Conducting of audit

2024 PTD 681 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S. 25Federal Excise Act (VII of 2005), Ss. 45 & 46General Clauses Act (X of 1897), S. 24-ASpecific Relief Act (I of 1877), Ss.42 & 54Suit for declaration and injunctionEx visceribus actus, principle ofApplicabilityAccess to record and documentsConducting of auditNon-speaking orderPlaintiff companies were aggrieved of notices issued by authorities selecting their cases for audit purposesValidity

Words "on the basis of the record, obtained" in S.25 of Sales Tax Act, 1990, are only stipulating that officer of Inland Revenue authorized by Commissioner may "conduct" audit on the basis of record obtained under S. 25(1) of Sales Tax Act, 1990 and not that the selection for audit in all cases can only be after obtaining such record

For the purposes of an audit, Ss. 45(1) and 46(1) Federal Excise Act, 2005, are also to be construed ex visceribus actus

Provision of S. 46(1) of Federal Excise Act, 2005, is only stipulating that audit may be "of the records and documents of any person registered under the Act", and not that selection for audit in all cases can only made be after obtaining record of registered person

Giving of reasons by Commissioner for selecting a person for audit was nonetheless implied in S. 25 of Sales Tax Act, 1990 and S.45 read with S. 46 of Federal Excise Act, 2005

This was implicit in the very act of calling upon registered person to produce his record or documents

High Court declared that notices issued by Commissioner Inland Revenue to plaintiff companies under S. 25 of Sales Tax Act, 1990, selecting plaintiff companies for audit, were unlawful for failing to disclose reasons

High Court set aside notices issued to plaintiff companies by authorities as the same were of no legal effect

Suit was decreed accordingly.

2021 PTD 1969 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

S.26AConducting of auditScope

Officials of Directorate General of Post Clearance Audit (DGPCA) are empowered to look into every aspect of the declaration made by the importer and assessment order passed by the competent authority of the Clearance Collectorate by preparing and issuing an audit observation to the importer for clarification

If the reply to the audit observation fails to settle the issue the DGPCA frames contravention report and forwards it to the Clearance Collectorate, which forwards it to the respective Collectorate of Customs Adjudication for issuance of show-cause notice under S.180 of the Customs Act, 1969.

2021 PTD 1969 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

Ss. 26A, 32, 80 & 83Conducting of auditMis-declarationChecking of goods declaration by the CustomsClearance for home consumptionFailure to issue show-cause noticeScopeAppellant imported a consignment of electrical accessories which was duly cleared after payment of duty and taxes

Auditor, Directorate General of Post Clearance Audit, after seven months of the clearance of goods passed re-assessment order through which he changed quantity, description and value of electrical accessories

Validity

Appropriate officer under S.26A of Customs Act, 1969, was required to serve a notice in writing to the person specifying clearly the record required and purpose for which it was required in connection with the audit

No provision in the Customs Act, 1969, permitted conducting the audit on the basis of goods declaration and its corresponding data available in the Customs Data Reservoir

No re-assessment was permitted under S.80(3) of the Customs Act, 1969, once the goods were cleared for home consumption or shipped on board for export

Re-assessment order in any shape/manner by all means fell within the definition of demand notice for recovery of short paid amount of duty and taxes due to commission of inadvertence by the officials of Clearance Collectorate

Such type of recovery could only be created upon passing of an order after issuance of show cause notice under S.32(3) of Customs Act, 1969

No show-cause notice was issued despite mandated under law

Impugned orders were set aside and the appeals were allowed, in circumstances.

2021 PTD 1969 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

Ss.26A & 155MConducting of auditRequisition of documentsScope

Legislature through money bill has formed/established the Directorate General of Post Clearance Audit (DGPCA) by inserting S.3DD in the Customs Act, 1969 and their officers have been delegated powers by the Board through SRO No.500(I)/2009, dated: 13-06-2009 for conducting audit under S.26(2), Customs Act, 1969

Officer conducting an audit is required to serve a notice in writing to the person specifying clearly in notice the record required in connection with the audit

No provision of the Customs Act, 1969, permits conducting of audit on the basis of goods declaration and its corresponding data available in the Customs Data Reservoir and in electronic format i.e. using electronic modes of communication.

2020 PTD 1517 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

Ss.3DD, 26 & 26-ASRO No. 500(I)/2009, dated, 13-06-2009Directorate General of Post Clearance AuditObligation to produce documents and provide informationConducting of auditScope

Directorate General of Post Clearance Audit and its officers have been delegated powers through SRO No. 500(I)/2009, dated: 13-06-2009 for conducting audit of the importer's books of account under S.26(2), Customs Act, 1969, after serving notice

Directorate General of Post Clearance Audit is empowered to look into every aspect of the declaration made by the importer and assessment order passed by the Clearance Collectorate

Directorate General of Post Clearance Audit can prepare audit observation and forward the same to the importer for clarification, if the reply fails to settle the issue, frame contravention report and forward the same to the Clearance Collectorate for onward transmission to the Collectorate of Customs Adjudication for issuance of show-cause notice under S.180 of Customs Act, 1969.

2020 PTD 573 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

Ss. 26A & 3DDSales Tax Act (VII of 1990), S. 30DDSRO No.42(I)/2010 dated: 23-1-2010Conducting of auditProcedureDirectorate General of Post Clearance AuditJurisdictionScope

Deputy Director of Post Clearance Audit is not empowered to issue audit observation in the matter of sales tax.

2020 PTD 573 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

Ss. 26A & 3DDIncome Tax Ordinance (XLIX of 2001), Ss. 228 & 177Conducting of auditProcedureDirectorate General of Post Clearance AuditJurisdiction

Officials of Directorate General of Post Clearance Audit are not designated as officers of Inland Revenue under S. 228 or any other section of Income Tax Ordinance, 2001 and as such are not empowered to carry out audit under S.177 of the Ordinance.

2020 PTD 573 CUSTOMS-APPELLATE-TRIBUNAL-LAHORE Judicial Precedent

Ss. 26A & 3DDSRO No. 500(I)/2009 dated: 13-6-2009Conducting of auditProcedureDirectorate General of Post Clearance AuditNotice

Reasonable time-Scope-Officer of Customs is empowered to conduct audit, inquiry or investigation of an importer for the purpose of ascertaining the correctness of any declaration, document or statement for determining the liability of duty, taxes, fees, surcharge, fines and penalties-Prior to proceed with said exercise, appropriate officer has to either summon or give a notice and reasonable time to an importer for conducting audit or for the purpose of production of accounts.

2016 PTD 1429 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 120(1A), 122(5), 177 & 214-CConducting of auditCommissioner Income Tax, jurisdiction of

Assessees were aggrieved of powers exercised by Commissioner Income Tax to conduct their audit under S. 120(1A) of Income Tax Ordinance, 2001, as it was solely dependent upon decision of Board of Revenue

Validity

Power to impose tax vested in the State and a taxpayer was accountable to the State for his incomes so that leviable tax could be collected

State had every right to ensure that tax was properly calculated and paid

Such obligation of a person to pay correct amount of tax meant that a vested right had accrued to the State to examine account books of a taxpayer

Audit of accounts was the most effective mode of determining correct liability of tax

Right to conduct audit was absolute and such a right could not be left mainly to chance i.e., computer balloting or as and when the Board decided

Power of Board to choose persons for audit was a general power which was in addition to the power of the Commissioner under S. 120(1A) of Income Tax Ordinance, 2001

Law visualized two distinct situations for conducting audit; the first was provided under S. 120(1A) of Income Tax Ordinance, 2001 which was based on exercise of discretion on the part of Commissioner; and the other was the power of the Board to select persons or class of persons under S. 214-C of Income Tax Ordinance, 2001

By invoking S. 120(1A) of Income Tax Ordinance, 2001, any person could be called upon by Commissioner Income Tax in his discretion to submit accounts for audit if reasonable grounds existed for doing so

High Court in exercise of jurisdiction under Art. 199 of the Constitution declined to interfere in the matter

Petition was dismissed in circumstances.