are liable to be registered as such. Once so registered, the contravention by such TIER-1 Retailer is to entail penal consequences under section 33(25).
9. As a natural corollary of the above discussion, the registration as a TIER-1 Retailer is a necessary step rendering a taxpayer to certain liabilities. This is further fortified by reading of Rule 150ZEF, which provides that once the retailer has failed to comply with legal requirement of getting itself integrated in accordance with Act read with the provisions of the Rules, it shall face the consequences mentioned in the Rule 150ZEF. In terms of Rule 150ZEF, the order passed must, beside imposing the penalty as applicable, specify order of recovery of tax amount due under the Act. It is also imperative to note that while passing the order, it has to be kept in view that such a retailer shall not be entitled to reduced rate of input tax. Therefore, necessary proceedings as to registration of a taxpayer as TIER-1 Retailer 'must be carried out before rendering any retailer liable to penal consequences in the garb of TIER-1 Retailer. As a precondition, determination, as envisaged by law under Sections 3(9A), 40C of the Act read with Rules, 2006 is required whether a - particular retailer squarely falls within the definition of TIER-1 Retailer or not and only if he fulfils the conditions of TIER-1 Retailer, he is liable to be so registered failure and/or contravention whereof is to entail the proceedings of imposition of penalty. However, the first essential and compulsory step is conspicuous by its absence, in the instant case. Therefore, straight jump onto penal consequences entailed under section 33 without resort to adjudicatory mechanism for the determination of whether such taxpayer qualifies to be registered as TIER-1 Retailer or not trumps the procedural itinerary relating to determination of liability and consequent penal consequences.
An ineluctable inference and conclusion emanating from the above provisions of section 2(43A) read with subsection (9A) of section 3 is that before the attraction of the said provisions, it is to be shown that the retailer to be included in the TIER-1 category falls within the categories of retailer provided in any of the conditions/categories stipulated under section 2(43A). In addition, it is clear that section 33 alone does not provide for issuance of any show cause notice under this section rather the show-cause notice and all the proceedings are to be carried out in terms of the provisions reproduced above and the penalty under section 33(25) is the logical conclusion of the procedure to be adopted. Section 33 in general and entry at S. No.25 in particular does not empower any Officer of In-Land Revenue to issue show-cause notice or adjudication thereof under the said section. The mechanism and procedure laid down under section 11 has not been traversed through which renders the imposition of penalty under penal provision illegal and unlawful more importantly when learned counsel for respondent acknowledges that show-cause notice dated 19.03.2021 issued to the appellant was not in terms of section 11 of the Act. In the first-place proceedings have not been initiated in terms of section 11 of the Act and after initiating the proceedings, the Order-in-Original passed does not qualify to be an order referred in Rule 150ZEF as beside imposing the penalty as applicable, order of recovery of tax amount due has not been made. It is well settled that when law requires something to be done in a particular way, it should be done in that way only and not otherwise. In case titled "Executive District Officer (Education), Rawalpindi v. Muhammad Younas" (2007 SCMR 1835), the Supreme Court of Pakistan held as under: "It is a settled law that when the basic order is without lawful authority then the superstructure shall have to fall on the ground automatically as law laid down by this Court in Yousaf Ali's case PLD 1958 SC 104. It is also a settled law that where the order of appointment was secured by fraud and misrepresentation then principle of locus poenitentiae is not attracted as law laid down by this Court in Jalal-ud-Din's case PLD 1992 SC 207."
Thus, the appellant has been clearly hard done by deprivation of procedural safeguards for determination of whether he is liable to be registered as a TIER-1 Retailer and subsequent consequences. This is more so when the appeal against the compulsory registration as TIER-1 Retailer filed by the appellant is admittedly pending which is yet to be decided.
10. Under the circumstances, the present Intra Court Appeal is allowed, impugned order dated 16.07.2021 passed by the learned Single Judge in W.P No.46287/2021 is set aside. Resultantly, W.P.
No.46287/2021 filed by the appellant is allowed and Order-in-Original dated 21.04.2021 passed by the respondent is declared to be illegal.
However, it is clarified that the respondent may initiate proceedings strictly in accordance with law by issuing proper notice in terms of section 11 read with enabling provisions of the Act as well as the Rules, against the appellant.