Commissioner Inland Revenue, Zone-I, Regional Tax Office, Faisalabad v. Messrs Ahmad Straw Board Private Limited, Faisalabad
Lahore High Court
Before: Shahid Jamil Khan and Muhammad Sajid Mehmood Sethi, JJ.
Commissioner Inland Revenue, Zone-I, Regional Tax Office, Faisalabad — Applicant
Versus
Messrs Ahmad Straw Board Private Limited, Faisalabad — Respondent
S.T.R. No. 155 of 2015
Heard on: 21st September, 2022
Sales Tax Act, 1990 — Sections 11, 36 and 47
Reference — Wrong Provision of Law — Effect
The Customs Appellate Tribunal had set aside the show-cause notice merely because it mentioned section 11(3) instead of section 36 of the Sales Tax Act, 1990.
The High Court held that merely because the show-cause notices were labelled under section 11(3) instead of section 36 of the Sales Tax Act, 1990, this did not constitute such a defect or vagueness as would render the notices invalid upon judicial scrutiny.
The omission did not cause any prejudice to the respondent-taxpayers and therefore the show-cause notices could not be declared invalid in law.
The main issues raised by the parties had not been decided by the Appellate Tribunal. Consequently, the High Court, while exercising reference jurisdiction, was deprived of the views of the Tribunal, as a Reference Application is to be decided on the basis of facts determined by the Appellate Tribunal.
The High Court therefore set aside the impugned orders and remanded the matters to the Appellate Tribunal for decision afresh after providing an opportunity of being heard to both parties.
Reference allowed accordingly.
Case Law Relied Upon
- Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others (2008 SCMR 615)
- Commissioner of Income Tax, Karachi v. Abdul Ghani (2007 PTD 967)
- Commissioner of Income Tax, Peshawar v. Messrs Islamic Investment Bank Ltd. (2016 SCMR 816)
Representation
Ms. Saba Saeed Sheikh, Legal Advisor appeared for the Applicant.
Abuzar Hussain appeared for the Respondent.
Date of Hearing: 21st September, 2022.
Judgment
Consolidated Judgment
This consolidated judgment decided the instant Reference Application along with the following connected cases, as common questions of law and facts were involved:
- STR No. 156 of 2015, titled Commissioner Inland Revenue, Faisalabad v. M/s Kamal Limited, Faisalabad.
- STR No. 157 of 2015, titled Commissioner Inland Revenue, Faisalabad v. M/s Kamal Limited, Faisalabad.
- STR No. 160 of 2015, titled Commissioner Inland Revenue, Faisalabad v. M/s Habib Haseeb Spinning Mills Private Limited, Faisalabad.
Through these Reference Applications under section 47 of the Sales Tax Act, 1990, a common question of law was proposed for the opinion of the High Court.
Proposed Question of Law
The original proposed question was:
“Whether on the facts and circumstances of the case, the amendment in section 11 of the Sales Tax Act, 1990, made vide Finance Act, 2012, is procedural in nature and applies to all the pending adjudications?”
Allegations Against the Respondent-Taxpayers
The precise allegation in all the cases was that the respondent-taxpayers had claimed or received inadmissible refunds or input tax adjustments against invoices of blacklisted units, without any physical transfer of goods.
On this basis, demands of sales tax along with default surcharge and penalty were raised by the Assistant Commissioner Inland Revenue.
Feeling aggrieved, the respondent-taxpayers filed appeals before the Commissioner Inland Revenue (Appeals), which were partly allowed.
The respondent-taxpayers thereafter filed further appeals before the Appellate Tribunal Inland Revenue, Lahore Bench.
The Appellate Tribunal observed that the show-cause notices ought to have been issued under section 36 of the Sales Tax Act, 1990, instead of section 11(3), as section 11(3) had been introduced into the statute book through the Finance Act, 2012.
Since the matters related to the tax years 2008, 2009, 2010, 2011 and March 2012, the Appellate Tribunal proceeded to vacate the orders passed by the Taxation Officer.
Arguments on Behalf of the Applicant Department
Learned Legal Advisor for the applicant department submitted that the amendment in section 11 of the Sales Tax Act, 1990, was procedural in nature and applied to all pending cases.
It was therefore argued that the impugned orders passed by the Appellate Tribunal were unsustainable in law.
Arguments on Behalf of the Respondent-Taxpayers
Learned counsel for the respondent-taxpayers argued that section 11(3) had not been given retrospective effect and therefore was not applicable to the cases in question.
It was further submitted that the show-cause notices were illegal and that the assumption of jurisdiction, as well as the entire superstructure built upon those notices, lacked legal sanctity and was liable to be annulled.
Consideration by the High Court
The Court heard the arguments of learned counsel for the parties at length and examined the record with their assistance.
The Sales Tax Act, 1990 came into force on 01.11.1990 through notification dated 28.10.1990, issued under subsection (3) of section 1.
The purpose of the Act was to consolidate and amend the law relating to the levy of tax on the sale, importation, exportation, production, manufacture or consumption of goods.
At the time of promulgation of the Act, there were two distinct provisions relating to adjudication of cases, namely sections 11 and 36.
Section 36 was subsequently omitted through the Finance Act, 2012, and its provisions were incorporated into section 11 as subsections (3) and (4).
The legislature therefore consolidated the provisions relating to adjudication by substituting section 11.
Section 11 of the Sales Tax Act, 1990
Subsection (1)
Subsection (1) applies where a person required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, due to miscalculation, is less than the amount of tax actually payable.
In such circumstances, the officer of Inland Revenue, after issuing a show-cause notice, may make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with sections 33 and 34.
Subsection (2)
Subsection (2) applies where a person has not paid the tax due on supplies made by him, has made a short payment, or has claimed input tax credit or refund which is not admissible under the Sales Tax Act, 1990 for reasons other than those specified in subsection (1).
The officer of Inland Revenue may, after issuing a show-cause notice, make an order for assessment of the tax actually payable or determine the amount of tax credit or refund unlawfully claimed.
Penalty and default surcharge may also be imposed in accordance with sections 33 and 34.
Subsections (3) and (4)
Subsections (3) and (4) deal with situations where tax or a charge has not been levied or has been short-levied or erroneously refunded.
Subsection (3) applies where the lapse is allegedly due to collusion or a deliberate act.
Subsection (4), on the other hand, applies where the default is due to inadvertence, error or misconstruction.
The Court observed that these provisions essentially incorporated the former section 36, with the difference that, in cases involving inadvertent or non-willful default, the limitation period had been enhanced from three years to five years.
Nature of the Dispute
The Court explained that subsection (1) contemplates a situation where there is no dispute regarding the actual amount of tax payable by the registered person.
Similarly, subsection (2) concerns situations where tax due on supplies has not been paid, or where inadmissible input tax credit or refund has been claimed, for reasons other than those specified in subsection (1).
On the other hand, subsections (3) and (4) specifically deal with tax that has not been levied, has been short-levied or has been erroneously refunded.
Subsection (3) applies where the lapse is attributed to collusion or a deliberate act, whereas subsection (4) applies where the default results from inadvertence, error or misconstruction.
Validity of the Show-Cause Notices
Section 11(3) and Former Section 36
The show-cause notices in the present cases were issued under section 11(3) of the Sales Tax Act, 1990.
The Court observed that section 11(3) was analogous to the former section 36(1), and that there was no material difference in the relevant limitation period, as both provisions provided a limitation period of five years.
The High Court examined the contents of the show-cause notices and found them to be self-explanatory.
The notices contained detailed facts, allegations and supporting material. They specifically informed the respondent-taxpayers that failure to respond could result in adverse action.
The grounds and reasons upon which the proceedings were initiated were explicitly set out in the notices.
Mentioning the Wrong Provision
The Court held that omission to mention the specific provision alleged to have been contravened is not necessarily fatal and does not, by itself, make a show-cause notice void.
Instead of focusing merely on technicalities, the Court must examine the matter from different angles and determine whether there has been substantial compliance with the law.
The Court must also consider whether the omission caused any prejudice to the taxpayer.
In the present case, merely labelling the show-cause notices under section 11(3) instead of section 36 did not constitute such a defect or vagueness as would fail judicial scrutiny.
The omission had not caused any prejudice to the respondent-taxpayers.
Accordingly, the show-cause notices could not be declared invalid merely because section 11(3) rather than section 36 had been mentioned.
No Question of Retrospective Application
The High Court further held that there was no question of retrospective application of section 11(3) of the Sales Tax Act, 1990.
The Court referred to the following authorities:
- Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others (2008 SCMR 615).
- Commissioner of Income Tax, Karachi v. Abdul Ghani (2007 PTD 967).
- Commissioner of Income Tax, Peshawar v. Messrs Islamic Investment Bank Ltd. (2016 SCMR 816).
Finding of the High Court
The High Court concluded that the Appellate Tribunal had misunderstood the factual as well as legal aspects of the matter.
As a result, the impugned orders were found to be unsustainable in law.
The Court therefore reformulated the question of law as follows:
“Whether in the facts and circumstances of the case, learned Appellate Tribunal was justified to annul the show cause notice as well as orders of authorities below on merely mentioning of section 11(3) instead of section 36, especially when no prejudice has been caused to respondent-taxpayers?”
Answer to the Question
The High Court answered the question in the negative, meaning that the Appellate Tribunal was not justified in annulling the show-cause notices and the orders of the authorities below merely because section 11(3), instead of section 36, had been mentioned.
The answer was therefore in favour of the applicant-department and against the respondent-taxpayers.
Remand to the Appellate Tribunal
Although the High Court answered the legal question in favour of the applicant department, it noted that the main issues raised by the parties had not been decided by the Appellate Tribunal.
Consequently, the High Court was deprived of the views and factual findings of the Appellate Tribunal.
The Court observed that, while exercising reference jurisdiction, it had to decide the Reference Application on the basis of facts determined by the Appellate Tribunal.
Therefore, the High Court considered it appropriate to set aside the impugned orders and remand the matters to the Appellate Tribunal.
The Appellate Tribunal was directed to decide the matters afresh after providing both parties an opportunity of being heard.
Final Order
The impugned orders in all the connected cases were set aside.
The matters were remanded to the learned Appellate Tribunal Inland Revenue for fresh decision after providing an opportunity of hearing to both parties.
The Reference Applications were accordingly disposed of.
The Office was directed to send a copy of the order under the seal of the Court to the learned Appellate Tribunal in accordance with section 47(5) of the Sales Tax Act, 1990.
Result
Case remanded.