GULISTAN TEXTILE MILLS LTD., KARACHI VS COLLECTOR (APPEALS) CUSTOMS SALES TAX AND FEDERAL EXCISE, KARACHI, 2010 PTD-KARACHI-HIGH-COURT-SINDH 251 (2009)

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

----S.11(4) [as amended by Finance Act (I of 2008)] & S.47---Default in filing of Tax return---Issuance of show cause more than five years after alleged default and its receipt by assessee on 19-4-2003 and finalization of order-in-original on 1-10-2004---Amendment in S.11(4) of Sales Tax Act, 1990 made by Finance Act, 2008 providing period of limitation of five years for issuance of such show-cause notice--Pendency of reference application of assessee before High Court at the time of such amendment---Plea of assessee that such amendment being beneficial would apply to all proceedings pending at appellate level or before High Court---Validity---Such amendment having all characteristics of a remedial statute would have retrospective operation and would apply to all proceedings pending on 30-6-2008---Pending proceedings would include proceedings pending in High Court in reference application---Where no limitation was provided for certain actions impairing vested rights, then court could impose reasonable limitation for carrying out such actions---Court could hold that such period for being reasonable should apply to all cases, where show-cause notice had been issued for such default, even if no period for taking action was prescribed at the time of issuance of such show-cause notice---Such show-cause notice on basis of which proceedings culminating in order-in-original were initiated was barred by period of limitation, thus, entire proceedings emanating from such show-cause notice stood extinguished.

Nawabzada Muhammad Shah Khan, v. Federal Land Commissioner, Islamabad 1991 SCMR 732; Messrs Army Welfare Sugar Mills Ltd. v. Federation of Pakistan 1992 SCMR: 1652; Syed Wajid Ali v. Globe Automobiles Ltd. 1993 SCMR 819; Lahore Development Authority v. Abdul Shafique and others PLD 2000 SC 207; Syed Match Company Ltd. v. Authority Under Payment of Wages 2003 SCMR 1493 Kumar Stya Bijoy Ghosal Bhadur v. Deb Prosad Chakrabarty PLD 1952 Dacca 119; Divisional Superintendent P.W.R. v. Bashir Ahmad PLD 1973 SC 589; Nusrat Ali Abbasi v. Maqsood Ali Qureshi PLD 1982 Karachi 712; CIT v. Shahnawaz Limited 1993 SCMR 73; Corpus Juris Secundum, Vol.82 (paragraph 388) and "Statutory Construction" 1940 Edn. in para 282 ref.

(b) Limitation---

----Where no limitation is provided for certain actions, which impair vested rights, then court is empowered to impose reasonable limitation for carrying out such actions.

Khalid Mehmood Siddique for Applicant.

Nadeem Qureshi for Respondent.

Date of hearing: 31st March, 2009.

JUDGMENT

MUHAMMAD ATHAR SAEED, J.---By this Special Sales Tax Reference Application filed under section 47 of the Sales Tax Act, 1990 against the order of the Tribunal dated 26-9-2006 passed in Sales Tax Appeal No.K-251/2005/14642, the, following questions said to have arisen from that order, have been proposed for the opinion of this Court:--

(i) Whether the show-cause notice under section 11(2) of the Act alleging non filing of Tax return is maintainable in law?

(ii) Whether a show-cause notice under section 11(2) of the Act alleging late filing of Tax return is maintainable in law?

(iii) Whether a show-cause notice under section 11(2) of the Act allegedly based on an audit observation without providing a copy of the said audit observation to the respondent is maintainable in law?

(iv) Whether a show-cause notice under section 11(2) of the Act, issued after 5 years and 10 months of the alleged non filing of Sales Tax return is maintainable in law?

(v) Whether a show-cause notice under section 11(2) of the Act, issued beyond the maximum period of five (5) years prescribed under section 36(1) of the Act, is maintainable in law?

(vi) Whether a show-cause notice under section 11(2) of the Act, 1990, alleging non filing of a sales tax return, issued beyond the period prescribed for retention of record and documents as prescribed by section 24, of the Act is maintain-able in law?

(vii) Whether the order-in-original passed under section 11(2) of the Act, 1990 after about 1 1/2 years of the issue of show-cause notice is maintainable in law?

(viii) Whether the respondent No.2 could legally travel beyond the show-cause notice and convert the allegation of non filing of return in show-cause notice to an allegation of late filing of return in order-in-original without giving any reasons for the substitution?

(ix) Whether the time limit prescribed under sections 11(4) and 36(3) of the Act is directory in nature and not a mandatory provisions?

2. The brief facts of the case are that the department had issued an undated show-cause notice alleging that the present applicant has failed to file the Sales Tax returns for the tax periods of June, July, August and September, 1997, which attracted penalty amounting to Rs.15,97,250 because of violations of various sections of Sales Tax Act. Later on the charges for non filing of returns were withdrawn and also late filing of return for August and September were also withdrawn and by Order-in-Original No. 170 of 2004 dated 1-10-2004 it was held that the returns of June and July were not filed within due date and therefore, recovery of additional tax due was ordered and also penalty of Rs.5000 each for late filing of the two returns was imposed under section 33(1) of the Sales Tax Act, 1990 and also a penalty of Rs.5000 or 5% of the amount of tax involved, which was higher was also levied under section 33(2)(cc) of the Sales Tax Act, 1990.

3. Being aggrieved by the above order the applicant filed an appeal before the learned Collector of Appeals, which was dismissed by the learned Collector by his order dated 9-7-2005.

4. Being aggrieved by the order of the Collector (Appeals), the applicant filed an appeal before the learned Tribunal, which was dismissed by the impugned order. Hence, this appeal.

5. Although, various grounds have been raised in this reference application in shape of questions but the main contention of the learned counsel for the petitioner was that for alleged non filing of returns for certain tax periods, an undated show-cause notice was issued more than five years after the date of alleged default, which was received by the applicant on 19-4-2003 and the order in original was finalized on 1-10-2004 after a lapse of one and a half year. The learned counsel submitted that even the notice was received by him more than five years and almost seven to nine months of the date of alleged default. He submitted that although there was no period of limitation prescribed at that time for taking action for non filing of return or late filing of return bust during the pendency of this reference application in this Court, subsection (4) of section 11 has been amended by Finance Act, 2008 to provide a period of limitation of five years for issuance of show-cause notice for default in filing of return. The learned counsel submitted that since it is a beneficial amendment it applies to all pending proceedings even if they were pending at the appellate level or before this Court.

6. In this connection he relied on the following judgments:---

1.Nawabzada Muhammad Shah Khan v. Federal Land Commissioner, Islamabad reported in 1991 SCMR 732.

2.Messrs Army Welfare Sugar Mills Ltd. v. Federation of Pakistan reported in 1992 SCMR 1652.

3.Syed Wajid Ali v. Globe Automobiles Ltd. reported in 1993 SCMR 819.

4.Lahore Development Authority v. Abdul Shafique and others reported in PLD 2000 SC 207.

5.Syed Match Company Ltd. v. Authority Under Payment of Wages reported in 2003 SCMR 1493.

6.Messrs Qaiser Brothers (Pvt.), Karachi v. Controller of Customs Valuation Customs House reported in 2005 PTD 2543.

7.Messrs Ashraf Sugar Mills Ltd. v. Manzoor Ahmed reported in 2006 SCMR 1751.

7. To assist this Court on this point we had appointed Mr. Rehan Hassan Naqvi, a Senior Advocate of this Court as amicus curiae. Mr. Rehan Hassan Naqvi on this point made the following submissions before this Court:--

"Section 11(4) of the Sales Tax Act, 1990 was amended vide section 12(8) of the Finance Act, 2008 dated 27th 'June, 2008 by inserting words "within five years" after the word "given" in the said section, meaning thereby for purposes of show cause notice to a person in default has been restricted to five years and the existing anomaly" in section 11(4) of the Sales Tax Act, 1990 wherein no period was specified for taking action through a show cause notice in case of non-filing of return for a tax period by due date or pays an amount which for some miscalculation is less than the amount of tax actually payable has been resolved. In the result this amendment in subsection (4) of section 11 of the Sales Tax Act, 1990 is besides being curative is also remedial. In support of this submissions reliance is placed re:--

1.Kumar Stya Bijoy Ghosal Bhandur v. Deb Prosad Chakrabarty reported as PLD 1952 Dacca 119:

"Section 168-A is a remedial provision inserted for the benefits of the tenants. In construing the remedial statute the principle to be followed is "the word of a remedial statute must be considered so far as they reasonably admit so as to secure that the relief contemplated by the statute shall not be denied to the persons intended to be relieved."

2.Divisional Superintendent P.W.R. v. Bashir Ahmad reported as PLD 1973 SC 589.

"It is also important to point out the statute is remedial in its object, and is well established principle of interpretation that remedial statute should be construed in a manner so as to advance the remedy and suppress the mischief or else it would frustrate the legislative intendment."

The above cause of the Honourable Supreme Court of Pakistan has also been referred to by the Honourable Karachi High Court in re: Nusrat Ali Abbasi v. Maqsood Ali Qureshi reported as PLD 1982 Karachi 712 (relevant page 715 side line B).

The application of curative and remedial legislation does not operate retroactively as a general rule but if the curative or remedial or beneficial statute which does not take away, curtail or affect any vested right or substantive right would operate retrospectively unless contrary was expressed. Reliance is placed on re:---

CIT v. Shahnawaz Limited reported as 1993 SCMR 73.

"While applying its dictum, the High Court however, felt that the retrospective operation visualized by the instant amendment could extend only to such cases which are pending at the time the amending law was enacted i.e. cases which had not been finally determined or proceedings which had not attained-finality. The retrospective effect of the amending law would therefore apply only to those cases where the assessment had not been made by the I.T.Os. or where a appeal was pending before the Tribunal or a reference was sub judice before the High Court, at the, time the amending law was enacted. The cases which had finally been determined or had attained finality i.e. which are past and closed transactions could not be reopened 'under the amending legislation as there are no express words to that effect employed in the amending laws."

As the applicant Messrs Gulistan Textile Mills Ltd. filed reference application bearing STRA No.2 of 2007 in January, 2007 and the amendment to subsection (4) of section 11 of the Act, 1990 was made vide subsection (8) of section 12 of the Finance Act, 2008 therefore, the benefits thereof can be extended to the applicant because it was in the nature of curative as well as remedial legislation and pending before the Honourable High Court at the time of said amendment was enacted in view of the judgment of the Honourable Supreme Court of Pakistan cited as 1993 SCMR 73.

8. Mr. 4adeem Qureshi learned counsel' for the respondent submitted that section 11 was not a remedial statute but a substantive statute and any amendment made in it could only be given effect prospectively and not retrospectively and therefore, the judgments relied on by the learned amicus curiae and the learned counsel for the applicant are not applicable to this case.

9. Although the learned counsel for the applicant has made various arguments on all the proposed questions we decided to first examine whether the 'submissions made by the learned counsel for the applicant and the learned amicus curiae hold any water.

10. The learned Amicus Curiae has relied on the judgment of the Honouable Supreme Court in the case of Commissioner of Income Tax v. Shahnawaz (Pvt.) Ltd and has also reproduced the extract from this judgment in his submissions reproduced above.

11. We have studied this judgment very carefully. The Honourable Supreme Court has approved the judgment of this Court and reproduced various extracts from the judgments of the High Court. The Honourable Supreme Court has also reproduced the following extract on the definition of remedial statute and its construction from the judgment of the High Court including the extract reproduced by the Amicus Curiae in his submissions quoted supra:--

Discussing the nature of the remedial statutes the High Court referred to Corpus Juris Secundum, Vol.82 (paragraph 388), which, inter alia, is to the following effect:--

"In the construing remedial statutes, regard should be had to the former law, the defects or evils to be' cured or abolished, or the mischief to be remedied, and the remedy provided, and they should be interpreted liberally to embrace all cases within their scope so as to accomplish the object of the legislature and to give effect to the purpose of the statute by suppressing the mischief and advancing the remedy provided it can be done by reasonably construction in furtherance of the object."

The question whether remedial statutes can be given retrospective effect has been considered by Crawford in his "Statutory Construction" in 1940 Edn. in para. 282 as follows:--

"282. Remedial statutes.---Even remedial statutes may be' subject to the principles hereintofore discussed, opposing any construction which will give the enactment retrospective operation. Yet, since remedial statutes are usually looked upon with favour by the courts they should be liberally construed. But there appears to be considerable confusion in the cases with reference to giving remedial Act retrospective effect through construction. If the rule of liberal construction is to be applied, as it obviously should then any doubt should be resolved in favour of retrospective operation, if such operation does not destroy or disturb vested rights, impair the obligation of contracts, create new liabilities violate due process of law or contravene some other Constitutional provision, and if such operation will carry out the intention of the legislature as ascertained through the application of the principle of liberal construction. In other words, as statute relating to remedial law may properly, in several instances, be given retrospective operation."

12. When we review the amendment made in section 11 (4) of the Sales Tax Act, we regret we cannot agree with the learned counsel for the respondent that it is a substantive statute because it possesses all the characteristic of a remedial statute and in our opinion it will have retrospective operation insofar as it will apply to all proceedings which are pending on 30-6-2008 and the Honourable Supreme Court has approved with favour the obiter dicta of this Court where it was held that pending proceedings will also include proceedings pending in this Court in reference application. Even otherwise the principle that there should come a time when the matters are considered to be finalized and put to rest and the sword hanging on them is removed, is a universal principle and it has been held by the Superior courts that where no limitation is provided for certain actions, which impair vested rights the courts are empowered to impose reasonable limitation for carrying out such actions. We are, therefore, of the considered opinion that the period of five years provided in section 11(4) of the Sales Tax Act for issuance of show cause notice for default in filing of return will not only apply to all proceedings pending even before this Court but the courts can hold that this period which apparently is reasonable should apply to all the cases where show cause notice has been issued for default in filing of return, even if no period for taking action was prescribed at the time such show cause notice was issued.

13. We will, therefore, answer question No.4 and question No.5 in negative. The effect of answer is that the show cause notice on the basis of which the proceedings culminating in order-in-original were initiated was barred by the period of limitation and therefore, entire proceedings emanating from this show cause notice stand extinguished.

14. In view of our above answer the other proposed questions are not required to be answered.

15. A copy of this order under the signature of the- Registrar and seal of this Court be remitted to the Customs Excise and Sales Tax Appellate Tribunal for passing of order in conformity with this order.

S.A.K./G-36/KOrder accordingly.