AAA STEEL MILLS LIMITED VS COLLECTOR OF SALES TAX AND CENTRAL EXCISE, COLLECTORATE OF SALES -TAX, 2004 PTD-LAHORE-HIGH-COURT-LAHORE 624 (2003)

(a) Spies Tax Act (VII of 1990)---

----Ss. 11(2) & 45---S.R.O. 377(I)/2002, dated 15-6-2002---Customs Act (IV of 1969), S. 179---Constitution of Pakistan (1973), Art. 199-- Constitutional petition---Show-cause notice alleging adjustment of inadmissible input tax---Collector, Sales Tax assessed such amount as payable by assessee alongwith additional tax and penalty---Validity-- Assessee was not falling under any of the categories mentioned in para. 2(2) of S.R.O. 307(I)/2002---Collector on executive side could not pass impugned order, which could only be done by the Collector (Adjudication) in view of S. 179 of Customs Act, 1969 read with said S.R.O.---Collector had violated provisions of Ss. 11 & 45 of Sales Tax Act, 1990 and the S.R.O.---High Court allowed Constitutional petition and declared the impugned order to be without jurisdiction.

(b) Sales Tax Act (VII of 1990)---

----Ss. 11 & 11-A---Assessment and recovery of tax under Ss. 11 & 11-A of Sales Tax Act, 1990---Such proceedings are summary in nature- Authority on executive side can proceed to make assessment of tax due on basis of return/record submitted by assessee---Collection of further evidence is not required in such cases---Authority acts both as prosecutor and Judge in such cases---Recovery of short paid admitted liability in a return is recoverable in a summary manner.

(c) Sales Tax Act (VII of 1990)---

----S. 45---Adjudication proceedings---Essentials---Such proceedings contemplates not only issuance of show-cause notice, but also requiring assessee and Department to produce evidence and material in support of their respective stands---Such proceedings are normally initiated on basis of a contravention report, which is akin to submission of challan in Court of criminal jurisdiction---Such proceedings though not criminal in nature, but summary allegations in the form of contravention report submitted before Adjudicating Officer partakes a number of characteristics of a challan submitted before a Judge or Magistrate on criminal side.

(d) Sales Tax Act (VII of 1990)---

----S. 73---Violation of provisions of S. 73 of Sales Tax Act, 1990---Such case generally could not be made out from return filed for a tax period---Such default, if actually committed, could come to surface only on examination of record or audit of, registered person .

Imran Shafique for Petitioner.

Muhammad Iqbal Choudhry Ambalvi for Respondent.

Date of hearing; 5th November, 2003.

JUDGMENT

In this Constitutional petition following prayer has been made:--

"In view of the above submissions, it is most respectfully prayed that the SCN and the order-in-original issued by the respondent may very kindly be declared illegal, without lawful authority and having no legal effect.

The operation of the order-in-original may kindly be suspended."

2. The petitioner is a registered person and was served with a show-cause notice by the Collector Lahore on 24-4-2003. Through that notice it was charged with contravention of section 73 of the Sales Tax Act, 1990 and was called upon to show cause as to why inadmissible input tax amounting to Rs.10,974,709 unlawfully adjusted should not be recovered under section 11 (2) of the Act. The levy of additional tax as well as penalty under the provisions of the Act were also confronted.

3. The reply submitted by the petitioner was not considered, acceptable and therefore by way of the impugned order, dated 2-6-2003 Muhammad Raza Baqir, Collector, Lahore found the charges detailed in the show-cause notice to have been established against the appellant. Therefore, "under section 11(2) of the Sales Tax Act, 1990 read with section 45 and Notification No.377(I)/2002, dated 15-6-2002 hold that Sales Tax returns furnished by the respondents during the tax period 7 of 2001 to 12 of 2002 are wrong and input tax claimed/adjusted to the tune of Rs.10,974,709 is held inadmissible." The aforesaid amount was accordingly assessed as payable by the respondent along with additional tax under section 34 and a penalty of Rs.3,29,241 being 3% of the amount of tax involved imposed under section 33(2)(CC) of the Act.

4. After hearing the learned counsel for the parties, I will agree that the impugned order could not have been recorded by the Collector on executive side. It could have only been done by the Collector (Adjudication) in view of the provisions of section 179 of the Customs Act, 1969 read with S.R.O. No. 377(I)/2002, dated 15-6-2002. Although the Collector has referred the said S.R.O. in the impugned order yet his interpretation of the same is totally misplaced. Sub-para. (1) of para. 2 of that Circular reads as under:--

"(i) cases involving non-filing, late filing, short filing and wrong filing of Sales Tax returns which shall, subject to the provisions of section 11A of the Sales Tax Act, 1990 be adjudicated by an officer not below the rank of Superintendent or, as the case may be, senior Auditor of the respective Collectorate, Sales Tax House; Karachi or of the Large Taxpayers Unit specified in column (3) of the said Table, and all such pending cases, if any, shall be transferred to such officers. "

5. Since the case of the petitioner did not fall under any of the categories mentioned in the aforesaid sub-clause of the S.R.O, the Collector could not assume office/functioning of the Collector (Adjudication).

6. The provisions of sections 11, 11-A and 45 are necessarily different in vital aspects. The assessment and recovery of tax under sections 11 and 11-A respectively is a summary proceedings wherefrom the return/record submitted by a registered, person the default in payment of tax or short payment or an inadmissible tax credit or refund is discernible on the face of such return. In these cases an officer of the department on the executive side can proceed to make an assessment of tax due on the basis of that return/record subject to the conditions given in sub-clause (4) of section 11 and the proviso thereof. The officer thus acts both as prosecutor as well as a judge. The default being apparent from the documents/record/material submitted by the taxpayer collection of further evidence is not required. The recovery of short paid admitted liability in a return is likewise recoverable in a summary manner.

7. The power of adjudication contemplated under section 45 of the Act is altogether different. The adjudication proceedings contemplate not only issuance of a show-cause notice but also requiring the tax payers as well as the Department to produce evidence and material in support of their respective stands. These proceedings are normally initiated on the basis of a c6ntravention report which is akin to the submission of challan in a Court of criminal jurisdiction. Although such proceedings are not criminal in nature yet summary of allegations in the form of contravention report submitted before the Adjudicating Authority partakes a number of characteristics of a challan submitted before a Judge or a Magistrate on the criminal side.

8. The learned Collector by way of the impugned order having confused these concepts and having proceeded in a matter which was amenable only to an action under section 45 of the Act clearly erred in law. A bare reading of first para. of show-cause notice makes it clear that the proceedings initiated in this case were not based upon the return filed by the registered person or the material accompanying the same Instead it appears that the record/accounts of the petitioner for the period July, 2001 to December, 2001 were scrutinized, and such scrutiny was described as audit in the notice itself. It was on the basis of that examination that the department formed the view that the petitioner has not made payment on supplies in respect of the purchases made. Even otherwise generally from a Sales Tax return filed for a tax period the violation of provisions of section 73 of the Act (Certain transactions not admissible) cannot be made out. It is only on examination of record or" on audit of-a registered person that such default can come to surface if it was actually committed.

9. The learned Collector having laid his hands upon a matter amenable only to adjudication proceedings clearly violated the provisions of section 11 and section 45 of the Act and the aforesaid notification, dated 15-6-2003.

10. This petition is allowed and the impugned order is declared to be without jurisdiction.

S.A.K./A-1015/L Petition allowed.