(On appeal from the judgment, dated 11‑6‑2002 passed by High Court of Sindh Karachi, in Special Sales Tax Appeal No.60 of 2002).

(a) Constitution of Pakistan (1973)‑‑‑

----Art. 185(3)‑‑‑Question of law‑‑‑Raising of such question first time before Supreme Court‑-‑Validity‑‑‑Question of law arising out of the facts of case relating to fundamental issues involved therein, even if was not raised before the lower forum, can be taken before the higher forum‑‑‑Supreme Court for doing complete justice may, if the facts and circumstances so demand, allow to raise a question of law which was not as such taken before High Court‑‑‑Court seized of the matter was supposed to apply the correct law to meet the ends of justice.

Gatron (Industries) Ltd. v. Government of Pakistan 1999 SCMR 1072 ref.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S. 36-‑‑Non‑levy/short levy/erroneous refund of sales‑tax‑‑‑Categories‑‑Cases of such nature are divided in two categories under S.36 of Sales Tax Act, 1990‑‑‑First category of cases is covered under S.36 (1) of Sales Tax Act, 1990, in which due to deliberate act, tax was not levied or short levied or erroneously refunded‑‑‑Whereas cases, in which sales tax was not levied or short levied or erroneously refunded by reason of inadvertence; error or misconstruction, are covered under S.36(2) of Sales Tax Act, 1990.

(c) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑Ss.36. & 65‑‑‑Sales tax, recovery of‑‑‑Show‑cause notice .not disclosing grounds and reasons for proposed action‑‑‑Evasion of sales tax‑‑‑Plea of inadvertence‑‑‑Contention of the authorities was that for availing the benefit of S.65 of Sales Tax Act, 1990, Central board of Revenue was the proper forum‑‑‑Validity‑‑‑Without completion of pre requisite of show‑cause notice and supply of the grounds/reasons in clear and explicit words to ascertain as to under which subsection of S.36 of Sales Tax Act, 1990, the case would fall, the demand of the authorities had no legal consequence‑‑‑Such failure of the authorities issuing show‑cause notice to disclose the grounds and reasons rendered the notice invalid‑‑‑Collector concerned initiated the process of issuing show‑cause notice raising the presumption that petitioner company was responsible, for evasion of sales tax therefore, no useful purpose would be served in undertaking the exercise of approaching the Collector for grant of benefit of S.65 of Sales Tax Act, 1990‑‑‑Was essential for the Tribunal to examine the scope of S.65 of Sales Tax Act, 1990, and it should have given clear verdict in the matter‑‑‑Federal Government was competent to exempt the sales tax in a case which was covered by the provisions of S.65 of Sales Tax Act, 1990‑‑‑Question regarding entitlement of the benefit of S.65 of Sales Tax Act, 1990, would need determination by, an independent forum‑‑‑Supreme Court remanded the case to the Tribunal for its determination as the Tribunal had not attended such fundamental question and failed to exercise the jurisdiction vested in it‑‑‑High Court while affirming the judgment of Tribunal committed the same error‑‑‑Supreme Court framed certain questions and directed the Tribunal to decide them afresh-‑‑Appeal was allowed.

Assistant Collector Customs v. Khyber Electric Camps 2001 SCMR 838 and State of Tamil Nadu v. Cement Distributors Pvt. Ltd. AIR 1973 SC 668 ref.

Farogh Naseem, Advocate Supreme Court and Raja Abdul Record for Petitioner.

Raja Muhammad Irshad, D.A.‑G. and M.S. Khattak, Advocate -on‑Record for Respondents.

Date of hearing: 20th August, 2004.

JUDGMENT

MUHAMMAD NAWAZ ABBASI, J.‑‑‑This petition for leave to appeal is directed against the judgment, dated 11‑6‑2002 passed by a learned Division Bench of High Court of Sindh, at Karachi in Special Custom, Sales Tax Appeal No.60 of 2002.

2. The petitioner is a Limited Company and is engaged in the business of manufacturing and sale of petroleum products. The sale price of the petroleum products is fixed by the Federal Government under Petroleum Products (Development Surcharge) Ordinance, 1961, and the sale of products for a price other than the price fixed by the Federal Government is an offence under Essential Supplies Act, 1957. The sale, tax on the petroleum products was exempted under Item No.8 of Sixth Schedule to the Sales Tax Act, 1990 but this exemption was subsequently withdrawn vide S.R.O. No.922(I)/99, dated 16-8‑1999. The petitioner Company despite withdrawal of exemption on the sales tax, continued the supply of petroleum products without levy of sales tax on its supplies on the assumption that nothing could be added in the price of the products fixed by the Government.

3. The petitioner was served with a show‑cause notice, dated 25‑5‑2001 for the payment of sales tax on the supply of refined oil for the period from 16‑8‑1999 to 31‑8‑1999 with additional tax and penalty. The petitioner submitted a detail reply to the show‑cause notice wherein apart from a number of other grounds, it was also pleaded that the grounds and reasons for the proposed action, were not disclosed in the notice. The Collector Adjudication, on conclusion of the proceedings, vide order in original, dated 7‑7‑2001, held that the petitioner having claimed the benefit of section 65 of the Sales Tax Act, 1990, in his reply to the show‑cause notice has accepted the chargeability of tax, and admitted the non‑payment of sales tax due to the inadvertence. Consequently, the Collector, directed for the recovery of the amount of sales tax mentioned in the show‑cause notice with penalty equal to 3% of the tax under section 33(2) of the Sales Tax Act, 1990. The petitioner assailed this order of Collector before the Customs, Excise and Sales Tax Appellate Tribunal and the Tribunal by setting aside the imposition of penalty, upheld the order of Collector for recovery, of sales tax vide judgment, dated 6‑3‑2002. The petitioner, being not satisfied with the judgment, filed a Special Sales Tax Appeal before the High Court of Sindh; at Karachi, and a learned. Division Bench of that Court dismissed the appeal in limine with the following observations:‑-

"From a bare perusal of the above reproduced provision, it is abundantly clear that the power to exempt from payment of tax not charged or recovered by the registered person on account of inadvertence vests solely in the Federal Government, who on being satisfied through a Notification exempt from payment of tax not recovered for a period prior to the discovery of such inadvertence to recover the sales tax. The prerogative to give exemption on the ground of inadvertence, as raised by the Appellant, is of the Federal Government and not that of the Tribunal or the Department. Learned Tribunal rightly declined to extent such benefit. We, therefore, do not find any merit in this Appeal. No point of law has been raised.

Accordingly, this appeal is dismissed in limine along with the listed application. The appellant will be at liberty to agitate or have recourse to the relevant Authority to claim benefit of exemption in terms of section 65 of the Sales Tax Act."

4. Learned counsel for the petitioner in support of this petition has raised the following contentions:‑‑

(a) The price of the petroleum products is fixed by the Federal Government under section 4 of the Petroleum Products (Development Surcharge) Ordinance, 1961; wherein it is provided that no Company shall sell any petroleum product at a price higher than the fixed sale price and any contravention thereof; shall be an offence under the Essential Supplies Act, 1957. The sales tax is collected on the sales of goods from the consumers and in case of goods the price of which is fixed by the Government, through a special order, under the statute governing the subject, the seller is not supposed to add any thing in the fixed price without the permission of Government, therefore, the addition of sales tax in the price of petroleum products fixed by the Government, would be in contravention of section 4 of Petroleum Products (Development Surcharge) Ordinance, 1961 which is an offence and notwithstanding the withdrawal of exemption of sales tax on the petroleum products, vide notification; dated 16‑8‑1999, the levy of sales tax on the supply would definitely be an increase .in the price and would be objectionable.

(b) In view of the law laid down by this Court in Assistant Collector Customs v. Khyber Electric Camps 2001 SCMR 838, the show‑cause notice containing the allegation of evasion of sales tax on the supplies of refined oil for the period from 16‑8‑1999 to 31‑8‑1999, was vague for want of supply of the necessary particulars and for not providing of the grounds and reasons for the proposed action. The department also did not discharge the onus of wilful evasion of tax payable by the petitioner under the law.

(c) The sales tax on the sales and purchases of goods, imported, exported, produced, manufactured or consumed, is imposed under item No.49 of the concurrent list in Fourth Schedule of the Constitution of Pakistan and the supply of goods for the price fixed by the Government being not defined as `sale' in terms of section 3 of Sales Tax Act, 1990, the sales tax on such supplies cannot be charged. In State of Tamil Nadu v Cement Distributors Pvt. Ltd. (AIR 1973 Supreme Court Cases 668) it was held that the supply of gunny bags in which the cement was supplied by the producers on the price fixed by the Government to supply cement to State Trading Corporation was not a sale for the purpose of such tax within the meanings of the relevant statutes.

(d) The question relating to the entitlement of petitioner for grant of benefit under section 65 of the Sales Tax Act, 1990 was kept open by the Tribunal and also by the High Court for decision by the departmental authorities in their discretion without realizing that said authorities by holding the petitioner, guilt of evasion of tax have already indirectly declined the grant of such benefit, therefore, both the Tribunal and the High Court, having not determined this question, failed to exercise the jurisdiction.

5. The learned counsel for the petitioner has submitted that although the above questions except the one relating to the benefit of section 65 of Sales Tax Act, 1990, were not as such raised either before the Tribunal or in the High Court in Special Tax Appeal but the same being pure question of law arising in the facts of the case even if were not taken or argued before the Tribunal and the High Court, can be allowed to be raised before this Court in the interest of substantial justice. The Deputy Attorney General, on the other hand, contended that even pure question of law cannot be allowed to be taken for the first time before this Court as the same may prejudice the case of opposite party. However, he has not been able to satisfy us that the decision of the above question in either way would have no material effect on the result of the case.

6. This is settled principle of lave that a question of law arising out of the facts of the case relating to the fundamental issues involved therein, even if was not raised before the lower forum can be allowed to be taken before the higher forum and this Court for doing complete justice may, if the facts and circumstances of a case so demand, allow to raise a question of law which was not as such taken before the High Court. This is the duty of the Court seized of the matter, to apply the correct law to meet the ends of justice and this Court in. Gatron (Industries) Ltd. v. Government of Pakistan (1999 SCMR 1072) held that "even when leave is not granted on a point, the same can be allowed to be canvassed in appeal if it is necessary for doing complete justice in a cafe or a matter pending before the Court as contemplated by sub‑article (1) of Article 187 of the Constitution."

7. Under section 36 of the Sales Tax Act, 1990, the cases of non levy of tax or short levied or erroneous refund are divided into two categories. The first category of cases in which due to deliberate act, tax is not levied or short levied or erroneously refunded, are covered by subsection (1) of section 36 ibid whereas subsection (2) of this section covers the cases in which sales tax was not levied or short levied or erroneously refunded by reason of inadvertence, error or misconstruction. It is settled principle of law that without completion of pre‑requisite of show‑cause notice and supply of the grounds/reasons in clear and explicit words to ascertain that under which subsection of section 36 of Sales Tax Act, 1990, the case would fall, the demand notice may have no legal consequence and thus the failure of the authorities issuing show‑cause notice to disclose such grounds and reasons may render the notice invalid. In the instant case, it is not clear that under which subsection of section 36 ibid, the show‑cause notice was issued and whether the non‑payment of tax was due to the collusion of deliberate act of tax payer or it was the result of inadvertence error or misconstruction. The show‑cause notice carrying the defect of vagueness, may not stand to the test of judicial scrutiny. The petitioner was served with the following show‑cause notice:‑‑

"Show Cause Notice

Whereas it has been reported by the Collectorate of Sales Tax and Central Excise (West) Karachi to the undersigned that on receipt of specific information obtained through a credible source, it has been found that‑ Messrs Caltex Oil (Pakistan) Ltd., Karachi are not discharging their duties vis‑a-vis due payment of the sales tax. Thus, in the backdrop of the information mentioned above the Collector of Sales Tax and Central Excise (West) Karachi constituted an audit team to audit the said unit which resulted in unearthing of the fact that during the period from 16‑8‑1999 to 31‑8-1999, the said unit did not pay the sales tax due on supplies of refined oil. On query; the management claimed to have deposited Rs.7,94,83,247 under the head Development Surcharge instead of Sales Tax. The said management produced a statement showing, details of quantity and sales tax of different products of refined oil said to have been supplied but sales tax had not been paid on them. In support of their contention, the said management produced a copy of letter No. PL‑3(469)/98, dated 25‑3‑1999 issued by Ministry of Petroleum and Natural Resources, Islamabad to the Secretary (Central Excise Budget), Central Board of Revenue, Islamabad;

(2) And whereas on further scrutiny, the audit team, in audit team, in relation to Caltex Oil Keamari Terminal, Karachi; unveiled the following:‑‑

(a) Rs.1,37,94,038 sales tax involved on the quantity has been supplied from Keamari Terminal not included in the amount claimed to have been deposited under Development Surcharge. The said amount of sales tax is, therefore, recoverable from them alongwith the additional tax under sections 36 and 34 of the Sales Tax Act; 1990;

(b) Rs.24,27,944 sales tax is involved on the quantities supplied from Keamari Terminal, Karachi but this is not reflected in the clearance documents required for payment of Central Excise duty and Development Surcharge as per Central Excise Rules, 1944, which proves that the said surcharge has not been deposited while they claim to have already paid. The said amount of sales tax is recoverable from them alongwith the additional tax;

(3) And whereas Messrs Caltex Oil (Pakistan) Ltd., Karachi have thus evaded the amount of sales tax Rs.1,62,22,032 on the supplies of refined oil during the period 16‑8‑1999 to 31‑8‑1999 and have violated the provisions of sections 3, 6, 7, 22, 23 and 26 of the Sales Tax Act, 1990 punishable under section 33 fold which is recoverable from them alongwith the additional tax under sections 36 and 34 of the Sales Tax Act; 1990;

(4) Now, therefore, Messrs Caltex Oil Pakistan Ltd., Karachi are called upon to show‑cause within 10 days of issuance of this notice that why amount mentioned above should not be recovered from them and why punitive action for violations mentioned above should not be taken against them.

(5) Hearing in the case has been fixed on 6‑6‑2001 at 11‑00 a.m. in the office of the undersigned at ST‑18-A, Block‑VI, Gulshan‑e -Iqbal, Karachi, when they or their authorized representative should appear before, the undersigned to attend the hearing. If no reply to the show‑cause notice is received and no one appears in the hearing on the stipulated date and time, it will be presumed that they have nothing to say in their defence and the matter will be decided ex parte on its merits and on the basis of available record.

(Sd.)

(Anwar‑ul‑Haq)

Collector"

8. The analysis of the matter would bring us to the conclusion that the most important and fundamental question involved in the present case qua the legal status of the show‑cause notice requiring determination was not as such attended either by the Tribunal or by the High Court. It is not ascertainable from the grounds and reasons given in the notice that the petitioner knowingly and deliberately withheld the payment of sales tax or it was the result of bona fide mistake and consequently, it could not be definitely said that case would fall under subsection (1) or subsection (2) of section 36 of Sales Tax Act, 1990. The department while treating it a case of deliberate evasion of tax proceeded in the matter whereas the stance of the petitioner was that non‑payment of tax was due to the misconstruction of lacy and in these circumstances, the Tribunal was under heavy duty to ascertain the correct factual‑and legal position for proper decision of the matter which would also be a determining factor for the purpose of grant of benefit of section 65 of the Sales Tax Act, 1990.

The second important question calling attention of the Tribunal would be as to whether the sales tax was included in the sale price of petroleum products fixed by the Government or it was to be charged by the seller on the supply and this mixed question of law and facts, would essentially need decision in the light of the relevant record of Ministry of Petroleum, Government of Pakistan. The above questions having direct link with the claim of benefit of section 65 of the Sales Tax Act, 1990 would be the pivotal questions for determining the liability of the petitioner and the entitlement for statutory benefit. The Tribunal and also the learned Judges in the High Court, without dealing with the above fundamental questions involved in the case, non suited the petitioner and left him at the mercy of departmental authorities for decision of the question of entitlement for the benefit of section 65 of the Sales Tax Act, 1990 in their discretion. The Tribunal dealt with this question in the following, manner:‑‑

"10. The plea of the appellant that the matter attracts section 65 of the Sales Tax, Act, 1990 and hence relief should be granted to there on this account is also not maintainable. We reproduce section 65 with advantage:

"Notwithstanding anything, contained in this Act, if in respect of any supply the Federal Government is satisfied‑that inadvertently and as a general practice:‑‑

(a) tax has not been, charged in any area on any supply which was otherwise taxable or according to the said practice the amount charged was less than the amount that should have actually been charged;

(b) the registered person did not recover any tax prior to the date it was discovered that the supply was liable to tax; and,

(c) the registered person started paying the tax from the date which it was found that the supply was chargeable to tax;

it may by notification in the official Gazette, direct that the tax not levied or short‑levied as result of time inadvertent, that not be required to be aid for the period prior to the discovery of such inadvertent practice:

The reading of the above would show that the provision of section 65 only empower the Federal Government to grant exemption. Since there are no orders of the Federal Government in this regard, we are of the view that no relief can be granted under section 65".

The learned Deputy Attorney General in the light of the observation of the High Court and also the Tribunal, has submitted that for the claim of benefit of section 65 ibid, C.B.R. was the proper, forum and the petitioner could conveniently, approach the Collector concerned who having satisfied himself could competently refer, the matter to the CBR with his recommendation for exemption of the relevant supplies from sales tax.

The perusal of record would show that the Collector concerned initiated the process of issuing show‑cause notice raising the presumption that petitioner was responsible for evasion of sales tax, therefore, no useful purpose would be served in undertaking the exercise of approaching the Collector for grant of benefit of section 65 of Sales Tax Act, 1990. In the light of facts and circumstances of the case and the observation of the Tribunal and also of the High Court on the question, it would be essential for the Tribunal to examine the scope of section 65 ibid, and give clear verdict in the matter. It is correct that Federal Government is competent to exempt the sales tax in a case which is covered by the provisions of section 65 of the Sales Tax Act, 1990 but the question regarding the entitlement of the benefit of said section, would need determination by an independent forum and we are of the view that the Tribunal having not attended the above fundamental question, has failed to exercise the jurisdiction vested in it and further the High Court while affirming the judgment of Tribunal, also committed the same error. We, therefore, without commenting on the merits of the case in either way, lest it may not prejudice the case of either party, are inclined to remand the case to the Customs, Excise and Sales Tax Appellate Tribunal, Karachi, for decision of the following questions:‑‑

(a) Whether the sales tax was included in the price of the products fixed by the, Federal Government or it was required to be charged separately on the supplies?

(b) Whether the notice was issued in accordance with law or not and if it was not issued as per requirement of law and was vague, what would be the effect?; and

(c) Whether in the given facts and circumstances of the case, the provisions of section 65 of the Sales Tax Act, 1990, would be invokeable or not?

The parties however, shall be at liberty to raise any other question involved in this case, including the questions raised before this Court and the Tribunal, after providing proper opportunity of hearing to them will decide the matter afresh but this order shall be subject to the furnishing of bank guarantee of a scheduled Bank by the petitioner equal to the amount of sales tax payable in terms of judgment of Tribunal to the satisfaction of Collector of Large Tax Payers Unit, Karachi, within one month failing which this petition shall stand dismissed. However, as prayed by the learned counsel for the petitioner, the bank guarantee already furnished by the petitioner to the satisfaction of Nazir, High Court of Sindh at Karachi, under the direction of that Court if is still in existence and valid, may be transferred to the Collector of Large Tax Payers Unit, Karachi, and the deficiency if any, shall be covered by furnishing additional bank guarantee of a scheduled Bank within the above period. The parties shall appear before the Appellate Tribunal on 20‑9‑2004 and the Tribunal shall make efforts to decide the matter within three months.

10. This petition is converted into appeal and is disposed of in the above terms. The impugned judgment of the High Court is set aside and case is remanded to the Tribunal for decision afresh. There will be no order as to costs.

M.H./C-10/SCase remanded.