LAHORE ELECTRIC SUPPLY COMPANY LTD. VS FEDERAL BOARD OF REVENUE, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 1 (2014)

Sales Tax Act (VII of 1990)---

----Ss.11A, 11 & 48---Law Reforms (Amendment) Act (VIII of 1972), S.3---Intra Court Appeal---Interpretation of S.11A of the Sales Tax Act, 1990---Phrase "tax due as indicated in his return"; connotation and scope---Contention of taxpayer/appellant was that S.11 of the Sales Tax Act, 1990 had a limited application and only if amount of tax due indicated by the taxpayer in the sales tax return was not paid, only then action for recovery under S. 11A of the Sales Tax Act, 1990 could be initiated---Held, that S.11A of the Sales Tax Act, 1990 was neither a dispute settlement provision nor a provision which dealt with assessment of tax but was in fact a special recovery provision akin to S.48 of the Sales Tax Act, 1990---Section 11A proceeded on the assumption that self-assessed tax due indicated in the sales tax return of the taxpayer was correct and final and therefore in case of failure to pay or making short payment of the same, recovery of the differential amount was initiated without further ado and requirement of due process through issuance of show-cause notice was dispensed with---Amount of tax in the present case, was being disputed by the Department, therefore, in such eventuality, statutory assessment was required under S.11 of the Sales Tax Act, 1990 and S.11A had no application to the case of the taxpayer---For S.11A of the Sales Tax Act, 1990 to come into operation, only the amount of tax due indicated by the taxpayer was to be considered; and even though the taxpayer was under a legal obligation to file a true and correct return, any alleged violation of the same could only be resolved through the adjudication process provided under S.11 of the Sales Tax Act, 1990; subject to the selection of the case of the taxpayer under the Sales Tax Act, 1990 and not through the mechanism of S.11A of the Sales Tax Act, 1990---Section 11A of the Sales Tax Act, 1990 was purely a recovery provision; and under said section, the amount of tax due indicated by the taxpayer in the sales tax return was considered to be correct and final and was then used as benchmark to see whether the taxpayer had deposited the said amount of tax along with the sales tax return---In case of failure to deposit such indicated amount of tax due, or in case of short payment of the same, recovery proceedings could be initiated against taxpayer under S. 11A of the Sales Tax Act, 1990---High Court observed that S.11A of the Sales Tax Act, 1990 had practically lost its efficacy after the new electronic filling system had been enforced which did not entertain any electronic return if the amount of tax deposited by the taxpayer was less than the amount of tax due as indicated in the return---Intra-court appeal was allowed, in circumstances.

Shahbaz Butt and Khurram Shahbaz Butt for Appellant.

Ch. Muhammad Zafar Iqbal assisted by Abdul Latif Tariq and Muhammad Yahya Johar for Respondents.

Raja Ashfaq, Deputy Commissioner, RTO-I, Zone-I, Lahore.

Date of hearing: 22nd May, 2014.

JUDGMENT

Introduction:

SYED MANSOOR ALI SHAH, J.---Scope and interpretation of section 11A of Sales Tax Act, 1990 ("Act"), in particular the term "tax due as indicated in his return¹," has come up for consideration before this Court.

2.This judgment will decide the instant appeal, as well as, connected appeals and writ petitions mentioned in Schedule A as all these cases revolve around the interpretation of section 11A of the Act, thus, raising similar question of law arising out of similar facts.

Facts:

3.On facts, it is submitted that the appellant filed its sales tax returns for the months of July, August and September, 2013 and fully paid the amount of tax due indicated in the said returns.² In spite of the same, the appellant has been served with Notices under section 11A of the Act, dated 28-10-2013, for short paid amount of tax. The Notices have been issued on the ground that amount of sales tax to be charged by the appellant from its consumers under the Sales Tax Special Procedure Rules, 2007 has been incorrectly reflected in the sales tax return. The sales tax reflected in the electricity bills issued by the appellant to its consumers, available on its website, constitute output tax of the steel sector units and is not subject to input tax adjustment by the appellant under the above Rules. Therefore, as a result of the said deduction, the appellant has made short payment of tax due, which is liable to be recovered under section 11A of the Act.

4.Learned counsel for the appellant argues that section 11A of the Act is an exception to section 11 of the Act and has a limited application. He submits that if the amount of tax due indicated in the sales tax return is not paid only then can an action be initiated under section 11A of the Act. He further submits that in the present case, the tax due indicated in the sales tax return has admittedly been fully paid. Information collected from the electricity bills of the consumers placed on the website of the appellant company does not constitute "tax due as indicated in his return" in terms of section 11A of the Act. It is argued that in case of any discrepancy or incorrect calculation, as pointed out by the respondent department, between the figures reflected in the actual electricity bills placed on the website of the appellant company and the amounts indicated in the return, only proceedings for assessment of tax under section 11 of the Act can be initiated against the appellant (subject to the provision of section 25 of the Act). Under the said provision, an opportunity is provided to the taxpayer to rebut the allegations levelled by the department followed by adjudication of the dispute after granting a hearing to the appellant. The special procedure under Section 11A dispenses with the requirement of show-cause notice, only because the taxpayer is penalized for not depositing the amount of tax due after voluntarily indicating the same in the sales tax return. Learned counsel submits with utmost respect that the learned Judge in chambers erred in holding that the exercise of verification and comparison of the amount of tax due "indicated" in the sales tax return with the electricity bills available on the website of the appellant, fell within the scope of section 11A of the Act.

5.Learned counsel for respondent department raised a preliminary objection that the I.C.As. Nos.77/2014 and 78/2014 have not been filed by an authorized person. On merits, he submits that under section 26 of the Act, the appellant is under an obligation to submit true and correct sales tax return, hence reliance for the purpose of verification and comparison has been rightly placed on the electricity bills issued by the appellant as the said bills are invoices in terms of Rule 16 of the Sales Tax Special Procedure Rules, 2007. He submits that section 11A is subject to verification of the sales tax returns and in case of any discrepancy said section can be invoked against the taxpayer. He submits that the impugned judgment propounds the correct legal position, hence the instant appeal and the connected petitions are not maintainable.

6.We have given due consideration to the arguments of the learned counsel for the parties and have gone through the record, as well as, the impugned judgment of the learned Judge in chambers.

Preliminary Objection:

7.It is submitted that I.C.As. Nos. 77/2014 and 78/2014 have not been filed by an authorized person, hence they are not maintainable. Reference has been made to the Authority Letter (undated) issued by the Manager (Corporate Accounts), GEPCO Ltd., Gujranwala which authorizes one Mr. Muhammad Masood, Deputy Manager (Banking and Tax) to sign a "writ petition" on behalf of GEPCO. On the basis of the said Letter, it is argued that the concerned person has not been specifically authorized to file the abovementioned appeals. Learned Counsel for the appellant has placed on record a booklet comprising 42nd Board Resolution of GEPCO dated 22-6-2006 wherein the Chief Executive Officer ("CEO") of GEPCO has been authorized to institute and defend cases in courts and to engage counsel and give powers of attorney on behalf of GEPCO. The CEO has been further authorized to delegate this power to any other officer of the company. Vide Letter dated 25-10-2010 the CEO has further delegated the said power to two officers, including the officer who signed the said appeals. The Board Resolution and Letter of Delegation is part of the booklet submitted by the learned counsel for GEPCO, which has been placed on the record as Mark "A". From the above we find that officer concerned has been duly authorized to institute the appeals. The preliminary objection is, therefore, overruled. As an abundant caution, we have gone through the authorization in all the connected matters and have found them in order.

On Merits:

8.Sales Tax is premised on a self-assessment paradigm, where the tax due is self-assessed by a taxpayer and deposited along with the monthly sales tax return. Supervision and monitoring of the self-assessment regime is through the process of audit provided under sections 25 of the Act. Once the taxpayer is selected through audit and the department is of the view that the taxpayer has an outstanding tax liability, the case undergoes assessment of tax through the process of adjudication under section 11 of the Act. Therefore, the self-assessed amount of tax due by the taxpayer in its sales tax return can only be altered through fresh assessment of tax under the section 11 of the Act, subject to the process of selection of a taxpayer though audit. Section 11 provides for assessment of tax where a taxpayer fails to file a return, or pays an amount which is less than the amount of tax due or has made short payment or has claimed input tax credit or refund which is not admissible. The section further provides that where by reason of collusion or deliberate act any tax has not been levied or has been short levied or has been erroneously refunded, or by reason of inadvertence, error or misconstruction any tax has not been levied or short levied or has been erroneously refunded, the Officer of Inland Revenue passes an assessment order along with penalty and default surcharge. Section 11 is the only provision under the Act which provides for assessment of tax through adjudication in case the self-assessed tax of the taxpayer, accord-ing to the department is unpaid or short paid for the above reasons. Post assessment if the taxpayer fails to pay the tax assessed, recovery can be initiated against the taxpayer under section 48 of the Act.

9.Section 11A on the other hand is neither a dispute settlement provision nor a provision that deals with assessment of tax but is infact a special recovery provision akin to section 48. It proceeds on the assumption that the self-assessed tax due indicated in the sales tax return by the taxpayer is correct and final. Therefore, in case of failure to pay or make short payment of the same, recovery of the differential amount is initiated without further ado and the requirement of due process through issuance of a show-cause notice is dispensed with. Section 11A states as under:--

"11A. 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 return, 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." (emphasis supplied)

The amount of tax due has to be indicated in the return, which is defined under section 2(29) to mean any return required to be furnished under Chapter-V of the Act. Under section 26 every registered person is required to furnish a true and correct return in the prescribed form. Rule 14 of the Sales Tax Rules, 2006 ("Rules") specifies that return has to be in form STR-7 along with all its annexures. The format of the relevant portion of the return under the law is as follows:--

Annex-C is one of the annexures of the return which provides a summary of domestic sale invoices. The return and its annexures and the domestic sale invoices are two different set of documents. In the present case the domestic sales invoices are the electricity bills (ref: Rule 16 of the Sales Tax Special Procedures Rules, 2007) issued by the appellant. Therefore, the amount of tax due indicated in the return cannot be equated with the amount of output tax reflected in the domestic sales invoices (i.e., electricity bills of the consumer). Additionally, once the self-assessed tax due is considered to be correct and final under section 11A of the Act, natural corollary is that all the information in the return including the annexures which leads to the self-assessed amount of tax due, is also correct and final.

11.In the present case, the amount of tax due indicated in the return is being disputed by the department, therefore, in such an eventuality, statutory assessment is required under section 11 of the Act and section 11A has no application to the case of the appellant.

12.We are afraid, the view expressed in the impugned judgment that verification of electricity bills, placed on the website of the appellant, is permissible and reliance can be placed on any other extraneous information other than the amount of tax due indicated in the sales tax return under section 11A, is not the correct legal position. For section 11A to come into operation, only the amount of tax due indicated by the taxpayer in the sales tax return is to be considered. We may add for the sake of completeness that even though the taxpayer is under a legal obligation to file a true and correct return, any alleged violation of the same can only be resolved through adjudicatory process provided under section 11 of the Act subject to the selection of the case of the taxpayer under the Act and not through the mechanism of section 11A which is purely a recovery provision.

13.Under section 11A the amount of tax due indicated by the taxpayer in the sales tax return is considered to be correct and final. It is then used as a benchmark to see whether the taxpayer has deposited the said amount of tax due along with the sales tax return. In case of failure to deposit the indicated amount of tax due or in case of short payment, recovery proceedings can be initiated against the taxpayer under section 11A.

14.Even otherwise, section 11A has practically lost its efficacy after the new e-filing system has been enforced. The new system does not entertain any electronic return if the amount of tax deposited by the taxpayer is less than the amount of tax due indicated in the return. Reference is made to Rule 18 of the Sales Tax Rules, 2006.

15.For the above reasons instant appeal, as well as, connected appeals and writ petitions are allowed and impugned Notices dated 28-10-2013 issued under section 11A of the Act and subsequent recovery thereunder are declared illegal and without lawful authority and are, therefore, set aside.

SCHEDULE-A

KMZ/L-13/LAppeals/petitions allowe