SUPER ASIA MUHAMMAD DIN SONS (PVT.) LTD VS COLLECTOR OF SALES TAX, GUJRANWALA, 2008 PTD-LAHORE-HIGH-COURT-LAHORE 60 (2007)

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

----Ss.36, proviso [as added by Finance Ordinance (XXI of 2000) and amended by Finance Act (I of 2003)]---Finance Act (III of 2006) S.45(2) [as added by Finance Act (III of 2006)]---Initiation of proceedings for recovery of tax not levied or short levied or erroneously refunded---Limitation---Period of 45 days prescribed for completion of adjudication proceedings by Finance Ordinance, 2000 and enhanced to 90 days by Finance Act, 2006---Not directory, but mandatory---Principles.

The claim of the Revenue that the prescribed limitation of 45 days for completion of adjudication proceedings as provided through Finance Ordinance, 2000 and enhanced to 90 days by Finance Act, 2006 is merely directory cannot be accepted. Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen, the prescription of time is deemed directory. However, where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory. The acceptance of contention of the revenue in that regard will make a provision of law redundant and nugatory. Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted. All the more so when the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty, then after its expiry, even if there was a good case for creation of liability, he will not be dragged in.

Nagina Silk Mill, Lyallpur v. The Income Tax Officer and the Income Tax Appellate Tribunal, Pakistan PLD 1963 SC 322 rel.

Nagina Silk Mill, Lyallpur v. The Income-Tax Officer and the Income Tax Appellate Tribunal, Pakistan PLD 1963 SC 322 distinguished.

(b) Taxation---

----Provision of law prescribing time limit for revenue to create liability against taxpayer would be deemed to be mandatory---Principles.

Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen, the prescription of time is deemed directly. However, where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory. When the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty, then after its expiry, even if there was a good case for creation of liability, he will not be dragged in.

(c) Interpretation of statutes---

----Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted.

Waqar Azim for Petitioner.

Izharul Haq for Respondents.

Date of hearing: 18th September, 2007.

JUDGMENT

NASIM SIKANDAR, J.-The Sales Tax Act, 1990 as originally framed did not prescribe any limitation for completing the assessment/ adjudication proceedings after issuance of a show-cause notice under section 36 (Recovery of Tax not levied or short-levied or erroneously refunded) of the Sales Tax Act 1990 (for short the Act). A proviso was however added by Finance Ordinance, 2000 stipulating a period of 45 days to complete the assessment proceedings by the concerned Officer of the Sales Tax empowered in that behalf. The word "45" days was substituted by "90" days by Finance Act 2003. The last change was made by Finance Act, 2006 adding subsection (2) to section 45 (Power of adjudication) of the Act. It was a non obstante clause stipulating that notwithstanding anything contained in subsection (4) of section 11 and subsection (3) of section 36 or any other provision of the Act or a judgment or decision of any forum, the time for adjudication in all the cases pending as on 30th June, 2006 shall be deemed always to have been extended upto 31st December, 2006 "from the date on which the time limit prescribed under subsection (4) of section 11 and sub-section (3) of section 36 expires."

2. This constitutional petition was admitted to regular hearing on 27-6-2007 to examine the issue if the proceedings in the present case become barred by limitation by 30th June, 2006 earlier to the amendment introduced in the relevant provisions of the Act.

3. The petitioner is a manufacturing unit and a registered person under the Act. On 6-4-1998 it was served with a notice by the Additional Collector of Sales Tax, Gujranwala alleging concealment of manufacture and sale of a huge quantity of articles, namely washing machines, room air coolers and geysers etc. Finding the reply submitted by the petitioner to be inadequate a contravention report was prepared and referred to the Additional Collector Lahore appointed as an adjudicating authority.

4. On 8-12-1998 the adjudicating authority remanded the matter to the detecting/Investigating Officer to re-investigate the matter in the light of the guidelines contained in his order. In Para-7 of the order it was stated that "only after the above complete investigation, the case will be fit for adjudication". Earlier in the last part of the order the adjudicating authority observed that the stated huge demand of Sales Tax "on single evidence basis only is not maintainable at this stage and it is not at all possible for any adjudicating officer to ascertain the exact quantum of evasion when case still needs basic investigation.

5. That remand order dated 8-12-1998 was challenged by the revenue by way of an appeal before the Customs, Federal Excise and Sales Tax Appellate Tribunal which is still pending. The present petitioner on the other hand assailed the order through a constitutional petition which was allowed by me on 16-1-2002 in W.P.No.16270/2000 re Messrs Super Asia v. The Additional Collector and others. In the order it was inter alia observed that if a revenue authority, by it original, appellate or revisional found itself indecisive and unconvincing of the alleged violation of a provisions of the Act, then instead of taking a chance in favour of the revenue, the assessee/tax payer must be let off the hook. Also that an unconvincing contravention report merited outright rejection. The remand order was, therefore, declared to be void and without lawful authority.

6. The revenue instead of assailing the order in appeal filed an application C.M. No.1 of 2002 seeking elaboration of my order. That application was decided on 11-4-2002. The plea made by the Revenue that after setting aside of the remand order the adjudicating authority could proceed on the contravention report was rejected. In that regard it was observed that once the adjudicating officer had concluded that no case against the tax-payer was made out the continuation of proceedings would be a futile exercise; that either a case is made out against a tax-payer or it is not made out. There was no gray area in between. Against the rejection order the revenue approached the Honourable Supreme Court. On 15-2-2006 the Honourable apex Court partly allowed the re-question of the revenue and the order dated 11-4-2002 recorded in C.M. No.1 of 2002 in W.P. No.16270 of 2000 was directed to be treated as non-existent.

7. After the above decision by the Honourable Supreme Court, on 15-7-2006 a notice of hearing was issued by the Collector of Sales Tax and Federal Excise, Gujranwala for 25-7-2006. The notice contained a reference to the earlier/first show-cause notice dated 6-4-1998. By way of the present petition the above notice for hearing dated 15-7-2006 is sought to be challenged on the grounds that after the decision of the said constitutional petition on 16-1-2002 setting aside the order of the adjudicating authority the matter came to an end; that even if the interpretation of the order of this Court by the Revenue is accepted, the time for finalization of adjudication proceedings provided in proviso to subsection (2) of section 36 started and after passing of 45 days of the limitation no notice of hearing for completion of proceedings could legally be issued; that even after the decision made by the Honourable Supreme Court which was received by the department of on 7-3-2006 the period for framing of assessment or to complete adjudication proceedings expired after passing of the 90 days of limitation (extended from 45 days in the meanwhile through Finance Act 2006); that the prescribed limitation having already expired on 30-6-2006 after the passing of order by the High Court and 90 days from the date of receipt of the order of the apex Court the revenue could not take benefit of the amendment made by Finance Act, 2006 extending the period in pending cases upto 31-12-2006. According to the petitioner with the expiry of the prescribed limitation of 45 days for completion of adjudication proceedings after the order of this Court dated 16-1-2002 and then with the disposal of the petition made by the revenue before the Honourable Supreme Court on 15-2-2006 the alleged contravention has become a past and closed transaction as nothing was pending on 30-6-2006 when subsection (2) was added to section 45 of the Sales Tax Act w.e.f. 1-7-2006.

8. The revenue on the other hand claims that the prescribed limitation of 45 days is only directory and not mandatory; that after the order of the Honourable Supreme Court of Pakistan the order of the Lahore High Court dated 16-1-2002 held the field which made the remand order void and resultantly the show-cause notice dated 6-4-1998 remained in the field; that at the time of serving of show-cause notice no limitation for completion of adjudication proceedings was provided and it was only by Finance Ordinance, 2000 that a time limit of 45, days was prescribed and lastly that the Central Board of Revenue through its letter C.No.1(16)S/Legal/2004 dated 9-12-2006 have advised the Collectorate to adjudicate the matter with reference to the amendment made in, section 45 of the Act by Finance Act, 2006. According to the revenue the limitation for adjudicating having been extended upto 31-12-2006 in all pending cases no possible legal exception could be taken to the hearing notice dated 15-7-2006, impugned through this petition.

9. In the case in hand it will be noted that the department has all along been asserting that after my judgment in W.P. No.16270 of 2000 dated 16-1-2002 the alleged show-cause notice and the pending adjudication proceedings revived immediately. In the letter of the Federal Board of Revenue, referred to in para-8 above, it is repeated that as a result of the aforesaid judgment on the constitutional petition the show-cause remained in the field and that "ordinarily the limitation would have been three months from the date of judgment received on 7-3-2006". However, according to the letter that period stood extended till the end of the year 2006 by way of above said amendment made by Finance Act, 2006 adding following subsection (2) to section 45 of the Act:

"(2) Notwithstanding anything contained in subsection (4) of section 11 and subsection (3) of section 36 or any other provision of the Act or any other law for the time being in force and notwithstanding any decision or judgment of any forum, authority or Court, the time for adjudication in all the cases pending as on 30th June, 2006, shall be deemed always to have been extended up to 31st December, 2006, from the date on which the time-limit prescribed under subsection (4) of section 11 and subsection (3) of section 36, expires."

In para-7 of reply to the contents of this petition, the revenue has again stated that:---

"As refer to the judgment of the Honourable Supreme Court of Pakistan dated 15-2-2006 in C.P. No.2326-L/2002 the orders of the Lahore High Court dated 16-1-2002 holds the field, which made remand order void, resultantly the show-cause notice remains in the field."

10. On the above view of the revenue only two issues need to be decided. First, if the limitation of 45 days inserted by Finance Ordinance, 2000 and enhanced to 90 days by Finance Act, 2003 is applicable in the case of the petitioner. Second, if in the case in hand the revenue can take benefit of the amendment made in section 45 by Finance Act, 2006 extending the period of limitation in pending cases up to 31-12-2006.

11. The facts regarding the issue of limitation being properly documented I will not take long to allow this petition for the following reasons:

(i) The claim of the revenue that the prescribed limitation of 45 days for completion of adjudication proceedings as provided through Finance Ordinance, 2000 and enhanced to 90 days by Finance Act, 2003 is merely directory cannot be accepted. It is settled law that where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory. However, where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory. The acceptance of contention of the revenue in that regard will make a provision of law redundant and nugatory. Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted. All the more so when the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a tax-payer thereby creating certainty that after its expiry even If there was a good case for creation of liability he will not be dragged in.

(ii) The above contention of the revenue is also negated by the ratio settled by the Honourable Supreme Court of Pakistan in re: Nagina Silk Mill, Lyallpur v. The Income-Tax Officer and the Income Tax Appellate Tribunal, Pakistan, (PLD 1963 SC 322). That case stands on all fours to the facts in hand. Their Lordships were called upon to consider the starting point of limitation of 4 years for the purpose of completion of assessment proceedings as provided in subsection (2) of section 36 of the repealed Income Tax Act, 1922. The word "year" was not defined in the said Act till promulgation of Finance Ordinance XV of 1960 on the 30th day of June 1960 which added a new clause after clause (xvi) of section 2 of the Act. The Honourable apex Court agreed that the definition of the word "year was incorporated into the Act for Government accounts purposes connected with the change of duration of the financial year (from 1st of April every year to 1st of July every year). In the view of their Lordships the new definition of the word "year" as inserted in the Act by Ordinance 1960 could not extend a period which had already commenced to run many years earlier. Further that once limitation had started to run and had come to an end the assessee had acquired a vested right of escapement of assessment by lapse of time. It was observed:

"The Courts must lean against giving a statute retrospective operation on the presumption that the Legislature does not intend what is unjust. It is chiefly where the enactment would prejudicially affect vested rights, or the legality of past transactions, or impair existing contracts, that the rule in question prevails. Reference may be made in this connection to page 206 of Maxwell on the Interpretation of Statutes, Eleventh Edition. Even if two interpretations are equally possible, the one that saves vested rights would be adopted in the interest of justice, specially where we are dealing with a taxing statute. The appellant herein had already acquired the vested right of escaping assessment, by lapse of time, when the 1960 Ordinance was enforced. In all probability, the Legislature never intended that the period of limitation prescribed in the. Act should become variable with the changes in the "financial year" or "year" inserted in the Act for certain other purposes, namely, to accord with the new accounting years adopted by Government" (underlined for emphasis).

(iii) It has all along been the stance of the revenue that after my order dated 16-1-2002 recorded in W.P.No.16270/2000 the show-cause notice issued on 28-3-1998 was re-activated. In para-7 of the comments filed by the revenue it is stated that in view of the judgment of the Supreme Court dated 15-2-2006 in C.P. No.2326-L/2002 "the orders of the Lahore High Court dated 16-1-2.002 holds the field, which made remand order void, resultantly the show-cause notice remains in the field." The same view has been expressed by the revenue in C.B.R. letter referred to in para-8 above. In para-4 of the letter the revenue has repeated that the show-cause remained in the field and that "ordinarily the limitation would have been three months from the date of judgment received on 7-3-2006 (15-2-2006)". However, in para-5 of the letter the revenue has taken the stance that after the judgment of the Honourable Supreme Court dated 15-2-2006 which was received by the revenue on 7-3-2006 the matter ought to have decided within three months but for the amendment made in section 45 of the Act extending the period of limitation upto 31-12-2006. It is here that the revenue has faltered. If it is admitted that the show-cause notice remained in the field and was reactivated after the judgment of the Honourable Supreme Court the period of three months to complete the adjudication proceedings ended on 7-6-2006 while, as noted above, the impugned show-cause notice challenged by way of this petition was issued on 15-7-2006. The limitation having come to an end on 7-6-2006 it was no more a "pending" matter which could possibly be extended till 31-12-2006 by involving the amendment in subsection (2) of section 45 of the Act through Finance, Act, 2006 which came into effect from 1-7-2006.

(iv) The revenue has been approbating and reprobating. In the reply to the contents of this constitutional petition it has claimed that the show-cause notice having been issued in the year 1998 and the limitation for completion of proceedings having been provided in section 36 of the Act for the first time through Finance Act, 2002, it was not applicable in the case of the petitioner. On the other hand, in the said letter of the C.B.R. dated 9-12-2006 it has expressly been admitted that the limitation of three months is applicable in the case of the present petitioner. The latter view is obviously correct. The law having been amended in the year 2000 and the remand order having been set aside on 16-i-2002 the limitation of 45 days as provided at the relevant time immediately started running it needs to be noted that there has never been any injunctive order passed in favour of the revenue since 16-1-2002 till final disposal of the matter by the Honourable Supreme Court of Pakistan on 15-2-2006. Therefore, the impugned show-cause notice dated 15-7-2006 is clearly barred by limitation when taken to have started from the order of this Court or even after the receipt of the judgment of the Honourable Supreme Court of Pakistan by the revenue on 7-3-2006. It is, therefore repeated that on the enforcement of the Finance Act, 2006 w.e.f, 1-7-2006 no matter was "pending" against the petitioner. Accordingly, no adjudication proceedings could be completed after 7-6-2006 on expiry of 90 days as it was a past and closed transaction.

(v) The ratio settled in re: Juma Khan and others v. Mst. Bibi Zenaba and others (PLD 2002 SC 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.

12. This petition is accordingly allowed and the impugned show-cause notice dated 15-7-2006 is declared to have been issued without jurisdiction.

S.A.K./S-189/LPetition accepted.