ORDER: MR. RIZWAN AHMAD (ACCOUNTANT MEMBER). (1). Titled sales tax appeal has been filed at the instance of appellant/registered person on the grounds as set forth in the memo of appeal, against order-in-appeal No. 200 of 2021 dated 06-08-2021 passed by the learned CIR(Appeals-II), Faisalabad.
2. Briefly, the facts necessary for adjudication of the appeal at hand are that sales tax refund claims for the tax periods of March-2014 and November-2014 were processed under section 10(1) of the Act read with Chapter-V of the Sales Tax Rules, 2006 under Notification No. SRO 555(I)/2006 dated 05-06-2006 and an amount of Rs. 3,023,789/- was deferred on various objections raised by the Computerized Risk Based Evaluation of Sales Tax (CREST) System. Consequently, the appellant was called upon to show cause notice dated 20-11-2020 as to why deferred refund of sales tax not admissible under sections 4, 7, 8(1), 8(1)(a), 10, 23, 26 and 73 of the Act read with Chapter-V of the Sales Tax Rules, 2006 notified vide Notification No. S.R.O. 555(I)/2006 dated 05-06-2006 may not be rejected under section 11(2) ibid. The contravention proceedings initiated in absentia against the appellant was culminated in passing an assessment order dated 30-12-2020 whereby the alleged amount of sales tax refund was rejected for the reasons recorded therein. Being discontented and aggrieved by the said order, the appellant went in appeal before the learned CIR(A) and assailed the treatment meted out at assessm ent stage but the learned CIR(A) vide impugned order dated 06-08-2021 dismissed the appeal. The appellant, to show discontent, has thrown challenge on the order of learned CIR(A) by availing the remedy of second appeal enshrined under section 46 of the Act, 1990; hence the instant appeal proceedings.
3. Initiating the arguments, learned counsel for the registered person has termed the actions of both the authorities below to be illegal, void, arbitrary and contrary to the facts of the case. Learned counsel vehemently contended that the appellant has filed sales tax returns for the tax periods of March-2014 and November-2014 claiming refund of sales tax incurred in connection with zero- rated supplies and accordingly, its supportive documents complete in all respects were also submitted in due course. After lapse of many years, the revenue department waked up from inebriated sleep for issuing show cause notice on 20-11-2020 which is hopelessly time barred under 11(5) of the Act and obviously, an estopple is created against the department and a presumption of validity of refund claim is created, in favour of appellant. In support of his stance, he has placed reliance on the judgments of Apex Court of Pakistan reported as (PTCL 1993 CL 532) & (PTCL 2006 CL 373) and judgments of Hon'ble High Court, Lahore reported at (2007) 96 Tax 229), (PTCL 200 CL 365), (PTCL 2009 CL 75) & (2016 PTD 461). The learned AR ended with the prayer to accept the appeal.
4. Conversely, when the learned DR confronted with the tax situation cited supra, in counter arguments, he has assailed the case on similar grounds and charges as leveled earlier in impugned show cause notice as well as adjudged in consequent orders and nothing newel, except to reiterate earlier set of contentions, has been put forth by him and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.
5. We have heard arguments of both the rival parties and have carefully examined the relevant provisions of law as well as the case record and the case laws cited by the learned AR of the taxpayer have also been perused carefully.
6. It is an admitted fact that the impugned show cause notice for rejection of input tax refund has been issued and served upon the appellant beyond the period of five years as prescribed in sub- section (5) of section 11 of the Sales Tax Act, 1990. There are clear cut provisions as embodied in section 11(5) of the Sales Tax Act, 1990 that no order shall be made by an Officer of Inland Revenue unless a notice to show cause to the person in default is given within five years of the relevant date.
The phrase "no order shall be made by an Officer of Inland Revenue unless a notice to show cause notice is given within five years, of the relevant date" conveys the intention of the legislature that issuance of show cause notice, within five years, is a mandatory requirement for an action under sections 11(2) & 11(3) of the Act and the term 'shall' used in sub-section (5) of section 11 ibid makes the compliance of provision of law mandatory and there is no escape to it. Therefore, where an executive authority exercises its jurisdiction after the expiry of the period provided in a Statute, such exercise of jurisdiction, without any iota of doubt is illegal and unlawful. It is also well-settled law that when a period is provided by a special Statute, then any proceedings or actions taken under the provisions of special statute, has to be taken within the stipulated period. The show cause notice issued on 20-11-2020 is hopelessly barred by statuary time limitation as the same was issued after the prescribed time limit of five years under section 11(5) of the Act and once limitation had started to run and had come to an end, the taxpayer had acquired vested right of escapement of assessm ent by lapse of time. The judgment of Hon'ble Supreme Court of Pakistan in case of "Federation of Pakistan through Secretary, Finance, Islamabad and 4 others vs. M/s. Ibrahim Textile Mills Ltd. and others" reported as (PTCL 1993 CL 532) is also very relevant to the subject matter whose extract of relevance is given as follows:-- "The cardinal principle of law is to be considered for the recovery of short levied duties.--
(1) that all are equal before law whether Citizen or State.
(2) secondly, if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts.
(3) thirdly, that while Construing a financial statute, its terms are strictly to be followed"
7. This legal position is also enunciated by the Hon'ble High Court, Lahore in the case of "M/s. J.K Brothers Pakistan (Pvt) Ltd. vs. The Additional Commissioner Inland Revenue & another" reported as (2016 PTD 461). The relevant extract therefrom being reproduced as under:- "S.11(5)--Limitation--Scope--Refund claim of the petitioner pertained to tax period of April, 2005 and specified period of five years was to expire in May, 2010 but show cause notice regarding said refund had been issued on 28-05-2011--Validity--If a law prescribed period of time for recovery of money then after its lapse, recovery was not enforceable--Section 11(5) of Sales Tax Act, 1990 provided a period of limitation of five years for issuance of show cause notice and notice in present cask having been issued after one year of expiry of relevant date was barred by limitation and thus was without lawful authority and of no legal effect and was liable to be set aside-- Constitutional petition was allowed accordingly."
8. In another case like the present one, Hon'ble High Court, Lahore in case of "M/s. Joyla Sadat Cotton Industries vs. Collector of Customs- reported as (PTCL 2008 CL 365), held as under:-- "We, therefore, observe that instant matter involves the controversy, which is governed under the provisions of section 36(2) of the Sales Tax Act, 1990. Such action has to be taken within the period, prescribed by law. Reopening the case of the petitioner, after the prescribed period of limitation, is not justified The phrase "shall be served with a notice, within three years of the relevant date" conveys the intention of the legislature that show cause notice and issuance of the same, within three years, is a mandatory requirement for an action under section 36(2) of the Act of 1990."
9. In view of what has been discussed above, particularly in the light of law and the principles laid by the superior Courts in various judgments as referred supra, impugned show cause notice is declared barred by time limitation and consequent orders passed by both the authorities below in pursuance thereto also are declared to be illegal, ah initio void, without lawful authority and thus are hereby set aside.
10. The instant appeal filed by the registered person is accepted and disposed of in the manners as indicated above.