APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-1,
ISLAMABAD
STA No.145/IB/2022
(Tax Period Jan.2016 to Dec.2016)
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M/s Zhongxing Telecom Pakistan (Pvt) Ltd. Plot
No.36, Gulistan Plaza, F-11 Markaz, Islamabad. |
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Appellant |
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Vs |
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Commissioner Inland Revenue (Unit-X), LTO,
Islamabad. |
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Respondent |
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Appellant by: |
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Mr.
Aqeel Ahmed, FCA |
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Respondent by: |
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Mr.
Imran Shah, DR |
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Date of hearing: |
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01.06.2022 |
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Date of order: |
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01.06.2022 |
O R D E R
M. M.
AKRAM (Judicial Member): The titled sales tax appeal
has been filed by the appellant registered person against Order No.71/2021
dated 22.12.2021 passed by the Learned CIR (Appeals-I), Islamabad for the tax
period January 2016 to December 2016
on the grounds as set forth in the memo of appeal.
2. Briefly facts culled out from the
record are that the Commissioner Inland Revenue, Audit-II, Large Taxpayers Office,
Islamabad informed the appellant that his case has been selected for audit
under section 72B of the Sales Tax Act, 1990 (“the Act”) by FBR through
parametric computer ballot for the period from Jan-2016 to Dec-2016. The Deputy
Commissioner Inland Revenue, Unit-X, Large Taxpayers Office, Islamabad, having
jurisdiction over the case of the appellant-Company, conducted the said audit
which revealed certain discrepancies. Accordingly, show
cause notice bearing No. ST/2017/125, dated 05.10.2021 was served upon the
appellant containing the following observations: -
(i)
The penalty of Rs. 50,000/-for non-production of
record.
(ii)
In-admissible adjustment of Input Tax on local
purchases amounting to Rs. 8,790,904/-.
(iii)
In-admissible adjustment of Input Tax on imports
amounting to Rs. 24,315,681.
(iv)
Excess claim/inadmissible Input Tax on account of
Apportionment of Input Tax amounting to Rs. 298,319,252/-.
(v) Late filing of sales tax returns and late payment of sales tax amounting to Rs. 21,700 and 109,454/-respectively.
The contravention proceedings so
initiated culminated in the passing of the impugned Order-in-Original No.2021
dated 19.11.2021, whereby sales tax demand of Rs.331,425,837/- was established
and held to be recoverable from the appellant-Company along with default
surcharge under section 34 (to be calculated at the time of payment) and
penalty amounting to Rs.21,700/ under section 33 of the Act for late filing of
sales tax returns and default surcharge amounting to Rs.109,454/- for late
payment of due sales tax. The registered person being aggrieved, filed an appeal before the
learned CIR(A) who decided the registered person’s appeal vide Order No.71/2021
dated 22.12.2021. Being aggrieved, the appellant has now come up before this
tribunal and has assailed the impugned appellate order on a number of grounds.
3. The case was
heard on 01.06.2022. Learned AR reiterated the contentions already submitted in
the grounds of appeal as set forth in the memo of appeal. Further contended
that admittedly the case of the appellant was selected for audit under section
72B of the Act. The appellant during audit proceedings did not provide to the
assessing officer the required record for the purpose of conducting an audit
under section 25 of the Act. He stated that the question arises as to whether
the assessing officer had the jurisdiction to complete the audit proceedings
ex-parte without the record as prescribed by section 22 of the Act. According
to the learned AR, the scheme of the Act clearly provides that if a person
fails to produce the prescribed record before the assessing officer for the
purpose of an audit under section 25, the only course available to him is to
resort to the provisions of section 37, 38, 38A, 38B and 40 of the Act after
obtaining the approval from the competent authority, as the case may be, and
thereafter proceed under section 25 of the Act. The learned AR appearing on
behalf of the appellant explained that undisputedly no such efforts were taken
by the assessing officer for the prime purpose of conducting an audit before
issuance of show cause notice under section 11 of the Act. Thus, the proceedings
initiated under section 11 of the Act are void ab-initio, illegal, and without
jurisdiction. He asserted that the proceedings are void ab-initio, the
superstructure built thereon in the shape of the assessment order and the
impugned appellate order automatically falls to the ground. It has also been
contended that the show cause notice was issued on 05.10.2021 in respect of the
tax period January 2016 to December 2016 in terms of section 11(5) of the Act
whereas the said provisions of law expressly provide that show-cause notice had
to be issued within five years from the relevant tax period. In the instant
case, the tax period from January 2016 to August 2016 had become barred by time
after the expiry of five years, therefore, the proceedings to the extent of the
said period are void ab-initio and without jurisdiction.
4. On the other
hand, the learned DR appeared on behalf of the department has supported the
order passed by the learned CIR(A) and contended that the impugned order is a
speaking order and there is no infirmity in the said order. He, therefore,
prayed for the rejection of the appeal.
5. We have heard
both the parties and perused the relevant record. The submissions made on
behalf of the appellant have substance. The admitted facts of the case are that
the tax affairs of the appellant were selected for audit under section 72B of
the Act by the FBR in respect of the tax periods from January 2016 to December
2016. As a consequence of the selection of the case for audit, the concerned Commissioner
Inland Revenue issued the intimation letter under section 25 of the Act to the
appellant, and the concerned assessing officer was authorized in terms of
subsection (1) of section 25 of the Act for the purpose of conducting an audit.
The assessing officer issued notices to the appellant under section 25 of the
Act for the production of the record as prescribed by section 22 of the Act.
Admittedly, the appellant did not provide the requisite record despite repeated
requests on the part of the assessing officer, and consequently, he also
imposed the penalty under section 33(9) of the Act for the non-production of
the record. Under the circumstances, the following pivotal question arises for
our consideration to resolve the controversy between the parties:-
Whether the Officer of Inland Revenue can proceed ex-parte under
section 25 of the Act against the registered person who fails to produce before
the Assessing Officer under subsection (1) of section 25, any accounts,
documents, and records, required to be maintained under section 22 of the Act
or any other relevant document, electronically kept record, electronic machine
or any other evidence required by the Officer of Inland Revenue for conducting
an audit?
For the proper appreciation of the arguments advanced by the
learned AR for the appellant in support of the proposed question, it would be
expedient to first reproduce hereunder the relevant provisions of law:-
“25. Access to record, documents, etc.– (1) A
person who is required to maintain any record or documents under this Act or
any other law shall, as and when required by Commissioner, produce records or
documents which are in his possession or control or in the possession or
control of his agent; and where such record or documents have been kept on
electronic data, he shall allow access to the officer of Inland Revenue
authorized by the Commissioner and use of any machine on which such data is
kept.
(2) The
officer of Inland Revenue authorized by the Commissioner, on the basis of
the record, obtained under sub-section (1), may, once in a year,
conduct audit:
(2A) For
the purpose of sub-section (2) of section 25, the Commissioner may conduct
audit proceedings electronically through video links, or any other facility as
prescribed by the Board.
Provided
that in case the Commissioner has information or sufficient evidence showing
that such registered person is involved in tax fraud or evasion of tax, he may
authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner,
to conduct an inquiry or investigation under section 38:
Provided
further that nothing in this subsection shall bar the officer of Inland Revenue
from conducting an audit of the records of the registered person if the same
were earlier audited by the office of the Auditor-General of Pakistan.
(3) After
completion of Audit under this section or any other provision of this Act, the
officer of Inland Revenue may, after obtaining the registered person’s
explanation on all the issues raised in the audit shall pass an order under
section 11.
(4). Omitted.
(4A). Omitted.
(5)
Notwithstanding the penalties prescribed in section 33, if a registered person
wishes to deposit the amount of tax short paid or amount of tax evaded along
with default surcharge voluntarily, whenever it comes to his notice, before
receipt of notice of audit, no penalty shall be recovered from him:
Provided if
a registered person wishes to deposit the amount of tax short paid or amount of
tax evaded along with default surcharge during the audit, or at any time before
issuance of show cause notice he may deposit the evaded amount of tax, default
surcharge under section 34, and twenty-five percent of the penalty payable
under section 33:
Provided further that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge after issuance of show cause notice, he shall deposit the evaded amount of tax, default surcharge under section 34, and the full amount of the penalty payable under section 33 and thereafter, the show cause notice, shall stand abated.” (Emphasis supplied)
It
can be seen from the bare reading of the above provisions of law that after the
selection of the case for audit either under sections 72B or 25 of the Act by
the FBR or Commissioner respectively, the audit proceedings shall be conducted
as per the procedure given in section 25 of the Act. Under sub-section (1) of
section 25, the Commissioner shall call for records or documents for audit from
the registered person. After obtaining the record of a registered person under
subsection (1) of section 25, the Commissioner shall authorize the Inland
Revenue Officer inter alia for the purpose of conducting an audit. After
completion of the audit, the Inland Revenue Officer under subsection (3) of
section 25 shall after obtaining the registered person’s explanation on all the
issues raised in the audit, issue an audit report. After issuance of the audit
report, the Commissioner may proceed if he considered it necessary to pass an
order under section 11 of the Act. The language of sub-section (3) of section
25 is expressed, explicit and mandatory to the
effect that the Inland Revenue Officer proceeds to pass an assessment order
only after obtaining the registered person’s explanation on all the issues
raised in the Audit Report. Hence it is very clear that no proceedings for
assessment of tax under section 11 can be initiated without obtaining a
registered person’s explanation on the Audit Observations.
6. The perusal of the above provisions of law
further expressly provides that the Officer of Inland Revenue shall conduct an
audit of the registered person based on the record obtained under subsection
(1) of section 25 of the Act. Therefore, obtaining the record from the
registered person is a sine qua non to conduct an audit and thereafter
preparation of the audit report as required under subsection (3) of section 25
of the Act. Under the scheme of the Act, if a registered person fails to
produce the record to conduct an audit under section 25 ibid, the only course
available with the Officer of Inland Revenue to resort to the provisions of
sections 33, 37, 38, 38A, 38B and 40 of the Act and thereafter proceed under
section 25 of the Act. The provision of section 25 of the Act does not give any
power to the Officer of Inland Revenue to proceed ex-parte against the
registered person. The audit under section 25 cannot be conducted without
obtaining the record from the registered person. In addition to section 25 of the
Act, the procedure for selection of cases for audit and conduct of an audit has
been given in Rule 44A of the Sales Tax Rules, 2006. The relevant part of the
said rule 44A is reproduced below for ease of reference: -
“44A.-Selection and conduct of audit. (3) The cases selected
for audit by the Board shall be processed as per the procedures given below: -
(I) Commissioner
Inland Revenue concerned shall issue intimation letter to the taxpayer about
the selection of his case for audit with the following details :-
(A) section under which selection has been made;
(B) tax period for which the case has been selected for audit;
(C) mode of selection whether random or parametric;
(D) compliance requirements on the part of taxpayers e.g.-
(a) provision
of prescribed books of accounts;
(b) Supporting
information and. documents etc;
(c) computerized
data, access to computerized data, or provision of attested hard copies of
computerized data.
(4) On completion of the examination of books of accounts,
data, or information under this rule the discrepancies, if found, shall
be intimated it the taxpayer for obtaining taxpayers’ explanation, in the form
of audit report, seeking taxpayer's explanation on these points.
(5) Explanations of the taxpayer, where found not acceptable, shall
be intimated to the taxpayer, through a notice under section 11(5) of the Sales
Tax Act, 1990 about the assessment of tax along with the rationale or basis of
such amendment and necessary tax assessment order shall be passed under section
11 of the said Act, after affording an adequate opportunity of hearing to the
taxpayer.” (Emphasis supplied)
The
procedure for conducting an audit of the registered person prescribed in the
above rule also envisaged and compel the assessing officer that on completion
of the examination of books of accounts, data, or information under this rule
the discrepancies, if found, shall be intimated it the taxpayer for obtaining
taxpayer’s explanation, in the form of audit report, seeking taxpayer's
explanation on these points.
7. We have also noted that para materia
provisions for conducting an audit of the tax affairs of a person are available
in the Income Tax Ordinance, 2001 (“the Ordinance”) in the shape of
section 177 of the Ordinance. Subsection (10) of section 177 specifically and
in explicit manner provides that a person who has been selected for audit
either under section 214C or section 177 of the Ordinance if he fails to
produce before the Assessing Officer, any accounts,
documents, and records, required to be maintained under section 174 of the
Income Tax Ordinance or any other relevant document, electronically kept
record, electronic machine or any other evidence required by the Officer of
Inland Revenue for the purpose of the audit, the Commissioner may proceed to
make best judgment assessment. Whereas no such provisions are available in
section 25 of the Act. For convenience, the provision of section 177(10) is
reproduced below: -
Section 177(10). Notwithstanding anything contained in sub-section
(2) and (6) where a person fails to produce before the
Commissioner or a firm of Chartered Accountants or a firm of Cost and
Management Accountants appointed by the Board or the Commissioner under
sub-section (8) to conduct an audit, any accounts, documents, and records,
required to be maintained under section 174 or any other relevant document,
electronically kept a record, electronic machine or any other evidence that may
be required by the Commissioner or the firm of Chartered Accountants or the
firm of Cost and Management Accountants for the purpose of audit or
determination of income and tax due thereon, the Commissioner may proceed to
make best judgment assessment under section 121 of this Ordinance and
the assessment treated to have been made on the basis of return or revised
return filed by the taxpayer shall be of no legal effect.” (Emphasis supplied)
In a recent decision
of Sindh High Court titled Byco Petroleum Pakistan Ltd Vs Federation of Pakistan and 2 others, (2021 PTD 1386) it has been held that both provisions contained
in sections 11 and 25 are available to the Officer of Inland Revenue and if the
need arises, they can resort to a complete audit under section 25 of the Act
before proceeding with section 11. Consequently, a harmonious interpretation
emerges that tax authorities can proceed with invoking section 11 of the Sales
Tax Act, 1990 without first invoking section 25 of the Sales Tax Act, 1990.
However, once the provisions of section 25 are invoked the tax authorities are
required to complete the audit first before invoking section 11 of the Sales
Tax Act, 1990. Reference may be made to section 25(3) of the Sales Tax Act,
1990 and reproduced below the same for convenience:-
"Section 25(3). After completion of Audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section 11.”
The Sales Tax Act, 1990 unlike section 121(1)(d) of the Income Tax Ordinance does not specifically cater to a situation where a taxpayer fails to provide the information in response to an audit.
8. In view of the above
discussion, the answer to the above question is in the negative, in favour of
the registered person. The assessing officer cannot proceed ex-parte under
section 25 if a registered person fails to produce the record before the
assessing officer. Thus, the proceedings initiated by the assessing officer
without first resorting to the provisions stated above, the initiation of
proceedings under section 11 are void ab-initio.
9. The other legal
contention of the learned AR for the appellant is also well-founded. It is
observed that as per section 11(5) of the Sales Tax Act, 1990, the Assessing
Authority was under a legal obligation to issue show-cause notice for a period
of up to five years. It is an admitted fact in this case that the show-cause
notice was issued on 05.10.2021 for the tax periods from January
2016 to December 2016. Thus, the tax periods from January 2016 to August 2016,
had become barred by time and entire proceedings emanating from this show-cause
notice stand extinguished to the extent of the said tax periods as held in the
judgment titled as M/s Gulistan
Textile Mills Ltd, Karachi Vs Collector (Appeals) Customs, Sales Tax, and
Federal Excise, Karachi and another, (2010 PTD 251).
10. It has been held by
the Hon’ble Supreme Court of Pakistan in Federation of Pakistan through Secretary,
Finance, Islamabad and others v. M/s Ibrahim Textile Mills Ltd, and others,
(1992 SCMR 1898) that if a law prescribes a period for recovery of money, after
its lapse, recovery is not enforceable through Courts. In the said case,
Hon’ble Apex Court, while considering the issue of limitation, after the expiry
of the time prescribed for issuance of recovery notice, held as under: -
“4.
Due consideration was given as to whether the respondents should not pay the
short-levied duty and whether the State should suffer in public finance. But
the cardinal principle of law is that all are equal before the law, whether
citizens or states. Secondly, if a law prescribes a period of time for recovery
of money after its lapse recovery is not enforceable through Courts. Thirdly,
while construing a financial statute, its terms are strictly to be followed.
Keeping in view these principles, for short-levied duties on account “of
inadvertence, error or misconstruction”, section 32(3) of the Customs Act, 1969
provides that for recovery notice shall be served ‘within six months. If that
is not done, like “a suit for recovery of money after the lapse of the time
prescribed by law of limitation, the recovery becomes unenforceable.........”
11. Show cause notice in
the present case to the extent of the tax periods January 2016 to August 2016,
having been issued after the prescribed period of five years, is barred by
limitation thus, is without lawful authority and of no legal effect. Reliance
may be placed on Collector of Customs, Sales Tax (West), Karachi v, M/s K&A Industries, Karachi,
(2006 PTD 537), XEN Shahpur Division v. Collector Sales Tax (Appeals) Collectorate
of Customs Federal Excise and Sales Tax, Faisalabad and 2 others,
(2008 PTD 1973), M/s Gulistan Textiles Mills Ltd, Karachi v. Collector (Appeals)
Customs Sales Tax and Federal Excise, Karachi and another, (2010
PTD 251), M/s Rose Colour Laboratories Nayab No. 1 (Pvt.) Ltd. v. Chairman,
C.B.R. and others, (2003 PTD 1047), Abdul Sattar v. Federation of
Pakistan through Secretary, Revenue Division/Chairman, Central Board of
Revenue, Islamabad and others, (2006 PTD 1171).
12. For the foregoing reasons, both the orders
passed by the lower authorities are annulled being void ab-initio and without
jurisdiction. It is an immutable
principle of law that defective assumption/exercise of jurisdiction by
the authorities is incurable. Reliance may be placed on Director General Intelligence and
Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746), Director
General Intelligence and Investigation and others Vs M/s AL-Faiz Industries
(Pvt.) Limited and others PTCL 2008 CL 337(S.C) and Collector,
Sahiwal and 2 others Vs Muhammad Akhtar (1971
SCMR 681). In all these judgments it was held by the Hon’ble Supreme Court of
Pakistan that:-
i) Where essential feature of assumption of
jurisdiction is contravened or forum exercises power not vested in it or
exceeds authority beyond the limit prescribed by law the judgment is rendered
coram non-judice and inoperative (2002 SCMR 122).
ii) If a mandatory condition for the exercise of jurisdiction before the Court, Tribunal, or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revisions equally suffer from illegality and are without jurisdiction (2008 SCMR 240)”
Since
we have decided the appeal on a legal issue, therefore, there is no need to
dilate upon the other grounds of appeal which relate to the merits of the case.
13. As a result, the
appeal of the appellant is accepted.
14. This order consists of (11) pages, and each
page bears my signature.
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Sd/- (M. M. AKRAM) JUDICIAL
MEMBER |
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Sd/- (MUHAMMAD IMTIAZ)
ACCOUNTANT MEMBER |
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