Analysis of Section 14 of Federal Excise Act 2005

ANALYSIS OF SECTION 14 ANALYSIS OF SECTION 14 OF FEDERAL EXCISE ACT, 2005 By Shahbaz Butt, Advocate Supreme Court of Pakistan, Lahore Section 14 of the Federal Excise Act, 2005 (for brevity FEA) as per its heading, deals with the recovery of unpaid duty, erroneously refunded duty and arrears of duty etc. Perusal of the head note reveals that it focuses on enforcement of levy, payment and recovery of duty in the aforesaid three eventualities and prescribes and stipulate the requirements for proceedings in the matter. Subsection (1) of section 14 of the Federal Excise Act, 2005 deals and addresses the four situations in which said provision can be invoked: Where any person; a. for any reason has not levied the duty; or b. having levied or not levied the duty has not paid the duty; or c. has short levied or short paid such duty; or d. where by reason of some error (it may be an advertent or inadvertent error) an amount of duty has been refunded. Perusal of the provisions of law would reveal that the word 'or has specifically been used between all the four eventualities. Usually the word 'or' refers to alternate positions. However the same can be read as 'and' as the circumstances and the language of a statute permit and the eventualities appearing subsequent thereto can be taken conjunctively. The Superior Courts in a number of cases has held that the word 'or' is interchangeable with the word 'and' depending on the language of the statute. In this regard I am fortified from the judgment, reported as 1980 SCMR 391 and 1990 PTD 389. Having explained the above, by placing the word 'or' in exjusta position with the word 'and' in the provision of law aforesaid, I am of the considered opinion, that on existence of an independent or single situation or even in case of co-existence of more than one situations, the concerned authority may press the provisions into service for the recovery of duty falling within the contours of the aforesaid provision of law. It is evident from the provision itself that for stepping into the provision the relevant steps have been provided firstly, it has been stipulated that a show cause notice has to be serviced for payment of such duty (The question as to whether the service of show cause notice is mandatory or otherwise shall be discussed later) secondly it has specifically been provided that such show cause notice shall be issued within three years (originally) from the relevant date. It is noted that the period for issuance of show cause notice aforesaid was extend to five years through Finance Act, 2010 w.e.f. 5th June, 2010. The perusal of the provision as contained in subsection (1) of Section 14 of Federal Excise Act, 2005 give rise to following issues for consideration:- i. what does the word 'serviced with notice' means. ii. whether issuance of show cause notice is mandatory and limitation has to be reckoned with the date of issuance of notice. iii. what shall be the effect of the extended limitation. I will deal with all the three questions separately:- Issue No. 1 The law requires 'such person shall be serviced with notice requiring, him to show cause for payment of such duty.' It is noted that the provisions lays emphasis firstly on connotation 'any person' and than on "such person" therefore, we will candidly lay hand on the expression 'any person' as used in the beginning of subsection (1) and the words 'such person' as subsequently used, since "any person" qualified and followed by the words 'has not levied or paid any duty or has short levied or short paid such duty or where any amount of duty has been refunded erroneously.' While term "such person" has been used in the context of service of show cause notice, therefore, it clearly follows that the word 'such person' have to be read in the context of the term 'any person' who has been allegated for not levying or not paying any duty or short levying or short paying the duty or getting erroneous refund of such duty shall be 'such person' on whom the notice of show cause has to be served. Therefore, it further follows that such show cause notice has to be served on the person earlier referred and such service has to be made necessarily in accordance with the procedure visualized under section 47 of the Federal Excise Act, 2005 viz., (i) in case of an individual person on the person himself and in case of his disability or in case 'such person' is a non resident, on the person being his representative as defined under section 172 of the Income Tax Ordinance. This can be visualized as a service by hand through an official viz., process server (ii) under clause (b) of subsection (1) of section 147, the said notice can be served through registered post or courier service addressed either to the address of such person's "registered office or alternatively on the address provided for such service of notice under the Federal Excise Act, 2005 and in case where such person does not have such office or address, notice can be sent to his office or place of business in Pakistan. It is important to specifically state here that the term 'registered post' has not been defined in Federal Excise Act, 2005. Therefore, the same shall bear the some meaning as have been defined under section 27 of the General Clauses Act, 1897. Section 27 reads as under:-- "27. Meaning of service by post.---Where any [Central Act] or regulation made after the commencement of this Act authorizes or requires any document to be served by post, whether the expression 'serve' or either of the expressions 'give' or any other expression is used, then unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre-paying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post." Therefore any such service through registered post shall comply with all the requirements of section be produced above (iii) alternately the service could be made in consonance with the manner provided for service of summons under Code of Civil Procedure 1908 (Act V of 1908). It means that the registered post service must be in line with Rule 10A read with Rules 10, 13, 14, 17 and 20 of Order V of the C.P.C. of 1908. Where the notice has to be served on a person 'who is recognized as an association of persons' such service has to be made on the principal officer or the member of the association of person, in the manner provided hereinabove. It may be noted that service by registered post can not be made in deviation of the procedure laid down under C.P.C. Reliance in this behalf is placed in case reported as Hassan Foods Multan v. CIT 2003 PTD 1516. From the above discussion without any iota of doubt, it can be safely said that service of notice referred to in section 14(1) of Federal Excise Act, 2005 has firstly to be served strictly on the addressee of the notice and secondly such service must be in the manner laid down under section 47 of the Federal Excise Act, 2005 read with section 27 of the General Clauses Act, 1897 and further read with Order V Rule 10 of the Civil Procedure of Code 1908. Issue No. 2 Perusal of subsection (1) of section 14 would reveal that the provision specifically holds that 'such person shall be serviced with notice requiring him to show cause for payment of such duty'. This clearly means that service of such show cause notice is 'sine-qua-non' for the purposes of pressing into service the provision of section 14 of Federal Excise Act, 2005. The usage of the term 'shall' is immense importance. The word 'shall' is a word of command and refers to imperative mandatory, reliance in this behalf is placed on PLD 1993 SC 473 and 1992 SCMR 468. Therefore, it can be inferred without any fear of contradiction or opposition that, service of show cause notice is not only a condition precedent but also a statutory requirement and consequently without service of notice of show cause, no steps can be taken to proceed further for recovery of duty as visualized under section 14 of Federal Excise Act, 2005, until the condition of proper service and issuance of show cause notice is not complied with, the payment of alleged 'duty cannot be pressed into service. For completion of due process of law the legal requirements of 'service of show cause notice on the concerned person visualized under section 14 of Federal Excise Act, 2005 is mandatory requirement in view of Article 10A of the Constitution of Pakistan, 1973. It may also important to point out here the 'properly opportunity of hearing' is the basic requirements for a fair trial. The Superior Courts in a number of cases have already held that even where in a statute 'providing for opportunity of hearing has not specifically been provide the principle of Audi altram partem has to be read into such statute, unless expressly it has not specifically been prohibited. Therefore, in the given circumstances and in view of the principle laid down by superior courts that "no condemnation without confrontation" the service of show cause notice is mandatory, reliance is placed on GST 2005 CL 326. It is important to point out here that for prescribing limitation, the law maker has purposefully used the phrase "shall be issued" in contrast with the phrase "shall be serviced" in the context of service of notice. Since issuance of notice in the circumstances does not include service of notice. The limitation of three years or five years as the case may be shall be reckoned from the date of issuance of notice of show cause. Therefore, in my humble submission and understanding of law, the notice of show cause has to be issued within three or five years from the relevant date as explained in explanation to section 14 of Federal Excise Act, 2005. The notice of show cause thus can only be issued within the prescribed limit starting from the relevant date. Issue No. 3 The provision specifically holds 'that such notice shall be issued within three years from the relevant date' while the limitation of 'three years' was extended to five years through Finance Act, 2010 w.e.f. 5th June, 2010. It is settled principle of law that limitation is always a matter or procedure and no one has the right in the procedure. Therefore, it follows that the extension of limitation shall only effect those cases, who were alive or pending at the time of change or extension of limitation and in such cases the limitation shall stand extended by law to five years, while cases where limitation of three years for the issuance of notice in the context of relevant date had expired. Such cases shall form 'past and concluded transaction' and the extension of limitation cannot be used for issuance of such show cause notice. Reliance in this behalf can be placed on case reported as Fawad Textile Mills v. CIT and cited as 2005 PTD 14. Therefore, it can safely be observed that any show cause notice issued in cases where the limitation of three years in the context of relevant date had expired prior to 5th June, 2010 viz, effective date of Finance Act, 2011, the same shall be unlawful and proceedings on such notice shall abate, while to the contrary the limitation of 5 years shall apply. It is clarified that as per explanation to section 14 of the Federal Excise Act, 2005 the 'relevant date' means the date on which the duty was due under subsection (3) of section 14 and in case where duty has erroneously been refunded, the same shall be the date of its refund. Therefore, the relevant date shall play a pivotal rule for determination of period of limitation viz-a-viz the very issuance of notice. It is interesting to point out here that while visualizing limitation of proceeding through the law maker has used the connotation 'serviced' whereas for the purposes of limitation the words 'shall be issued' has been used. Both have distinguishing features. In the earlier situation 'it refers to service of show cause notice on such person referred to in subsection (1), while in the latter situation it has been laid down that such show cause notice must have been issued three years or five years , as the case may be from the relevant date explained above. For instance the relevant date as per explanation was 3rd July, 2005, the notice could have been issued up till 2nd July, 2008 and in case no such show cause notice has been issued by such date no proceedings under section 14(1) can be pressed into service. Similarly in cases for instance where relevant date was 3rd July, 2007 the show cause notice can best be issued by 2nd July, 2012 viz., extended limitation. Please note that the 'three years' limitation ought to expire on 2nd July, 2010 but by that time prior to expiration of limitation the period of issuance of notice ' supra stood extended to five years w.e.f. 5th June, 2010 by amendment ; brought about through Finance Act, 2010. It is worthwhile to point out here that the provisions, which create or initiate a charge or fiscal liability against any person or a subject and by reason whereof a fiscal liability is either created, enhanced or charged, such provision are charging and substantive provisions of law, the qualification and condition attached thereto for entering and stepping therein shall always firstly be mandatory and secondly shall always be effective prospectively unless specifically provided for or a different intention expressly appears in the status. Therefore, it can be opined that the provisions relating to service of notice qua the period of limitation subject to any extension during the currency of limitation shall be mandatory and non compliance thereof shall be fatal and any action taken in deviation thereof shall be nullity in the eye of law and such action shall be bound to set at naught and strain down to earth. Now coming to the provisions of subsection (2) of section 14 of Federal Excise Act, 2005, it is observed that under this provision of law, the concerned officer of Inland Revenue is empowered and vested with the power to determine the amount of duty payable by the person referred to in subsection (1) along with default surcharge and penalty under the Act after considering the objections filed by such person, who has been served with the notice of show cause. However, it has specifically been provided that the determination of liability referred to above has to be made within one hundred and twenty days of issuance of show cause notice, which can further be extend to for maximum further period of 60 days, by the Commissioner, by recording reasons in writing. The extension of 60 days is discretionary but the same has to be exercised, fairly, justly, properly and lawfully and the qualification of recording reasons in writing is of immense importance, therefore, it follows, that the reasons for extension must not be absurd but logical and fair. It is important to point out here that the Commissioner may extend the period for less than 60 days thus the subject determination can not be made beyond the period of one hundred and eighty days from the date of issuance of show cause notice. Since the provisions creates an exception, and relates to the determination of fiscal rights and obligation of a subject, and the legislature has intentionally used the word 'shall' therein, make it obvious that no such determination should fall beyond the specified period including the extend time. It has however been provided that for that firstly the period consumed by taxpayer by seeking adjournment of the proceedings secondly the period in which proceedings could not be carried out for the reason of a stay order granted by any court or authority or for the reason of proceedings before ADR. Such period shall be excluded for calculating the period of limitation. It is matter of immense importance that the period consumed by taking adjournments by a subject/person must not exceed from 30 days for exclusion of days for determination of said 120 or 180 days as the case may be. It is also important to point out here that the first and second proviso to subsection (2) of section 14 of the Federal Excise Act, 2005 were inserted through Finance Act, 2011 having effect from 1st July, 2011. therefore, the period of limitation in the context of determination of payable duty shall be effective in respect of proceedings initiated or after 1st July, 2011 and prior thereto no limitation or exclusion period in the eventualities provided under second proviso was provided for determination of duty payable under section 14(2) of Federal Excise Act, 2005, with the exception that show cause notice in terms of sub-section (1) of section 14 of Federal Excise Act, 2005 could only be issued within five years from the relevant date. Consequently the proceedings initiated and concluded prior to such insertion was not caught by the mischief of both the provisos to subsection (2) of section 14 of the Federal Excise Act, 2005. The provision of subsection (3) deals with the manner of recovery of duty subsequent to determination of payable duty, default surcharge and penalty. It has specifically been laid down that the due amount of duty etc. shall be recovered in the manner prescribed in the Act and rules framed thereunder. Reference in this behalf can be made to Chapter XII and Rules 60 and 61 of the Federal Excise Rules, 2005 and all such recovery shall be dealt with accordingly. It has specifically been provided in subsection (4) of section 14 of the Federal Excise Act, 2005, that, where any business or activity involving liability to charge levy and pay duty under the Act is sold, discontinued or liquidated the amount due or unpaid under Federal Excise Act, 2005 shall have the first charge on the assets of such business. Meaning thereby that in case of sale, discontinuation of business or liquidation of such business concern involving dutiable business or activity the State dues under the Federal Excise Act, 2005 shall have first right and prerogative as to the 'recovery'. This provision endorses the principle that the 'crown has the first right for recovery of taxes'. It is further important to point out here that the above sub-section has overriding effect over all other laws enforced or anything contained in any other law enforced in Pakistan, for the reason the law contained in subsection (4) of section 14 in a non obstinate provision starting with the connotation 'notwithstanding'. Therefore, has an over-riding effect over all the other laws enforced for the time being.