ASHRAF STEEL MILLS VS DIRECTOR INTELLIGENCE, 2014 PTD-LAHORE-HIGH-COURT-LAHORE 1506 (2013)

Sales Tax Act (VII of 1990)---

----Ss.38, 37A, 37B & 37C---Constitution of Pakistan Art.199---Constitutional petition---Investigative audit under S.38 of the Sales Tax Act, 1990---Adoption of coercive measures against taxpayer before completion of such audit---Contention of taxpayer/petitioner was that investigative audit of taxpayer was initiated by the Department under S.38 of the Sales Tax Act, 1990 and without completing said audit, F.I.R. against petitioner/taxpayer was registered---Held, that Department had not submitted anything regarding determination of taxpayer's sales tax liability and even in the F.I.R. it was only alleged that the taxpayer had made taxable supplies without registering itself with the department, and liability was mentioned on prima facie basis---No show-cause notice had been issued to the taxpayer nor any adjudicating proceedings were carried out against the taxpayer---Only on basis that the taxpayer was "prima facie involved in tax fraud and massive tax evasion as defined under S.2(37) of the Sales Tax Act, 1990", an F.I.R. was registered---High Court directed respondent Department to complete investigative audit initiated under S.38 of the Sales Tax Act, 1990 first, and only after adjudicating liability of taxpayer, coercive measures may be adopted against him---Constitutional petition was disposed of, accordingly.

Messrs G.M.H. Traders and Manufacturers v. Deputy Director/Investigating Offices, Directorate of Intelligence/Investigation, Lahore 2009 PTD 1894 ref.

Micro Corporation through Managing Partner v. Deputy Collector Customs, Sialkot 2006 PTD 378 rel.

Muhammad Akram Nizami for Petitioner.

Ch. Muhammad Imtiaz Elahi for Respondents.

ORDER

SHEZADA MAZHAR, J.---The petitioner received notice No.1555 dated 18-10-2011 under Sales Tax Act, 1990 for compulsory registration against which the petitioner got himself registered since 16-12-2011. Submits that respondents/department issued notice for Investigative Audit under section 38 of the Sales Tax Act, 1990 wherein the record for the period of December, 2011 to October, 2012 was requisition from the petitioner.

2.As per contention of learned counsel for the petitioner the said record was provided to the respondent/department however on 21-5-2013, the respondents/department without completing audit, registered a case F.I.R. No.5 of 2015 dated 21-5-2013 under sections 37A, 37B, 37C of Sales Tax Act, 1990. Submits that the respondents/department cannot proceed to register F.I.R. first without completing the audit of the petitioner and adjudging the tax liability of the petitioner/company. In this regard the learned counsel for the petitioner has relied upon 2009 PTD 1894 (Messrs G.M.H. Traders and Manufacturers v. Deputy Director/Investigating Officer, Directorate of Intelligence/Investigation, Lahore) and 2006 PTD 378 (Micro Corporation through Managing Partner v. Deputy Collector Customs, Sialkot) and submits that before completing adjudication proceedings or issuing show-cause notice, the respondents/department is trying to recover the alleged evaded sales tax by taking coercive measures against the petitioner and its partners.

3.On the other hand learned counsel for the respondents/ department submits that as the petitioner's supplies for the last 12 months is exceeding Rs.5 million as defined under section 2(5AB) of the Sales Tax Act, 1990, therefore, the petitioner/company was liable to be registered compulsorily since July, 2003 as both turnover-wise as well as utility bills-wise but he did not apply for registration knowingly, fraudulently and evaded and avoided payment of sales tax. The respondents/department after obtaining due authorization from the competent authority registered the F.I.R. Further submits that before registration of F.I.R. number of notices were issued to the petitioner for providing record and last notice in this regard was issued on 29-1-2013, however, the petitioner failed to provide any record/documents in this regard, therefore, the F.I.R. was registered against him. The respondents/department have registered the F.I.R. against the petitioner on material evidence and lawful proceedings are under way. Further submits that arrest has already been made and the accused has been presented before the Court of Special Judge (Customs, Taxation and Anti-Smuggling), Lahore, who has given 7 days physical remand and the investigation is under way.

4.I have heard the arguments and perused the record.

5.Perusal of the report and para-wise comments filed by the respondents/department reveal that respondent/department itself initiated investigative audit of the petitioner, however before completion of the said investigative audit under section 38 of the Sales Tax Act, 1990 separate proceedings under sections 37A, 37B, 37C of the Sales Tax Act, 1990 were also initiated and on the basis of said proceedings under section 37 of the Sales Tax Act, 1990 an authorization was obtained on 2-5-2013 from the competent authority for registration of F.I.R. Nowhere in the para wise comments or before this Court, learned counsel for the respondents/department has submitted anything regarding determination of the petitioner's sales tax liability. Even in the F.I.R. it is alleged that petitioner has made taxable supplies without registering itself with the Sales Tax Department and liability is mentioned as Rs.31.657 million on "prima facie" basis.

6.Admittedly neither any show-cause notice has been issued to the petitioner nor any adjudicating proceedings carried out against the petitioner and only on the basis of "that the petitioner prima facie, involved in tax fraud and massive tax evasion as defined under section 2(37) of the Sales Tax Act, 1990" F.I.R. was registered.

Even in the para wise comments respondents have stated:--

"during enquiry/investigation proceedings and third party information, it was noted on material evidences that the petitioner made massive concealment of production of taxable goods thus; the petitioner, prima facie involved in tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990"

7.This Court in 2006 PTD 378 (Micro Corporation through Managing Partner v. Deputy Collector, Customs, Sialkot) while dealing with the penal provisions of Customs Act, 1969 has held as under:--

"The liability of a person contemplated under the penal provisions of section 32 is primarily a civil liability entailing destination of payment of the amount specified in the show-cause notice issued under subsections (3) and (3-A). It is only after determination of that liability and on the findings recorded in that regard that the penal provisions contained in various sub-clauses of section 156 can possibly be invoked."

8.In view of above, the respondents are directed to complete the investigative audit as initiated under section 38 of the Sales Tax Act, 1990 vide notice dated 18-10-2011 to adjudge the liability of the petitioner company and only after adjudging the liability of the petitioner, coercive measures can be adopted against him.

With this direction, the instant petition stands disposed of.

KMZ/A-34/LOrder accordingly.