ABID AZIZ SHEIKH, J. This judgment will also decide writ petitions and Intra Court Appeals (ICAs) detail of which is given in Appendix A, as common ques tions of law and facts are involved in all these petitions and ICAs. The legal proposition involved in all these cases is that whether the Commissioner Inland Revenue (Commissioner) could initiate proceedings against the petitioner 's/appellants in terms of section 25 of the Sales Tax Act, 1990 (Act) and section 177 of the Income Tax Ordina nce, 2001 (Ordinance), in the wake of Federal Board of Revenue (FBR) instructions/directions issued to the Chief Commissioner and other field formations for audit of various sectors.
2. Before we have a grip of the legal contentions on the basis of which the impugned orders and notices are challenged, it would be apposite to scan through the factual matrix in brief. Relevant facts are that number of assessees who are from various business sectors have been selected for audit by the Commissioners in pursuance to section 25 of the Act and section 177 of the Ordinance. However , subsequently it transpired that these selections for audit are sector-wise selection on the basis of instructions/dire ctions issued by the FBR to the Chief Commissioner and other field formations. Some of the petitioners in various sectors including OMCs, Edible Oil Manufacturers, Auto Industry , Aerated Water Manufacturers, Beverages, Traders of Electronics, Cement and Housing Societies, being aggrieved have directly filed these constitutional petitions challenging the audit selection mainly on the ground that FBR cannot interfere in the independent discretionary powers of the Commissioner to select and conduct audit. So far as these ICAs are concerned, the FBR issued letter dated 05.06.2020 to all Chief Commissioners for selection of sugar mills for audit in income tax, sales tax and federal excise duty. The said direction was apparently based on the report dated 21.05.2020 of the Sugar Inquiry Commission constituted by the Federal Government in terms of Pakistan Commissions of Inquiry Act, 2017 (Act of 2017). Some sugar mills filed objections against the said selection notices, which objections were however dismissed by the relevant Commissioners. The said sugar mills challenged the dismissal orders and selection for audit notices in various writ petitions including W.P. No.37213/2020, 38044/2020 and 38048/2020, however , these writ petitions were dismissed by the learned Single Bench on 23.09.2020, the appellants being aggrieved filed these ICAs. Subsequently writ petitions filed by other sugar mills were also clubbed with aforementioned ICAs, however , some of the similar writ petitions were again dismissed by the learned Single Bench on 20.01.2021, agains t which judgment, appeals were filed and clubbed alongwith these matters.
3. We now proceed to take note of the contentions of the respective parties. Mr. Raza Imtiaz Siddiqui, Advocate who is representing cement sector submits that in the letter dated 29.01.2021, FBR issued instructions/directions for audit selection of entire cement sector . He submits that in pursuance to said directions, the petitioners cement manufacturers were selected for audit. Contends that power of the FBR under section 25 of the Act and 177 of the Ordinance is independent power from the power of the FBR under section 72-B of the Act and 214-C of the Ordinance, therefore, no such directions could be issued to the Commissioners for sector-wise audit selection. He submits that such directions would amount to undermine and fetter the independent discretion and statutory power of the Commissioners for selection and conduct of audit.
Mr. Shehzad Atta Elahi, Advocate representing the sugar sector in ICAs gave background of the matter and submits that audit notices under section 177 of the Ordinance and section 25 of the Act were issued by the Commissioners, however, subsequently it transpired that said notices were issued on the directions by FBR in revenue recovery drive. He submits that such directions impinge upon the independent statutory authority of the Commissioners for audit, hence impugned orders and notices are not sustainable. He submits that though this ground was not emphatically raised and argued in the constitutional petitions, due to lack of information at the relevant time, however, now these grounds are specifically raised in these ICAs.
Mr. Mansoor Usman Awan, Advocate who is representing oil marketing companies and oil refineries in various writ petitions adopted the aforesaid arguments and further submits that selection for audit under section 177 of the Ordinance by the Commissioner and section 214-C of the Ordinance by the FBR are two independent methods of selection for audit. Submits that by issuing directives by the FBR to the Commissioners for audit selection and also giving time lines, both these independent processes of selection of audit have been compromised. He submits that no doubt mere selection of audit is not an actionable claim, however, the procedure prescribed under law for such selection of audit must be followed in its true spirit.
Mr. Tanzeel ur Rehman, Advocate submits that directive issued by the FBR does not only affect the audit proceedings but also influence the assessment proceedings, which is not within the domain of FBR. He submits that FBR under section 214-C of the Ordinance can only select for audit but to conduct audit, the Commissioners shall exercise their independent powers under section 177 of the Ordinance. He therefore, submits that such directives and time lines could not be issued by the FBR to Commissioners even if selection of audit was under section 214-C of the Ordinance.
The learned counsel for the remaining petitioners and appellants who are represen ting other sectors have adopted the above arguments.
4. Mr. Ahmad Pervaiz, Advocate assisted by Dr. Ishtiaq Ahmed Khan, CIR, LTO, Lahore on behalf of respondents submits that Inquiry Commission was constituted by the Federal Government under Act of 2017 to investigate the affairs of certain sugar mills due to complaint on exorbitant fixation of prices. Submits that the Sugar Inquiry Report dated 21.05.2020 was received by the FBR. Submits that on receipt of report, the FBR had three options i.e. to proceed under section 122(5) of the Ordinance or to proceed under section 122 (5-A) of the Ordinance or it could refer the matter for audit of these sugar mills. Submits that FBR decided to conduct audit and accordingly instructions were issued to the Chief Commissioner for the conduct of audit of suga r industries under section 177 of the Ordinance and section 25 of the Act with time lines. He submits that such instructions/directives could be issued by the FBR under Federal Board of Revenue Act, 2007 (FBR Act). He submits that under aforesaid instructions, the FBR only directed for desk audit and neither direction was issued for selection of all cases for audit nor there were any consequences presc ribed for not following the time lines given in the FBR directives. He, therefore, submits that the Commissioners concerned exercised their independent powers under section 177 of the Ordinance and section 25 of the Act and gave reasons for selection of audit, which does not suffer from any infirmity. He submits that after instructions/directions issued to the sugar industry by FBR, similar instructions/directions were also issued to other sectors for audit under section 177 of the Ordinance and section 25 of the Act but in no way the independent powers to conduct audit by the Commissioners were impinged upon in said directives. He submits that aforesaid aspect of the matter was not considered by the learned Sindh High Court or Islamabad High Court where similar audit selection was previously challenged and set aside.
5. We have heard learned counsel for the parties and perused the record with their able assistance.
6. The historic background of the Commissioner's power to select tax payers for audit remained subject to litigation even before repeal of erstwhile Income Tax Ordinance, 1979 (Repealed Ordinance). The said background has already been discussed in detail in Messrs Chenone Stores Ltd. through Executive Director (Finance Accounts) vs. Federal Board of Revenue through Chairman and 2 others (2012 PTD 1815 ), Pakistan Telecommunications Company Ltd. vs. Federation of Pakistan (2016 PTD 1484 ) and The Federal Board of Revenue and others vs. Messrs Chenone Stores Ltd. (2018 PTD 208) and need not be reiterated herein. However , for the purpose of lis in hand, it is expedient to explain the scheme of audit under the Ordinance.
Repealed Ordinance envisaged assessment mechanism which was changed to self-assessment scheme under the Ordinance. Under section 120(1) of the Ordinance, the return of income tax filed by taxpayer is deemed to be assessment order , however , section 120(1A) provides that notwithstanding section 120(1), the Commissioner may conduct audit under section 177 of the Ordinance. Thus on one hand the prevailing law presumed the income declared by taxpayer in his return as deem assessment order but at the same time, powers are vested with the Commissioner under section 177 of the Ordinance to select and conduct for audit of any taxpayer . The purpose of audit under section 177 of the Ordinance is to ensure that self assessment scheme under the Ordinance may not be misused or abused by taxpayers. Unlike section 214-C of the Ordinance, which has to ensure general compliance with law by tax payer , section 177 of the Ordinance focus on the tax return of individual tax payers.
7. To better understand, the power of Commissioner and the FBR to select and conduct audit of income tax, it is expedient to reproduce sub-section (1), (2) and explanation of section 177 and section 214-C of the Ordinance as under:- "177. Audit. --(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person: Provided that--
(a) the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and
(b) the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer: Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.
(2) After obtaining the record of a person under sub section (1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.
Explanation .--For the removal of doubt, it is declared that the powers of the Commissioner under this section are independent of the powers of the Board under section 214C and nothing contained in section 214C restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under this section.
214C. Selection for audit by the Board. --(1) The Board may select persons or classes of persons for audit of Income T ax affairs through computer ballot which may be random or parametric as the Board may deem fit.
(1A) Notwithstanding anything contained in this Ordinance or any other law, for the time being in force, the Board shall keep the parameters confidential.
(2) Audit of Income Tax affairs of persons selected under sub-section (1) shall be conducted as per procedure given in section 177 and all the provisions of the Ordinance, except the first proviso to sub-section (1) of section 177, shall apply accordingly .
(3) For the removal of doubt it is hereby declared that Board shall be deemed always to have had the power to select any persons or classes of persons for audit of Income T ax affairs.
Explanation.--For the removal of doubt, it is declared that the powers of the Commissioner under section 177 are independent of the powers of the Board under this section and nothing contained in this section restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under section 177."
8. Similarly for audit of sales tax, sub-sec tion (1), (2) and explanation of section 25 and section 72B of the Act are reproduced hereunder:
25. Access to record, documents, etc.--"(1) A person who is required to maintain any record or documents under this Act [or any other law] shall, as and when required by [Commissioner], produce record or documents which are in his possession or control or in the possession or control of his agent; and where such record or documents have been kept on electronic data, he shall allow access to [the officer of Inlan d Revenue authorized by the Commissioner] and use of any machine on which such data is kept.
(2) The officer of Inland Revenue authorized by the Commissioner , on the basis of the record, obtained under sub- section (1), may , once in a year , conduct audit: Provided that in case the Commissioner has information or sufficient evidence show ing that such registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner , to conduct an inquiry or investigation under section 38: Provided further that nothing in this sub-section shall bar the officer of Inland Revenue from conducting audit of the records of the registered person if the same were earlier audited by the office of the Auditor -General of Pakistan.
Explanation .--For the purpose of sections 25, 38, 38 A, 38B and 45A and for removal of doubt, it is declared that the powers of the Board, Commissioner or officer of Inland Revenue under these sections are independent of the powers of the Board under section 72B and nothing contained in section 72B restricts the powers of the Board, Commissioner or officer of Inland Revenue to have access to premises, stocks, accounts, records, etc. under these sections or to conduct audit under these sections.
72B. Selection for audit by the Board.--(1) The Board may select persons or classes of persons for audit of tax affairs through computer ballot which may be random or parametric as the Board may deem fit.
(1A) Notwithstanding anything contained in this Act or any other law, for the time being in force, the Board shall keep the selection parameters confidential.
(2) Audit of tax affairs of persons select ed under sub-section (1) shall be conducted as per procedure given in section 25 and all the provisions of this Act shall apply accordingly .
(3) For the removal of doubt, it is hereby declared that the Board shall be deemed always to have had the power to select any persons or classes of persons for audit of tax affairs under this section.
9. Plain reading of above provisions manifest that these are independent power of audit of the Commissioner and FBR with separate methodology enumerated in above referred provisions. Under section 177 of the Ordinance and 25 of the Act, the Commissioner is required to apply his independent mind to each taxpayer individual case and if he decides to select a taxpayer for audit, he must give mindful and legitimate reasons arising out from record. On the other hand, purpose of section 214-C of the Ordinance and section 72-B of the Act is to ensure general compliance of the law by taxpayers. The FBR under section 214-C of the Ordinance and section 72-B of the Act may select a person through random parametric ballot, however , there is no room in section 214-C of Ordinance or 72-B of the Act, for FBR to direct Commissioners to select assessee for audit under section 177 of the Ordinance or section 25 of the Act, as it will amount to usurp the independent power of the Commissioner under section 177 of the Ordinance and 25 of the Act. This legal position is also reiterated by the legislation by adding explanation to section 177 of the Ordinance and 25 of the Act through Finance Act, 2013.
10. It is admitted on all hands that FBR issued similar instructions and time lines for completion of audit for various sectors including cement, sugar , auto parts, co-operative housing societies, ceram ic tiles, tobacco, beverages and fertilizers etc. These directives by FBR are more or less identical , however for ready reference, one of such directive issued to cement manufacturers dated 29.01.2021 is reproduced hereunder:- Government of Pakistan Revenue Division Federal Board of Revenue (Inland Revenue)
F.No.1(44)SEC-ST-OPS/2020/15180-R Islamabad 29 Jan. 2021 To Chief Commissioners-IR i. LTO Karachi, Lahore. Islamabad ii. MTO Karachi iii. CTO Karachi, Lahore, Islamabad iv. RTO Peshawar Subject: Timelines For Completion of Audit- Cement Sector I am directed to refer to the Video Link Conference (VLC) conducted on 26 Jan. 2021 on the captioned subject and to state that the Board is pleased to set the following timelines for completion of audit under sales tax & income tax heads in respect of cement manufacturers falling under respective jurisdictions:- Sr.No.Action Timeline By whom 1 Desk Audit/Requisition of all 3rd Party Information20th Feb, 2021 DCs/ADCs 2 Selection for audit 25th Feb, 2021 CIRs 3 Issuance of Audit Reports 25th March, 2021 DCs/ADCs 4 Issuance of SCN 25th April, 2021 DCs/ADCs 5 Reply of the RPs & rebuttal 25th May, 2021 DCs/ADCs 6 Assessment Orders 25th June, 2021 DCs/ADCs 7 Final Report to FBR 30th July, 2021 CCIRs/CIRs
2. I am further directed to state that Video Link Conference (VLC) under the Chair of Member IR-Ops will be held on 9th Feb, 2021, Tuesday, to discuss updated status of the abovementioned tasks vis-a-vis/progress on Desk Audit, & requisition of 3rd Party information by the timelines fixed.
(Zubair Khan)
Secretary ST (IR Operations)
Cc
(i) SA to Member IR-Operations, FBR, Islamabad
(ii) Chief ST -Operations, FBR, Islamabad
(iii) Secretary Administration. FBR Islamabad
11. Bare reading of the above directive shows that Chief Commissioner Inland Revenue and other field formation were given instructions for completion of audit under the sales tax and income tax in respect of the entire sector which in this directive was cement manufacturers. The said directive also gave exact time lines commencing from desk audit till final report to be submitted to the FBR after the assessment orders. Admittedly all impugned orders and notices of audit were issued by the Commissioners to various sectors after the aforesaid similar directives by the FBR. No doubt in the impugned notic es and orders for audit, these directives by the FBR are not referred to specifically , however , there is no dispute that audit proceedings in these sectors were initiated and triggered by theth Commissioners concerned in pursuance to these directives issued by the FBR. The legal position which is well settled is that when a particular authority is vested with the power to discharge statutory duty, like the Commissioner who is empowered under section 177 of the Ordinance and section 25 of the Act to select and conduct for audit, then it is that authority alone, who has to apply its independent mind and arrive at its own conclusion without being influenced by any other authority much less higher authority like FBR. Under section 177 of the Ordinance and section 25 of the Act, the discretion lies with the Com missioner to initiate the audit proceedings to select and conduct audit on the basis of available record and to arrive at this conclusion, he is not to be controlled even by the higher authority , likewise the higher authority is not to interfere with the independent power of the Commissioner which is statutorily conferred upon him.
12. It is settled law that while exercising discretion, the authority has to maintain independence and impartiality . The authority upon whom discretionary power has been conferred, cannot act at the dictates of higher and other authority . When the discretion is conferred upon the authority , it is that authority alone who has to exercise discretion by its own independent mind after taking into consideration all relevant factors and the object of conferring such a discretion. Such authority should not be influenced by improper motive or improper purpose and must not allow their personal interest and beliefs to influence them in the exercise of their statutory powers, but must exercise those powers impartially and should not pre-judge the case. Even the higher authority cannot provide any guide line or direction to the authority under the statute, to act in a particular manner . It is also salutary principle of law that a quasi-judicial authority cannot afford to act on the direction of a superior officer or authority .
Once a discretion is vested with a certain authority , he alone should exercise that discretion vested under the statute and if he acts in accordance with "the direction or any compliance with some higher authorities instruction" it would be a case of failure to exercise discretion altogether . In other words by following FBR directions, the discretion vested in the Commissioners under Section-177 of the Ordinance and Section 25 of the Act, was not exercised by the concerned Commissioners at all.
13. In similar situation, the Hon'ble Supreme Court of Pakistan, In the matter of Human Rights Case No.3654 of 2018 , held as under:- "Government officials are duty bound to discharge their functions independently and are not to be influenced by dictatorial misuse of powers and/or dictated exercise of discretion. In our view the instant matter is a clear cut case of dictated exercise of direction. At the cost of repetition, "it is now a well-settled principle of law that all public functionaries must exercise public authority, especially while dealing with the public property, public funds or assets in a fair, just, transparent and reasonable manner, untainted by mala fide without discrimination and in accordance with law, keeping in view the Constitutional Rights of the Citizens."
Similarly the Division Bench of this Court in "Mayzone Pak International Vs. Additional Secretary , Government of Pakistan" ( 2002 CLC 388 ) held as under:- "It is established principle of the administration of justice, which is extended to the administrative decisions as well, that if the law enjoins upon a particular functionary/authority to exercise a particular jurisdiction, it should be exercised by the said functionary/authority independently on application of its own mind. If any judicial/quasi - judicial or even administrative discretion is not exercised independently and on application of mind by the functionary/authority who is enjoined under the law to exercise the discretion and the proceeding is controlled or decision is dictated it would amount to non-exercise of jurisdiction by the authority/functionary vested with the jurisdiction and wrong exercise of jurisdiction by an authority not vested with the jurisdiction. All such proceedings shall always be deemed to be invalid, nullity in law and of no legal effect. There is another salutary principle of law that the things should be done as they are required to be done or not at all. If unde r a scheme of statute something is required to be considered and decided on judicial/quasi-judicial proceedings then the matter should be decided accordingly , without any interference from any higher or superior authority or under any administrative instruction.
14. In such like situation Indian Supreme Court in "Joint Action Committee of Air Line Pilots Association of India (Alphai) and others Vs. Director General of Civil Aviation and other" (201 1(5) SCC 435) held as under:- "The contention was raised before the High Court that the Circular dated 29.5.2008 has been issued by the authority having no competence, thus cannot be enforced. It is a settled legal proposition that the authority which has been conferred with the competence under the statute alone can pass the order. No other person, even a superior authority, can interfere with the functioning of the Statutory Authority. In a democratic set up like ours, persons occupying key positions are not supposed to mortgage their discretion, volition and decision making authority and be prepared to give way to carry out commands having no sanctity in law. Thus, if any decision is taken by a statutory authority at the behest or on suggestion of a person who has no statutory role to play, the same would be patently illegal. Vide: The Purtabpur Co., Ltd. v. Cane Commissioner of Bihar & Ors., AIR 1970 SC 1896; Chandrika Jha v. State of Bihar & Ors., AIR 1984 SC 322; Tarlochan Dev Sharma v. State of Punjab & Ors., AIR 2001 SC 2524; and Manohar Lab (D) by L.Rs. v . Ugrasen (D) by L.Rs. & Ors., AIR 2010 SC 2210.
Similar view has been re-iterated by this Court in Commissioner of Police, Bombay v. Gordhandas Bhanji, AIR 1952 SC 16; Bahadursinh Lakhubhai Gohil v. Jagdishbhai M. Kamalia & Ors., AIR 2004 SC 1159; and Pancham Chand & Ors. v. State of Himachal Pradesh & Ors., AIR 2008 SC 1888, observing that an authority vested with the power to act under the statute alone should exercise its discretion following the procedure prescribed therein and interference on the part of any authority upon whom the statute does not confer any jurisdiction, is wholly unwarranted in law . It violates the Constitutional scheme.
In view of the above, the legal position emerges that the authority who has been vested with the power to exercise its discretion alone can pass the order . Even senior official cannot provide for any guideline or direction to the authority under the statute to act in a particular manner ." (Emphasis supplied).
15. Lord Dinning MR in the case of Breen v . Amalgamated Engineering Union, (1971) 2 QB 175) said:- "The discretion of a statutory body is never unfettered. It is a discretion which is to be exercised according to law.
That means at least this: the statutory body must be guided by relevant considerations and not by irrelevant. If its decision is influenced by extraneous consideration which it ought not to have taken into account, then the decision cannot stand. No matter that the statutory body may have acted in good faith: nevertheless the decision will be set aside."
Professor De Smith , in his Principles of Judicial Review 1999 Edition, page 240 has aptly said:- "An authority entrusted with a discretion must not, in the purported exercise of its discretion, act under the dictation of another body or person. In at least two Commonwealth cases, licensing bodies were found to have taken decision on the instructions of the heads of Government who were prompted by extraneous motives. But, as less colourful cases illustrate, it is enough to show that a decision which ought to have been based on the exercise of independent judgment was dictated by those not entrusted with the power to decide, although it remains a question of fact whether the repository of discretion abdicated it in the face of external pressure."
16. The principle which can be discerned from the above mentioned Judgments and expression of opinion by Jurists, is that if a statute imposes a duty on an authority , he must exercise that power independently and personally without any supervisory control of such authority . When applying the above well settled legal principles in the present case, it can be seen that the FBR has indeed interfered in the independent statutory duty and discretion of the Commissioners under section 177 of the Ordinance and section 25 of the Act. FBR has not only given them the directives to initiate sector wise audit across the board but also gave them time lines for various steps commencing from the selection for audit till passing of assessment orders. Such time line has indeed interfered with the independent power of the Commissioners, who may or may not have selected the individual tax payers for audit on the basis of their income tax or sales tax returns on individual basis.
17. The stance of the FBR in these proceedings that time line of audit for various sectors was neither a directive nor binding on the Commissioners, is also contradictory to the plea taken by the FBR in similar matter before the Islamabad High Court in case of M/s Pakistan Tobacco Company Limited vs. Federation of Pakistan and others (W.P. No.272/2021). In said matter, FBR stated that directive was issued under sections 206, 213 and 214 of the Ordinance and binding on the Commissioners. However said stance was repelled by the Islamabad High Court and vide its judgment dated 08.11.2021, held that FBR under section 206, 213 and 214 of the Ordinance cannot control the exercise of the discretionary power vested in the Commissioner under section 177 of the Ordinance and under section 25 of the Act. Similar stance was also taken by FBR before Sindh High Court in cases discussed in preceding Paras but said plea of FBR met the same fate. The FBR being statutory body of the Federal Government exercises its jurisdiction all over Pakistan, hence it cannot be allowed to take contradictory stance before different High Courts. Once FBR took a particular plea of defence in one High Court, then it is bound by that plea and cannot be allowed to take altogether different stance in another provincial High Court in similar matters. The principle of "estoppel" is squarely applicable to FBR in such like situation.
18. The next argument of respondents that FBR can issue such directive to Commissioners under FBR Act is also misconceived. The purpose of FBR Act as per its preamble is to enhance the capacity of tax system to collect due tax through application of modern techniques and providing assistance to tax payers and quality service to regulate the matters relating to fiscal and economic policies. Further under clause (c) and (i) of section 4 of the FBR Act, the powers and functions of FBR include to adopt modern effective tax administration methods and to direct or advise where necessary , investigation into suspected duty tax evasion, tax fraud, money laundering and to coordinate with the relevant law enforcing agencies. However , these powers and functions do not authorize FBR to interfere in statutory functions, duties and discretion of the Commissioners. The FBR Act neither provides any inroad into nor supersedes the independent statutory authority of Commissioners for selection of audit under section 177 of the Ordinance or section 25 of the Act.
19. While discouraging such interference, the august Supreme Court as well as this Court in following case law held as under:- (i). Collector of Customs, Islamabad vs. Messrs Askari Cement (Pvt.) Ltd. and others ( 2020 SCMR 649 ):- "The instructions, order or directions made or given must yield to the Act and Rules framed thereunder and should not go beyond the provisions of the statute itself. Direction as envisaged by section 223 of the Act can be given in matters falling within the range of the administrative power so long as the field is not occupied by any statutory provision or a rule."
(ii). Messrs Sufi Steel Industries (Pvt.) Ltd. vs. Federation of Pakistan and others ( 2018 PTD 378 ):- "No doubt the scope for issuance of directions by the Administration is extremely broad, however , as a general proposition, it may be stated that the government can issue directions on any matter falling within the range of its administrative power , so long as the field is not occupied by any statutory provision or a rule. The statutory rules are on higher pedestal and administrative instructions/circulars/ orders can neither change the principle contained in the statutory rules nor rules can be amended through administrative jurisdiction...............................
This proves the Board's own practice (at least in sales tax) that matters which are to be dealt under rules, cannot be governed through administrative orders. It is also settled law that where a matter is to be done in a particular manner prescribed under the law, that it must be done in that way and not otherwis e. Reliance is placed on Khalid Saeed v . Shamim Rizwan and others ( 2003 SCMR 1505 )."
(iii). Federal Bank for Cooperatives, Islamabad vs. Ehsan Muhammad ( 2004 SCMR 130 ):- "It is a basic and, fundamental principle of interpretation of statutes that where a situation is specifically dealt with by a provision of law then any general provision relating to the same subject would not be attracted in cases specifically catered for ."
(iv). Javid Akhtar vs. Punjab Authority ( 1997 CLC 1 168):- "Respondent No.2 while granting license in accordance with the direction of Chief Minister acted without lawful authority as it was a case of dictated exercise of powers and not independent discharge of function. Such an exercise of powers under the direction of higher authorities has been held to be invalid in a number of cases decided by the higher Courts of Pakistan and outside."
(v). T aj Muhammad vs. T own Committee, Fateh Jang through Chairman and 3 others ( 1994 CLC 2214 ):- "It is trite law that if a statutory functionary has been invested with central power , it must be exercised by him uninfluenced by any other person after independent application of mind. It is equally well-settled that if the functionary acts under the dictates of others or in compliance of the orders passed by his superior without backing of any law , the exercise of that power being dictated in nature stands vitiated."
(vi). Messrs Central Insurance Co. and others vs. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232 ):- "It is evident from the above provisions that though the Central Board of Revenue has administrative control over the functionaries discharging their functions under the Ordinance, but it does not figure in the hierarchy of the forums provided for adjudication of assessee's liability as to the tax. In this view of the matter any interpretation placed by the Central Board of Revenue on a statutory provisions cannot be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or quasi judicially. We may point out that the Central Board of Revenue cannot issue any administrative direction of the nature which may interfere with the judicial or quasi judicial functions entrusted to the various functionaries under a statute. The instructions and directions of the Central Board of Revenue are binding on the functionaries discharging their functions under the Ordinance in view of section 8 so long as they are confined to the administrative matters. The interpretations of any provisions of the Ordinance can be rendered judicially by the hierarchy of the forums provided for under the above provisions of the Ordinance, namely; the Income Tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High Court and this Court, and not by the Central Board of Revenue. In this view of the matter, the interpretation placed by the Central Board of Revenue on the relevant provisions of the Ordinance in the Circular, can be treated as administrative interpretation and not judicial interpretation."
20. The similar orders and notices for audit selection of various sectors on the basis of directives issued by the FBR have already been set-aside by learned Sindh High Court and Islamabad High Court. In CP No.4729 of 2021 titled Wazir Ali Industries Ltd. vs. Federation of Pakistan and others learned Sindh High Court vide judgment dated 20.12.2021 regarding sales tax audit held as under:- "The powers of the Commissioner under section 25 and the powers of FBR under section 72B, as stated above, are independent. The former is based on subjective criteria and the Commissioner is empowered to critically analyse the returns of taxpayer whereas the Commissioner is required to apply his mind to the case of individual taxpayer and decide if there are reasons to select a taxpayer for audit. The FBR's powers under section 72B are objective in substance; it is being done under an objective policy for that year and then the taxpayer are selected and/or a sector or sectors of taxpayers are selected through computer balloting on the basis of criterion. This separation of powers is further clarified through explanation added to Section 25 which is as under: "Explanation:-- For the purpose of section 25, 38, 38A, 388 and 454 and for removal of doubt, it is declared that the powers of the Board, Commissioner or officer of Inland Revenue under these sections are independent of the powers of the Board under section 72B and nothing contained in section 72B restricts the powers of the Board, Commissioner or officer of Inland Revenue to have access to premises, stocks, accounts, records etc. under these sections or to conduct audit under these sections."
39. Although it extends powers of board to have access to premises, stock, accounts, record etc. but impliedly it also separates the powers of Board and Commissioner/Officer Inland Revenue. If such directions are given by the FBR to the Commissioner to select a taxpayer or a sector for an audit under section 25 then the two provisions would collapse and would render either of them redundant and inefficacious.
40. Thus, while the Commissioner applied mind and provide reasons for selection, the later scheme of FBR under section 72B enables it to select a taxpayer through random and parametric balloting based on the development of a software which takes over the task of a commissioner .
41. Under the scheme of Sales Tax Act, 1990 a simple letter alone by the Board cannot form a yardstick to purposely trespass the independent jurisdiction of the Commissioner which may be a debatable issue in the case of Income Tax Ordinance, 2001. For the purposes of present issues originating from Sales Tax Act, 1990 and Federal Excise Act, 2005, it is usurpation of independence of Commissioner. Proceedings under section 25 depend on the discretion regulated under the law, which is directed to be exercised by the Board and the manner in which it is to be accomplished. If it trespasses the independence and discretionary rights of the Commissioner based on an independent scheme such as Section 25 then it amounts to invading the independent powers.
42. In the present case FBR has issued circulars containing detailed directions to its officers with strict timeline for selection and completion of audit of all sectors mentioned therein which includes oil refineries, oil marketing Companies, traders of electronics, automobiles, manufacturers of beverages etc. The timeline provided by the FBR was specified in the sense that: i) Taxpayer must be selected for audit; ii) Audit report must be issued; ii) Show-cause notice must be issued; iv) Assessment order must be passed; and v) Final report be provide to the FBR Consequently in pursuance of above directions audit notices were issued to the petitioners for multiple tax years in accordance with these timelines.
43. This is the reason that sample notices for all the sectors have been reproduce d above in order to demonstrate that it is an automatic selection and in some cases even notices calling for docume nts/record under subsection (1) of Section 25 under automatic audit selection. The pending petitions could be concluded/ decided on this count alone. Perusal of these circulars and timing of the audit selection leave no doubt that entire exercise by the Commissioner is being carried out at the behest and on directions of the FBR and will eventually (as could be seen) result in demand being created against the petitioners and we feel FBR itself is responsible for this foul play .
44. Cumulative effect of the above discussion will lead us to conclude that the impugned notices must fail and hence the additional consideration raised by the counsels regarding third proviso i.e. "once in three years" and later "once in a year" become irrelevant and left with academic bearing only, hence we conclude to decide these petitions and High Court Appeals on the basis of above reasoning and leave above additional grounds for some other appropriate cases where it would be more effective, relying on T iwana.
45. Thus, on the basis of above discussi on petitions are allowed, impugned notices are quashed and High Court Appeals filed by the department merits no consideration and are accordingly dismissed.
21. Subsequently learned Sindh High Court in CP No.D-5107/2021 titled Atlas Honda Ltd. vs. Pakistan and others vide judgment dated 18.02.2022 regarding income tax and sales tax audit, held as under:- "23. Coming to the point under Consideration, since there is no independent application of mind in giving reasons for selection of the petitioners, rather it is dependent on the directions of the FBR, it does not demonstrate a transparent exercise of powers by the Commissioner under section 177 of Ordinance 2001. If the FBR can simply direct the commissioner to select any taxpayer for audit then distinction between Section 177 and 214C would collapse and would make either of the two redundant which principle cannot be applied while interpreting the independent provisions of a Statute.
24. The Commissioner would thus become an instrument of the FBR which may act as a predator of the legislative powers of the Commissioner under section 177 to achieve its desired result. The independence of the commissioner and the independent application of mind would lose its transparency which would be against an independent structured mechanism of Ordinance 2001."
22. The learned Islamabad High Court in W.P. No.2721/2021 titled M/s Pakistan Tobacco Company Ltd. vs. Federation of Pakistan vide judgment dated 08.1 1.2021 discussed and settled this issue as follows:- "24. What neither section 214C of the Ordinance of 2001 envisages nor the tax policies promulgated by the FBR, is sectoral audits i.e. audit of all taxpayers belonging to a certain sector or industry. Such approach to audit is not risk-based and would defeat the self-declared object of FBR's audit policy which is meant to exclude all taxpayers likely to have compelled with their obligations under the Ordinance of 2001. We however need not discuss the scope of section 214C any further. FBR's audit selection powers under section 214C are not in question before this Court. The purpose of above discussion was merely to highlight that the object of vesting audit selection powers in the Commissioner under section 177(1) of the Ordinance of 2001 are different from the object of vesting audit selection powers in the FBR under section 214C. The exercise of powers by the Commissioner under section 177(1) will always be on a subjective basis in view of an individual taxpayer's returns and history of compliance or non-compliance with provisions of the Ordinance of 2001, as opposed to the exercise of audit selection powers by the FBR under section 214C, meant to be exercised on an objective basis for larger policy purposes.
25. What is clear from the scheme of the Ordinance of 2001, as it now exists, is that FBR has independent power to select taxpayers for audit, which is not contingent upon or correlated with the exercise of audit selection powers by the Commissioner under section 177(1) and vice versa. What FBR cannot do is exercise its powers under sections 206, 213 and 214 of the Ordinance of 2001 in a manner that controls the exercise of discretionary power vested in the Commissioner under Section 177(1) of the Ordinance of 2001. Section 206 endows FBR with powers to interpret provisions of the Ordinance and issue circulars for such purpose to provide guidance and directions and such directions are binding on tax authorities. But the power to issue circular in order to interpret provisions of the Ordinance cannot be employed by FBR to direct the Commissioner to exercise his discretionary authority under section 177(1) to produce certain consequences in relation to individual taxpayers as deemed desirable by the FBR. Likewise, FBR can also not exercise its authority under sections 213 and 214 of the Ordinance of 2001, under the garb of providing guidance, by issuing directions to Commissioners for purposes of section 177(1) in such manner that it controls or fetters the discretionary audit selection authority vested in the Commissioner under section 177(1). It is settled law that when the legislature vests in a public authority the discretion to reach certain decision, it is for such authority to exercise the power vested by law on the basis of relevant considerations and not for any other authority to usurp such power or control the outcome of such discretionary authority. It is a settled principle of administrative law that discretion vested in an authority by law cannot be fettered and that the discretion is to be exercised by the authority it is vested in, in a just, fair and reasonable manner, and that the exercise of discretion for extraneous considerations amounts to unlawful exercise of such authority. In view of the provisions of the Ordinance of 2001, FBR is vested with no authority or jurisdiction under section 206 to control the discretion vested in the Commissioner under section 177(1) of the Ordinance or 2001. ........................................................................ .........................................................................
28. With regard to the sectoral audit, the objection to the maintainability of the petitions is also devoid of force. The sectoral audit letters issued by the FBR mandating Commissioners to exercise authority under section 177(1) constitute a void order as they amounted to the usurpation of power , vested in the Commissioners, unwarranted by law, and are therefore, a nullity . As FBR is devoid of authority to direct Commissioners as to how to exercise discretionary authority under section 117(1) in relation to select taxpayers, it did not have subject matter jurisdiction to issue such orders. (With regard to the test for void orders and their effect, reliance is placed on Chief Settlements Commissioners, Lahore Vs. Raja Muhammad Fazil Khan and others (PLD 1975 SC 331), The Chairman District Screening Committee, Lahore and another Vs. Sharif Ahmed Hashmi (PLD 1976 SC 258) and Sarosh Haider Vs. Muhammad Javed Chundirgar (PLD 2014 SC 338)). The august Supreme Court in Commissioner of Inland Revenue, Sialkot Versus Allah Din Steel and Rolling Mills (2018 SCMR 1328) has held that selection for audit does not result in an actionable injury in the context or of the case before it. But the august Supreme Court has not held that even if the Commissioner exercises authority in breach of requirements of section 177(1), such action would be protected as audit doesn't of itself cause an actionable injury, The august Supreme Court in Allah Din Steel and Rolling Mills has recognized the fact that selection of a business for audit and its prolonged entanglement with the process could have deleterious consequences for a business. Further, a taxpayer has a right guaranteed by Article 4 of the Constitution to be treated in accordance with law. And every public office holder, including a Commissioner discharging authority under the Ordinance of 2001, is under an obligation to act in accordance with law. To the extent that the exercise of discretion by the Commissioner is for extraneous reasons and not in accordance with law, which affects the tax affairs of a taxpayer, such taxpayer has a right to impugn the Commissioner's action. The Ordinance of 2001 does not provide for a statutory remedy against a taxpayer's illegal selection for audit. The remedy proposed by the learned counsel for FBR under section 7 of the FBR Act in the present context is illusory. Given that exercise of authority by the Commissioner to commence a sectoral audit, found by this Court to be illegal, is the consequence of a circular issued by the FBR itself, FBR cannot be a judge in its own cause."
23. W e have gone through these Judgments and agree with the reasoning recorded and conclusion drawn therein.
ORDER OF THE COURT .
24. In view of above discussion, all these constitutional petitions and ICAs are allowed. Consequently impugned income tax and sales tax audit proceedings initiated on the basis of directives issued by the FBR are decla red to be without lawful authority and of no legal effect. However , this judgment will not preclude the Commissioners concerned from exercising his/her independent authority under section 177 of the Ordinance and section 25 of the Act to proceed afresh in individual cases strictly in accordance with law .
APPENDIX "A".
SECT OR-WISE LIST OF CASES DECIDED THROUGH CONSOLIDA TED JUDGMENT DATED 27.04.2022, PASSED IN MAIN WRIT PETITION NO.15880/2021.
Sr.No. Case No. Sectors 1 ICA No.50415/2020. Sugar 2 ICA No.50414/2020. -do- 3 ICA No.55201/2020. - 4 ICA No.53174/2020. - 5 ICA No.521 1/2021. - 6 ICA No.5212/2021. - 7 ICA No.50412/2020. - 8 W. P. No.62348/2020. - 9 W. P. No.16265/2022. - 10 W. P. No.76923/2021. - 11 W. P. No.62352/2020. - 12 W. P. No.62351/2020. - 13 W. P. No.6641 1/2021. - 14 W. P. No.54634/2021. - 15 W. P. No.54633/2021. - 16 W. P. No.54632/2021. - 17 W. P. No.62350/2020. - 18 W. P. No.51298/2021. - 19 ICA No.70356/2021. Food and Beverages 20 ICA No.80009/2021. -do- 21 ICA No.74284/2021. - 22 ICA No.66170/2021. - 23 ICA No.65375/2021. - 24 ICA No.62885/2021. - 25 ICA No.78003/2021. - 26 W.P. No.17973/2021. - 27 W.P. No.1566/2022. - 28 W.P. No.252763/2018. - 29 W.P. No.55859/2021. - 30 W.P. No.51260/2021. - 31 W.P. No.51259/2021. - 32 ICA No.181 10/2021. Cement 33 W.P. No.25589/2021. -do- 34 W.P. No.25731/2021. - 35 W.P. No.19430/2021. - 36 W.P. No.18622/2021. - 37 W.P. No.18912/2021. - 38 W.P. No.18936/2021. - 39 W.P. No.20024/2021. - 40 W.P. No.21096/2021. - 41 W.P. No.21 102/2021. - 42 W.P. No.25585/2021. - 43 Crl. Org . No.24398/2021. - 44 ICA No.78064/2021. Oil 45 W.P. No.24896/2021. -do- 46 W.P. No.24901/2021. - 47 W.P. No.2471 1/2021. - 48 W.P. No.21439/2022. - 49 W.P. No.62695/2021. - 50 W.P. No.25536/2021. - 51 W.P. No.25540/2021. - 52 W.P. No.29125/2021. - 53 W.P. No.30385/2021. - 54 W.P. No.24709/2021. - 55 ICA No.62883/2021. Fertilizer 56 ICA No.62879/2021. -do- 57 ICA No.62881/2021. - 58 ICA No.62895/2021. - 59 ICA No.62869/2021. - 60 ICA No.62873/2021. - 61 ICA No.62892/2021. - 62 ICA No.62876/2021. - 63 ICA No.67098/2021. Electronics 64 ICA No.63631/2021. -do- 65 ICA No.17367/2022. - 66 W.P. No.461 16/2021. - 67 W.P. No.461 19/2021. - 68 W.P. No.461 14/2021. - 69 W.P. No.46729/2021. - 70 W.P. No.461 12/2021. - 71 ICA No.62867/2021. Sanitary 72 W.P. No.32486/2021. -do- 73 W.P. No.32474/2021. - 74 W.P. No.1 1115/2019. - 75 W.P. No.77098/2021. - 76 W.P. No.32465/2021. - 77 ICA No.83897/2021. Automobile 78 ICA No.78610/2021. -do- 79 ICA No.4961/2022. - 80 W.P. No.79692/2021. - 81 ICA No.74912/2021. Steel 82 W.P. No.30393/2021. - 83 W. P No.70974/2021 Land Developer 84 W. P No.20109/2022. - 85 ICA No.4963/2022. Paint/Chemicals 86 ICA No.63634/2021. Spinning 87 ICA No.4966/2022. Cosmetics 88 ICA No.53184/2020. Power Generation