2012 PLP 524 (PTD)

"Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice." (emphasis supplied) As the five years limitation stipulated in section 36(1) is to be reckoned with reference to the date on which the transactions on which sales tax has been short charged or not charged, as the case may be, the position obtaining in the complainant's case is as follows:-- (i) supply of goods to PIA was made through Invoice No.444 dated 28-7-2005 and time for payment of tax was 15-8-2005. Reckoned from this date, the five years limitation expired on 15-8-2010 whereas demand has been raised in the order-in-original on 18-6-2011; (ii) supplies of goods to UN World Food Program were made through twenty eight invoices during the period November, 2005 to April, 2006 and the due dates for payment of tax were the 15th day of the month following the month in which the supplies were made. By this reckoning, the due dates were 15-12-2005, 15-1-2006, 15-2-2006, 15-3-2006, 15-4-2006 and 15-5-2006. The five year limitation period thus expired in each case on 15-1-2010, 15-1-2011, 15-2-2011, 15-3-2011, 15-4-2011 and 15-5-2011 respectively, whereas demand of sales tax was raised on 18-6-2011. (iii) supplies of goods to the earthquake affected areas were made through nine invoices during the period November, 2005 to January 2006 and the due date for payment in each case was the 15th day of the month following the month on which supplies were made. By this reckoning the due dates were 15-12-2005, 15-1-2006 and 15-2-2006 and the five year limitation in each case expired on 15-12-2010, 15-1-2011 and 15-2-2011 respectively, whereas sales tax demand was raised on 18-6-2011.

15. According to the Department, F.B.R. had exercised its powers under section 74 of the Act, and condoned any delay in issuance of show-cause notices in 2004-2005 and 2005-2006 vide Letter C.No.TPA-1(2)12009 dated 30-6-2010.

16. The Appellate Tribunal Inland Revenue in S.T.A. No.352/LB of 2011 dated 29-7-2011 held that time limitation laid down in a special statute could not be extended through an S.R.O./Notification. Exercise of delegated authority by the F.B.R. through subordinate legislation, such as through issuance of S.R.O., was permissible only so long as it did not conflict with the main statute. The Tribunal's finding that F.B.R. could not extend the limitation period specified in the special statute, that is, the Sales Tax Act, 1990, by recourse to subordinate legislation such as issuing an S.R.O./Notification, must prevail, as the operation of the Tribunal's cited order has not been suspended by any order of the High Court and the said order thus constitutes a binding precedent for the Department.

17. As per the first proviso to subsection (3) of section 36 of the Act, the Order-in-Original No.10 of 2011 dated 18-10-2011 was required to be passed within 120 days of the issuance of the show-cause notice on 18-6-2011, that is, by 15-10-2011. As per order sheet noting made by the ACIR, the order-in-original was passed on 18-10-2011. The said order was served on the complainant on 19-11-2011.

18. The 120-day limitation laid down in section 36(3) of the Act, expired on 15-10-2011. No doubt on 10-10-2011 the complainant had requested that the case be 're-fixed' as the dealing official had gone for training. No specific time frame was specified. However, the Department subsequently informed the complainant that it had allowed a 15 day adjournment in deference to the complainant's desire that the case be re-fixed for hearing. The complainant on the other hand denied that he ever requested for an adjournment for specific number of days.

19. The matter detailed above has been looked into. Examination of the relevant record makes it clear that the complainant's request was only that the case be re-fixed for hearing, as the dealing official was not present. The fact that time limitation laid down in section 36(3) of the Act was due to expire on 15-10-2011 should have been kept in mind and case re-fixed for hearing on 15-10-2011, at the latest. There was no justification to re-fix the case on 18-10-2011. After all, when Mr. Munir Ahmad Chaudhry, ACIR, was away on training, another officer held additional charge of the office and had the authority to finalize the pending adjudication proceedings. Time limitation specified in the statute invariably requires that the cut-off date be adhered to strictly. The complainant acquires a vested right to benefit from any expiry of limitation period and avoid incidence of taxation should the Department fail to finalize proceedings on the due date within the limitation period. The Department was thus duty bound to finalize proceedings in time. In the present case the proceedings were required to be finalized by 15-10-2011. The fact that on 10-10-2011 the complainant had requested that the proceedings be re-fixed did not mean that the limitation period deadline be exceeded. In any case, as pointed out above, the complainant had never requested that an adjournment be allowed for fifteen days. The late service of the order-in-original on the complainant is also not justified. In a case where limitation deadline assumes significance, every effort must be made to ensure that orders are passed and served in time in order to avoid unnecessary controversy. In the present case the complainant does not accept the Departmental contention that the order-in-original was passed on 18-10-2011. He insists that the fact that the order was given to the courier service for delivery to the complainant on 18-11-2011 can only mean that adjudication proceedings were finalized on that date. However even if it be accepted that the adjudication proceedings were finalized on 18-10-2011, these were still time-barred as the 120 day limitation period expired on 15-10-2011 The Department having failed to finalize adjudication by 15-10-2011, the complainant's vested right to benefit from the Departmental lapse cannot be denied to him. Here it may be pointed out that the Hon'ble Federal Tax Ombudsman in a case reported as 2008 PTD 609 held that:-- "An order passed on the file but not communicated to the affected party within the prescribed time limits or within the extended period of time cannot be treated as having been passed within the prescribed time limits." As discussed above, both in terms of the time limitation laid down in sections 36(1) and 36(3), the limits laid down in law were exceeded and resultantly the proceedings became 'time-barred.'

20. Apart from the above lapses, it is also noted that the ACIR did not have the authority to raise sales tax demand against the complainant in excess of Rs.500,000 in terms of the bar laid down in S.R.O. 555(I)/1996. The Department is misconceived in its view that with the omission of section 45 from the statute through Finance Act, 2009, S.R.O. 555(I)/1996 had lost its efficacy. The S.R.O. has not been withdrawn and is still very much in force. Thus the adjudication made by the ACIR on 18-10-2011 was without jurisdiction. It has been held in the case reported as 2006 PTD 219 (Trib.) and 2011 PTD (Trib.) 1943 that "an order without jurisdiction is a fraud on the law and can never be assumed to have been passed under the particular statute."

21. Apart from the expiry of limitation deadlines and adjudication made in excess of the pecuniary limit laid down by S.R.O.(I)/1996, the sales tax demand raised in the order-in-original attributed to alleged sales of excess stocks of raw material to unregistered persons is without any corroborative evidence. The ratio laid down in the Tribunal's judgment S.T.A. No.352/LB/2011 dated 29-7-2011 (2004-2005) disposing of complainant's appeal against the decision of the Commissioner (Appeals) has not been followed. The ratio was equally applicable in 2004-2005 and 2005-2006 because in both periods it has been alleged that the complainant sold excess stocks of raw material in the open market to unregistered persons and the Tribunal had held that without a single concrete instance of a transaction involving sale of excess stocks of raw material in the market to unregistered persons without charging sales tax, the addition could not be upheld. The Department argued during hearing of the case that the cited judgment had been contested in the High Court and was not applicable in 2005-2006. The Departmental contention has been considered and found to be misconceived. It is settled law that in the given circumstances mere filing of a reference has no effect on the operation of the cited ATIR judgment and the ratio of that judgment mandates that the allegation of sale of excess stocks in the open market without any corroborative evidence was not tenable in law. This ratio was a binding precedent for the Department in 2005-2006.

22. Besides the above cited lapses, it is also to be noted that the format of the order-in-original in 2005-2006 is an almost replication of the format of the order-in-original for 2004-2005. It appears that in 2005-2006 the Department has made a repeat performance of the treatment accorded in 2004-2005 notwithstanding that the said treatment had been rejected decisively by the Appellate Tribunal. Findings:

23. Departmental actions in 2005-2006 stipulated hereunder are tantamount to maladministration under the FTO Ordinance:-- (i) issuance of time-barred show-cause notice for 2005-2006 dated 18-6-2011; (ii) issuance of time-barred order-in-original dated 18-10-2011; (iii) violation of ratio of Tribunals judgment in S.T.A. No.352/LB/2011 dated 29-7-2011; (iv) adjudicating sales tax liability in excess of the limit laid down in S.R.O. 555(I)/1996; (v) protracted audit proceedings spread over four years; (vi) incorrect calculation of sales tax liability. Recommendations:--

24. F.B.R. to direct the Commissioner to-- (i) cancel the coram non judice order-in-original dated 18-10-2011 for 2005-2006 by invoking provisions of section 45A(4) of the Sales Tax Act, 1990; (ii) warn Munir Ahmad Chaudhry, ACIR, not to exceed the powers conferred under the law in future; and (iii) report compliance within 30 days thereafter. H.B.T./10/FTO Order accordingly.