2008 PLP 515 (PTD)

As there exists a prima facie case of tax fraud/evasion of tax against Messrs Slecto Fabrics Trading Co, Sales Tax Registration No.12-00-5209-477-46, the registration of the said units is, therefore suspended in terms of Section 21(4) of the Sales Tax Act, 1990, with immediate effect, until further orders. (JAMSHED ALI TALPUR) ASSISTANT COLLECTOR REGISTRATION Messrs Slecto Fabrics Trading Co., 213, 2nd Floor, Seema Centre, Magezine Line, Preedy, Karachi C. No.11(767)Reg/E/Hq/2003/4737 dated 27-8-2003

13. A close scrutiny of the entire proceedings makes it clear that on submission of the report by the auditors dated 19-8-2003, the Assistant Collector made his observation and expressed the opinion that "the undersigned is satisfied that the registration of the Complainant may be suspended under provision of section 21(4) this dated is 19-8-2003". The Additional Collector forwarded to the Collector for approval of suspension of registration for the reasons stated by the Assistant Collector. The Collector on the same date i.e. 19-8-2003 approved and signed it. The question is whether the order of suspension communicated to the Complainant can be said to be an order passed by the Collector under section 21(4) of the Sales Tax Act which is reproduced as follows

Section 21. De-registration:-7- (i)

(ii)

(iii)

(4) "if a registered person fails to file tax return under section 26 Air six consecutive months, the officer of sales tax, not below the rank of an Assistant Collector, may, without prejudice to any action that may be taken under any other provision of this Act, after issuing a notice in writing and after giving an opportunity of being heard to such person, cancel the registration after satisfying himself that no tax liability is outstanding against such person: Provided that in cases where the Collector is satisfied that a registered person is found to have issued fake invoices, evaded tax or has committed tax fraud, he may blacklist such person or suspend his registration or as the case may be enrolment pending further inquiry: Provided further that order suspending registration, enrolment or blacklisting such registered or enrolled person, shall be in writing and copy thereof shall be communicated to the registered enrolled person, as the case may be, and show cause notice for recovery of evaded amount of tax and de-registration or de-enrolment may be issued within ninety days of completion of inquiry".

14. A scrutiny of subsection (4) of section 21 makes it clear that in cases where the registered person fails to file return under section 26 for six consecutive months officers of not below the rank of Assistant C Collector may after issuing a notice and giving an opportunity of being heard to such person cancel the registration after satisfying himself that no tax liability is outstanding against the such person. However, the first proviso of subsection (4) of section 21 provides for blacklisting, suspension of registration or enrolment pending inquiry. This power has been exclusively given to the Collector who may pass suspension order after satisfying himself that a registered person is found to have issued fake invoice,, evaded tax or has committed tax fraud. This exercise has to be carried out by the Collector personally and not through any other authority, subordinate or agent. It is the satisfaction of the Collector which can be made basis for passing such order. In the present case the Collector has not made any inquiry for reaching the satisfaction that the Complainant was found to have issued fake invoices, evaded tax or has committed tax fraud. There is nothing on record to show that the Collector had made any investigation or applied his mind independently to the facts of the case. The Collector only endorsed the opinion of the Assistant Collector and approved it. A mechanical process was adopted by the Collector without applying his mind and satisfying himself as required by law. In these circumstances the order of suspension was not passed as required by law and therefore suffers from illegality and is of no legal effect. The contention of the Department is not correct that the Assistant Collector had merely communicated the order of suspension. In fact the order was passed by the Assistant Collector which was merely approved and no order was passed by the Collector as required by law.

15. It may also be pointed out that under subsection (4) the Assistant Collector is empowered to cancel the registration if a registered person fails to file sales tax return under section 26 for six consecutive months but before passing this order he has to issue notice to the party and after giving an opportunity of being heard pass the order. The first proviso of subsection (4) requires the Collector to satisfy of the illegalities calling for suspension of registration but no provisions has been made to afford an opportunity of being heard to the Complainant before passing the order. It is against the principles of natural justice that any adverse order may be passed against a party without affording an opportunity to defend itself. Although sub-section (4) does not provide for hearing a party, the principles of natural justice are so embedded in our jurisprudence that the superior courts taking into consideration the fundamental rights conferred by the Constitution have consistently held 'that even if no provision is made for affording an opportunity of being heard before any order is passed it is incumbent on every authority and court to issue notice and opportunity of hearing be afforded before passing any order against him. The order of suspension is arbitrary, contrary to law and against established practice without any valid reason and bona fides. The process of decision making adopted by the Collector is in violation of mandatory provisions of law. Maladministration is established.

16. It is recommended that C.B.R.

(i) set aside the order dated 28-7-2003 passed by the Assistant Collector (Registration) within fifteen days. (ii) direct the Collector to carry out a thorough inquiry in the C' working of the Complainants and pass a speaking order after affording the Complainant opportunity of being heard. (iii) to issue instructions to the Collectors of Sales Tax to pass order under first proviso to subsection (4) of section 21 of the Sales Tax Act after affording an opportunity of being heard to the party. (iv) Compliance be reported within forty-five days. C. M. A./336/FTO Order accordingly.