1999 PLP 1358 (PTD)

S. AHMED SARWANA, J.

The brief facts stated in the petition are that Siemens Pakistan Engineering Company (hereinafter referred to as petitioner) have been manufacturing various types of electrical machinery and motors for several years. In exercise of the powers conferred by section 7 of the Sales Tax Act, 1951, (hereinafter referred to as The Act), the Ministry of Finance, Government of Pakistan (Respondent No.1) by SRO 697(1)/77, dated 4-8-1977 exempted from payment of Sales Tax certain kinds of machinery, components and spare parts defined in the table printed therein. This S.R.O. was later superseded by SRO 600(1)/90, dated 7-6-1990 whereby the machinery and parts etc. were defined in the said Notification were exempted from Sales Tax payable under the said Act. Both S.R.Os. defined the term 'machinery' which was exempted from payment of Sales Tax payable under the said Act. The petitioner accordingly cleared electrical motors without payment of Sales Tax under the provisions of the above referred two S.R.Os. It is alleged that the petitioner received a show-cause notice, dated 28-3-1994 from Assistant Collector, Central Excise and Sales Tax, Site Division Karachi stating that during the course of Special Audit conducted in November 1992 by Central Excise and Sales Tax Department, the records maintained by them for the period 1989 to 190, 1990 to 1991 and 1991 to 1992 were checked and it was found that during the said period the petitioner had cleared huge quantity of electrical motors without payment of Sales Tax leviable thereon treating them to be exempt under S.R.O. 697(1)/77, dated 4-8-1977 and superseded by S.R.O. 600(1)/90, dated 7-6-1990 by misinterpreting the provision/contents of both the aforesaid SROs when the exemption from payment of Sales Tax had been granted in respect of only that machinery which is defined in the said two S.R.Os. and not for general clearance for sale in the local market. It was pointed out in the notice that the petitioner had violated various provisions of the Central Excise Rules read with the Sales Tax Act, 1990 which was punishable under section 33(2) of the said Act. They were informed of the various amounts that they had evaded under the Sales Tax Act during the aforesaid period and that the total sum of tax with Additional Tax recoverable from them was Rs.5,37,88,445.94. Accordingly they were asked to appear before the Assistant Collector on 4-4-1993 alongwith a written reply to show cause why the aforesaid amount be not recovered from them. Petitioner contested the allegations made in the show-cause notice explaining that they had not violated any law and that the electric motors had always been cleared under the exemption granted by the above referred two S.R.Os. which practice was being followed by them for the past several years without any objection from the Department. It is alleged that after filing the reply to the show-cause notice, petitioner appeared before the Department and augmented their contention on several dates of hearing, the last of which was on 25-10-1997. It is further alleged that no order were passed on the reply submitted and the oral submissions made by them before the Department which extended over 4/5 years and that all of a sudden petitioner received an order, dated 12-6-1998 from the Collectorate of Sales Tax (West) Karachi, rejecting their explanation and requiring them to forthwith pay Sales Tax amounting to Rs.1,95,41,476.12 on electric motors cleared without payment of tax during the period July 1989 to May 1990 under Rule 10 of Central Excise Rules, 1944. In the said order the Department stated that the petitioner had interpreted the conditions laid down in SRO 697(1)/77, dated 4-8-1977 and had cleared/supplied electric motors in the local market without payment of sales tax. According to the said Order which is impugned only machinery /electric motors which are used in industrial process or process directly connected with manufacturer of goods were exempted from Sales Tax. While in the present case, according to the Department, the petitioner had cleared the goods under SRO 697(1)/77 and had supplied the same m the local market and in spite of opportunity given to them, they had not produced any evidence to show that the machinery cleared and supplied by them in the open market was used for industrial process or was directly connected with manufacture of goods as required under the Notification and consequently, the petitioner's submissions were rejected and they were asked to pay Sales Tax as stated above. Thereafter, the petitioner received a notice dated 17-6-1998 from the Department informing them that as they had failed to deposit the Government dues amounting to Rs.1,95,41,476.12 as required by order, dated 12-6-1998 an embargo under section 48 of the Sales Tax Act, 1990 had been imposed on clearance of goods from the factory and advised them to pay the aforesaid amount so that the embargo may be lifted. Being aggrieved by the aforesaid order, dated 12-6-1998 the petitioner has approached this Court in its Extraordinary Constitutional jurisdiction under Article 199 of the Constitution of Islamic Republic of Pakistan seeking inter alia, the following reliefs:-- "(a) To hold and declare that the impugned order of the respondent No.4 is bad in law, illegal, without authority, in excess of jurisdiction and, therefore, is bad in law and in fact consequential also to declare that the order of embargo, dated 17-6-1998, passed by the Respondent No.6, is without any lawful authority and on facts and of no force or effect; (b) to pass consequential order/orders, direction or directions, prohibiting/restraining/directing the respondents, their officers and persons under their control and authority not to act in any manner on the basis of the impugned order (order dated 12-6-1998) and/or embargo order dated 17-6-1998 or otherwise." Pre-admission Notice was issued to the respondents and Deputy Attorney-General for Pakistan. In response to the notice, respondents Nos. l to 5 filed their Para. wise Comments and Counter Affidavit to which the petitioner filed its rejoinder. On 2-9-1998 after hearing the respective points of contentions of Mr. Mansoor Ahmed Khan, learned Counsel for the Petitioner and Mr. Naimur Rehman, learned Deputy Attorney-General, we were of the view that the matter could be disposed of on merits at the stage of Katcha Peshi and put them on notice that the matter would be heard on merits and shall be disposed of as such on the following date of hearing i.e., on 16-9-1998. On the said date both the learned Counsels submitted their arguments for and against the grant of relief sought by the petitioner', Mr. Mansoor Ahmed Khan, learned counsel for the petitioner submitted that the petitioner has been Manufacturing electric motors since 1955 and never paid any Sales Tax thereon as the same were exempted from payment of such tax. In support of his submission he referred to various clarifications issued by C.B.R. from time to time to show that the electric motors manufactured and cleared/supplied by the Petitioner were exempted from levy of Sales Tax and that the interpretation given by the Department after long practice of over 20 years could not be departed to give a new meaning to the S.R.O. He further argued that the Department is bound by the clarification issued by C.B.R. from time to time and is now estopped from changing its position and give the S.R.O a new meaning (Reference C.B.R. Clarification dated 20-12-1984, Annexure "F" to the Petition). He added that the electric motors cleared under Classification 85.01 of the Pakistan Customs classification of goods as specified in the Notification dated 4-8-1977 are the same as given in Item 13 of S.R.O dated 7th June, 1990. Learned counsel for the petitioner also contended that the petitioner appeared for the Deputy Collector and submitted his arguments on 4-4-1993, 20-6-1993, 19-10-1993, 22-4-1995 and 25-10-1997 but no order was passed by the said officer. However, after a lapse of eight months, Petitioner received the Impugned Order dated 12-6-1998, which was signed by Additional Collector-I (Mr. Iftikhar Qutab) who had not heard the arguments on any date of hearing mentioned above. The Order was, thus, passed by an officer who had not heard the matter and was violative of the principles of natural justice that no person should be condemned unheard. In reply to the above arguments, Mr. Naimur Rehman, learned D.A.-G. submitted that the real question in issue was whether the electric motors sold by the petitioner in the local market were covered by S.R.O. 697(1)/77 and that the clarification given by C.B.R. could not override the Notification issued by the Government of Pakistan. He also added that the controversy required recording of evidence to decide whether the electric motors cleared without payment exemption of duty were used for machinery operated by power such as is used in any industrial process, including the generation, transmission and distribution of power or used for process directly connected with the manufacture of goods as defined in the S.R.O. in question. He also added that the Petition was not maintainable as adequate remedy by way of Appeal under section 45(1) of the Sales Tax Act, 1990 is available. In reply to the objection of maintainability Mr. Mansoor Ahmed Khan, learned Counsel for the petitioner submitted that the remedy by way of Appeal was not efficacious as the petitioner is required to deposit the tax amount before proceeding with the Appeal. We have considered the arguments advanced by the learned counsel, perused the documents filed by the petitioner, the comments and the counter affidavit filed by respondents Nos. l to 5, that is, Government of Pakistan (Ministry of Finance), C.B.R., Collector of Sales Tax, Karachi, Additional Collector-I (who passed the Impugned Order dated 12-6-1998), and Superintendent, Sales Tax, Collector of Enforcement Division-1, (West) Karachi. We find that the Petitioner has made a specific allegation of mala fide against the respondents in para. 10 of the petition which reads as follows:-- "That the person (Deputy Collector), who heard the show-cause notice proceedings, did not pass or give any decision/judgment despite the fact that on behalf- of the petitioners, proceedings extended over 4/5 years, were deemed harassment and mala fide intention not to vacate the show-cause notice although it was urged, it had no bearing on law or on facts." The respondents in their Comments have not denied the allegation. The relevant portion of their comments are as follows:-- "Para-10. Not true as the delay in passing orders was only to provide the petitioners full opportunity to defend the case. The orders passed are based on facts and are quite within the spirit of the valid law." In the affidavit in support of the application under Order 39, Rules 1 and 2, C.P.C. filed by the petitioner seeking interim injunction against the impugned order, in para. 5 the petitioner alleged:-- "

5. That the matter was heard by Deputy Collector at various occasions over 4/5 years without passing judgment/order. However, with a view to show collection on the Budget announced on 13-6-1998, by an illegal act the order was passed by a person who never heard or dealt with the matter. The order, therefore, suffers from material irregularity, illegality, lack of jurisdiction and mala fide reasons for showing collection during the Budget discussions." In reply to the said allegation, the respondents in their counter affidavit in substance stated as follows:-- "

5. Denied. The delay in passing orders was only to provide the petitioners full and reasonable opportunity to defend the case. That the orders of respondent No.4 are in fact issued under the vested and valid authority of law, nothing illegality, no mala fide, nothing unjust, and at the time nothing bad in law and on facts. The orders issued by respondent No-4 in the morning of 12-6-1998 under registered cover while the Federal Budget was announced at 17.00 hours on 12-6-1998 . . . " It appears that at no time and at no place the respondents have denied the allegation that the impugned order was passed by a person who had not heard the petitioner at any time and that the order was passed after about eight months of the last date of hearing which was on 25-10-1997 am Audi alterem partem i.e. no-one shall be condemned unheard is a universally established principle of law. This rule is applicable to both judicial and non judicial proceedings (1994 SCMR 2232). The legislature A being cognizant of this principle of natural justice has incorporated the same in the Sales Tax Act, 1990 in the various provisions of the Sales Tax Act relating to adjudication of cases. Section 44 of the Act reads as follows:-- "

44. Issue of show-cause notice before confiscation of goods or imposition of penalty.

No order under this Act shall be passed for the confiscation of any goods or for imposition of any penalty unless the owner of the goods, if any, or the (person concerned):-- (a) is served a notice in writing unless the owner or the (person concerned) accepts the notice orally) of the grounds on which it is proposed to confiscate the goods or to impose the penalty; (b) is given an opportunity of making a representation against such confiscation (or imposition of penalty) in writing (unless the owner or (person concerned) indicates in writing his preference to present an oral representation) within such reasonable time as the officer of Sales Tax may specify; and (c) is given a reasonable opportunity of being heard in person or through a counsel or duly authorised agent. (Underlining added) Section 45(2) relating to appeals provides as follows:- "45(2) That Collector (Appeals) may, after making such further inquiry as may be necessary and after giving he appellant an opportunity of being heard, pass such order as he thinks fit remanding, confirming, altering or annulling the decision or order appealed against. (Underlining added)." Section 46(4) of the Act relating to Appeals to Appellate Tribunals postulates that:-- "46(4) The Appellate Tribunal, after giving the parties to the appeal, an opportunity of being heard may pass such order-s in relation to the matter before it as it thinks fit." (Underlining added) It will be observed that in all the aforesaid three sections, the law requires that no order affecting the rights of a person shall be passed without providing him an opportunity of being heard. The word "hear" according The Chambers Dictionary (1994 Edition) means "to perceive by the ear, to have or exercise the sense of hearing, to listen, or be spoken of". The past participle "heard" means "action of perceiving sound" and the noun "hearing" means "power or act of perceiving sound; an opportunity to be heard; judicial investigation and listening to evidence and arguments". The Standard International Dictionary (1973 Edition), Part I, defines "hear" to mean "to listen, to perceive by means of the ear, to listen to officially, judicially". The phrase "opportunity of being heard" would, therefore, mean that the party concerned should be allowed to present his point of view, explanation, clarification and arguments by spoken words which should be heard by the officer passing the order. An explanation given in writing which is perceived by the sense seated in the eye has generally not been considered sufficient. Experience has shown that many doubts, complaints and misunderstandings between parties are cleared, resolved and removed when they meet face to face and communicate by word of mouth. Appearance in person and explanation by word of mouth, therefore, is placed on a higher footing both in daily life and in judicial and administrative proceedings where rights of parties are involved. Therefore, it is not the written explanation or the answer submitted to the show-cause notice but the expression of spoken words of the person concerned which have been emphasized by the Legislature in the relevant provisions relating to Appeals in the Sales Tax Act. Consequently, an officer before passing an order which would adversely affect the rights of a party should hear that person's explanation, clarification and argument in his defence submitted by him personally or through his counsel or his duly authorised agent. If such a hearing is not given to the person concerned, the order would be in violation of not only the principles of natural justice but also of the statutory requirements and consequently would be invalid. The Honourable Supreme Court of Pakistan, following the aforesaid principle of natural justice, in the case of Anisa Rehman v. PIAC, 1994 SCMR 2232, set aside the order of reversion of the employee on the ground that she had not been heard before the impugned order reverting her to a lower grade was passed with the observation that it would be open to the employer to take fresh action after hearing the appellant in accordance with law. The next question which arises for consideration is whether the requirement of personal hearing would be fulfilled if the hearing is given by one officer and the order is passed later on by another officer who has not heard the explanation, clarification and the arguments of the party concerned. The answer is simple. If the Legislature did not want to provide an opportunity to the person concerned to present his case by spoken words before the Sales Tax Authority it would not have included the phrase "giving an opportunity of being heard" in sections 44, 45 and 46 of the Sales Tax Act. The wordings of section 44(c) of the Act are very significant in this respect because it clearly requires that the person concerned should be given a reasonable opportunity of being heard in person. If the officer has not heard the person concerned he would not have knowledge of the explanation given and the arguments advanced by the latter and consequently would not be qualified to pass an order because the hearing by a predecessor does not mean or amount to a hearing by the officer passing the order. Such an officer would be ignorant of the explanation, clarification and arguments advanced by the party concerned and would pass the order on the basis of his own perception and understanding of the issues in question. In this respect it would be advantageous to reproduce here a short paragraph from "Judicial Review of Administrative Action" by S. A. de Smith, (1973 Edition), page 193, which reads as follows:-- "Must he who decides also hear? In general the answer is in the affirmative. It is a breach of natural justice for a member of a judicial tribunal or an arbitrator to participate in a decision if he has not heard all the oral evidence and the submissions. The same principle has been applied to members of administrative bodies who have taken part in decisions affecting individual rights made after oral hearings before those bodies at which they have not been present; for bias and ignorance alike preclude fair judgment upon the merits of a case." A similar view was expressed more than 75 years ago, in the case of Mahmood Khan and others v. Ghazanfar Ali and others, AIR 1920 Lahore 247, by Abdul Raoof, J. of the Lahore High Court, who accepted the contention of the appellant that the fact that the arguments had been heard by another officer made it absolutely necessary for the learned Munsif who was going to deliver the judgment to have allowed the parties to put their case before him and consequently remanded the case to the trial Court for disposal according to law. In the present case also, it is an admitted position that the Additional Collector-I (respondent No.4) who passed the impugned order, dated 12-6-1998 was not the officer who had heard the petitioner's counsel on various dates and especially on the last date of hearing on 25-10-1997. The said officer (respondent No.4) thus passed the impugned order without giving a personal hearing to the petitioner which is not only a violation of the principles of natural justice but also of the statutory requirement of section 44 of the Sales Tax Act. In view of this position, we are satisfied that the impugned order is mala fide, without jurisdiction and of no legal effect. Consequently, we admit this petition to regular hearing and allow the same with costs, set aside the impugned order dated 12-6-1998 passed by respondent No.4 and remand the case to the Collectorate Sales Tax, Karachi, with direction to hear the petitioner afresh and pass orders on their reply to the show-cause notice after providing them an opportunity of being heard in accordance with law. H.B.T./S-174/K Order accordingly.