2007 PLP (Trib (PTD)

This appeal challenges the vires of the order, dated 4-8-2004, passed by the Additional Collector of Customs, Sales Tax and Central Excise Adjudication, Karachi-III.

2. Brief facts of the case are that during the course of audit, it was observed by the auditors that during the financial period 1996-97, 1997-98, 1998-99, the appellant was involved in taxable activity and no sales tax was paid by them during the said period. Accordingly, the respondent issued a show-cause notice on 7-11-2001, wherein it was alleged that the appellant did make violations of the provisions of sections 3, 14, 22 and 23 of the Sales Tax Act, 1990. The appellant denied the allegations alleged against them in the show-cause notice before the respondent and argued that he had availed amnesty of tax payment by following the provisions of S.R.O. 395(1)/01, dated 18-6-2001, as all required conditions therein were met, however, a formal order was required to be issued by the Collector as per Rule 2 of the S.R.O. which he failed to issue. He contended that in these circumstances the show-cause notice is invalid. The Adjudicating Officer, however, did not agree with his point of view and passed the impugned order and the demand raised against the appellant was upheld. This appeal challenges the vires of the said order.

3. The learned counsel for the appellant contended that the appellant is engaged in providing services as textile weaver and there has been agreement between Trade Association and Central Board of Revenue to pay sales tax on fixed scheme, subsequently in order to bring units into VAT mode system an amnesty scheme, vide S.R.O. 395(I)/01, dated 18-6-2001 was notified, which was availed by the appellant, it is explicitly stated in the S.R.O. 395(I)/01, that the Collector or Additional Collector was required to pass formal order to reject or accept the application filed by the registered persons, which has not been done in the instant case, further the S.R.O. was valid upto 31-12-2001 whereas the show-cause notice was issued on 7-11-2001 i.e. therefore, without issuance of any formal order by the competent authority, the proceedings initiated against the appellant were not warranted by law.

4. The learned counsel further contended that the show-cause notice is silent about sub-clauses of section 36 of the Sales Tax Act, 1990, and where such subsections are not specified, for example section 36(1) or 36(2) of the Sales Tax Act,.'1990, the failure to do so makes the show-cause notice invalid and unlawful, he relied upon on the cases decided by Honourable Supreme Court of Pakistan in the case of Assistant Collector of Customs and others v. Messrs Khyber Electric Lamps MFG Co. Ltd. and Messrs Caltex Oil (Pak.) Ltd. v. Collector Sales Tax both reported as (2001) 84 Tax 133 (SC Pak.) and 2005 PTD 480, respectively. In the later case, the Court observed that:

".. Without completion of prerequisite of show-cause notice and supply of the grounds/reasons in clear and explicit words to ascertain that under which subsection of section 36 of Sales Tax Act, 1990, the case would fall, the demand notice may have no legal consequence and thus the failure of the authorities issuing show-cause notice to disclose such grounds and reasons may render the notice invalid..."

5. The learned counsel contended that in the light of case-law cited, the impugned order is liable to be set aside.

6. The Departmental representative on the other hand defended impugned order for the reasons recorded therein, though he conceded that no formal order as required under S.R.O. 395(I)/01 was passed by the competent authority.

7. Rival parties have been heard and case record examined. It is evident from the records that the show-cause notice does not disclose specific grounds. And such failures of the authorities issuing show-cause notice to disclose grounds and reasons render the notice invalid. The analysis of subsections (1) and (2) of section 36 shows that the authority who has to issue such a show-cause notice, will have to make out a case in the said notice itself that under which provision the case falls and will also have to incorporate the grounds and reasons in his show-cause notice very clearly and explicitly so that it could be ascertained whether the show-cause notice issued falls under subsection (1) or (2) of section 36 of the Sales Tax Act, 1990. Failure on the part of authority issuing show-cause notice would render the show-cause notice invalid and illegal.

8. It may be noted that under section 36 of the Sales Tax Act, 1990, two periods of limitation have been provided for issuance of show-cause notice for cases where the tax has not been levied or short levied, under subsection (1), the period of limitation is five years and the case in which this period is applicable are those where the taxpayer has either colluded with somebody for such short payment or had made some deliberate acts or omissions for short payment of the tax. Therefore the department has been given a longer period of limitation i.e. five years so that such a person should not go scot free. Under subsection (2) of section 36, the period of limitation for issuance of show-cause notice is restricted to three years only. Under this subsection, the grounds available for issuance of show-cause notice are inadvertence, error or some misconstruction on the part of the taxpayer. Meaning thereby that it was due to some innocent act of the taxpayer that the tax was either not paid or short paid. Therefore, the legislator restricted its limitation to three years as against those persons who had some mala fide intention and were covered under subsection (1) of section 36 of the Sales Tax Act, 1990. And where these things are not specified it cannot be claimed that initiated act was within the time limit.

9. Having said that, this appeal is allowed the impugned order is e set aside. Resultantly, the show-cause notice? dated 7-11-2001, is declared as not warranted by law being time-barred. H.B.T./196/Tax(Trib.)????????????????????????????????????????????????????????????????????????? Appeal allowed.