LAHORE ELECTRIC SUPPLY COMPANY LTD. VS FEDERAL BOARD OF REVENUE through Chairman, 2014 PTD-LAHORE-HIGH-COURT-LAHORE 501 (2014)

Sales Tax Act (VII of 1990)---

----Ss. 11-A & 48-----Constitution of Pakistan, Art. 199---Constitutional petition---Short-paid amounts of Sales Tax recoverable without notice---Expression "as indicated in its return"---Exercise of power under S.11-A of the Sales Tax Act, 1990---Scope----Petitioners were Electricity Supply Companies and impugned notices issued to them under S. 11-A of the Sales Tax Act, 1990 with regard to short paid amount of sales tax---Contention of the petitioners' was inter alia, that the Federal Board of Revenue ("FBR") relied on externous documents (electricity bills placed on the petitioners' websites)and on such information had claimed that the petitioners' had short paid tax---Validity---Petitioners had provided with their returns, the details of units consumed by each supplier and the FBR had verified the number of units consumed by each supplier from the information found on petitioners' websites---Information had already been annexed by the petitioners with their return, and the respondent FBR had merely verified the information with regard to units consumed by electricity consumersand determined that the petitioners had short-paid sales tax---Section 11-A of the Sales Tax Act,1990 did not prohibit verification process undertaken by the FBR---Contention that the system for filing returns was electronic, andwould only accept returns if liability was fully discharged, was misconceived, as e-filing of return along with required information did not take away the ability or requirement to verify the information to determine whether less tax had been paid---For purposes of S. 11-A of the Sales Tax Act, 1990, electricity bills relied upon did form part of the returns filed, and the action initiated under S. 11-A of the Act, therefore, was based on information provided by the petitioners in their returns---Constitutional Petitions were dismissed, in circumstances.

Micro Corporation through Managing Partner v. Deputy Collector, Customs, Sialkot 2006 PTD 378; Messrs G.M.H. Traders and Manufacturers through Proprietor/Chief Executive v. Deputy Director/Investigating Officer, Directorate of Intelligence/Investigation, Lahore 2009 PTD 1894; Province of the Punjab through Secretary Health Department v. Dr. S. Muhammad Zafar Bukhari PLD 1997 SC 351; Atta Muhammad and 16 others v. Modern Textile Mills (Pvt.) Ltd., and 2 others 2004 PLC 137 and 'Tufail Muhammad and others v. Raja Muhammad Zia Ullah Khan, Claims Commissioner, Lahore and Director of Enforcement, Evacuee Property and Claims, South Zone, Lahore PLD 1965 SC 269 ref.

Shahbaz Butt for Petitioner.

Ch.MuhammadZafarIqbal,MuhammadYahyaJohar,Shafqat Mehmood Chief Commissioner RTO, Asim Majeed, Commissioner Zone-IV, RTO, Lahore, Nadeem Rizvi, Commissioner, Zone-I, RTO, Lahore and Raza Ashfaq Sheikh, Deputy Commissioner, Zone-I, RTO, Lahore for Respondents.

Date of hearing: 5th December, 2013.

JUDGMENT

Mrs. AYESHA A. MALIK, J.---This single judgment, decides upon the issues raised in Writ Petitions Nos.29138, 30678 and 30782 of 2013 as common question of law and facts are involved in these petitions.

2.The petitioners have impugned notices issued under section 11-A of the Sales Tax Act, 1990 (Act of 1990) and the process adopted thereunder.

3. The petitioner in Writ Petition No.29138 of 2013 is the Lahore Electric Supply Company Limited (LESCO). The case of the petitioner is that the petitioner has been filing its monthly sales tax returns as required under section 26 of the Act of 1990. The returns are being filed electronically through the E-portal of respondent No.1. The respondent No.3 issued three separate notices dated 28-10-2013 in which it has alleged that the petitioner has short paid the sales tax with respect to steel melters and re-rollers and hence the short paid amount has been made recoverable under section 11-A of the Act of 1990.

4.The petitioner in Writ Petition No.30678 of 2013 is Gujranwala Electric Power Company Limited (GEPCO), which has impugned notices issued under section 11-A of the Act of 1990 wherein it has alleged that the petitioner has short paid the sales tax with respect to the steel melters and re-rollers and the short paid amount has been made recoverable under section 11-A of the Act of 1990.

5.The petitioner in Writ Petition No.30782 of 2013 is also GEPCO, which has impugned letter dated 28-11-2013 wherein pursuant to the notice under section 11-A of the Act of 1990 (impugned in Writ Petition No.30678 of 2013) a notice under section 48(1)(b) has been issued under the Act of 1990 for recovery of the short paid amount directly from the bank accounts of GEPCO. Learned counsel for the petitioner submits that the basic issue in this writ petition also relates to the exercise of power under section 11-A of the Act of 1990, which has been impugned in the connected Writ Petition No.30678 of 2013, hence the matter in issue is the same as the aforementioned petition.

6.The common grievance of the petitioners is that the respondents have initiated action under section 11-A of the Act of 1990, which section is not applicable and cannot be invoked for the purposes of recovery of the alleged short paid amount. Learned counsel for the petitioners argued that the respondents have relied upon extraneous documents and information on the basis of which it has claimed that the petitioners have short paid their sales tax in terms of the amount indicated in their returns. Learned counsel argued that the sales tax returns for their respective period have been placed on the E-portal of the respondent. He argued that it is an automated, electronic process wherein the amount of sales tax due has to be paid and if not paid by the petitioners, the returns will not be accepted by the system. Hence the system calculates the tax due and unless the liability is discharged the returns are not accepted. He argued that there is no question of any short payment as the returns were duly accepted by the E-portal of the respondents. Learned counsel argued that the figures taken by the respondents represent the billed amount and not the collected amount or the paid amount by the steel melters and re-rollers. Hence the amount claimed as short paid is disputed by the petitioners. Learned counsel argued that the petitioners have not short paid the sales tax and in fact have paid the due tax. Furthermore, in the event that the respondents dispute the amount of tax due from the Petitioners then the respondents are required to follow due process, determine the liability and thereafter, raise a claim for the amount found to be due against the petitioners. Learned counsel argued that the respondents are using section 11-A of the Act of 1990 as a short cut to recover amounts, which are disputed by the petitioners and are not due to the respondents. Learned counsel further argued that the respondents for the purposes of section 11-A of the Act of 1990 cannot rely upon outside information or documents. They are required to determine short paid amount from the returns filed by the petitioners. Learned counsel argued that in terms of the impugned notices issued to the petitioners, the respondents have collected information from the electricity bills of the steel melters and re-rollers, on the basis of which they have determined that the petitioners have short paid the sales tax due to the respondents. In this regard, learned counsel has relied upon the case titled 'Micro Corporation through Managing Partner v. Deputy Collector, Customs, Sialkot' (2006 PTD 378) to urge the point that first a determination of the liability had to be made and only then any penal provision or recovery can be made. He has also placed reliance upon the case titled 'Messrs G.M.H. Traders and Manufacturers through Proprietor/Chief Executive v. Deputy Director/Investigating Officer, Directorate of Intelligence/Investigation, Lahore' (2009 PTD 1894) to urge the point that a demand cannot be raised without finalizing adjudication proceedings. Learned counsel argued that if the respondents dispute the amount of tax paid by the petitioners then proceedings under section 11 of the Act of 1990 may be initiated wherein an order for assessment of tax actually payable by the petitioners has to be made before any amount can be recovered from the petitioners. With respect to Writ Petition No.30782 of 2013 learned counsel argued that invoking section 48 of the Act of 1990 is also misconceived as the tax liability has yet to be determined and the respondents have relied upon extraneous documents to demand recovery under section 11-A of the Act of 1990, hence the impugned notice issued under section 48(1)(b) of the Act of 1990 is also liable to be set aside.

7.Report and para wise comments have been filed by the respondents. Learned counsel for the respondents argued that the petitioners have approached this Court with unclean hands as they are avoiding payment of the required tax. Learned counsel argued that the exercise of discretion under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 should not be in aid of injustice and he who seeks equity must come to the Court with clean hands. In this regard, learned counsel have relied upon the cases titled 'Province of the Punjab through Secretary, Health Department v. Dr. S. Muhammad Zafar Bukhari' (PLD 1997 SC 351), 'Atta Muhammad and 16 others v. Modern Textile Mills (Pvt.) Ltd., and 2 others' (2004 PLC 137) (Karachi High Court) and 'Tufail Muhammad and others v. Raja Muhammad Zia Ullah Khan, Claims Commissioner, Lahore and Director of Enforcement, Evacuee Property and Claims, South Zone, Lahore' (PLD 1965 SC 269). Learned counsel further argued that the petitioners in Writ Petitions Nos.29138 and 30678 of 2013 are collection agents for the respondents and are required to collect sales tax at the rate of Rs.4 per unit of electricity consumed from every steel melter and re-roller and thereafter, deposit the same in the government treasury. Learned counsel argued that the petitioners filed their monthly sales tax returns along with all required appenditures as provided for in section 26 of the Act of 1990. The respondents while relying upon the information provided in the returns, which includes the appended documents discovered that the petitioners were not declaring the correct amount of sales tax collected from the steel melters or re-rollers. The information provided in the returns of the petitioners were verified and checked by the respondents from the bills issued by the petitioners to the stated consumers. In the same way, the petitioner in Writ Petition No.30782 of 2013 is a collection agent for the purposes of extra tax and further tax which is also collected from the electricity bill. The petitioner in this case has not disclosed the amounts actually collected as extra tax and further tax for the months of July, August and September, 2013. Essentially they have charged the tax at its given rate but have deposited less in the government treasury. Again this information was ascertained from the return filed and the electricity bills issued by the petitioner. Learned counsel explained that the information provided for in the bills is tabulatedandgivento the respondents in the form of "AnnexuresAand C" of the returns. Learned counsel argued that no extraneous document was referred to. The information provided in "Annexure-C" was verified from the bills that were issued to the consumer of the petitioners. It was then discovered that the petitioners had short paid sales tax, as well as the extra tax and further tax, hence recovery proceedings under section 11-A of the Act of 1990 were initiated against the petitioners. Learned counsel explained that there is no dispute or assessment required as the petitioners are merely collecting agents of the respondents, meaning that they recover the sales tax, extra tax and further tax through the electricity bills and deposit the same in the government treasury. Whatever they recover they are to deposit it in the government treasury. Learned counsel further argued that this question has already been decided in Sales Tax References Nos.105 (Messrs LESCO v. The Commissioner Inland Revenue, and others) and 106 of 2011 vide judgment dated 6-10-2011.

8.Heard the learned counsel for the parties and reviewed the record available on the file.

9.The common question which requires determination before this Court is whether the documents relied upon by the respondents for the purposes of determining short paid tax, falls within the scope of as indicated in his return under section 11-A of the Act of 1990. The second question that arises is whether assessment of tax was necessary for which due process is mandated under the Act of 1990.

10.The petitioners filed their monthly sales tax returns indicating the amount of sales tax due and paid by the petitioners. The respondents initiated action against the petitioners under section 11-A of the Act of 1990 on the ground that they had paid less tax than the tax that is due. As per the notices issued by the respondents under section 11-A of the Act of 1990 this information was obtained from the electricity bills issued by the petitioners and placed on their websites. Since the information relied upon are the electricity bills found on the websites of LESCO and GEPCO the petitioners grievance is that the bills and the data contained therein are extraneous documents, which do not form part of their return, hence cannot be relied upon for the purposes of recovering short paid amount under section 11-A of the Act of 1990. Section 11-A of the Act of 1990 is re-produced hereunder:-

"Short paid amounts recoverable without notice.---Notwithstanding any of the provisions of this Act, where a registered person pays the amount of tax less than the tax due as indicated in his returns, the short paid amount of tax along with default surcharge shall be recovered from such person by stopping removal of any goods from his business premises and through attachment of his business bank accounts, without giving him a show-cause notice and without prejudice to any other action prescribed under section 48 of this Act or the rules made thereunder."

Section 11-A provides that short paid amount is the amount of tax less than the tax due as indicated in his return. A dispute has arisen as the electricity bills referred to by the respondents do not form part of the returns filed by the petitioners. The requirements of a return is provided under section 26 of the Act of 1990 wherein every registered person shall furnish a true and correct return in the prescribed form indicating the purchases and the supplies made during the tax period, the tax due and paid and such other information as may be prescribed. Section 26(2) of the Act of 1990 provides that any person or class of person can be required to furnish summary or details or particulars pertaining to the imports, purchase and supplies for any tax period or period in the specified formats. The petitioners along with their returns provide information in the form of domestic purchase invoice "Annexure-A" and domestic sales invoice "Annexure-C". Annexure-A provides information pertaining to WAPDA. Annexure-C provides for the NTN number and the name of the supplier. In this case, the names of the suppliers are the names of the steel melters and re-rollers. It provides for the rate at which sales tax has been collected and the units consumed by each supplier. Thereafter total sales tax is calculated. The returns and Annexures are not disputed by either party. The respondents have reviewed the Annexures and have verified the information stating the number of units consumed by the supplier and the billed amount. It is their case that the number of units consumed as reflected in its column in "Annexure-C" is not as per the electricity bills of the supplier. The respondents have verified the number of units consumed against the bills of the supplier, which were found on the websites of the petitioners. During the course of this verification process, the respondents discovered that the petitioners have not correctly inserted the units consumed by the suppliers. Consequently, the total amount of sales tax collected from the supplier has not been correctly entered. In the same way in Writ Petition No.30782 of 2013 the electricity bills show the recovery of extra tax and further tax in the billed amounts, but the amount deposited for the said taxes is less than that billed by the petitioners.

11.The information in "Annexure-C" has been given by the petitioners to the respondents in terms of the bills that they have issued to their suppliers. The respondents have merely verified the information of units consumed by the electric consumers from the bills. To my mind, section 11-A of the Act of 1990 does not prohibit the verification process undertaken by the respondents. The contention of the learned counsel that the system is automated and electronic and will not accept the returns, if the liability is not fully discharged is misconceived. E-filing of the returns along with required information does not take away the ability or the requirement of the respondents to verify the information provided in the returns. It is only after verifying the information that the respondents can determine whether less tax has been paid than that disclosed in the returns. In fact, if the argument of the petitioner is accepted then section 11-A of the Act of 1990 would become redundant as the respondents would have to accept tax paid by a person as being the tax due from such person and no question of less paid tax could arise. In this case the entire dispute is with reference to the disclosure of units of electricity consumed by the suppliers of the petitioners in the returns filed by the petitioners. The respondents have produced copies of the bills of the suppliers of the petitioners to show that the units consumed as reflected in "Annexure-C" is not the same as the units consumed mentioned in the bills of the suppliers. The respondents have calculated short paid amount on the basis of the bills issued by the petitioners to their suppliers. The fact that "Annexure-C" contains the required data from the bills issued by the petitioners to their suppliers means that the respondents can rely upon the actual bills issued by the petitioners. It is on the basis of the units consumed that the sales tax is collected by the petitioners under the Special Procedure for Payment of Sales Tax, Chapter XI of the Sales Tax Special Procedure Rules, 2007 (Special Procedure Rules, 2007) from the steel melters, re-rollers and ship breakers. In Writ Petition No.30782 of 2013 the petitioner has not deposited the full amount of extra tax and further tax collected from the suppliers. This information was also ascertained from the electricity bills. To my mind, the electricity bills are deemed to be a part of the returns filedbythepetitionersasalltherelevantinformationfromthe bills has been provided to the respondents in "Annexure-C", whichis a part of the returns filed by the petitioners. Hence reliance on the same is as per the information provided by the petitioners in their returns.

12.Section 11-A of the Act of 1990 enables the respondents to collect short paid amounts without giving any show-cause notice and without prejudice to any action prescribed under section 48 of the Act of 1990. The purpose of this section is to enable the respondents to recover the amount of less paid tax from the tax due as indicated in the returns without recourse to the person. The tax due is determined from the returns filed by a person and the information contained in the returns. The default become apparent from the return filed and no further information/document is needed. The return filed by the tax payer is the evidence which proves the default and renders the person liable for short paid amount under section 11-A of the Act of 1990. In the instant petitions, notices were issued to the petitioners to pay the short paid amount along with default surcharge and penalty within seven days. Since the petitioners did not make the payment, in Writ Petition No.30678 of 2013 notice under section 48(1)(b) of the Act of 1990 was issued by the respondents for direct recovery from the accounts of the petitioner. Hence the petitioners were given notice of the intended action of the respondents. It is also noted that the petitioners have only challenged the information relied upon for the purposes of determining short paid tax. Furthermore the argument of the petitioners that there is a dispute with respect to the sales tax payable by the petitioners and such dispute is subject to due process under section 11 of the Act of 1990 is without merit. I find that there is no dispute with respect to the assessment of tax. The dispute pertains to collection of sales tax by the petitioners under the Special Procedure Rules, 2007 prescribed for steel melters and re-rollers and the collection of extra tax and further tax on the billed amount. In these cases the petitioners are merely collection agents wherein they recover the extra tax, further tax on the billed amount and sales tax at the rate of Rs.4 per unit consumed through the electricity bills and deposit the same in the government treasury. Incorrect disclosure of units consumed or tax collected does not give rise to an assessment dispute. In fact it suggests that the petitioners have deliberately evaded their obligation of depositing the necessary tax, sales tax, extra tax or further tax. Learned counsel for the petitioners was unable to explain why there was a discrepancy in the units of electricity consumed in "Annexure-C". His emphasis was on the fact that due process under section 11 of the Act of 1990 must be followed to assess the tax due from the petitioners, if any. In the same way there is no explanation for the incorrect disclosure of the tax collected (extra tax and further tax). The petitioners have also argued in their petitions that the tax collected is their output tax. It is the grievance of the petitioner that this fact should have been considered before acting under section 11-A of the Act of 1990. Again this argument is misconceived as this point has already been agitated and decided by this Court in STR Nos.105 and 106 of 2011. The learned counsel for the petitioners stated that the matter is now pending before the Hon'ble Supreme Court of Pakistan.

13.Therefore, in view of the aforesaid for the purposes of section 11-A of the Act of 1990 the electricity bills relied upon form part of the returns filed and the action initiated under section 11-A of the Act of 1990 is based on the information provided in the returns of the petitioners.

Petitions dismissed.

KMZ/L-1/LPetition dismissed.