2021 PLP (Trib (PTD)

MIAN ABDUL BASIT, JUDICIAL MEMBER.

The Company Wateen Solution (Pvt.) Limited has thrown challenge on the Order-in-Appeal No. 24/2017 dated 30.11.2017 passed by learned Commissioner IR (Appeals-I) Islamabad, through which the ONO passed under section 11(2) of the Sales Tax Act, 1990 (the Act, 1990) by learned Assessing Officer was upheld.

2. Briefly stated facts as gathered from the appeal file of the instant case are that the department of Directorate General Revenue Receipt Audit (DGRRA) reported to the adjudicating officer that as per the Financial Statement for the year ending on 30th June 2012 "Messrs Wateen Solution (Pvt.) Ltd." (the appellant/ Registered person) has made disposal and transfer of fixed assets without payment of sales tax to the tune of Rs. 2,246,069/-. The assessing officer, therefore, issued a show-cause notice under section 11(2) dated 13-06-2017 for violation of the provisions of sections 3, 6 and 26 of the Act, 1990. Thereafter, proceedings were conducted and as a result, Sales Tax demand of Rs.2,246,069/- was established along with default surcharge under section 34 of the Act 1990 and penalty of Rs. 112,303/- under section 33(5) was also imposed. The appellant / RP being aggrieved by the said order assailed the same before the learned Commissioner Inland Revenue (Appeals) [CIR(A)] as per the provision of section 45B of the Act, 1990 but the same was met the fate of dismissal vide order dated 30-11-2017 in the following words: "The plea of the AR is not plausible on the ground and not maintainable in the eye of law, for the reason that there are contradictions in the contentions of the appellant on one hand, the AR said that fire broke out at Auriga Center which is the registered office of the Company situated at 4th Floor, New Auriga Centre, Gulberg II, Main Boulevard, Lahore and the fire incident resulted in the destruction of documents, records and other historical information of the Company. On the other hand, it was claimed that the fire damaged the various items of fixed assets and consequently such items were written off. The above mentioned position leads to the ambiguity relating to the fire indent as well as the premises where the fixed items were kept or the head office where the record was kept / maintained. Therefore, in view of the facts mentioned above the appeal is hereby rejected and the impugned order is upheld" The appellant / RP assailed the order dated 30.11.2017 passed by the CIR(A), by availing the remedy of second appeal as per section 46 of the Act, 1990, before this Tribunal on the following grounds: (a) The Order-in-Appeal No.24/2017 dated November 30, 2017 passed by the learned Commissioner Inland Revenue (Appeals-I). Islamabad is bad in law on the fact and in the circumstances of the case and thereby is legal, null and void (b) The learned Commissioner Inland Revenue (Appeals-I) Islamabad has grossly erred in not appreciating that Order-in-Original No 11/082/2017 dated October 13, 2017 passed by the Deputy Commissioner Inland Revenue, Unit 22, Zone - V, Large Taxpayers Unit Islamabad is without lawful authority and jurisdiction thereby illegal, null and void ab initio. (c) The learned Commissioner Inland Revenue (Appeals), Islamabad has grossly erred in upholding Order-in-Original No. 11/082/2017 dated October 13, 2017 passed by the learned Deputy Commissioner Inland Revenue, Unit-22, Zone-IV Large Taxpayers Unit, Islamabad. (d) The learned Commissioner Inland Revenue (Appeals-I), Islamabad has erred in concluding that the plea of the Authorized Representative is contrary to the contentions raised without associating any reasons thereof. (e) The learned Commissioner Inland Revenue (Appeals-I), Islamabad has erred in not considering submission made during the course of hearing along with documentary evidences submitted before him. (f) The learned Commissioner Inland Revenue (Appeals-I), Islamabad erred in confirming the actions of Deputy Commissioner Inland Revenue, Unit-22. Zone-V, Large Taxpayers Unit, Islamabad in treating written off of assets of disposal made by the Company. (g) The learned Commissioner Inland Revenue (Appeals-I), Islamabad has erred in confirming the actions of Deputy Commissioner Inland Revenue, Unit-22, Zone-V, Large Taxpayers Unit, Islamabad has erred in raising sales tax demand of Rs.2,246,069 without providing any working thereof and without providing amount of sales proceeds considered in this respect. (h) The learned Commissioner Inland Revenue (Appeals-I), Islamabad has erred in confirming actions of Deputy Commissioner Inland Revenue Unit 22, Zone -IV, Large Taxpayers Unit, Islamabad in levying penalty without appreciating that there was no wilful default on the part of company.

3. The case was fixed for hearing and on the due date, Mr. Aqeel Ahmed ACA appeared on behalf of the appellant and argued the case as per grounds reproduced supra whereas, Mr. Imran Shah DR represented the department.

4. The learned AR appearing on behalf of the appellant company submits that the orders of both the authorities below are without any legal and plausible reasoning. He further submits that no value of supplies has been mentioned in the show-cause notice and in the Order-in-Original passed by the DCIR. It is also contended that show-cause notice without mentioning the value of supplies, the date of supplies and name of the persons to whom the fixed assets were transferred, cannot be termed as valid show-cause notice under section 11 of the Act, 1990. He contends that the office of the appellant company situated in New Auriga Complex was caught on fire on 11th February, 2012 resulted into burning the office equipment and furniture fixture into ashes. He therefore, argues that tax cannot be levied on goods which have been burnt to ashes as these goods have not been sold or transferred to anyone. He concludes his argument with the submission that the learned adjudicating officer and the learned Commissioner IR (Appeals) did not address the legal issues involved in the instant case which renders both the orders as defective. On the other hand, learned DR appearing on behalf of the respondent department contends that the disposal of any things / goods are subject the charging and payment of Sales Tax as contemplated under section 3 of the Sales Tax Act, 1990. He submits that the figures of the Sales Tax were taken from the Financial Accounts of the Company by the department and these figures have never been denied by the appellant company. He also contends, while referring to the observations by the learned CIR (A), that some documents and record were destroyed in a result of that fire and so the claim of damages of various items of fixed assets is contrary to the earlier statement of the company. He therefore, closes his argument with the statement that the appellant company in fact disposed of the assets but the same was not destroyed due to fire. He prays for the dismissal of appeal.

5. We have heard the rival arguments of both the parties in appeal and perused the case file. It is observed that the show-cause notice was issued on 13.06.2017 for the period from July 2011 to June 2012 under section 11 of the Sales Tax Act, 1990 which culminated into passing of the Sales Tax Order-In-Original No. 11/082/2017 dated 13.10.2017. The perusal of show-cause notice depicts that no date of disposal of the goods has been mentioned in the notice and even the value of the disposal of goods and the assets has not been mentioned in the show-cause notice which is a mandatory condition for issuance of show-cause notice under section 11 of the Act, 1990, subsection (5) of Section 11 of the Sales Tax Act, 1990 clearly demonstrates that a show-cause notice is required to be issued within the period of five (5) years of the relevant date and if the notice does not specify the date of movement of the goods, such notice will be deemed invalid and defective. The case of the department is that the appellant transferred the fixed assets but the date of transfer of the assets has not been mentioned in the show-cause notice and, or in the original order. The assessing officer and the learned CIR (A) has totally failed to establish that the assets were transferred to any person, as has been alleged in the show-cause notice by means of legally acceptable and plausible evidence. The whole case of the department is based on the financial statement of the appellant and as per the financial accounts of the appellant the assets were written off but not transferred. The tax department, in order to deny such treatment given to assets by the appellant, should ascertain the transfer of assets through independent solid and cogent reasons based on material evidence and witness which is completely missing in both the orders. Another, worth notable, characteristic of the case is that the show-cause notice was issued to the appellant / RP without mentioning the names of the parties to whom the assets were transferred. It is obvious that without disclosing the basis for the sales tax figure, the show-cause notice remains vague and, therefore, invalid. The show-cause notice without mentioning the specific reason, allegations and period of transaction is illegal and unwarranted by law as is held by the honorable High Court in the case reported as Messrs Inam Packages, Lahore v. Appellate Tribunal Customs, C.E. AND Sales Custom House, Lahore and 2 others (2007 PTD 2265) which says;

8. The show-cause notice though charged the appellant with the evasion of sales tax of Rs. 48,335 and generally alleged contravention of numerous provisions, yet neither the specific provision of the contravened law nor the manner of its contravention was specified by the respondents. Further the motives) or the reasons) causing/occasioning the alleged evasion were also not stated under section 36 of the Sales Tax Act by the notifying authority. The show-cause notice was vague, unspecific and too general to enable the reader or the notified person to make out or dearly identify the particular clause/subsection or the reason or the period of limitation applicable to the case of the appellant in terms of section 36 ibid.

9. For proceeding against a person under the provision of section 36 ibid, the show-cause notice has to mandatorily specify the reasons) for the alleged non-levy, short levy or erroneous refund of the sales tax or charge. And the notice has to be served within the period of limitation prescribed in the applicable subsection in reference to the reasons) prescribed in each part of section

36. Under subsection (1) thereof, a show-cause notice can be served "within five years of relevant date," if non-levy, short-levy or erroneous refund of sales tax or charge is the result of the reasons of "some collusion or a deliberate act". Subsection (2) of section 36 is invokable when "inadvertence, error or misconstruction," cause such non-levy, short levy, or erroneous refund and the show-cause notice there under is served "within three years of the relevant date

10. To put it succinctly show-cause notice can only be served under section 36 ibid, it:-- (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 reasons) 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 per subsection (2) thereof : and (c) Within the period of five years under subsection (1) and three years under subsection (2) of section

36. The unarguable conclusion thereto is that 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 ibid. The show-cause notice in the instant case does not reflect the date of transfer of assets and its value, which makes the notice too vague and general to understand. Hence the order passed on such a defective and legally flawed show-cause notice is not sustainable in the eyes of law. Reliance may also be placed on the Judgments reported as 2001 SCMR 838, 2014 PTD 76, 2013 PTD 228 and 2009 PTD 1263.

6. We have also observed that as per stance of the learned AR, the fire took placed on 10.02.2012 and in support of his argument; the learned AR submitted that Report No. 50 dated 10.02.2012 and also placed on record the newspaper clip dated 11.02.2012 wherein it is manifestly clear that the office building of the appellant was caught on fire on 10.02.2012 which resulted into loss of millions of rupees. The financial accounts for the year ended on June 30th 2012 was also placed on appeal file, according to which the property and its equipment were written off but there is no proof regarding the disposal or transfer or the sale of goods is available on the appeal file. On the other hand the appellant company relied upon the financial statement, according to which the property/ assets were written off and the corresponding treatment in the Income Tax record was also recorded. The department however, could not provide any evidence to substantiate its claim of transfer of the assets. The only plea taken by the learned CIR(A) to doubt the fire incident is that the documents and record was burnt into ashes due to fire but the appellant written off the value of fixed assets. This observation, in our view, is not based on logic for the simple reason that if the fire can burn the record and documents in the building to ashes, how can the furniture lying in it be saved from burning? It is also quite pertinent to mention here that this was never the case of department and the incident of fire has not been taken place ergo, the said plea of the earned CIR(A) is in depart from the order-in-original and out of scope of show-cause. We therefore are of the considered opinion that the department has tried to charge Sales Tax merely on the basis of presumption that the assets were transferred / disposed of without establishing the same as taxable activity in line with the provision of section 3 of the Act, 1990. Section 3 of the Act, 1990 mandates that the sales tax is charged and levied on taxable supplies carried on for the furtherance of taxable activity but there is nothing on record to develop any taxable activity in disposing of, if any, the assets in the instant case and admittedly, the burning of assets does not constitute any taxable activity under the provisions of the Act, 1990. The department took the figures from the financial accounts of the appellant but denied the treatment given to the said amount in the same financial account and created the demand of sales tax without any independent evidence and record to establish the disposal of goods as taxable activity. The most important factor in the instant case is that the figure of tax i.e. Rs.2246,069/- as mentioned in show-cause notice and in Order-In-Original is not found in the Financial Accounts of the appellant and even the reciprocal amount of supplies of Rs.13,212,170/- corresponding to tax amount is also not available in the Financial Accounts. It is therefore, no doubt left to hold that the whole of the case is based on pure assumption and hypothecation and the figure of tax referred in show-cause notice and Order-in-Original is found nowhere in the record of appellant as claimed by department and even on specific query to that regard the department failed to point out any entry in Financial Accounts of appellant reflecting the tax amount of Rs.2,246,069/- and or the corresponding amount of value which comes to Rs.13,212,170/-.

7. We have also observed that the show-cause notice was issued for the period from July 2011 to June 2012 and the fire was broken out on 11.02.2012 (the relevant date for written off assets as per financial accounts) for which the show-cause notice was required to be issued within a period of 5 years from the relevant dated i.e. the show cause notice should have been issued prior to 11th of February 2017 but the show-cause notice was issued on 13.06.2017 which is barred by time in terms of subsection (5) of Section 11 of the Sales Tax, 1990. It has now unequivocally settled and evolved through series of judgments that the tax department cannot touch the pocket of the taxpayer on the basis of time barred show-cause notice and no recovery can be enforced for the period beyond five years. The reliance may be placed on the judgments reported as 2014 PTD 52, 2010 PTD 251, 2013 PTD 1536, 2001 YLR 339 and 2011 SCMR 179.

8. In view of the circumstances and events narrated hereinabove and in the light of legal issues highlighted, both the orders are hereby declared as null and void, the consequent result of which is the acceptance of the instant appeal. This order consists of eight (8) pages and each page bears my signature. SA/10/Tax (Trib.) Appeal accepted.