XEN SHAHPUR DIVISION VS COLLECTOR SALES TAX (APPEALS) COLLECTORATE OF CUSTOMS FEDERAL EXCISE AND SALES TAX, FAISALABAD, 2008 PTD-LAHORE-HIGH-COURT-LAHORE 1973 (2008)

(a) Constitution of Pakistan (1973)---

----Art. 165-A---Sales Tax Act (VII of 1990), Ss.3 & 36---Tax is chargeable on a corporation, a company or any other body or institution, from a business or trade or any income arising from such trade even if it is owned and controlled by Federal or Provincial Government, regardless of ultimate destination of such income---Lifting of statutory veil is no longer permissible and the distinct juridical personality of the incorporate or statutory body was recognized notwithstanding the control, distinction and functioning of such bodies.

Karachi Development Authority v. Central Board of Revenue (C.B.R) 2005 PTD 2131; Shaukat Ali v. Commissioner, Lahore Division and others PLD 1963 (W.P.) Lah. 127 and Mian Muhammad Abdullah v. District Judge, Sahiwal and 6 others PLD 1985 Lah. 467 ref.

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

---Ss. 47 & 36---Constitution of Pakistan (1973), Art.199---Constitutional petition---Maintainability---Petitioner having failed to avail the regular remedy in the terms of `Reference' under Sales Tax Act, 1990 before the High Court, and issue raised pertaining to jurisdiction, constitutional jurisdiction had rightly been invoked.

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

---S. 36---Constitution of Pakistan (1973), Art.199---Constitutional petition---Notice for recovery of tax not levied or short levied or erroneously refunded---Limitation---Provision of S.36(2), Sales Tax Act, 1990 provided jurisdiction for issuance of a notice only for three years prior to the date of such issuance; going beyond the said mandatory limit shall amount defeating the intention of legislature which could not be allowed---Addition of period prior to said cut of date in the notice for recovery was therefore, exercise of a jurisdiction beyond the mandate of law and provided full room for exercise of jurisdiction by High Court under Art.199 of the Constitution---Notice beyond the said period was declared to be illegal---High Court partly allowed the constitutional petition in the manner that the charge created in principle was held to be as lawful while the period of the same was reduced to the extent of the period fixed under S.36(2) of the Sales Tax Act, 1990---Principles.

W.P. No.13331 of 2006 fol.

(d) Interpretation of statutes---

----Fiscal Statute---Fiscal law is to be applied with full authority and in its natural meanings--One has to look merely at what is clearly said and there is no room for any intendment---Neither there is equity about a tax nor presumption as to tax---Nothing is to be read in, nothing is to be implied---One can only look fairly at the language used.

Ch. Muhammad Sadiq, Addl. A.-G. Petitioner.

Muhammad Nawaz Cheema for Respondents.

ORDER

KHAWAJA FAROOQ SAEED, J.---Through this writ petition, the petitioner assails conformation of the default charge of the Sale Tax order passed by the Customs, Excise and Sales Tax Appellant, Tribunal dated 27-12-2007.

2. The brief facts leading to this writ petition are that the petitioner is a registered person in Irrigation Department, Government of the Punjab, Pakistan. The petitioner is procuring and issuing stone to internal divisions of Irrigation in Punjab. It collects and deposit Sales Tax with the Sales Tax Department, on supply of stones to said internal division. The petitioner's division is only Irrigation quarry, which prepares pitching stones and sprawl conforming to required specification, which are prepared as per quarrying method approved by Mineral Department. These stones subsequently are used for development works, flood protection works and other works of the Irrigation Department in the Punjab. The main purpose of the petitioner's sub-division is to supply prepared stones to the internal irrigation department of the Punjab to have an effective control over flood damages to works/life and property of the people living near river banks. The petitioner as claimed is not working on commercial basis, rather is working on no profit no loss basis. The petitioner however, is filing monthly returns in the Sales Tax Department as provided under section 26 of the Sales Tax Act, 1990 along with tax levied on the said tax returns. The returns, which are being submitted for the last more than five years have never been confronted to be un-true.

3. In the month of April 2006, the Sales Tax Department carried out an audit of the petitioner's sub-division for the period of 07-2001 to 06-2005 and confronted certain discrepancies on the basis of said audit to the petitioner. A show-cause notice, therefore, was issued under section 36 of the Act (ibid), which was inter alia challenged to be as time barred.

4. The reply to the show cause notice was submitted, which however, could not find favour with the respondent/department and Sales Tax order in-original No.46/2006 was passed on 29-11-2006. The assessing authority i.e. Additional Collector inter alia found that while filing the Sales Tax returns, the present petitioner totally ignored the provisions of section 2(46) of the Sale Tax Act, 1990. Besides the Sales Tax record was not properly maintained as is required under sections 22, 23, 26, 34 and 36(1) of the Sales Tax Act, 1990. It has also been observed that the petitioner by making a request for exemption under section 56 before the Federal Board of Revenue has accepted, the charge on their activity which stood further supported from their action of filing their returns for five years. The lacuna, therefore, was correctly identified and charged of Rs.1,12,45,039 (Rs. One Crore twelve lacs forty five thousand and thirty nine only) was created with a further default of surcharge under section 33(1)(2) of Sales Tax Act, 1990 @ Rs.5000.

5. The appeals filed by the petitioner before the First Appellate authority as well as the Customs, Sales Tax and Federal Excise (Appeals), Faisalabad also have failed.

6. The learned counsel has challenged the impugned order with two basic arguments. He claimed that the petitioner is a limb of Government, and on lifting the veil of incorporation what one would see is a Governmental institution, which is being charged Sales Tax. Repeating earlier arguments that it is non-commercial organization, working at no profit and no loss basis, it is claimed that the charge against the petitioner is ultra vires. He however, could not answer to the query as to why the department has been filing Sales Tax returns in the past as well as for the present terms. The petitioner became wise after the audit department found discrepancies in the calculation of the Sales Tax payable. It was on the issue of charge to which the department had conceded earlier. The charge was never challenged by the department in the manner, that the return was being regularly filed and the Tax along with the same was also paid. Since the department was not having proper machinery and record was not being maintained in the prescribed manner, besides there was wrong calculation of the taxes the notice has been issued. The mistake which was found by the audit party was that while calculating the Sales Tax, royalty, excise duty and other incidental charges were not included. This was totally against the mandate of law as prescribed in section 2 (46) to which neither any arguments have been advanced nor the same has been challenged to be as incorrect. Even otherwise, the law is very clear on the subject and the calculation is valid and correct.

7. As already mentioned, the arguments are self negating. The petitioner's own action to submit returns regularly along with Tax and approaching Federal of Revenue for exemption contradicts the claim. Further such and similar organizations have been brought to the ambit of the Federal Taxes and there is no arguments or the case law in rebuttal.

8. The argument that if the veil of incorporation is lifted it will be the Provincial Government which is being charged to tax has been set at rest by insertion of Article 165 (A). Lifting of statutory veil is no longer permissible and the district juridical personality of the incorporate or statutory body has been recognized notwithstanding the control, distinction and functioning of such bodies. Reference in this regard can be placed in the case of "Karachi Development Authority v. Central Board of Revenue (C.B.R), 2005 PTD 2131, "Shaukat Ali v. Commissioner, Lahore Division and others" (PLD 1963 (W.P.) Lahore 127) and "Mian Muhammad Abdullah v. District Judge, Sahiwal and 6 others" (PLD 1985 Lahore 467) respectively. In Karachi Development Authority (supra) the finding of the Honourable Supreme Court are as follows:--

"that by statutory dispensation a justice personality is created which is distinct from that of the Government. Such a juristic personality is then entrusted with the statutory duties, some of which or all of which may partake of the functions of the Government both sovereign and non-sovereign. In the case in hand, we are concerned with the welfare activity of the Government which has been passed on the K.D.A. It is not wholly for the discharge of sovereign functions as such. Nevertheless, the distinction that was sought to be established on the strength of Article 165 of the Constitution for the purposes of taxability between the property and income of the Government under statutory veil and the property and income of Government under no such veil has been brought to an end. The ultimate ownership of the property or the destination of the income has ceased to be the best. The statutory veil holds good for the purposes of determining the ownership of the property as well as its income. It is true that what is mentioned in Article 165-A (1) of the Constitution is limited to the levy of income tax. Nevertheless, the purpose, the object and the field of Article 165-A of the Constitution is to fix the legal ownership of the property and the identity of the recipient of the income. This has been achieved by reinforcing the statutory corporate veil for all fiscal purposes. The lifting of the corporate veil as such is no longer permissible and the distinct juristic personality of the incorporated or statutory body has been recognized notwithstanding the control, the destination and the functioning of such bodies. Such a declaratory law would certainly stand in the way of the appellant because the same distinction which was sought to be created by lifting the veil in the manner of the income tax is sought to be achieved in the manner of sale tax."

The language of Article 165-A is so clear that one should not now have any doubt as to the chargeability of tax on a corporation, a company or any other body or instruction from a business or trade or any income arising from such trade even if it is owned and controlled by Federal or Provincial Government, regardless of the ultimate destination of such income.

9. The other argument of the learned counsel is that the notice issued under section 36 was barred by time. It related to the period of 7 of 2001 to 6 of 2005 and under section 36 (2), the same could be issued only for 3 years. The same, therefore, being without jurisdiction was void ab initio. Thus not only that a writ jurisdiction can be invoked, but also it being a point of law can be raised at all stages. His reliance is on (PLD 1990 Karachi 186) re: "Rice Export Corporation of Pakistan Ltd. v. Karachi Metropoliton Corporation."

10. The other judgments which are also relevant to the issue are 1999 SCMR 2883 re:" Ardeshir Cowasjee and 10 others v. Karachi Building Control Authority (KMC) Karachi and 4 others" and (PLD 1985 Lahore 467) re: "Mian Muhammad Abdullah v. District Judge, Sahiwal and 6 others". The question that if an act is illegal and facts of the case confirm the said illegality, there is no bar in exercising writ jurisdiction. It is correct that in this case the petitioner failed to avail the regular remedy in the terms of a "reference" before the High Court. However, since the issue raised pertains to jurisdiction, the writ jurisdiction has rightly been invoked. The very notice issued by the Additional Collector on 15-6-2006 for 7/2001 to 6/2005 apparently was late for a part of the said period. The language of the said section is as follows:

Section 36

(2) "Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short levied or has been erroneously refunded, the person liable to pay the amount of tax or charge or the amount of refund erroneously made shall be served with a notice within three years of the relevant dates, requiring him to show-cause for payment of the amount specified in the notice:

Provided that, where a tax or charge has not been levied under this subsection, the amount of tax shall be recovered as tax fraction of the value of supply"

11. Section 36 can be invoked for the past three years only. This has been so provided in law in clear terms. In this regard the golden principle of interpretation of fiscal statutes is applicable with full authority. Law is to be applied in its natural meaning. The famous verse by Mr. J. Rowlet which is among the earliest on the issue and is being followed even today, needs reference. The same reads as follows:--

"It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

Applying above golden principle of interpretation one would be constrained to apply the limitation provided in the S.36(2) which provides jurisdiction for issuance of a notice only for three years prior to the date of such issuance. Going beyond the said limit shall amount defeating the intention of legislature which obviously cannot be allowed.

12. In fact this Court has already in its judgment dated 18-9-2007 given in W.P. No.13331/2006 declared the said limit to be as mandatory which cannot be extended beyond the language provided therein by any sales tax authorities. The relevant paras of the said judgment read as follows:--

"The ratio settled in Re: Juma Khan and others v. Mst. Bibi Zenaba and others, (PLD 2002 S.C. 823), a case relied upon at the bar for the revenue is clearly distinguishable. In that case, the Honourable apex Court held that the question of limitation would not arise where the "case" related to right of inheritance to ancestral property. The ratio obviously does not help the revenue at all in the case in hand where the issue revolves around the competency and jurisdiction of the revenue to create a liability after the expiry of the statutory period".

13. Now I come to the factual controversy. The notice has been issued from 7/2001 to 6/2005 and the date of issuance being 15-6-2006 the same is valid upto 15-6-2003. The period prior to the said cut of date, therefore, has been added without lawful authority. This is obviously exercise of a jurisdiction beyond the mandate of law. It, therefore, provides full room for exercise of the writ jurisdiction by this Court under Article 199 of the Constitution of Islamic Republic of Pakistan. Consequently, the notice is held be as illegal beyond the said period.

14. The result is obvious. The writ petition stands partly allowed in the manner that the charge created in principle is held to be as lawful while the period of the same is reduced to the extent of the period fixed by law under section 36 (2). This, writ petition, therefore, stands accordingly disposed of.

M.B.A./X-1/LOrder accordingly.