2007 PLP (Trib (PTD)

This appeal challenges the vires of the order dated 27-12-2004, passed by the Collector of Customs, Sales Tax and Central Excise Adjudication, Karachi-III.

2. According to the records, the facts of the case are that on 8-3-2002, a show-cause notice was issued to the appellant by the respondent inter alia alleging as under:

(i) that the staff of the Collector of Sales Tax and Central Excise, Karachi under the provisions of section 40-A of the Sales Tax Act, 1990, conducted the search of the premises of the appellant, seized and resumed the records which reflected the transaction and business between Messrs Hajiani Products and the appellant during the period from January, 1999 to January, 2000 in respect of supplies of different brands of sweetened/ saunf supari and confectionary items. (ii) It has also been alleged that the receipt shown in the bank statement of the appellant obtained behind the back of the appellant is against sale/supplies of sweetened supari.

3. In view of the above, it has been alleged that the appellant supplied a taxable goods from January, 1999 to July, 2001 without payment of sales tax. The appellant according to the show-cause notice has therefore committed tax fraud in terms of section 2(37) of the Sales Tax Act, 1990 and has contravened the provisions of the Sales Tax Act, 1990.

4. The learned counsel for the appellant contested the matter before the adjudicating authority and submitted the following three applications: (i) a request for further particulars dated 19-4-2002; (ii) an application for directions to the department for production of document of seizure and search dated 23-4-2002. (iii) an application for production of witnesses dated 25-4-2002.

5. After submission of the aforesaid applications in the year 2002, neither further particulars demanded by the appellant were supplied nor the witnesses were produced and nor any further hearing was granted to the appellant for almost two years by the respondent. On 9-10-2004 a hearing was granted and the appellant was called upon to submit the written reply. The learned counsel for the appellant appeared and while submitting the written reply/objections to the show-cause notice inter alia requested for the grant of the aforementioned three applications. However, the respondent without considering the applications submitted by the appellant as aforesaid passed the impugned order on 27-12-2004 coming to the conclusion that the charge levelled in the show-cause notice against the appellant stands established and therefore, ordered for the recovery of Rs.51,510,480 as sales tax from the appellant along with the additional sales tax and further sales tax of Rs.3,776,080 as well as imposed a penalty of 3% of the tax under section 33(4) of the Sales Tax Act, 1990. This appeal is preferred against the said order.

6. The appellant contended that:

(a) the resumption of record is not in accordance with provisions prescribed under sections 40 and 40-A of the Sales Tax Act, 1990. It is submitted that the resumption of the record is not in accordance with the law. Reliance cannot be placed on the said record for the purpose of any charge or allegation against the appellant; (b) the alleged seizure and search was conducted without compliance with the provision of law. Thus any proceedings or allegations made against the appellant based on the alleged recovery from the illegal search and seizure is illegal and non-existence in the eyes of law. No allegations can be made against the appellant based on the alleged recovery of documents from the illegal seizure and search and hence the impugned order is liable to set aside; (c) there is no provision in the Sales Tax Act, 1990 analogous to the provisions contained in the Income Tax Law, whereby the discovery of any cash credits in the accounts of an assessee can be deemed to be supply, taxable supply or the amount received on account of taxable activity in the furtherance of any business. It is established principle of the law of taxation that an assessee can be subjected to tax under a provision of law, which is unambiguous and clear. There is no room for any intendment and there is no presumption as to tax. In the absence of any deeming provision the Revenue is required to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which the sales tax imposed on the basis of some assumption or presumption not warranted in law shall always be struck down; (d) the order passed by the learned respondent is not authorized by law inasmuch as it is based on wrong interpretation of law and on extraneous circumstances which are not warranted by law.

7. The appellant accordingly prayed for the set aside of the impugned order.

8. The respondent did not deny the correctness of the arguments as quoted in paras. 5 and 6 ante, however, the departmental representative defended the order on the basis of reasons given in the impugned order.

9. We have heard the rival parties at length. Case record has also been examined. In the present appeal, it is apparent that except discovering certain cash-credits entries in the books of the appellant, the Revenue Officers have not been able to produce any material to show that the said amounts are in any way linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity. A perusal of the show-cause notice as well as material produced before us further shows that no case of any tax fraud has been made out whereby the burden of proof can be shifted to the appellant. The learned forum below has misdirected in placing the burden of proof on the appellant in terms of the provision contained in section 2(37) defining the expression "tax fraud" without realizing that in order to attract the above provision, the initial burden lies on the department to show that an assessee, knowingly dishonestly or fraudulently and without any lawful excuse has done any act or has caused to be done or has omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under this Act or rules or instructions issues thereunder with the intention of understanding the tax liability or underpaying the tax liability. Once this burden is discharged by the department, then only, the burden is shifted to the assessee to establish that the act done was without any knowledge on his part or without any intention of dishonesty or fraud and was done with any lawful excuse.

10. Furthermore, the appellant submitted that the evidence on the basis of which the case was made out against them were never disclosed. The issuance whether or not resumption of record in the peculiar circumstances of this case has not been examined by the respondent. These factors show that proceedings conducted by the respondent amount to denial of fair opportunity of defence: It may be pointed out that the general principles of adjudication as pronounced by the higher Courts and as provided in the Act are enumerated as under:

(i) When executive officers are invested with statutory powers of a special or drastic nature, before exercising those powers, they must strictly comply with the provisions of the Act, Rules and natural justice. (ii) A proper show-cause notice stating therein brief facts of the case, the offence committed and the evidence on the presumption of which the offence is based should be issued to the person concerned before taking any action against such person. When a show-cause notice is given, the object is that the person on whom it is served gets an opportunity to explain his position for which action is proposed to be taken. When an enquiry into an alleged offence, punishable by a sentence or penalty is made, the accused should know that there is a charge against him and should exactly know what the charge is; and he should be given fair opportunity of explaining his position before any adjudication against him is made. This holds goods of all such enquiries, whether they are conducted departmentally or under a special statute, or in a Court of law, and whether conducted with the formalities of a settled procedure or not. (iii) Full opportunity should be given to the person concerned to rebut the evidence or statements etc., on which the charge is made, copies of such evidence or statements etc., should be supplied to him, when requested, without disclosing trade secrets. The person or his representative should also be allowed to examine the evidence or cross-examine witnesses. (iv) It is not enough to say "the explanation by the person is unsatisfactory". Such a statement should not appear in the order. Instead, each plea advanced by the person should be brought out in the order and if not admitted it should only be rejected with reasoning. The Adjudicating Officers should make a speaking order and should give reasons in support of his conclusion. It should not be left to the Appellate Authorities to search for the reasons in the records of the case and to speculate upon what induced the Tribunal to come to a particular conclusion. (v) A fresh hearing should always be given by the Adjudicating Officer succeeding to the officer who heard the arguments but did not decide the case. It is essential that successor must hear the arguments himself afresh. If one person hears and another decides, then personal hearing becomes an empty formality and a mere farce.

11. We find that all these factors have been disregarded by' the respondent. Failure to abide by the above-stated principle of law makes the proceedings--suffering from procedural impropriety. Be that as it may, this appeal is allowed, the impugned order is set aside and the case is remanded to the respondent with the following directions: (i) the request made by the appellant vide his applications dated 19-4-2002, 23-4-2002 and 25-4-2002 be considered and decided in accordance with law; (ii) all material on the basis of which charges have been framed against him be disclosed; (iii) where presence of certain witnesses is necessary, they be summoned and their evidence be recorded in accordance with law; (iv) a fair opportunity .to defend the case be provided to the appellant; (v) the issue whether or not the department has been able to shift his burden to establish a case of tax fraud must be decided; (vi) the adjudication proceedings be finalized within 60 days from the receipt of this order. H.B.T./192/Tax(Trib.)????????????????????????????????????????????????????????????????????????? Appeal allowed.