Recovery of Tax

Appeal preferred by petitioner / taxpayer under S. 127 of Income Tax Ordinance, 2001, against amended assessment was pending

Respondent / authorities never asked to pay 10% of amount of tax due against which appeal under S. 127 of Income Tax Ordinance, 2001 was preferred by petitioner / taxpayer

Recovery proposed to be effected by authorities beyond 10% of tax liability of petitioner / taxpayer, as determined in amended assessment order was without lawful authority under the provisions of S. 140(1) of Income Tax Ordinance, 2001

High Court directed the authorities to reimburse the amount recovered from bank account of petitioner / taxpayer after deducting 10 % of tax liability therefrom

Constitutional petition was allowed accordingly.

Show cause notice is an official document issued by an authority to inform a recipient of a potential violation or non-compliance with a law, providing an opportunity to respond

Show cause notice upholds principle of natural justice, ensuring fair hearing before any decision affecting the rights or interests is made

Recipient is given adequate time to respond, access to relevant evidence, and an opportunity to be heard

Such process ensures unbiased decision-making, based on facts and relevant laws, protecting recipient's rights and interests

Principles of impartiality and reasons are also upheld, requiring decision-maker to be unbiased and provide reasons for their decision

Show cause notice is a crucial tool for law enforcement, ensuring fair and transparent process before any adverse order is passed

High Court declared that resolution of issue between parties through ADR was need of day to afford parties with an opportunity for resolution of the matter through such medium under umbrella of requisite confidentiality, trust and compliance of law

High Court asked representatives of petitioners to appear before respondent/authority to proceed ahead with mechanism of ADR in accordance with law and guidelines of Supreme Court

High Court in the meanwhile, under Doctrine of Stopgap Arrangement, restrained respondent/authority from adopting any coercive measures against petitioners, till finalization of mediation process

Constitutional petition was disposed of accordingly.

Commissioner, under subsection (5) of S.11 of the Sales Tax Act, 1990, and subsection (2) of S. 14 of the Federal Excise Act, 2005, is obligated to record reasons in writing for the grant of an extension of time

Commissioner cannot extend the time according to his own choice and whims as a matter of routine without any limit or constraint; he can only do so after applying his mind and recording reasons for such extension in writing

Under the said provisions, routine extensions granted by the Commissioner without recording reasons are null and void

Language of the relevant provisos is clear and explicit and no exception can be taken to the fact that the Commissioner is required to adhere to the condition precedent of recording reasons in writing before passing the assessment order.

First proviso to S. 11(5) is mandatory in nature and failure to comply with it would render the order invalid.

Dispute between parties was that in absence of Certificate of exemption under S.159 of Income Tax Ordinance, 2001, applicant/Tax payer was liable to recovery of tax under S.161 of Income Tax Ordinance, 2001, as per Cl. 47B of Part IV of Second Schedule read with S.53 of Income Tax Ordinance, 2001

Validity

Withholder was not to form his own opinion that a person's case fell within the ambit of Cl. 47B of Part IV to Second Schedule of Income Tax Ordinance, 2001, unless a valid exemption certificate issued under S.159(1) of Income Tax Ordinance, 2001 was presented

Even the person whose payments were otherwise liable for advance tax deduction under Ss.150, 151 & 233 of Income Tax Ordinance 2001, could not insist that he was to be extended benefit of Cl. 47B of Part IV to Second Schedule of Income Tax Ordinance, 2001, in absence of exemption certificate in the face of provisions of S.159(2) of Income Tax Ordinance, 2001

Entitlement of concession under Cl.47B of Income Tax Ordinance, 2001, can be availed only when exemption certificate was presented to withholder and upon such presentation obligation of withholder to deduct advance tax as provided under S.159(2) of Income Tax Ordinance, 2001, stood discharged

Benefit under Cl. 47B of Part IV to Second Schedule of Income Tax Ordinance, 2001 could not be availed by withholdee out-rightly and directly from withholder on account of bar contained in S.159(2) of Income Tax Ordinance, 2001 unless withholding person had a valid exemption certificate issued to him under S.159(1) of Income Tax Ordinance, 2001

Reference was disposed of accordingly.

Appellate Tribunal Inland Revenue could not rectify stay order under S.36, Federal Excise Act, 2005 Matter of stay being purely discretionary in nature

Where the taxpayer could not prove the prima facie case, stay order could not be granted

Section 37 of the Federal Excise Act, 2005, unequivocally provided that the Tribunal could in particular case, stay the recovery subject to such condition as it could deem fit so as to safeguard the interest of revenue

Powers to grant stay were to be exercised judiciously after conscious application of mind

Order granting stay could not be rectified through an application for rectification

Apart from prima facie case other main considerations were balance of convenience in relation to the interest of both the taxpayer and Revenue Department; to save injury accruing to any one of them and applicant seeking stay should show that there was likelihood of substantial loss to it, if the stay was not granted

Mere reference of words that "substantial loss will accrue if stay were not granted" were not sufficient compliance of the duty cast on the applicant seeking stay of recovery of tax levied

Applicant had to elaborate without elaborating grounds for "shall cause prima facie case", balance of convenience and "substantial loss/irreparable injury to the applicant"

Tribunal would not withhold stay of tax demand without keeping in view or without applying mind to or without examining or prima facie attending to facts and circumstances of each case

Tribunal seized with application for stay should have regard to facts and circumstances of case in order to determine; whether or not there was sufficient cause of undue hardship for stay of tax recovery

Applicant had not shown that any coercive measures were being initiated by the department, neither any notice of hardship was issued, nor any recovery proceedings were seen to have initiated by the department against the applicant/taxpayer

No apparent bona fide mistake was pointed out in the impugned order of rejection of stay, which was floating on the surface of the record

Scope, power and extent to rectify mistake in order under S.36 of the Federal Excise Act, 2005, was very limited, restricted and qualified

Proposed rectification as prayed by the applicant/taxpayer could not be permitted under the law/Federal Excise Act, 2005

No merits being available for consideration in application for rectification filed by the applicant, same was rejected.

Application was filed for further stay against the recovery of tax demand on the ground that earlier stay was granted for a period of 30 days

Appellate Tribunal observed that registered person had already availed stay for a period of 210 days

Taxpayer had already availed complete period of stay to restrain the coercive measures; in fact, registered person was seeking stay by misrepresentation and dishonestly, which could not be considered as reasonable ground for, further grant of stay

Stay sought for, was rejected by way of dismissal of miscellaneous application by the Appellate Tribunal and office was directed to fix the appeal at an early date as per roster arrangement.

Complainant filed eight complaints alleging maladministration due to illegality involved in issuing show-cause notice and order-in-original without reference to relevant provisions of Sales Tax Act, 1990; excessive delay; time bar of show-cause notice; and double taxation

Main issues involved in the complaints were; whether the Federal Tax Ombudsman had the jurisdiction in the matter; whether show-cause notices were time-barred and were null and void in the eyes of law; whether delay was involved in deciding the refund claim

As complaints involved serious allegations constituting maladministration as defined in S.2(3)(i)(a)(b) & (ii) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000, Federal Tax Ombudsman had the jurisdiction in the matter

Deliberate act of claiming refund against fake/filing invoices, was not based on proper inquiry/audit as required under R.7(3) of Refund Rules, 2002

No justification existed for attributing any deliberate act to the complainant

Such inquiry was all the more necessary because S.36 of Sales Tax Act, 1990 contained two categories of violations i.e. deliberate and inadvertent

Facts in the complaints under reference had revealed gross inefficiency, in-competence, oppressiveness, highhandedness and unreasonable attitude on the part of Tax Officials, which constituted maladministration as defined by S.2(3)(i)(a) and (b) and (ii) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000

Show-cause notices were not maintainable being time-barred

Recommendations were made to Federal Board of Revenue to the effect; to set aside the orders-in-­original and orders-in-appeal in complaints as same were based on time-barred show-cause notices; to provide opportunity to the complainant to produce documentary evidence of genuineness of supplies; to ensure that, after satisfactory proof, the deferred amounts were paid and already paid amounts regularized as per law; to identify the staff responsible for excessive delay and non-observance of time limitations in those cases and take/initiate deterrent action against the defaulters; to include present complaints as case study in the training modules for capacity building of Sales Tax Officials; and report compliance within 30 days.

Unless a case for which a legal method had been provided for modification of the assessment was not strictly observed, the recovery of tax shall remain a dream.

Authorities entered premises of assessee without any notice or information to her and got conducted audit on the basis of record removed from premises

Appellate authority on appeal filed by assessee, allowed re-audit by independent team

Validity

Audit team issued notices for re-audit and subsequently such proceedings were dropped and authorities issued show-cause notice on the basis of earlier audit

Re-audit proceedings were required to be completed, once it had commenced

Non-appearance or non-cooperation of party could result into ex parte proceedings against such party but dropping proceedings for re-audit was not justified, thus authorities had ignored such aspect of controversy

Representation of assessee was decided without any valid reason and reasons justifying raid were in conflict with principles laid down in judgments passed by Supreme Court in various cases

Representation of assessee was decided ignoring law settled by Supreme Court and it lacked element of valid reasoning, such order was declared having been passed without lawful authority and with no legal effect

High Court, in exercise of constitutional jurisdiction, directed the authorities to proceed with fresh audit through independent team of auditors, as directed by Collector

Petition was allowed accordingly.

Determining factors.

Assessee claimed input tax adjustment for raw materials shown in the returns for July 1997, September 1997, January, 1998 and March, 1998 to May, 1998

Authorities, after serving show-cause notice, directed the assessee to deposit evaded tax

Plea raised by assessee was that show-cause notice was time-barred and against the provisions of law

Validity

Show-cause notice .generally alleged contravention of .numerous provisions but. neither specific provision of contravened law nor manner of its contravention was specified by authorities

Motives or reasons causing/occasioning alleged evasion were also not stated under S.36 of Sales Tax Act, 1990 by the notifying authority

Show-cause notice was vague, unspecific and too general to enable a reader or notified person to make out or clearly identify particular clause/subsection or reason or period of limitation applicable in terms of 5.36 of Sales Tax Act, 1990

Validity

Show-cause notice alleged input tax adjustment but patently omitted to specify or allege reason causing purported evasion

Assumption of jurisdiction by Adjudicating Authority was an act contrary to the law

Show-cause notice served upon assessee by Notifying Authority was patently illegal, without lawful authority- and all orders based thereupon were liable to be set aside

Validity of show-cause notice was fundamental to assumption of jurisdiction by Revenue Authorities to pass orders

Show-cause notice issued and orders passed against assessee were devoid of jurisdiction and lawful authority

Assessee could legitimately agitate basic fundamental question even in further appeal under S.46 of Sales Tax Act, 1990

Orders passed against assessee by the Authorities were set aside

Appeal was allowed in circumstances.

CIT directed to consider whether there had been delay in receiving refunds and such a delay resulted in 'assessee not being able to pay taxes on time

Indian Income Tax Act, 1961, Ss.215 & 220

Constitution of India, Art. 226.

Arrest and detention of assessee is the harshest of all the three modes provided under S.93 of Income Tax Ordinance, 1979

Such mode should be resorted to as a last resort in cases, where assessee does not own any property or there is likelihood of his running away or disposing of the property with intention to delay or defeat the recovery.

Constitution of India, Art. 226.

Indian Income Tax Act, 1961, S.178.

Indian Income Tax Act, 1961, S.178.

Income-tax-Recovery of tax-Notice of demand-Garnishee order-Whether can be issued under Act of 1961 in respect of liability under Act of 1922-Notice to third party-Whether can be, issued before expiry of time given to assessee. in notice of demand to pay

Writ petition Discretion to treat assessee as not in default-Whether arbitrarily exercised-Particulars to be given Income-tax Act, 1961, Ss. 156, 220(6), 226(3) & 297(2)(j )Constitution of India, Art. 226.

Income-tax-Recovery of tax-Company in voluntary liquidation-Penalty levied for arrears of tax due by company-Proceedings to recover penalty against personal properties of director Liability of director-Want of notice, effect of Civil Procedure Code, 1908, O. XXI, r. 22-Income-tax Act, 1961, S. 179, Second Sched., Part I, r. 2.

Recovery of tax-Limitation-Extension of tax Act to new area-Proceedings for recovery of tax from pr in new area after expiry of one year from last day of ; demand-Legality-Indian Income-tax Act, 1922, Ss. 42 (i) The extension of the Income-tax Act to a new area, e.g., Travancore-Cochin State, would not entitle the income-tax authorities to take action for recovery of tax, from properties in the new area after the expiry of one year from the last day of the financial year in which the demand was made. The proviso to section 42(1) referred to in section 46(7) applies only to assets which come within the taxable territories, in respect of new areas to which the Act may be extended.

S. 46 (S-A)-Recovery of tax-Certificate pertaining to assessment set aside in appeal-Not operative.

Recovery of Tax Recovery of tax-Requisition to Collector of another district-Legality-Indian Income-tax Act, 1922, S.46 (2)-Revenue Recovery Act (I of 1890), S. 5.

S. 45-Recovery of tax Income-tax Officer's power limited to undisputed tax.

S. 45-Recovery of tax-Income-tax Officer's power limited to undisputed tax.

Ss. 29 & 46(2) Recovery of tax-Issue of certificate to Collector after notice of demand Amount of tax reduced in appeal Fresh notice of demand, whether necessary-Procedure to be followed by Collector Notices under Ss. 4 & 6, Public Demands Recovery Act (V of 1952) Necessity of.

S. 46(2)-Recovery of tax Certificate of arrears-Amount specified less than arrears-Effect Collector-Power to recover as arrears of land revenue-Demand on basis of wrong statute-Effect-Interpretation of statutes Dictionary meaning of words used in statute-Madras City Land Revenue Act (XII of 1851)-Madras Revenue Recovery Act (II of 1864).

S. 46(2)-Recovery of tax Arrears of tax-Priority-Amount collected and deposited into Court by receiver appointed in suit by mortgagee against assessee-Right of Collector or Income-tax Officer to require Court to pay up amount deposited in Court. Held, that the decree-holder had no preferential right over the amounts collected by the receiver and the Collector was entitled to be paid the arrears of tax out of the amounts collected by the receiver.

Suit to recover arrears of tax instituted in Small Causes Court Jurisdiction of Court to entertain claim "Debt" meaning Income tax Act (XI of 1922). Ss. 29, 45 & 46(2) Presidency Small Cause Courts Act (XV of 1882) S. 19.

Ss. 45 & 46-Recovery of tax-Certificate of arrears issued to Collector on basis of assessment order-Tax reduced on appeal-Fresh notice of demand whether necessary-Recovery proceedings on basis of original certificate-Whether permissible.

S. 46 (2)-Recovery of tax-Judgment creditor bringing properties of assessee to sale-Proceeds of sale deposited in Court-Collector requesting Court not to distribute but to make over proceeds to Collector-Priority of the State-Civil Procedure Code (V of 1908), S. 151.

Ss. 29, 45, 46 (2), (7)—Recovery of tax-Issue of certificate to Collector-Condition precedent Assessee in default-Burden of proof on Department-Penalty Paid by assessee-Order imposing penalty set aside on appeal Penalty paid adjusted against other tax due from assessee Appellate Tribunal ordering appeal to be- heard again-EffectCertificate for recovery of penalty-Validity.

S. 45-Recovery of tax-Arrears of tax-Appeal from assessment-Discretion of Income-tax Officer not to treat assessee as in default-Time assessee had already for payment-Whether relevant ground for decision-Incorrectness in grounds-Whether basis for issuing writ of mandamus-Constitution of Pakistan~1956), Art. 170.

S. 46 (2)-Recovery of tax-Reference to Collector-Power of Collector to order arrest of defaulter and detention in prison-Revenue Recovery Act, 1864, S. 48.