1969 PLP 1 (PTD)

ANWARUL HAQ, J. The following question has been referred to us by the Income tax Appellate Tribunal, Pakistan, at Lahore, under section 17(1) of the Sales Tax Act, 1951 (hereinafter referred to as the Act):- "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the entire amount of tax was paid by the assessee respondent even though all of it was recovered from its customers, and that amount thereof paid in excess of the demand raised by the Sales Tax Officer in its assessment for the tax year in question, was refundable to it under section 27(2) of the Sales Tax Act ?"

2. The facts as stated by the Tribunal are that on a regular assessment of the assessee respondent, namely Messrs Associated Hotels of India Ltd., Lahore, for the year 1957-58 the Sales Tax Officer found that the sales tax due in the case was Rs. 17,717 whereas in fact the assessee had paid into the Government Treasury Rs. 21,338-14-0 under section 12(I) of the Sales Tax Act. The balance of Rs. 3,621-14-9 which was thus over paid was claimed by the assessee as refundable to it. The Sales tax Officer held that since the excess payment represented collections from the customers, the same could not be refunded. On appeal, the Appellate Assistant Commissioner held that under section 27(2) of the Sales Tax Act the amount of tax exceedings the amount with which an assessee is properly chargeable is refundable. He ruled, therefore, that even if this excess payment was made by collections from the customers, the same being payment of tax over and above that which was properly chargeable, the assessee-respondent was entitled to its refund. The Department went up in appeal to the Appellate Tribunal which upheld the view taken by the Appellate Assistant Commissioner by its order dated the 10th of December 1963. In coming to its decision the Tribunal relied upon its findings in an earlier order made on the 26th of May 1958' between the same parties but for different years. In that order the Tribunal had observed that according to subsection (3) of section 2 of the Act an assessee means "a person by whom tax is payable under this Act. When section 27 speaks of a person having paid the tax in excess of the amount chargeable under the Act it envisages no other person than an assessee who has been .assessed to tax, and the fact that he might have collected it from customers in the first instance was not relevant." The Tribunal further observed that it was the duty of the assessee to pay the tax, and the customer even though he may have paid the amount to the said assessee had no locus standi to approach the Sales Tax Officer for a refund for the obvious reason that he was not an assessee and he was not the person who had paid the tax. Before the Tribunal it was conceded that the amount realised by the Department was in excess of the amount chargeable under the Act and the Tribunal, therefore, considered that it was against justice to compel a person to pay a tax which he was not legally bound to pay or refuse to refund the tax illegally collected on the ground that the person so paying had not paid it from his own pocket. Accordingly, the Tribunal held that the appellant was entitled to a refund under section 27(2) of the Act.

3. Sheikh Abdul Haque, the learned counsel appearing for the Commissioner of Sales Tax, North Zone, contends that in the matter of the collection of sales tax the respondent company was merely acting as an agent of the Government and, therefore, it could not be said that the excess amount in question had in fact been paid by the assessee, as it was really the money collected from the customers. In support of this contention the learned counsel has placed reliance on certain observations appearing on page 191 of the Report in Messrs Abbasi Textile Mills Limited v. The Federation of Pakistan and others (P L D 1958 S C 187). It is further argued that even if it be assumed that the excess amount was indeed paid by the assessee, the latter is not entitled to its refund for the reason that it had collected the excess amount by practising a fraud upon its customers. It is submitted by Sheikh Abdul Haque that it is settled law that no party can be allowed to benefit from its own fraud, and in support of this proposition he has referred us to Guddappa Chikkappa Kurbar and another v. Balaji Ramji Dange (A I R 1941 Bom. 274) and Qadir Bakhsh v. Hakam (I L R 13 Lah. 713).

4. As regards the first contention, we find that the observations of their Lordships of the Supreme Court in the case of Messrs Abbasi Textile Mills Limited were made in an entirely different context. That company was claiming exemption from sales tax in accordance with the terms of an agreement entered into between the company and the defunct Government of the former Bahawalpur State. Their Lordships observed that "It is clear from the language of clause 10(a) of the agreement that the exemption granted by the Government was in respect of the tax which could be imposed on the appellant Company itself, which as far as the sales tax is concerned can be only what it pays as such tax on its purchases from others. As regards the sales of the Company to others, the tax was really payable by the customers and the Company in that connection acted only as an agent of the Government to collect the tax. It cannot be said that a tax which really has to be paid by the customers and in respect of which a company has only to act as an agent of the Government is a tax imposed on the Company itself. That the intention was to exempt the company from tax and not to grant it the right to retain what is collected for the Government is clear from the fact that the other taxes covered by the same clause were those which the Company itself had to pay and not those which it had to realise from its customers or others." It seems to us that these observations are not directly relevant to the question arising before us, for the true nature of the sales tax is not in dispute in the instant case. In the case before the Supreme Court their Lordships were interpreting the terms of an agreement concluded between the company and the former Bahawalpur State in order to determine whether the company stood exempt from the payment of the sales tax realised on the sale of its products to the customers. That is not the question arising before us. Although there is no doubt as to the true nature of the sales tax and its incidence on the customers in the last analysis, yet the Sales Tax Act specifically lays down in its third section that the tax shall be levied and collected from the manufacturer or producer on all goods produced or manufactured in Pakistan. Similarly the liability is placed on the importer or on the licensed whole-saler in respect of the goods imported into Pakistan or sold by a licensed whole Baler. According to the definition contained in clause (3) of section 2 of the Act an assessee means a person by whom tax is payable under the Act. Reading this definition with clause (a) of subsection (1) of section 3 of the Act, it becomes clear that the payment is to be made by the manufacturer or producer in so far as the Government is concerned. There is no provision in the Sales Tax Act itself authorising the assessee to pass on the tax to its Customers, but we all know that in practice, this is so. It follows from the provisions just mentioned that for the purposes of the Sales Tax Act the transaction must be regarded as one between the assessee and the Government. It is thus clear that in the present case the amount deposited into the Treasury by the assessee must be regarded as an amount which has been paid by the assessee on the goods produced or manufactured by it irrespective of the fact that in its turn the assessee had realised the same from its customers. The answer to the first part of the question referred to us is, therefore, in the affirmative.

5. Coming now to the question of refund, we have already stated that the stand taken by the learned counsel for the Commissioner of Sales Tax is that as the assessee has realised the amount fraudulently from its customers, it should not be allowed to benefit from its own fraud by getting a refund of the excess amount. It is not necessary to refer to the authorities cited by Sheikh Abdul Haque as the propositions laid therein concerning fraudulent transactions are unexceptionable, but they have no relevance in the present case. At no stage did the Sales Tax Department assert that the assessee had acted fraudulently while over charging the tax from its customers. No such allegation was made by the learned Sales Tax Officer who refused to refund the excess amount, nor was this allegation raised by the Sales Tax Department in its appeal to the Tribunal, nor was this matter mentioned while demanding a reference to the High Court. In all cases the question whether a party is guilty of fraud or not is a question of fact which has to be established by evidence. In the present case not only was this allegation not raised at any stage of the proceedings until the time of the arguments before us there is no evidence whatsoever on the record to justify such an allegation, much less to prove it. The mere fact that the assessee has collected an excess amount of a little less than rupees four thousand over the course of a whole year is not enough to raise an inference of fraud against it. It is at best a case of miscalculation. On this view of the matter, we consider that the question of refusing the refund on the ground of unilateral fraud on the part of the assessee does not arise.

6. Taking now the terms of section 27(2) itself, we find that this section is clearly worded to the effect that "if any person satisfies the Sales Tax Officer that the amount of tax paid by him exceeds the amount to which he is properly chargeable under this Act, he shall be entitled to a refund of such excess, and the provisions of this Act in respect of appeal and revision shall apply to an order passed by the Sales Tax Officer under this subsection as they apply to an assessment." I he language employed in this provision of law is unambiguous and open to only one interpretation, namely, that it is the person chargeable to tax under the Act who can claim a refund of the excess amount paid by it. In other words, it is the assessee and no one else who is entitled to claim the refund. The same view was taken by a Division Bench of, this Court in Commissioner of Income tax v. Krudsons Limited, Karachi ((1966) 14 Tax. 293) in which it was observed that "an assessee cannot in law be compelled to pay any amount as tax which is not payable by him, and if he has unwittingly or otherwise paid such tax, the same is to be refunded to him. The Department has no authority in law to obtain or retain the unauthorised collection of tax made by him from his customers".

7. For the foregoing reasons, our answer to both the parts of the question referred to us is in the affirmative. The parties are left to bear their own costs. K. B. A. ????????? Reference answered in affirmative.