2021 PLP 1813 (PTD)

ZULFIQAR AHMAD KHAN, J.

The petitioners, registered Sales tax payers, having been aggrieved by unilateral suspension and blacklisting of their sales tax registration ("STRN") by the respondents i.e. the officials of Federal Bureau of Revenue allegedly, before issuing any show-cause notice; without providing any opportunity of being heard or even confronting them with, any, adverse material, have approached this Court under Article 199 of the Constitution of the Islamic Republic of Pakistan. At the forefront, Court's attention is drawn by the learned counsel for the petitioners to applicable Section 21 of the Sales Tax Act, 1990 as well as towards Rule 12 of the Sales Tax Rules, 2006 (both reproduced in the later part of this judgment), and it is alleged that the said scheme of law/regulation in the present from is in violation of the fundamental principle of fair trial under Article 10-A of the Constitution, thus repugnant to the principles of natural justice, hence ultra vires to the Constitution on the one hand, whereas, on practical footing, a hanging sword on the petitioners whose business come to an abrupt halt by such whimsical acts of the respondents hampering the principle of freedom of ding trade, business and profession as enshrined under Article 18 of the Constitution. It is prayed that relevant provision of Rule 12 be declared ultra vires to the Constitution.

2. In the above backdrop of petitioner's contention, we may examine the scope of the provisions of Section 21 of the Sales Tax Act, 1990 and Rule 12 of the Sales Tax Rules, 2001, which reads as follows:- Section

21. De-registration, blacklisting and suspension of registration.

(1) The Board or any officer, authorized in this behalf, may subject to the rules, de-register a registered person or such class of registered persons not required to be registered under this Act. (2) Notwithstanding anything contained in this Act, in cases where the Commissioner is satisfied that a registered person is found to have issued fake invoices or has otherwise committed tax fraud, he may blacklist such person or suspend his registration in accordance with smelt procedure as the Board may by notification in the official Gazette, prescribe.) (3) During the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales Tax refund or input tax credit, and once such person is black listed, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such black listing, shall be rejected through a self-speaking appealable order and after according an opportunity of being heard to such person.] (4) Notwithstanding anything contained in this Act, where the Board, the concerned Commissioner or any officer authorized by the Board in this behalf has reasons to believe that a registered person is engaged in issuing fake or flying invoices, claiming fraudulent input tax or refunds does not physically exist or conduct actual business, or is committing any other fraudulent activity, the Board, concerned Commissioner or such Officer may after recording reasons in writing, block the refunds or input tax adjustments of such person and direct the concerned Commissioner having jurisdiction for further investigation and appropriate legal action. Rule

12. Blacklisting and suspension of registration.-- Where the Commissioner or Board has reasons to believe that the registered person is to be suspended or blacklisted, in order to ensure that the LTUs and RTOs follow a uniform policy for suspension and blacklisting of sales tax registered persons under section 21(2) of the Act and for subsequent proceedings in such cases, the following procedure shall be followed, namely:-- (a) SUSPENSION (i) Where a Commissioner, having jurisdiction is satisfied that a registered person has issued fake invoices, evaded tax or committed tax fraud, registration of such person may be suspended by the Commissioner through the system, without prior notice, pending further inquiry. The basis for such satisfaction may inter alia include the following, namely:- (A) non-availability of the registered person at the given address; (B) refusal to allow access to business premises or refusal to furnish records to an authorized Inland Revenue Officer; (C) abnormal tax profile, such as taking excessive input tax adjustments, continuous carry-forwards, or sudden increase in turnover: (D) making substantial purchases from or making supplies to other blacklisted or suspended person: (E) non-filing of sales tax returns; (F) on recommendation of a commissioner of any other jurisdiction. (G) any other reason to be specified by the Commissioner; (i) the suspension of registration shall take place through a written order of the Commissioner concerned, giving reasons for suspension. This order shall be endorsed to the registered person concerned all other LTUs/RTOs, the FBR's computer system, the STARR computer system and the Customs Wing computer system for information and necessary action as per law: (iii) a registered person who does not file sales tax return for six consecutive months shall be caused to be suspended through the system without any notice; (iv) in cases, where the buyers and suppliers of any such person, whose registration is being suspended, belongs to another LTU/RTO and these buyers/suppliers are also required to be suspended, the Commissioner shall intimate the Chief Commissioner of the concerned LTU/RTO in whose jurisdiction such buyers/suppliers fall, in writing explaining the complete facts of the case and the reasons on the basis of which these buyers/suppliers are to be suspended, to initiate proceedings for suspension/blacklisting of the buyers/suppliers; (v) no input tax adjustment/refund shall be admissible to the registered person during the currency of suspension. Similarly, no input tax adjustment/refund shall be allowed to any other registered persons on the strength of invokes issued by such suspended person (whether issued prior to or after such suspension), during the currency of suspension: (vi) the Commissioner shall, within seven days of issuance of order of suspension, issue a show-cause notice (through registered post or courier service) to the registered person to afford an opportunity of hearing with fifteen days of the issuance of such notice clearly indicating that he will be blacklisted, in case- (A) there is no response to the notice: (B) he has not provided the required record; (C) he has not allowed access to his business record or premises; and (D) any other reason specified by the Commissioner; (vii) in case show-cause notice is not issued within seven days of the order of suspension, the order of suspension shall become void ab-initio; (viii) in case of non-availability of the suspended person at the given address, the notice may be affixed on the main notice Board of the LTU/RTO; (ix) on receipt of the reply to the notice and after giving an opportunity of hearing to the registered, person, if the Commissioner is satisfied, he may order for revoking of suspension of the registered person; (b) BLACKLISTING (i) in case, after giving an opportunity of hearing, the offence is confirmed, the Commissioner shall issue an appealable self-speaking order for blacklisting of the registered person, and shall proceed to take legal and penal action under the relevant provisions of the Act; (ii) the order of blacklisting shall contain the reasons for blacklisting, the time period for which any refund or input tax claimed by such person or by any other registered person on the strength of invoices issued by him from the date of his registration shall be inadmissible, any recovery to be paid or penalties to be imposed: (iii) the order of blacklisting shall be issued within ninety days of the issuance of the notice of hearing. In case, the order of blacklisting is not issued within this time period the suspension of registered person shall become void ab initio; (iv) copies of the order shall be endorsed to the registered person concerned, all other LTUs/RTOs, the FBR/PRAL computer system, the STARR computer system and the Customs Wing computer system. Each LTU/RTO shall circulate all such lists to their refund sections, audit sections and other concerned staff to ensure that the order is implemented in letter and spirit by all concerned: (v) all LTUs / RTOs shall further circulate the copies of the order along with a computer system-generated list of invoices issued by the blacklisted persons as referred to in the preceding clause, to all officers of Inland Revenue having jurisdiction over the registered persons who have claimed credit of input tax or refund on the strength of the invoices issued by the said blacklisted persons; and (vi) the officer of Inland Revenue receiving the aforesaid list under clause (v) shall issue show-cause notice under section 11 and subsection (3) of section 21 of the Act to a registered person for rejecting the input tax or refund claimed against the invoices so circulated and further proceed to decide the matter as per law through a self-speaking appealable order and after affording a reasonable opportunity of being heard to such person, in the manner as provided in the said subsection (3).

3. By mere reading of these provisions of law and the Rule, one cannot fail to note that while Section 21 provides only two grounds to blacklist or suspend one's registration [i.e. (a) if one has issued fake invoices or (b) he has otherwise committed tax fraud], Rule 12 has added a host of other situations on account of which one's STRN may be blacklisted or suspended. For example, If one even doesn't respond to a notice, his STRN could be suspended. Such engineered elasticity of Rule 12 clearly exceeds the scope and endurance limits of section 21(2) to the disadvantage of a registered sales tax payer, in such circumstances where rules have over-stretched powers granted by the parent statute. Courts have come to the rescue of the affeetees. In the case of National Electric Power Regulatory Authority v. Faisalabad Electric Supply Company Limited (2016 SCMR 55) the Hon'ble Supreme Court has held rules framed under a statute were to remain within the precinct of the statute itself and could not transgress the limits and parameters of the parent statute itself. This principle finds consistency with the earlier cases decided by the apex court being Ziauddin v. Punjab Local Government (1985 SCMR 365), Pakistan v. Aryan Petrochemical Industries (Pvt.) Limited (2003 SCMR 370) and Suo Motu Case No.13/2009 (PLD 2011 SC 619). In the light of the foregoing, Rule 12 would only be read to mirror the two grounds provided under Section 21(2) for suspension and/or blacklisting of one's STRN and any other ground taken for such suspension or blacklisting being in access of the statutory authority mandated under section 21(2) fails to aspire judicial confidence.

4. Now coming to the language of section 21(2) which is couched in very carefully chosen terms. It could be seen that in the first instance before exercising power under this subsection, the Commissioner has to be satisfied that a registered person is found to have issued fake invoices or has otherwise committed tax fraud. Taking each word at a time, it is important to note that legislature casted duty on the Commissioner to be "satisfied" rather than having an "opinion". The dictionary meaning of the word 'satisfaction' is of a stricter connotation as compared to the word 'opinion' which usually mean belief resulting from what one thinks on his own on a particular question, where 'satisfied' is a term of considerable expansiveness understood to mean free from anxiety, doubt, perplexity, suspense or uncertainty. It is synonymous with "convince beyond a reasonable doubt". So far as term 'satisfaction' in the context in which it has been used in section 21(2) is concerned, in our view it would mean Commissioner coming to a conclusion on the basis of material sufficient to prove that the registered person had issued fake invoices or has otherwise committed tax fraud. In legal sense 'satisfaction' could only be reached when judicial determination has been completed by placing sufficient facts before the authority concerned from both the sides. Thus to be satisfied, the Commissioner ought not to have only one sided indulgence, rather must give full opportunity to the other side for hearing latter's point of view before finds himself convinced beyond a reasonable doubt and exercises power granted under this section.

5. Now coming to the word 'committed'. Since section 21 prescribes punishment of suspending and/or blacklisting a tax payer's registration, hence the word 'committed' must be construed accordingly. Once the Commissioner comes to the conclusion that either fake invoices have been issued or tax fraud has been committed, fair trial process as enshrined in Article 10-A of the Constitution is to be followed. There is no concept of fair trial without giving an opportunity of hearing. There is plethora of judgments preserving this fundamental right built around the legal maxim of audi alteram partem. In the recent case of Altaf Ibrahim Qureshi v. Aam Log Ittihad (PLD 2019 SC 745) the Hon'ble Supreme Court held that right of hearing of a party to a lis is one of the fundamental principles of jurisprudence which is guaranteed by Article 10-A of the Constitution as assurance of fair trial and due process of law. It is very important to keep in mind that in the tax jurisprudence the initial burden to prove tax fraud lies on the department. The Hon'ble Supreme Court has upheld this view in numerous cases including Fancy Foundation v. Commissioner of Income Tax, Karachi (2017 SCMR 1395) and a bench of this High Court has also expressed similar views in the case of Al-Hilal Motors Stores v. Collector Sales Tax and Central Excise East (2004 PTD 868). Hence once again we reach to the conclusion that provision of due process of law must always be read in section 21.

6. The vires of Rule 12(a)(i) has been examined in a recent judgment rendered by a divisional bench of Lahore High Court in the case of Commissioner Inland Revenue v. Imran Ali Lubricants (2019 PTD 1213 Lahore) wherein it has been held that Rule 12 conferred unbridled and unfettered powers to the concerned Commissioner to suspend registration of a taxpayer without notice and without affording opportunity of hearing, and that the term "satisfaction" must be subject to preliminary inquiry and perusal of record so as to enable a person to upend the "satisfaction" already arrived by the Commissioner, held that suspension of registration by the department offended principle of due process and Articles 18 and 10-A of the Constitution. A single Bench of this Court the case of Inbox Business Technologies Ltd. v. Pakistan (2018 PTD 621) performed threadbare analysis of Rule and having examined that power of Commissioner to suspend registration 'without prior notice' could only be exercised after Commissioner's satisfaction that person had issued fake invoices, evaded tax or committed tax fraud only. It has been held in this case that Commissioner was obligated to make sure and double check that the registered person had committed tax fraud and the case was vivid, obvious and fit for issuing suspension order. Commissioner was also required to discuss the tangible evidence in the suspension order which he was issuing without any notice or providing any opportunity of hearing to the registered person. Court observed that such drastic action of suspension/black listing of STRN could only be issued where the Commissioner had solid and tangible evidence and not on basis of mere sweeping allegations.

7. It is for these reasons we, through our order dated 12.09.2019 allowed these petitions in the following terms:- (i) Rule 12(a)(i) of the Sales Tax Rules, 2006, to the extent it give authority to the Commissioner to suspend the sales tax registration of a registered person "without prior notice", is hereby declared to be ultra vires to the Constitution, violative of principles of natural justice and in excess of authority vested under Section 21(2) of the Sales Tax Act, 1990; (ii) All the orders of suspension of Sales Tax Registration issued to the petitioners in violation of express provisions of Section 21(2), which requires the satisfaction of the Commissioner and only to be made where a registered person is found to have issued fake invoice, or has otherwise committed tax fraud, without confronting the registered person with such reasons in writing, is declared to be without lawful authority and of no legal effect; and (iii) All the order(s) of suspension of Sales Tax Registration wherein, Show-Cause Notice(s) under Section 21(2) has not beer issued within seven days therefrom, and/or no order of blacklisting has been passed within ninety days of issuance of the notice of hearing, the suspension of Sales Tax Registration becomes void-ab-initio, accordingly their Sales Tax Registration stands restored. KMZ/S-9/Sindh Order accordingly.