SHAHNAWAZ (PVT.) LTD. VS PAKISTAN through the Secretary Ministry of Finance Government of Pakistan, Islamabad
2011 P T D 1558
[Sindh High Court]
Before Muhammad Athar Saeed and Munib Akhtar, JJ
SHAHNAWAZ (PVT.) LTD. through Director Finance
Versus
PAKISTAN through the Secretary Ministry of Finance Government of Pakistan, Islamabad and another
C.P. No.973 of 2010, decided on 06/04/2011.
(a) Income Tax Act (XLIX of 2001)---
----S. 177---Audit of income tax affairs---Scope---Each tax year would be a separate unit of assessment---Audit must be carried out with reference to a specific tax year---Audit could be carried out once tax year was complete and not before---Audit would always be retrospective.
(b) Income Tax---
----Income tax legislation as applicable to a given tax year would normally be regarded as being law as same stands on thefirst day next succeeding the tax year.
(c) Income Tax Ordinance (XLIX of 2001)---
----Ss. 74---Normal tax year and special tax year---Applicability of Income Tax Ordinance, 2001---Scope---Normal tax year being of twelve months period ending on 30th June---In respect of normal tax year, Income Tax Ordinance, 2001 would be regarded as applying as same stands on 1st of July, next succeeding day---Special tax year being of twelve month period ending on a day other than 30th June---In respect of special tax year, Income Tax Ordinance, 2001 would be regarded as applying as same stands on relevant 1st of July---Income Tax Ordinance, 2001 would be regarded as applying in relation to a tax year as amended by Finance Act of such year.
(d) Income Tax Ordinance (XLIX of 2001)---
----Ss. 120 & 177---Selection of cases for audit after transmission of return into an assessment order---Purpose---Selection of cases for audit after trusting taxpayer and accepting his return on its face value would be for ensuring that all income required to be brought to tax had in fact been taxed---Once a taxpayer selected lawfully and properly, then department would be entitled to comprehensively examine his income tax affairs by carrying out a complete and robust audit.
Noble (Pvt.) Ltd. v. Federal Board of Revenue 2009 PTD 841 ref.
(e) Vested right---
----Every vested right would not necessarily be a past and closed transaction---Principles.
Every past and closed transaction is normally based on or comprises a vested right. Every vested right is not necessarily a past and closed transaction. Indeed, if rights were required to be placed in ascending order, the "scale" could be said to comprise of a "bare right", a vested right and a past and closed transaction. Ordinarily, a right can be regarded as progressing from a "bare" right to become a vested right and then perhaps even a past and closed transaction. Of course, some rights only become vested rights, and do not go beyond to become past and closed transactions. Others may vest immediately as soon as they arise or accrue, and then may (or may not) become past and closed transactions. Some right (though this would be a somewhat rare and unusual situation) may even become past and closed transactions once they accrue, i.e. progress to that category straight from being "bare" rights.
Especially in the realm of fiscal statutes, past and closed transactionsappeartostandonafootinghigherthan vested rights.
Molasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan and others 1993 SCMR 1905; Chief Land Commissioner, Sind and others v. Ghulam Hyder Shah and others 1988 SCMR 715 and Al Samrez Enterprise v. Federation of Pakistan 1986 SCMR 1917 rel.
(f) Vested right---
----Fiscal statues---Past and closed transaction especially in realm of fiscal statute stands on a footing higher than vested rights.
Molasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan and others 1993 SCMR 1905 rel.
(g) Income Tax Ordinance (XLIX of 2001)---
----Ss. 120, 177 [as amended by Finance Act (I of 2009) and Finance (Amendment) Ordinance (XXII of 2009)], 174(3) & 214-C [as added by Finance Act (XVIof2010)]---SalesTaxAct(VIIof1991), Ss.25 & 32-A---Constitution of Pakistan Art. 199---Constitutional petition---Selection of cases by computer ballot of 11-12-2009 for a composite income tax and sales tax audit for tax year 2008---Validity---Each tax year would be a separate unit of assessment---Income Tax Ordinance, 2001 would apply in relation to each tax year in a specific manner as same stood on first day next succeeding last day of tax year---Audit of income tax affairs could not be conducted without records which taxpayer under S. 143(3) of Income Tax Ordinance, 2001 was required to maintain for certain years in relation to a tax year---In relation to tax year 2008, S. 177 of the Ordinance was to be applied as same stood on 1-7-2008 and on its basis, taxpayer could be selected for audit---Section 177 as stood on 1-7-2008 was materially in a different form on 11-12-2009, when computer ballot was held---Taxpayer had acquired a vested right with regard to how he could be selected for audit of any given year---Taxpayer could only be selected for audit consistently with vested right---Taxpayer had a vested right in S. 177applying to tax year 2008 as same stood then and taxpayer could be selected then separately and individually---Power to select "classes of persons" for audit did not exist on 1-7-2008---Federal Board of Revenue had no statutory power under S. 177 on 11-12-2009 to select taxpayer for audit by computer ballot for audit of tax year 2008---Section214-C of Income Tax Ordinance, 2001 inserted w.e.f. 1-7-2010 by Finance Act, 2010 was not in existence on 1-7-2008 and could not save computer ballot held on 11-12-2009---Taxpayer could be selected for an audit only once in respect of a given tax year---Once an audit had been called in relation to a taxpayer and was being or had been conducted or having been called as abandoned by department of its own volition, then taxpayer could not be vexed again by selecting his case a second time for audit of same tax year---If in relation to tax year 2008 taxpayer by computer ballot had already been selected for audit in terms of S. 177 as same stood as a vested right in relation to such tax year, then taxpayer could not be selected a second time by way of computer ballot, for such matter had become a past and closed transaction---Section 214-C would affect vested rights, but not past and closed transactions---Exercise of statutory powers of audit under Income Tax Ordinance, 2001 could not result in action being taken under Sales Tax Act, 1991 for each being governed by its own provisions---Impugned selection of cases by computer ballot for compositeauditwaswithoutlawfulauthorityandofnolegal effect---High Court accepted constitutional petition in circumstances.
Commissioner of Income Tax v. Media Network and others PLD 2006 SC 787 and 2006 PTD 2502 rel.
(h) Interpretation of statutes---
----Beneficial fiscal legislation can, if need be, be regarded as applying retrospectively.
(i) Vested right---
----Vesting of a right would be to protect position of person in whom right vested---Benefit of subsequent change, ifimproves position of such person, ought not to be denied to him.
(j) Constitution of Pakistan---
----Art. 199---Constitutional petition raising an important question of law of general application---Maintainability---Such question could be raised directly before High Court and decided by it.
Iqbal Salman Pasha, Dr. Farogh Naseem, Ms. Sana Minhas and Abid Shirazi for Petitioners.
Jawaid Farooqui, Ali Mumtaz Shaikh, Syed Riazuddin and Sibtain Mahmud for Respondents.
Umer Hayat Sandhu, Deputy Attorney General.
ORDER
MUNIB AKHTAR, J.---By this common judgment, we intend disposing of a number of connected constitutional petitions, which raise important questions as to the proper interpretation and application of sections 177 and 214C of the Income Tax Ordinance, 2001 ("the 2001 Ordinance"). The necessary facts can be stated briefly. It appears that on or about 11-12-2009, a computer ballot was held at the head office of the Federal Board of Revenue ("F.B.R." or the "Board") to select companies and associations of persons for a "composite" income tax and sales tax audit. The tax year selected for this purpose was the tax year 2008. All the petitioners were selected for audit by means of the aforesaid ballot. Thereafter, the petitioners were served with notices under section 177 for the conduct of the audit, and for this purpose different chartered accountant firms were given the mandate to conduct the audits of the various selectees. It appears that the scope of the proposed audit was essentially the same in all cases. Being aggrieved by the computer ballot and the subsequent audit proceedings initiated against them, the petitioners have approached this Court seeking appropriate declaratory and injunctive relief. Their case is that the entire exercise being carried out is ultra vires the relevant provisions of the 2001 Ordinance. They submit that the computer ballot is liable to be quashed, with the consequence that no audit in terms thereof can be carried out, either for income tax or sales tax purposes. The material facts not being in dispute, the matter turns entirely on the proper interpretation and application of the relevant statutory provisions.
2.Mr. Iqbal Salman Pasha, learned counsel appearing for some of the petitioners, submitted that the Board did not have the power to select persons for an audit by computer ballot for the tax year 2008, whether under section 177 or section 214C. He contended that the Finance (Amendment) Ordinance, 2009, which had amended section 177 and which was promulgated on 28-10-2009, also did not confer the necessary statutory authority in this regard. He submitted that the "composite audit", which was being held pursuant to the computer ballot, meant an audit of both income tax and sales tax affairs, which could not be combined in this manner. Thus, according to him, the entire exercise was without lawful authority. Ms. Sana Minhas, who also appeared for some of the petitioners, made certain specific submissions with reference to section 214C. She submitted that this provision was only added by the Finance Act, 2010, and was of the same nature, as presently relevant, as section 31A of the Customs Act, 1969 inasmuch as both were inserted by or under provisions that deemed them "always" to be part of the relevant statute. She referred to Molasses Trading & Export (Pvt.) Ltd. v. Federation of Pakistan and others 1993 SCMR 1905, the leading case in relationtosection31A, andsubmittedthatthe position as regards section 214C was the same and hence the attempt to give retrospective effect to the latter section was as unsuccessful as was the attempt with regardtotheformer. Shefurthersubmittedthat subsection (1) of section 214C was a new provision, which had been added to the 2001 Ordinance for the first time. Thus, according to her, the retrospective effect of subsection (3) was only in relation to section 177, and did not apply to subsection (1). Her case was that subsection (1) was to be given a narrow interpretation and it certainly did not apply in relation to the tax year 2008. In any case, the taxpayers, including the petitioners, had acquired vested rights in relation to section 177 and the same could not be affected retrospectively. Her case was also that that section had to be applied as it stood on the last day of the tax year in question, which in the present case was 30-6-2008, the last day of the tax year 2008. Learnedcounselalsoattackedsection214Casbeingviolativeof Article 25 since it could be applied in a discriminatory manner. This was so because one lot of taxpayers could be chosen for audit of the same tax year under section 214C and another lot in terms of section 177, under which completely different considerations applied. She also challenged the concept of a "composite" audit, and submitted that there was no provision under law for any such exercise.
3.Dr. Farogh Naseem approached the matter from a somewhat different perspective, and submitted that in some of the cases (including those in which he appeared) the taxpayers had already been selected earlier for audit for the tax year 2008. However, those audits were abandoned by the Department itself when the computer ballot was held. He submitted that this was clearly a case of double jeopardy and the Department having already acted once, could not be allowed tosuddenly drop pending proceedings and proceed on an altogether different basis to conduct the audit. In this context, he also placed reliance on Article 10A of the Constitution. The course adopted by the Board was, according to him, a clear violation of Article 10A and its requirement of a "fair trial". His case was also that the taxpayers acquired a vested right in the tax year when it ended, and the same could not be taken away or affected adversely in any manner, including by giving retrospective effect to the subsequently added provision. He also took exception to the scope of the intended audit. This was in terms of a "Tax Audit Framework" prepared by the Institute of Chartered Accounts of Pakistan (ICAP) and was to be applied uniformly in the case of all taxpayers selected through the computer ballot. Learned counsel submitted that this was also violative of the relevant statutory provisions. As regards the "composite audit", his case also was that this was impermissible, as neither the 2001 Ordinance nor the Sales Tax Act, 1990 made provision for any such audit. Mr. Abid Shirazi, learned counsel for some of the petitioners, also made submissions along the same lines as other counsel appearing in the matter. Learned counsel for the petitioners also pointed out that it was only the Federal Excise Act, 2005 which recognized the concept of a composite audit (in its section 46(5)). Thus, on any view of the matter, the entire exercise was wholly unlawful. In addition to the foregoing submissions, all the learned counsel also contended that no proper show-cause notice had been issued before the petitioners were selected for audit, and this also was a violation of settled legal principles relating to the requirements of a hearing.
4.Mr. Ali Mumtaz Shaikh, learned counsel for the respondents, submitted that the petitions were not maintainable. His case was the petitioners had only been selected for audit, and no adverse order had been passed against them. The mere initiation of proceedings was not sufficient to enable the petitioners to approach the High Court in constitutional jurisdiction. On the merits, he submitted that the Board hadalwayshadthepowertoselectacaseforaudit,interms of section 177(8). All that section 214C did was to particularize one method-that of selection by computer ballot---in respect of a power that had always existed. It was for this reason that subsection (3) expressly declared that it was only for the removal of doubts. It was merely a declaratory provision, which simply clarified the position regarding a power that had always vested in the Board. As regards the objections regarding the "composite audit", he submitted that this was not a legal term of art, but only an expression used for convenience. There was nothing in the 2001 Ordinance or the Sales Tax Act that prohibited the simultaneous conduct of audits in relation to income tax and sales tax matters. He reiterated that the respective audits would be conducted strictly in terms of the relevant statute. His case therefore was that the selection of the petitioners for audit was lawful and the audit proceedings entirely regular. He prayed that the petitions be dismissed. Mr. Jawaid Farooqui placed particular emphasis on section 177(8) as amended by the Finance Act, 2009 and the Finance (Amendment) Ordinance, 2009. His case was that the addition of the words "or classes of persons selected for audit by the Commissioner or by the Board" in subsection (8) had vested the Board with sufficientstatutorypowertoholdacomputerballoton11-12-2009 which was therefore perfectly regular and lawful. Mr. Sibtain Mahmud submitted that section 177 was merely part of the machinery provisions of the 2001 Ordinance, and it was well-settled that such provisions were to be liberally construed and could be given retrospective effect. Syed Riazuddin and learned D.A.-G. also made submissions along lines similar to those of the other learned counsel for respondents. The learned counsel appearing for the respondents also submitted that there had been no violation of the principles of natural justice, and no requirement of first issuing a show-cause notice could be imposed in the circumstances of the case, where the petitioners had been selected by a random computer ballot.
5.We have heard learned counsel for the parties, examined the record with their assistance, and considered the case-law relied upon by them. It will be convenient to first gather the relevant statutory provisions at one place. Section 177 of the 2001 Ordinance has gone through a number of changes, large and small, including a complete substitution. The major "stages" in the evolution of this section need to be examined in some detail, and we reproduce these "stages" below:
Stage I: The section as it stood amended up to the Finance Act, 2003:--
177. Audit.---(1) The Commissioner may select any person for an audit of the person's income tax affairs having regard to---
(a)the person's history of compliance or non-compliance with this Ordinance;
(b)the amount of tax payable by the person;
(c)the class of business conducted by the person; and
(d)any other matter that the Commissioner considers relevant.
(1A) After selection of a person for audit under subsection (1), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person.
(1B)After completion of the audit under subsection (1A) or subsection (3), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or subsection (4) of section 122, as the case may be.
(2)The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits, particularlyhavingregardtothefactorsinsub-section (1).
(3)The Central Board of Revenue may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961), to conduct an audit of the income tax affairs of any person and the scope of such audit shall be as determined by the Central Board of Revenue on a case by case basis.
(4)Any person employed by a firm referred to in subsection (3) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that subsection.
Stage II:---The section was substituted in its entirety by the Finance Act, 2004. Thereafter, certain amendments were made to it by the following Finance Acts, and the section stood as follows up to the Finance Act, 2008:
177. Audit.--- (1) The Board may lay down criteria for selection of any person for an audit of person's income tax affairs, by the Commissioner.
(2)The Commissioner shall select a person for audit in accordance with the criteria laid down by the Board under subsection (1).
(3)The Board shall keep the criteria confidential.
(4)In addition to the selection referred to in subsection (2), the Commissioner may also select a person for an audit of the person's income tax affairs having regard to --
(a)the person's history of compliance or non-compliance with this Ordinance;
(b)the amount of tax payable by the person;
(c)the class of business conducted by the person; and
(d)any other matter which in the opinion of Commissioner is material for determination of correct income.
(5)After selection of a person for audit under subsection (2) or (4), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person.
(6)After completionoftheauditundersubsection(5)orsub-section (8), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or subsection (4) of section 122, as the case may be.
(7)The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits,particularlyhavingregardtothefactorsinsub-section (4).
(8)The Board may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961), to conduct an audit of the income tax affairs of any person and the scope of such audit shall be as determined by the Board on a case to case basis.
(9)Any person employed by a firm referred to in subsection (8) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that subsection.
Stage III:---Although only a few amendments, by way of addition, were made to the section by the Finance Act, 2009, these changes are important for present purposes, and therefore, the section, as so amended, is reproduced below in full, with the additions made highlighted by underlining:
177. Audit.---(1) The Board may lay down criteria for selection of any person or classes of persons for an audit of such person's income tax affairs, by the Commissioner.
(2)The Commissioner shall select a person or classes of persons for audit in accordance with the criteria laid down by the Board under subsection (1).
(3)The Board shall keep the criteria confidential.
(4)In addition to the selection referred to in subsection (2), the Commissioner may also select a person or classes of persons for an audit of the person's income tax affairs having regard to--
(a)the person's history of compliance or non-compliance with this Ordinance;
(b)the amount of tax payable by the person;
(c)the class of business conducted by the person; and
(e)any other matter which in the opinion of Commissioner is material for determination of correct income.
(5)After selection of a person or classes of persons for audit under subsection (2) or (4), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of such person or classes of persons.
(6)Aftercompletionoftheauditundersubsection(5)orsub-section (8), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or subsection (4) of section 122, as the case may be.
(7)The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits,particularlyhavingregardtothefactorsinsub-section (4).
(8)The Board may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961), to conduct an audit of the income tax affairs of any person or classes of persons selected for audit by the Commissioner or by the Board and the scope of such audit shall be as determined by the Board on a case to case basis.
(9)Any person employed by a firm referred to in subsection (8) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that subsection.
Stage IV: The final stage is the section as amended by and up to the Finance Act, 2010. It may be noted that in between the Finance Acts of 2009 and 2010, the section was amended by two Finance (Amendment) Ordinances. Of these, the first, the Finance(Amendment)Ordinance,2009,promulgatedon28-10-2009, is also he relevant for present purposes. The effects of these amending Ordinances were incorporated in the section by the Finance Act, 2010 (with some changes):
177. Audit.---(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person:
Provided that-
(a)the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and
(b)the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer:
Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.
(2)After obtaining the record of a person under subsection (1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.
.. [Subsections (3) to (5) were omitted]
(6)After completion of the audit, the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or subsection (4) of section 122, as the case may be.
(7)The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits.
(8)The Board or the Commissioner may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961) or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966), or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966) to conduct an audit of the income tax affairs of any person or classes of persons and the scope of such audit shall be as determined by the Board or the Commissioner on a case to case basis.
(9)Any person employed by a firm referred to in subsection (8) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that subsection.
(10)Notwithstanding anything contained in subsections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under subsection (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.
6.The other provision that needs to be considered is of course, section 214C. This was added by the Finance Act, 2010, and provides as follows:--
214C. Selection for audit by the Board.---(1) The Board may select persons or classes of persons for audit of Income Tax affairs through computer ballot which may be random or parametric as the Board may deem fit.
(2)Audit of Income Tax affairs of persons selected under sub-section(1)shallbeconductedasperproceduregiven in section 177 and all the provisions of the Ordinance, except the first proviso to subsection (1) of section 177, shall apply accordingly.
(3)For the removal of doubt it is hereby declared that Board shall be deemed always to have had the power to select any persons or classes of persons for audit of Income Tax affairs.
7.We begin by recalling three general principles of income tax law. The first of these has held the field for the last 90 years, i.e., since the Income Tax Act, 1922 ("1922 Act"), and continues to do so under the 2001 Ordinance. This is the principlethat each tax year (which corresponds to the "income year" and "previous year" of earlier income tax legislation) is a separate unit of assessment. This is one of the basic principles around which income tax law is structured. Insofar as is presently relevant, this has two consequences. Firstly, the audit of the "incometaxaffairs"ofanyperson,whetherundersection177 or section 214C, must be carried out with reference to a specific tax year. Secondly, an audit can only be carried out once the tax year is complete and not before. In this sense, an audit is always retrospective. The second principle of income tax law is that income tax legislation, as applicable to a given tax year, is normally regarded as being the law as it stands on the first day next succeeding the tax year. This principle requires a word of explanation. Section 74 of the 2001 Ordinance defines a tax year as meaning the twelve-month period ending on 30th June. This is called the "normal tax year", and it follows that in respect of such a tax year, the 2001 Ordinance will normally be regarded as applying as it stands on the 1st of July, the next succeeding day. A "special tax year" is defined in the same section as twelve-month period ending on a day other than 30th June. However, it is well-settled that even in relation to such a tax year, the 2001 Ordinance will be regarded as applying as it stands on the relevant 1st of July. In effect, what this means is that the 2001 Ordinance is regarded as applying in relation to a tax year as amended by the Finance Act of that year. The manner in which these principles apply to the issues at hand will emerge later in this judgment.
8.The third principle of income tax law was a central feature of both the 1922 Act and the Income Tax Ordinance, 1979 ("1979 Ordinance") and related to the manner in which income was assessed to tax. While a taxpayer was of course, required to furnish a tax return under both the preceding laws, it was for the taxation officer (or ITO as he was then called) to frame the assessment. The 1979 Ordinance did make provision for "self-assessment" in terms of section 59, but that was very much an exception to the general rule. The 2001 Ordinance has discarded the framing of assessment by the taxation officer, and has adopted what was earlier an exception---i.e., self-assessment---as the general rule. Section 120, which is one of the key provisions of the current legislation, provides that the return filed by the taxpayer shall be deemed ("taken") to be an assessment order issued to the taxpayer by the Commissioner. Whereas earlier, the assessment exercise began with the filing of the tax return and ended with the assessment order of the taxation officer, it now begins and ends with the filing of the return. And this brings us to the central issue raised by the present petitions: the power of the income tax authorities to select taxpayers for audit of their income tax affairs, and the manner in which this power may be exercised. The close nexus between section 120 and section 177, and the rationale behind this connection, was explained as follows by this Court in Noble (Pvt) Ltd. v. Federal Board of Revenue 2009 PTD 841:
"Before we examine these sections it will be worthwhile to recapitulate the basic theme behind the repeal of 1979 Ordinance and the promulgation of 2001 Ordinance. The theme or concept was summarized in the following words---
"Voluntarily compliance backed by strong audit"
and with this theme/concept in mind the legislature incorporated and promulgated the Income Tax Ordinance 2001. The basis of the voluntary compliance and the trust that the government has in the taxpayer has been incorporated in section 120 whereas the concept of audit and the procedure for selection of the cases have been outlined under section 177. Since the return becomes a deemed assessment order, therefore, to correct an erroneous order or an order in which definite information of concealment is available section 122 has been incorporated to amend such orders." (para 10)
Thus, the power to audit the income tax affairs of the taxpayer has been conferred so that, notwithstanding the transmutation of the return into an assessment order, there is some mechanism whereby it can be ensured that all income that should have been brought to tax has in fact been taxed. The legislative intend behind section 120 is clearly that the taxpayer is to be trusted, but that trust, apparently, is to go only so far, and no further. Acceptance, at face value, of whatever the taxpayer says (section 120) is balanced by, and against, the power to conduct an intrusive examination of his income tax affairs (section 177), and resolving the inherent tension between these two sections is an ongoing exercise in interpretation that has required the attention of the courts, and continues to do so. Both sections 120 and 177 are integral to the scheme of the 2001 Ordinance, and closely interlinked. While these petitions are, strictly speaking, concerned with only the manner in which a taxpayer can be selected for audit, it is clear that once a person has been lawfully and properly selected, the Department is entitled to comprehensively examine the income tax affairs of the taxpayer by carrying out a complete and robust audit.
9.The case of the petitioners can be summarized as follows. They contend that F.B.R. had no statutory power to select taxpayers for audit by a computer ballot on 11-12-2009, when the ballot was held. Insofar as section 214C is concerned, their case is they have acquired vested rights in respect of the tax year 2008 (and of course, other tax years as well), which cannot be affected or taken away by this section, notwithstanding that an attempt has been made to give it retrospective effect. On the other hand, learned counsel for the Department contend that F.B.R. did have the necessary power in this regard on 11-12-2009, but that in any case, the matter is covered by section 214C which has been given full retrospective effect by subsection (3), which states that FBR shall be deemed "always" to have had the necessary power.
10.In our view, as presently relevant, the issue of the audit of a tax year under section 177 raises two questions: (a) up to how many years after the tax year can the audit be called, and (b) on what basis can the taxpayer be selected for audit? Since an audit is always retrospective (in the sense that it can only be carried out once the tax year is complete), the shape of section 177 may be different when the audit is called, and may perhaps be quite different if the audit is conducted several years after the conclusion of the year. It is for this reason, and in this context, that the petitioners contend that they have acquired vested rights, which cannot be disturbed retrospectively. In order to properly evaluate their submissions, it will be pertinent to first consider the principles that apply in relation to vested rights, and the manner in, and extent to, which they can be retrospectively affected. One point should however, be kept in mind. We are here concerned only with rights vesting under fiscal statutes. Whatever is stated herein may not therefore necessarily apply across the board, to all categories of vested rights.
11.The general principles applicable in relation to vested rights, and the extent to which they can be retrospectively affected, are well-settled and have been stated and reaffirmed many times. Thus, in Chief Land Commissioner, Sindh and others v. Ghulam Hyder Shah and others 1988 SCMR 715, it has been observed as follows:--
"In this behalf the High Court proceeded a on a correct principle of interpretation that 'no rule of construction is more firmly established than this, that retrospective operation is not to be given to a statute so as to impair an existing right or obligation'. The main and primary rule is that every statute is deemed to be prospective, unless by express provision or necessary intendment it is to have retrospective effect. Also the rule that no statute shall be construed so as to have retrospective operation affecting vested rights to a greater extent than its language renders necessary is firmly established." (para 11)
"There is another aspect of this matter which also fortifies the conclusion stated above. This Court in Province of East Pakistan v. Sharafatullah and others PLD 1970 SC 514, affirmed the established rule that a statute cannot be read in such a way as to change accrued rights the title to which consists in transactions past and closed or in facts which are events that have already occurred." (para 13)
It will be seen that the Supreme Court spoke of both "vested rights" and "past and closed transactions". A detailed analysis of the distinction between the two need not detain us, and it suffices to note that while every past and closed transaction is normally based on, or comprises, a vested right, every vested right is not necessarily a past and closed transaction. Indeed, if rights were required to be placed in ascending order, the 'scale' could be said to comprise of a 'bare' right, a vested right and a past and closed transaction. Ordinarily, a right can be regarded as progressing from a 'bare' right to become a vested right and then perhaps even a past and closed transaction. Of course, some rights only become vested rights, and do not go beyond to become past and closed transactions. Others may vest immediately, as soon as they arise or accrue, and then may (or may not) become past and closed transactions. Some rights (though this would be a somewhat rare and unusual situation) may even become past and closed transactions once they accrue, i.e., progress to that category straight from being 'bare' rights.
12.As even this brief account shows, some care must be taken to properly analyze the nature of the right under consideration. This is all the more so because (especially in the realm of fiscal statutes) past and closed transactions appear to stand on a footing higher than vested rights. This is clearly established by the decision in Molasses Trading and Export (Pvt) Ltd. v. Federation of Pakistan and others 1993 SCMR 1905, a case relied on by learned counsel for the petitioners. The case was concerned with the grant of an exemption under the Customs Act, 1969. An exemption (which is granted by a notification issued under section 19 of the Act) can be regarded as a 'bare' right, one that can be availed of by the concerned importer. In the well-known case of Al-Samrez Enterprise v. Federation of Pakistan 1986 SCMR 1917, it was held that if the importer altered his position in reliance on the notification (e.g., by entering into a contract or opening a letter of credit), he acquired a vested right in the exemption, to which he remained entitled even if the exemption itself stood withdrawn by the time the goods arrived in Pakistan. The 'bare' right, in other words, had been transformed into a vested right. In order to undo the effect of this decision, section 31 A was added to the Customs Act (by the Finance Act, 1988), and it was deemed always to have been part of the said Act. Thus,itspositionwas,aspresentlyrelevant,similartothatof section 214C of the 2001 Ordinance. The question before the Supreme Court in Molasses Trading was whether section 31A had retrospectively destroyed the vested rights recognized in Al Samrez (the goods in question having been imported before 1-7-1988). The Supreme Court unanimously held that the answer to this question was in the affirmative. However, by a majority, it was also held that those cases in which the bills of entry had been filed by or before 30-6-1988 (i.e., before the Finance Act, 1988 came into force) had become past and closed transactions, and section 31A did not apply to them, notwithstanding the absolute terms in which it had, ostensibly, been given retrospective effect. The reason why the rights in those cases had gone from being vested rights to become past and closed transactions was that, in respect of customs duties, the levy of the tax stood crystallized on the date on which the bill of entry was filed. It is well-settled (see, e.g., the Ghulam Hyder Shah's case (supra)) that retrospective statutes affecting vested rights and/or past and closed transactions are to be given the narrowest effect and interpretation that is reasonably possible. Section 31-A, being concerned with undoing the effect of the Al Samrez case, was directed towards vested rights, and could not therefore affect past and closed transactions. Molasses Trading thus nicely illustrates both how rights can move along the 'scale' referred to above, and the distinction that exists between vested rights and past and closed transactions. In relying on this case, the petitioners clearly claim that their rights in the present case should be regarded as past and closed transactions, and hence remain unaffected by section 214C. Section 177 (under which the rights are claimed) must therefore be carefully analyzed in order to ascertain whether there are at all any rights thereunder and if so, whether they can be regarded as vested rights and/or as past and closed transactions.
13.The first question is whether section 177 involves any rights at all of the taxpayer. In one sense, section 177 imposes an obligation on the taxpayer: if an audit is properly and lawfully called, he must allow the Department to examine his income tax affairs for the tax year in question. However, as noted above, section 177 serves as a counterpoise to section 120, balancing the acceptance of whatever the taxpayer says about his income tax affairs (in the shape of his income tax return) against the power of the State to examine those affairs to ensure that the tax is paid in full. Section 120 confers a clear right on the taxpayer, one that is central to the structure of the 2001 Ordinance. Section 177 imposes a statutory limit or check on this right. It is therefore the right of the taxpayer to know with certainty the extent and scope of this check and limit. It is for this, reason that we are of the view that section 177 does confer rights on the taxpayer, specifically with reference to (i) the maximum number of years after the tax year in question within which the audit can be called, and (ii) the basis on which the taxpayer can be selected for audit. Furthermore, we are also of the view that when the first two general principles of income tax law, noted in para 7 supra, are kept in mind, it is clear that these rights cannot be stated in general terms, but exist, and must therefore be determined, separately and specifically in relation to each tax year. Each tax year is a separate unit of assessment, and the 2001 Ordinance applies in relation to each such year in a specific manner, i.e., as it stands on the day next succeeding the last day of the tax year. Income tax law can, in a sense, be regarded as 'compartmentalized' in relation to each tax year, and the rights inhering in the taxpayer in relation to section 177 must therefore also be so regarded and ascertained. (The fact that these rights may be the same for two or more successive years does not, of course, detract from this conclusion, since that could simply be because section 177 has not been amended over the years in question.) With these observations in mind, we turn to a consideration of the two rights noted in this para that, in our view, inhere in the taxpayer in relation to section 177.
14.The first of these rights is the maximum number of years up to which the audit can be called in relation to a tax year. In our view, this right should be regarded as a past and closed transaction. The reason is that the 2001 Ordinance, in section 174(3), provides for the number of years for which a taxpayer is required to maintain books and accounts in relation to a tax year. The audit of the income tax affairs cannot be conducted without the records that the taxpayer is statutorily required to maintain. This period must be regarded as becoming fixed for each tax year for the term specified in section 174(3), as this provision stands and applies in relation to the tax year in question, i.e., on the first day next succeeding the last day of the tax year. Since the period becomes 'crystallized' as soon as becomes applicable, it should be regarded as a past and closed transaction.
15.We now turn to examine the second of the rights in question, i.e., the basis on which the taxpayer can be selected for audit. This is of course, the more important of the two rights under consideration and the one that is central to a resolution of the issues raised in the present petitions. In our view, this right must be regarded as vesting in the taxpayer in terms of how section 177 stands in relation to the tax year in question. That of course, is simply how the 2001 Ordinance itself stands and applies in relation to the tax year, and the answer to that, as noted above, is that the Ordinance applies as it stands on the first day next succeeding the last day of the tax year. Again, this follows directly from an application of the first two principles of income tax law noted in para.7 supra. Thus, in relation to the tax year 2008, section 177 is to be applied as it stood (as part of the 2001 Ordinance) on 1-7-2008, i.e., as amended by the Finance Act, 2008, and it is on that basis that taxpayers can be selected for audit. Now, a perusal of the various 'stages' through whichsection177hasevolved(seepara5supra)showsthaton11-12-2009, when the computer ballot was held, the section stood in a form materially different from its shape on 1-7-2008, and this of course is the basis on which learned counsel for the Department contend that the necessary power vested in F.B.R. The Department's case, in other words, is that a taxpayer can be selected for the audit of any tax year under section 177 in terms of how the section stands on the day on which the selection is made. We are unable to subscribe to this view. Since the taxpayer has acquired a vested right with regard to how he can be selected for the audit of any given tax year, he can only be selected for audit consistently with the vested right. The problem however, still remains of reconciling any difference or divergence between section 177 as it stands as a vested right in relation to a given tax year on the one hand, and, on the other, as it stands on any day thereafter on which the taxpayer is actually selected for audit. In order to resolve this issue, it will be necessary to examine in some detail the various 'stages' through which the section has evolved.
16.The first point to be noted in this regard is that the scope and extent of section 177 has clearly been broadened over the years. When Stage I (which sets forth the section as it stood in relation to the tax year 2003, the first year to which the 2001 Ordinance applied) is examined, it will be seen that a taxpayer could have been selected for audit in one of two ways. He could have been selected by the Commissioner in terms of subsection (1), provided that any of the conditions laid down therein applied. Or, hecouldhavebeenselectedbytheBoard under sub-section (3). Subsection (1B) clearly specified that after completion of the audit under either of these subsections, the Commissioner could then (subject to the further condition imposed by the subsection) amend the assessment order of the taxpayer. For present purposes, the important point to note, and this is really the key to the present controversy, is that under both subsections (1) and (3), the power of selection could only be exercised with reference to a specific taxpayer. It is of course the general rulethatthesingularincludestheplural(andviceversa;see section 13(2) of the General Clauses Act, 1897), but the rule can be displaced by the statutory context, and in our view, did not apply in the context of section 177 as it stood in Stage I. The conditions laid down in subsection (1) could obviously only apply in relation to each taxpayer individually, and the express reference to "case by case basis" in subsection (3) led to the same result there. When section 177 was substituted in Stage II, this key provision was not altered, and it was only in Stage III that the section made reference, for the first time, to "classes of persons". However, for the reasons stated above, the taxpayers, including the petitioners, had a vested right in section 177 applying to the tax year 2008 as it stood in Stage II, when taxpayers could only be selected separately and individually. The subsequent expansion of the power of selection to include "classes of persons", being a Stage III (and IV) phenomenon, did not apply.
17.It will be seen from the foregoing that when section 177, as it stands as a vested right in relation to a given tax year (for convenience, hereinafter referred to as "the former position"), is compared with how it may stand subsequently when the taxpayer is actually selected for the audit of that tax year (for convenience, hereinafter referred to as "the subsequent position"), there are two possibilities (as presently relevant). One possibility is that the scope of section 177 has been narrowed, i.e., the basis on which taxpayers can be selected in the subsequent position is more restricted than what it was in the former position. The second possibility (and the one actually found in practice) is of course, the reverse: the scope has been broadened. In our view, the proper manner of reconciling the difference or divergence between the two positions is as follows. If the scope of the section has been narrowed and made more restricted, then section 177 is to be applied as it stands in the subsequent position, and not the former position. The reason is that the subsequent position is more beneficial to the taxpayer, and it is by now well settled that beneficial fiscal legislation can, if need be, be regarded as applying retrospectively. The vesting of a right is to protect the position of the person in whom the right vests, so that his position is not altered to his detriment. If the subsequent change in fact improves his position, he ought not to be denied the benefit of that change. On the other hand, if the scope of section 177 has been broadened or extended, then it is to be applied as it stood in the former position, and not as it stands in the subsequent position. The reason is of course that in this scenario, the vestedrightsofthetaxpayerarebeingaffectedtohisdetriment. Section 177 as it stands in the subsequent position must therefore be aligned with how it stood in the former position, and the section can only be applied to the extent so made possible. Thus, whenever the form of section 177 as a vested right is different from the form it has taken subsequently, when the taxpayer is selected for audit, a comparative exercise must carefully be carried out of the former and subsequent positions, and the section applied in terms as stated above.
18.Applying the foregoing principles to the matter at hand, the "former position" of section 177 (i.e., on 1-7-2008) is as it stood in Stage II, whereas the "subsequent position" ofthesection(i.e.,on11-12-2009) is as it stood in Stage III, as amended by the Finance (Amendment) Ordinance, 2009. It is clear that the subsequent position is broader than the former position. Therefore, section 177 as it stood on 11-12-2009 could only be applied in relation to the tax year 2008 after being aligned with its position on 1-7-2008. The power to select "classes of persons" for audit did not exist on 1-7-2008. Therefore, this power, even if it could be held to have existed on 11-12-2009, could not be applied in relation to the tax year 2008 since that would retrospectively and detrimentally affect the vested rights of the taxpayers in relation to that tax year. For the reasons already stated, this is impermissible, and it therefore follows that F.B.R. had no statutory power under section 177 on 11-12-2009 to select taxpayers for audit by computer ballot for the audit of the tax year 2008.
19.At this stage, it will also be pertinent to refer to the decision of the Supreme Court in Commissioner of Income Tax v. Media Network and others PLD 2006 SC 787, 2006 PTD 2502, which was cited by learned counsel for both sides during the course of their submissions. The Supreme Court was there concerned with interpreting section 59 of the 1979 Ordinance. Subsection (1A) of that section empowered the Board to select, out of the returns filed under a scheme of self- assessment, "any cases or classes of cases or persons or classes of persons, howsoever determined, for assessment under section 62". The Supreme Court considered the word "any" and observed as follows:--
"The word "any" has a diversity of meaning and may be employed to indicate "all" or "every" as well as "some" or "one" and its meaning in a given statute depends on the context and the subject-matter of the statute." (para 20)
It will be noted that the context in which the word was used in section 59(1A) included "classes of cases" and "classes of persons", in either case "howsoever determined". The Supreme Court held (approving a decision of this Court reported as M Amjad v. Commissioner of Income Tax and others 1992 PTD 513) that as used in section 59, the word was "of expansion indicative of width and amplitude sufficient to bring within the scope and ambit of the words it governed, all that could possibly be included in them" (para. 20). As noted above, the reference to "classes of persons" in section 177(8) of the 2001 Ordinance was added only in Stage III, and this phrase was not to be found earlier in the section. In our view, the law was clearly being changed when this phrase wasaddedbytheFinanceAct, 2009atanumberofplaces in section 177. Thus, even if from Stage III onwards, section 177(8) is to be regarded as empowering the Board to the same extent as held by the Supreme Court in relation to section 59(1A), and thereby permitting selection through computer ballot (as to which we record no finding), it is clear that in any case, prior thereto, in Stages I and II, the word "any" did not have any such expanded meaning, and referred only to the case of an individual taxpayer. Thus, when section 177 vested as a, right in the petitioners in relation to the tax year 2008, the word "any" had only a limited and narrow meaning and required the Board to take up the case of each taxpayer individually.
20.We may, for completeness, refer here to a recent unreported judgment of the Supreme Court dated 24-2-2011 (in C.A. 1306 of 2009 titled Chairman, F.B.R. and others v Idrees Traders and other matters), whereby a number of connected appeals from two decisions of the Lahore High Court were disposed off. The petitioners before the Lahore High Court had challenged their selection for audit under section 177(4) of the 2001 Ordinance. In one lot of cases, the Lahore High Court was pleased to set aside the selection for audit, while in another bunch of cases, a preliminary objection as to the maintainability of the petitions was sustained, and the petitions dismissed. Although the Supreme Court did make reference to the computer ballot of 11-12-2009 while disposing off the appeals, it appears that the issues raised in the appeals were rather different from those at hand, and the Supreme Court did not consider the question of the validity of the computer ballot, since the selection for audit that was under challenge predated the ballot.
21.What however, of section 214C? This section was inserted for the first time by the Finance Act, 2010. Subsection (1) expressly empowers FBR to select persons and classes of persons for audit of income tax affairs by computer ballot, and subsection (3) declares that the Board shall be deemed "always" to have had this power. How does section 214C alter the position, since the legislature has given this section retrospective effect? As noted above, the Supreme Court has held in the Ghulam Hyder Shah case, that "the rule that no statute shall be construed so as to have retrospective operation affecting vested rights to a greater extent than its language renders necessary is firmly established". When this rule is applied to section 214C, there are, in our view, two consequences. Firstly, the power under section 214C, even if exercisable in relation to past tax years, can only be exercised on or from 1-7-2010, i.e., on and after the date on which the Finance Act, 2010 took effect. The existence of section 214C does not, and cannot, therefore save the computer ballot of 11-12-2009, when the section was not, in fact, part of the 2001 Ordinance. Secondly, in our view, the legislative intent behind subsection (3) of section 214C is clearly to apply the section retrospectively in relation to tax years that have already elapsed. To deny any such effect at all would be to render subsection (3) completely nugatory, and that is a result that is to be avoided if at all reasonably possible. The proper interpretation and application of subsection (3) would therefore appear to be that section 214C does affect vested rights that exist in relation to section 177, but subject to the limitation that it does not, and cannot, affect past and closed transactions. It follows that section 214C does not affect the first of the rights which exist in relation to section 177 (see para 13 supra), namely, the maximum number of years up to which the audit can be called in relation to a tax year, since we have already held that this right should be regarded as a past and closed transaction. The more important question however, is how does section 214C affect the second of the rights noted above, namely the basis on which the taxpayers can be selected for audit. As already stated, this is a vested right, and the question that now requires consideration is whether this vested right can be regarded as a past and closed transaction, and if so, to what extent.
22.In our view, the answer to this question lies in that central feature of the 2001 Ordinance that has already been noted: the close nexus between sections 120 and 177, and the inherent tension that exists between these two provisions. To recapitulate: the legislative intent is clearly to accept what the taxpayer says, but it is equally clear that the State is entitled to ensure that the tax is paid in full. In our view, the correct interpretation and application of sections 120 and 177, and one which properly maintains the balance between the competing claims of the two, is that while a taxpayer can be selected for an audit (subject to, and in terms of, the vested rights noted above) in respect of a given tax year, such selection can be made only once. Once an audit has been called in relation to a taxpayer, and is being or has been conducted, or having been called is abandoned by the Department of its own volition (and a prolonged and excessive delay in conducting and/or concluding the audit, which is not materially attributable to the taxpayer, may amount in law to such abandonment), then the taxpayer cannot be vexed again by being selected a second time for an audit of the same tax year. The Department cannot, as it were, have two bites at the proverbial (audit) cherry. In other words, in such a situation, the vested right of the taxpayer to be selected for audit has become a past and closed transaction. In our view therefore, the express retrospective effect given to section 214C must be regarded as having affected the vested rights of the taxpayers in relation to each tax year that has passed, with the result that on and from 1-7-2010 onwards, FBR has the power to select persons or classes of persons for audit by computer ballot in relation to a given tax year (subject to the maximum number of years not having elapsed). This is of course, in addition to the power to select a person for audit in terms of section 177 as it stood as a vested right in relation to the tax year in question. However, if in relation to any such tax year, a taxpayer selected by computer ballot has already been selected for audit in terms of section 177 as it stood as a vested right in relation to that tax year, then the taxpayer cannot be selected a second time by way of the computer ballot for the reason that the this matter has become a past and closed transaction, and section 214C only affects vested rights and not past and closed transactions.
23.We now turn to consider the second important aspect of the matter before us, namely, the issue of the "composite audit". This term is not defined or used in either the 2001 Ordinance or the Sales Tax Act, 1990 ("1990 Act"). As noted above, as used by the Board, it indicates that the persons selected through the computer ballot will be audited for both their income tax and sales tax affairs. Learned counsel for the petitioners contend that this is not legally permissible, and after a review of the relevant provisions, we are inclined to accept this submission. Both the statutes in question contain provisions for audit, and those in relation to the 2001 Ordinance have been examined in detail in the paras supra. Sections 25 and 32A deal with audit under the 1990 Act, and these provisions, though sharing some similarities with section 177, are cast in somewhat different terms. There also does not appear to be any equivalent to section 214C in the 1990 Act. The exercise of any statutory powers relating to audit under one law obviously cannot result in action being taken under the other, since each is necessarily governed only by its own provisions. It is to be noted that even the relevant authorities under the two laws are different, being the income tax authorities under the 2001 Ordinance (section 207) and the sales tax authorities under the 1990 Act (see section 30). The concerned authority under each law has to apply its mind independently to the relevant statutory provisions in order to determine whether, and if so how, an audit is to be called under the concerned law, and how a person is to be selected for such an audit. It is also significant that while section 207 expressly recognizes the Boardastheauthorityattheapexoftheincome tax authorities, section 30 does not, as such, recognize the Board as part of the sales tax authorities. Furthermore, while the Board has the power to call for an audit under both sections 177 and 214C (in the manner as explained above), ithasonlythepowertocallfora"specialaudit" under section 32A of the 1990 Act, and no such power at all under section 25 thereof. The Board cannot simply therefore apply the provisions of one law to the other, and direct that the taxpayers selected for audit under the 2001 Ordinance by way of computer ballot shall also be called for a sales tax audit or vice versa. This last point also has another aspect. Even assuming for the moment that a computer ballot could be held under both laws for selecting persons for audit, a combined selection under one ballot would still be unlawful. The reason is that if ballots were held separately under the two laws, it is quite possible that a person could be selected under one, but not the other. The combined ballot exposes a person simultaneously to the "double jeopardy" of an audit of both sales tax affairs as well as income tax affairs, for which there does not appear to be any warrant in law. In this context, it is also to be noted, as pointed out by learned counsel for the petitioners, that the Federal Excise Act, 2005 does provide (in its section 46(5)) for a composite audit. It seems therefore that wherever a composite audit was deemed appropriate, the legislative intent was clearly stated, and the absence of any such provision in either the 2001 Ordinance or the 1990 Act indicates that no such audit is permissible in relation to these two laws. For all of the foregoing reasons, we are therefore of the view that the "composite audit" in the present case was also without lawful authority.
24.Insofar as the objection of maintainability of the petitions is concerned, we are of the view that the petitions are maintainable. It is well-settled that if a petition raises an important question of law of general application, then that question can be raised directly before the High Court and decided by it. The issues raised by the present petitions pre-eminently qualify for the application of this rule. As regards the objections as to the vires of section 214C, we have already concluded that, on a proper interpretation and application of the relevant provisions, the impugned computer ballot was unlawful. It is therefore not necessary for us to consider the objections raised on the constitutional plane. Finally, and for the same reason, it is not necessary for us to consider the question of whether it was necessary (or possible) to issue show-cause notices prior to the holding of a computer ballot, even if such a ballot could lawfully be held. In view of the foregoing, it is therefore not necessary to burden this judgment with a consideration of the case-law relied on by learned counsel for the parties in support of their submissions on these points.
25.For all of the foregoing reasons, we are satisfied that the petitioners are entitled to the relief that they are seeking. Accordingly, the computer ballot of 11-12-2009, and the selection of the petitioners for a composite income tax and sales tax audit thereby, and all audit proceedings held thereunder, or in consequence thereof, are quashed and declared to be without lawful authority and of no legal effect. Any orders purported to have been passed in relation to, or based on, any such selection or audit proceedings are likewise quashed and declared to be without lawful authority and of no legal effect. There will however, be no order as to costs.
S.A.K./S-63/KPetitions accepted.