2010 PLP (Trib (PTD)

MIAN MUHAMMAD HANIF TAHIR (MEMBER JUDICIAL).--This appeal is directed against Order-in-Appeal No.401 of 2009 dated 27-3-2009 passed by learned Collector (Appeals) Faisalabad.

2. Briefs facts of the case are that during audit of sales tax records of Messrs Bilal Textile (Pvt.) Ltd., Faisalabad for the period 07/2003 to 006/2004 following discrepancies were detected: (i) Illegal refund received on Tampered Shipping Bills. During Checking of refund file for the months of 07/2003 to 06/2004 it has been observed that the registered person has received illegal refund on the basis of tampered shipping bills. The refund claimant tampered width of fabrics on Shipping Bills No.5264 and 5583 dated 3-9-2004 and 6-10-2004 respectively. In these Shipping Bills the refund claimant tampered quality of fabrics as 135/70/30 150 116" PC but the actual width of fabrics is not clear. It is further noted that the refund claimant tampered an others Shipping Bills No. 4388 and 4462 dated 15-9-2004 and 16-9-2004 respectively. In these shipping bills the refund claimant tampered quality of fabrics as 76 # 68/30 67 PC and 46 # 150 # 68 40 58" PC but the actual quality of fabrics is not clear. Thus the registered person committed tax fraud as defined in section 2(37) and violated the sections 4, 7, 10, 11, 22 and 23 of the Sales Tax Act, 1990 read with Refund Rules issued vide S.R.O. 57591/2002, dated 31-8-2002. Therefore, sales tax to the tune of Rs.7,64,825 is recoverable under section 36(1) of the Sales Tax Act, 1990 along with default surcharge under section 34 of the Sales Act, 1990. (ii) Excess Consumption During examination of refund files for the months of 07/2003 to 06/2004 it has been found that the registered person showing consumption of fabric of different qualities in stock statement for different tax periods which were not exported/showing excess consumption but removed from stocks without charging sales tax on removed stock. The registered person committed tax frauds as defined in section 2(37) in violation of sections 4, 7, 10, 11, 22 and 234 of the Sales Tax Act, 1990 read with Refund Rules issued vide S.R.O. 575(1)/2002, dated 31-8-2002. Therefore, sales tax amounting to Rs.13,14,993 is recoverable under section 36(1) of the Sales Tax Act, 1990 along with default surcharge under section 34 of the Sales Tax Act, 1990. (iii) Purchase after Shipping dates During, scrutiny of refund file for the months of 07/2003 to 06/2004 it has been established that the registered person has shown export of gray fabric of various description from current purchases in stock statement but the claimant has no sufficient stock against the various qualities on or before export date. It has been established that the said unit received illegal refund against the purchase invoices of conversion of various qualities, which showing purchases after exports dues by the registered person. It is very strange an export of fabric was shown purchases after exports dates by the registered person. It is very strange an export fabric was shown before weaving of cloth/ conversion purchases. It simply means that the said unit substantiates their refund claim through flying invoices. Therefore, sales tax amounting to Rs.12,73,908 is recoverable under section 36(1) of the Sales Tax Act, 1990 along with default surcharge under section 34 of the Sales Tax Act, 1990 in addition penal action may also be taken against the unit under section 33 ibid. (iv) No proper description mentioned on Shipping Bills During checking of refund files of the registered person for the tax period 07/2003 to 06/2004 it has been found that the registered person showing consumption of different qualities from stock statement but the same was not confirmed from shipping bills. It is observed that some shipping bills not containing count of yarn and some shipping bills showing irregular description of fabric which were not properly co-related with consumption statement as submitted by the registered person. The sales tax amounting to Rs.11,11,665 against the illegal consumption shown by the registered person is recoverable under sections 34 and 36 of the Sales Tax Act, 1990 along with default surcharge in violation of sections 4, 7, 10, 11, 22, 23 and 26 and penalty may also be imposed under section 33 of the Sales Tax Act, 1990. (v) Export Mismatched with Purchase and Stock Statement During scrutiny of refund file for the month of 07/2003 to 06/2004 it has been observed that the qualities/description of fabric do not co-relate with the purchases and also in stock statement. It has been further observed that the said unit received illegal refund against the conversion of various qualities, which are different from purchase. So the sales tax amounting to Rs.86354 against the conversion charges of fabric is recoverable under sections 34 and 36(1) of the Sales Tax Act, 1990 along with default surcharges in violation of sections 4, 7, 10, 11, 22, 23 and 26 ibid. Penalty may be imposed under section 33 of the Sales Tax Act, 1990.

3. Arguments were heard. The appellants urged on the lines of submissions made in their memo of appeal. The appellants at the very outset raised some law points and assailed that these legal issues may be addressed first, before going into the merits of the instant case. In the first instance, they argued that the Deputy Director, Directorate General of Intelligence and Investigation, Faisalabad Range had no jurisdiction under Notification No. S.R.O. 471(I)/2007 dated 9-6-2007 to conduct audit of appellants' record as they can exercise such powers and discharge such duties in relation to any case or class of cases falling under the provisions of the said Act specified in column (3) of the table but the list of sections referred in column (3) of the said S.R.O. cases falling under section 36 of the Act are not included therein, or under any other section mentioned in show-cause notice hence, the exercise of audit initiated by their staff against the appellants is without jurisdiction.

4. They further contended that section 25 of the Act deals with normal routine audit wherein audit scrutiny is conducted on the records provided by the registered person or in exigent circumstances, documents resumed from the registered person but in the instant case, audit scrutiny is based on documents resumed by officers of Directorate of Intelligence and Investigation from the Sales Tax Department therefore, present audit being post refund audit does not fall under ambit of section 25 of the Act. The post refund audit scrutiny can only be conducted under Rule-13 of Sales Tax Refund Rules, 2002 notified vide S.R.O. 575(I)/2002, dated 31-8-2002 whereby officers of Directorate of Intelligence and Investigation has no powers of post audit refund scrutiny under the said rules or under any other provisions of Sales Tax Act, 1990 as post refund audit scrutiny is sole domain of Refund Division working under administrative control of Sales Tax Collectorate.

5. Despite above, the appellants raised an other law point that impugned show-cause notice is illegal, void and defective as no specific charge of collusion or deliberate act has been levelled in subject show cause notice which renders it illegal and void under section 36(1) of the Act. In the absence of any detailed or proper statement of allegation regarding collusion or deliberate act, it cannot be said that notice has been issued under section 36(1) as it is a well-settled principle of law that where cogent reasons are not communicated to concerned person, the show cause notice will have no effect on the rights of that person hence, the subject show cause notice to this extent cannot be termed a valid show cause notice in its true meanings as such, the same is liable to be set aside on this ground alone. The appellants in support of his contention have referred the judgment as reported at (GST 2006 CL 63), (2008 PTD 1032) and (2009 PTD (Trib.) 500).

6. The appellants have also contented that it is not ascertainable from the grounds and reasons given in impugned show cause notice whether the appellants knowingly, deliberately and fraudulently received the refund for period in question or it was just the result of bona fide mistake on their part. In absence of any charge-sheet or statement of allegation in the show-cause notice regarding collusion and deliberate act, demand of sales tax squarely falls under section 36(2) of the Act where under period of limitation is three years instead of five years. Since, the subject show-cause notice has not been issued within the said specified time limitation therefore; demand of sales tax raised therein is time-barred under section 36(2) of the Act. Reliance was also placed on the judgments of this Appellant Tribunal, Lahore is a case as reported as (GST 2002 CL 270) and unreported case-law of (S.T.A. No.91/LB/2007 and (S.T.A. No. 178/LB/2006).

7. On the other hand, the respondent-Department reiterated the same arguments as taken in their written para-wise comments and stated that the Deputy Director Directorate of Intelligence and Investigation had powers for conducting the audit under the said notification and further no question of limitation for issuance of show-cause notice as provided under sections 36(1) and 36(2) would arise when the appellants had obtained refund without any lawful authority.

8. I have thoroughly examined the case record and have carefully considered written as well as oral arguments made by both the sides and have come to the following conclusion:--

9. I proceed to take up issue of jurisdiction of officers of Directorate General of Intelligence and Investigation first because the result ensuing therefrom will affect the case on legal plan. The main contention of the appellants is that the officers of Directorate General of Intelligence and Investigation cannot probe into the matters falling under section 36 of the Act under Notification No. S.R.O. 471(I)/2007 dated 9-6-2007 as the list of sections referred in column (3) of the said S.R.O. cases falling under section 36 of the Act are not mentioned therein. In order to arrive at proper conclusion, it is necessary to look into the contents of the said notification which reads as under:- Government Of Pakistan (Revenue Division) Central Board of Revenue Islamabad, the 9th June, 2007 NOTIFICATION (SALES TAX) S.R.O. 471(I)/2007.

In exercise of the powers conferred by sections 30 and 30E of the Sales Tax Act, 1990 and in supersession of its Notification No. S.R.O.299(I)/95 dated 12th April, 1995, the Central Board of Revenue is pleased to appoint the officers of the Directorate- A General of Intelligence and Investigation Central Board of Revenue, specified in column (2) of the table below to be the officers of sales tax in their own designations, within the areas of their respective jurisdictions, to exercise such powers and discharge such duties in relation to any case or class of cases falling under the provisions of the said Act specified in column (3) of the table. TABLE S.No. Designation of Officer Provisions of the Sales Tax Act, 1990 (1) (2) (3)

1. Director General Sections 25, 37, 37A, 38, 45 and 46

2. Director - do -

3. Additional Director - do -

4. Deputy Director/ Assistant Director Sections 25, 37, 37A, and 38

5. Superintendent Sections 25, 37 and 38

6. Principal Appraiser do -

7. Senior Intelligence Officer do -

10. It becomes vivid from the perusal of the above notification that cases falling under section 36 of the Act are not included therein hence; Deputy Director Directorate General of Intelligence and Investigation, Faisalabad Range had no jurisdiction under Notification No. S. R. O. 471(I)/2007, dated 9-6-2007 to conduct audit of appellants' record. In the instant case, the learned officers of Directorate General of Intelligence and Investigation have transgressed their jurisdiction as specified in the alleged notification by conducting audit of record of the appellants therefore, the impugned audit report, show-cause notice and all the subsequent proceedings thereon stands illegal and void. It is well-settled principle of law that none is allowed to act beyond his jurisdiction, all the acts or deeds beyond the scope of jurisdiction are null and void in the eye of law. Thus, the whole exercise conducted by the officers of Directorate General of Intelligence and Investigation in this particular case is quorum non judice and all the proceedings subsequent to it are also nullity in the eye of law. The law laid down by the Honourable Supreme Court in a judgment reported in (2002 SCMR 122) is also attracted in the instant case that; "Where essential feature for assumption of jurisdiction is contravened or forum exercises powers not vested in it, or exceeds authority beyond limits prescribed by law, the judgment is rendered coram non judice and inoperative." It is also a well settled law that when basic order is without lawful authority, then the superstructure built on it would have to fall on the ground automatically as held by honourable apex court of Pakistan in a judgment reported in 2007 SCMR 818 and 2007 SCMR 1835. The contention of the appellants also seems genuine that they had neither been served with a notice for production of record under section 25 of the Act for the purpose of audit nor any audit observation to this effect was issued under section 25(3) and nor they have ever beet confronted with any audit report. The explanation given by the appellants in their memo of appeal is quite convincing. Under section 25(2) of the Sales Tax Act, 1990, the officer of the Sales Tax, "on the basis of record obtained under subsection (1)," may once in a year conduct audit. It clearly reveals that the audit was to be conducted on the basis of record. The situation in hand is identical. Similarly, the observations of the Honourable Lahore High Court, Lahore contained in 2002 PTD 2780 are also attracted wherein it has been laid down that appellants cannot be burdened with liability merely on the basis of an audit report with which the appellants has not been confronted.

11. It is further held that section 25 of the Act deals with normal routine audit wherein audit scrutiny is conducted on the records provided by the registered person or in exigent circumstances, documents resumed from the registered person but in the instant case, audit scrutiny is based on documents resumed by officers of Directorate of Intelligence and Investigation from the Sales Tax Department therefore, present audit being Post Refund Audit does not fall under ambit of section 25 of the Act. The post refund audit scrutiny can only be conducted under Rule-13 of Sales Tax Refund Rules, 2002 notified vide S.R.O.575(I)/2002 dated 31-8-2002 whereby officers of Directorate of Intelligence and Investigation has no powers of post refund audit scrutiny under the said rules or under any other provisions of Sales Tax Act, 1990 as post refund audit scrutiny is sole domain of Refund Division working under administrative control of Sales Tax Collectorate, hence, all the proceedings initiated by the officers of Directorate of Intelligence and Investigation are nullity in the eye of law.

12. The other law point raised in the titled appeal is that the impugned show-cause notice is void and illegal as no charge of deliberate act or collusion on the part of appellants have been levelled therein. I find that in terms of subsection (1) of section 36 of the Sales Tax Act, 1990, it is necessary on the part of the respondent-Department to show that the taxpayer by reason of some collusion or deliberately acted for nonpayment of tax. The impugned show cause notice failed to reflect whether alleged act of obtaining of sales tax refund was the result of collusion or the same was a deliberate step to deceive the Government hence, the same is nullity in the eye of law. The onus to prove the allegations of collusion or of a deliberate act lay on the department. The dictum laid down in (2001 SCMR 838), (GST 2006 CL 63), (2008 PTD 1032) and (2009 PTD (Trib.) 500) are also attracted in the circumstances of the present case. It is well-settled principle of law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all.

13. I also find myself to be in agreement with the arguments of the appellants that sine no charge of collusion or deliberate act has been levelled in the show-cause notice dated 6-12-2007 relating to the period from 07/2003 to 06/2004 therefore, the same would fall under section 36(2) of the Act and in the instant case, it has been issued beyond three years. Subsection (1) and subsection (2) of section 36 of Sales Tax Act, 1990 provide for different contingencies based on different facts and circumstances. Subsection (1) can be applied, where by reason of some collusion or a deliberate act any tax or charge has not been levied or made, whereas subsection (2) applies to cases, whereby reason of any inadvertence, error or misconstruction, any tax or charge has not been levied. In subsection (1), there are two ingredients viz (i) collusion or (ii) a deliberate act for non-levy or non-payment, whereas, subsection (2)' speaks for nonpayment due to inadvertence, error or misconstruction. The perusal of show cause notice clearly attracts the provisions contained in section 36(2) of the Act wherein limitation of three years has been provided. Since, the impugned notice has been issued after expiry of three years; the said notice is therefore illegal, void, defective and barred by time. This aspect has already been dilated upon by the apex Court of Pakistan and even by this Tribunal in reported and unreported judgments under [(2009 PTD 1247 (S.C. Pak.)], (GST 2002 CL 270), (S.T.A. No.91/LB/2007) and (S.T.A. no.78/LB/2006). Even otherwise, superior Courts in a number of judgments have settled this cardinal principle of law that a person being alleged should be provided a complete and comprehensive charge-sheet with all evidences in the show-cause notice which he could reply and defend. It is also trite law that no body should be condemned until and unless a proper charge-sheet or statement of allegation is given to him. Since, prerequisites for a show-cause notice as per law have not been served to the appellants; therefore, no straightforward demand notice for payment of already sanctioned amount of refund could be issued. The respected case-law cited by the appellants are applicable on all fours to the case in hand. There is no justification to take any divergent view.

14. I am fortified in my views on the basis of settled law by the Honourable Lahore High Court, Lahore in a judgment as reported at (2007 PTD 2265) wherein it has been laid down that

"Show-Cause Notice can only be served under section 36, if:

(a) Any tax or charge has not been levied or has been short-levied or has been erroneously refunded: (b) Such non-levy, short-levy or erroneous refund has been caused by the reason(s) of "some collusion or a deliberate act" under subsection (1) of section 36 of the Sales Tax Act or owing to inadvertence or error or misconstruction as per subsection (2) thereof; and (c) Within the period of five years under subsection and three years under subsection (2) of section 36." Mere non-levy short-levy or erroneous refund of tax or charge cannot be the basis for a show-cause notice. It has to be founded upon non-levy, short-levy or erroneous refund caused by any of the above-reasons which being the dominant factor also determine the period of limitation thereto. In the absence of any of the three conditions or the jurisdictional facts, the Taxing Authorities shall have no power or jurisdiction to serve a show-cause notice under section 36.

15. As far as the issue of tax fraud under section 2(37) of the Act is concerned, it is averred that no case of tax fraud under section 2(37) of the Act has been made out against the appellants in the impugned show-cause notice, nor the impugned adjudication order confronts any material evidence to substantiate this claim, it is trite law that in order to attract the provision of section 2(37), the initial burden lies on the department to show that an assessee knowingly, dishonestly or fraudulently and without any lawful excuse has done an act. Once this burden is discharged by the Department then only the burden is shifted on the assessee to establish that the act was done without any knowledge on his part or without any intention of dishonesty or fraud and was done with any lawful excuse as per dictum laid down by the Honourable Sindh High Court, Karachi in a judgment reported in (2004 PTD 868).

16. Nevertheless, the appellants have also produced the alleged shipping bills and rebate documents against which no objection of tampering on shipping bills was ever raised by the Customs Authorities thus, the objections levelled in the audit report, show-cause notice and consequent orders are not sustainable under law. The ratio decidendi in (PTCL 1999 CL 162) is also applicable in the instant case that "The goods exported are totally immune from the Sales Tax, and once it is established that the goods were exported, there is no question of taking any proceedings against the registered person."

17. As regards the next point, it relates to levy of additional tax and penalty. In absence of the charge of collusion or of a deliberate action, the levy of additional tax and penalty was not called for, for the reason that the show-cause notice does not disclose whether there was a wilful evasion of tax and default on the part of the appellant and unless the assessing authority was satisfied that there was intentional and deliberate failure on the part of the appellants to evade payment of tax, no additional tax and penalty could be imposed. In these circumstances, demand of additional tax and penalty is not justified in view of law laid down by the honourable apex court and High Court of Pakistan under (1999 PTD 1308) (2004 SCMR 456), (2009 PTD 1112) and [(2006 SCMR 626 = 2006 PTD 1132)].

18. In view of what has been discussed above and placing reliance on the said reported and unreported judgments of honourable apex court as well as superior judiciary of Pakistan referred by the appellants and without going into the details of the facts and merits of the charges and reply thereto by the appellants, the appeal is taken up only on legal issues because the law points precede the facts.

19. In view of the above discussion, I find that the plea of the appellants is correct. Consequently, the appeal is accepted and the impugned order dated 27-3-2009 is set aside. Parties be informed through registered post A.D./TCS. File be consigned to the record after completion. H.B.T./31/Tax(Trib.) Appeal accepted.