RUPALI POLYESTER LTD., LAHORE VS COLLECTOR OF CENTRAL EXCISE AND SALES TAX, LAHORE, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 538 (2008)

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

----Ss. 36 & 47-A---Constitution of Pakistan (1973), Art.199---Constitutional petition---Reopening of assessment by authority on account of under valuation of product by assessee---Pendency of appeal in Supreme Court against acceptance of assessee's constitutional petition by High Court declaring reopening of assessment to be illegal---Assessee's application to Alternate Dispute Resolution Committee presuming pendency of appeal and passing of stay order therein by Supreme Court---Dismissal of appeal by Supreme Court before disposal of application by the Committee----Assessee's claim for refund of tax on the ground that after dismissal of appeal by Supreme Court, order of High Court attained finality; and that proceedings before such Committee were illegal---Validity---Jurisdiction of such Committee could be invoked during pendency of appeal---Neither department nor assessee was aware of dismissal of appeal by Supreme Court---Proceedings continued against assessee despite dismissal of appeal by Supreme Court were illegal---Proceedings initiated on a wrong legal presumption would become totally unlawful---After such order of High Court having attained finality on dismissal of appeal by Supreme Court, department was required to refund excess amount of tax to assessee---High Court directed department to do the needful within specified time.

Friendship Textile Mills (Pvt.) Ltd., and others v. Government of Balochistan through Secretary, Local Government and Rural Development, Quetta and others 1898 CLC 1767 and Khan Iftikhar Hussain Khan of Momdot v. Messrs Ghulam Nabi Corporation Ltd., Lahore PLD 1971 SC 550 ref.

Syed Allah Dost v. Haji Muhammad Alam and others PLD 1987 Quetta 235; Mansib Ali v. Amir Ali PLD 1971 SC 124; Muhammad Yousaf Khattak v. S.M. Ayub and others PLD 1972 Pesh. 151; E.A. Evans v. Muhammad Ashraf PLD 1964 SC 536 and Mir Dost Muhammad v. Govt. of Baluchistan and 3 others PLD 1980 Quetta 1 rel.

(b) Administration of Justice---

----Proceedings initiated on a wrong legal presumption would become totally unlawful---Principles.

Proceedings initiated on a wrong legal presumption become totally unlawful.

"A wall raised on a tilted brick shall remain tilted, take it to any height." Meaning thereby that the superstructure raised on wrong foundation remains defective and the whole of it is likely to crumble due to said defect.

Syed Allah Dost v. Haji Muhammad Alam and others PLD 1987 Quetta 235; Mansib Ali v. Amir Ali PLD 1971 SC 124; Muhammad Yousaf Khattak v. S.M. Ayub and others PLD 1972 Pesh. 151; E.A. Evans v. Muhammad Ashraf PLD 1964 SC 536 and Mir Dost Muhammad v. Govt. of Baluchistan and 3 others PLD 1980 Quetta 1 rel.

Muhammad Ilyas Khan for Petitioner.

Ms. Kausar Parveen for Respondents.

Muhammad Nawaz Waseer, Standing Counsel.

ORDER

KHAWAJA FAROOQ SAEED, J.---Through this writ petition, the petitioner seeks direction of this court to release an amount of Rs.3,96,93,753 on account of refund of the taxes deposited by the petitioner.

2. Brief facts are that the petitioner was served notices by Sales Tax Department regarding under valuation of certain items which are as under:--

(i) C.No.IV(2) Collr/Cont/95/93/435, dated 17-1-1994 regarding under valuation of Chips during the period from July, 1987 to November, 1993 involving sales tax amounting to Rs.93,783,132.

(ii) C.No.41-DC(N) Cont/94/8494, dated 28-8-1994 regarding under valuation of POY during the period from July, 1988 to July, 1994 involving sales tax amounting to Rs.250,919,725.

(iii) C.No.IV-ST/REC-54/94/1867, dated 28-8-1994 regarding under valuation of POY during the period from July, 1989 to May, 1994 involving sales tax amounting to Rs.108,001,945.

(iv) C.No.42 DC(N) Cont/94/8491, dated 7-12-1994 regarding under-valuation of Polyester Fibre during the period from October, 1988 to July, 1994 involving sales tax amounting to Rs. 133,687,111.

(v) C. No.IV(2)Collr/38/94/3352, dated 30-4-1994 regarding input tax adjustment of spare parts during the period from February, 1991 to March, 1994 involving sales tax amounting to Rs .8,612,606.

3. Through above notices it was inter alia pointed out that the petitioner has not paid full amount of Sales Tax. Writ Petition was filed by the petitioner, which was registered as No.544/95, and was accepted. It was inter alia held that no formula or estimate can be arrived at with regard to production, while the case under Sales Tax Act, 1961 could not be re-opened being barred by time. This order was finalized on 8-10-1996.

4. The respondents department challenged the said order before the Supreme Court of Pakistan through Civil Petition for Leave to Appeal Nos.24-L of 1997 and 25-L of 1997 and leave was granted on 6-7-1998. Proceedings were also stayed till disposal of the appeal. The petitioner under the presumption that there is a stay order against him as was granted by the Hon'ble Chief Supreme Court of Pakistan on 6-7-1998, filed an application before the ADRC (Alternate Dispute Resolution Committee) under section 47A of the Sales Tax Act, 1990. The ADRC after due deliberations finalized its recommendations. However, in December 2006, the petitioner came to know that the Civil Appeals No.1144 and 1145 of 1998 that had arisen out of the Civil Petitions for Leave to Appeal Nos.24 and 25 had been dismissed since 16-10-1998 by the Supreme Court of Pakistan. The petitioner, therefore; approached the FBR. It was pointed out that since the petitioner was under wrong impression that an appeal is pending and there is a stay order against him, the entire proceedings are illegal and unlawful. It has inter alia been claimed, to which there is apparently no doubt that for all practical purposes, the order of the Lahore High Court, announced in earlier Writ Petition No. 544 of 1995, has attained finality. All the subsequent proceedings in terms of the proceeding of the ADRC as well as its report are illegal, unlawful and of no legal effect having been initiated and concluded under a wrong impression. The refund of the amount as claimed above being on the basis of said order of this Court, therefore, is lawful and genuine claim of the petitioner.

5. So far as the facts of the case is concerned, there is no denial from the respondent side that the same are correct and it has been duly verified by the legal advisor from the department also. Her point of view, however, remained that since it was petitioner himself who had approached for the ADRC, he cannot, now claim the said proceedings to be illegal. She has challenged the very maintainability by arguing that the same has not been filed by a competent person by relying upon 1998 CLC 1767 Friendship Textile Mills (Pvt.) Ltd., and others v. Government of Balochistan through Secretary, Local Government and Rural Development, Quetta and others and PLD 1971 SC 550 Khan Iftikhar Hussain Khan of Momdot v. Messrs Ghulam Nabi Corporation Ltd., Lahore. A writ petition has to be filed by a competent person and in case of a (Pvt.) Ltd. Company it should be followed by resolution from the Company. This is what has been held in the aforementioned judgments. However, since the petitioner has later filed the resolution, the same are ignored.

6. The next argument is that principle of acquiescence is applicable on the facts of this case. The argument again is a misconception. When this petitioner approached the ADRC, neither he nor the department was aware of rejection of the appeal before the Hon'ble Supreme Court of Pakistan. The process initiated, and the proceedings continued, therefore, were illegal on the face of it. The law provides for invocation of the jurisdiction of ADRC under section 47A where an appeal is pending. In this case, on the date there was an impression of pending appeal but there was actually no pendency on that date. It is a settled law that proceedings initiated on a wrong legal presumption become totally unlawful. Famous Persian verse:---

apply with full force on the facts of this case. This verse has explained a very prominent legal maxim. It means a wall raised on a tilted brick shall remain tilted, take it to any height'. Meaning thereby that the superstructure raised on wrong foundation remains defective and the whole of it is likely to crumble on identification of said defect. Reliance can be placed on PLD 1987 Quetta 235 (Syed Allah Dost v. Haji Muhammad Alam, Etc. The relevant para of the said judgment reads as follows:--

"Additionally it may be seen that when law specifies a particular procedure there it is obligatory for the functionary of the State to adhere to the same and comply it in all respects. Thus any negligence, failure or omission to do so invalidates the proceedings on account of which whole superstructure raised on such defective foundation automatically crumbles.

7. In this behalf the reliance was further placed inter alia on the following cases:--

(i) Mansib Ali v. Amir Ali (PLD 1971 SC 124).

(ii) Muhammad Yousaf Khattak v. S.M. Ayub and others (PLD 1972 Peshawar 151).

(iii) E.A. Evans v. Muhammad Ashraf (PLD 1964 SC 536).

(iv) Mir Dost Muhammad v. Govt. of Baluchistan and 3 others (PLD 1980 Quetta-1).

8. The payment of taxes in this case, has statedly been, made by the petitioner until and before 8-10-1996. Now twelve years have passed and it does not require any support to say that prompt payment of refund, where it is established that the same is in excess of the legal requirements, is equally necessary as the recovery of revenue by the National Exchequer. The fact that the order of this Court has attained finality for all practicable purposes does not need much elaboration to prove. The only thing at this stage now would be required is the debit and credit of the demands and payments in order to determine the exact figure. The judgment of this court in terms of order in writ petition No.544 of 1995, dated 8-10-1996 being applicable, it is directed that the same should be followed in its letter and spirit. The department is directed to do the needful within two months from today. After determining the demand and verification of the payments, the amount of refund shall be paid to the petitioner. This exercise shall be done within the period mentioned above. This writ petition, therefore, is allowed and disposed of accordingly.

S.A.K./R-4/LOrder accordingly.