COMMISSIONER INLAND REVENUE VS LUCKY PLASTIC INDUSTRIES (PVT.) LTD., 2017 PTD-LAHORE-HIGH-COURT-LAHORE 2284 (2017)

(a) Limitation---

----Object and rationale for law of limitation---Law of limitation was founded on public policy and State interest and was vital for an orderly and organized society---Statutes of limitation were jurisprudential necessities because they achieved peace and good administration.

Atta Muhammad v. Maoula Bakhsh and others 2007 SCMR 1446; Dr. Muhammad Javaid Shafi v. Syed Rashid Arshad and others PLD 2015 SC 212 and Savitri Rani Malik v. Commissioner of Income Tax 186 ITR 701 rel.

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

----Ss. 74, 36(3) & 47---Recovery of sales tax---Adjudication---Limitation prescribed under S. 36(3) of the Sales Tax Act, 1990---Condonation of time limit and exercise of power under S. 74 of the Sales Tax Act, 1990---Scope---Question before the High Court was "whether limitation provided under S. 36(3) of the Sales Tax Act, 1990 was mandatory or directory and whether the same could be condoned by virtue of S. 74 of the Sales Tax Act, 1990"---Held, S. 74 of the Sales Tax Act, 1990 had a general application and would have an overriding effect over the first proviso to S. 36(3) of the Sales Tax Act, 1990 and would be taken as an exception thereto---Department was, therefore, competent to extend time limit for decision of a case by Adjudicating Officer even though original limitation under S. 36(3) of the Sales Tax Act, 1990 had expired---Department under S. 74 of the Sales Tax Act, 1990 however, did not have unfettered powers to extend time and such power should be exercised after application of mind and within reasonable time---Extension of time should be for a reasonable period and could not be for an indefinite period and for purposes of S.36(3) of the Sales Tax Act, 1990 after expiry of the two time lines envisaged in the proviso thereof, Department would have six months within which it may grant an extension, which extension should not exceed six months---Such reasonable time if lapsed, then transaction would be treated as past and closed and a vested right would accrue in favor of the registered person / taxpayer---Reference was answered, accordingly.

Messrs Abbasi Enterprises and another v. Collector of Sales Tax, Peshawar and 3 others 2008 PTD 2025 ref.

Messrs Super Asia Muhammad Din son (Pvt.) Ltd. v. The Collector of Sales Tax, Gujranwala and others 2008 PTD 60 and The Collector of Sales Tax, Gujrawala and others v. Messrs Super Asia Muhammad Din and sons and others Civil Appeal No.682 rel.

Shahid Sarwar for Applicant.

Date of hearing: 11th May, 2017.

JUDGMENT

TARIQ SALEEM SHEIKH, J.---This is an application by way of reference under Section 47 of the Sales Tax Act, 1990 (the "Act"), against Order dated 2-9-2013 passed by the Appellate Tribunal Inland Revenue, Lahore (the "Tribunal").

2.During the audit of Respondent No.1 for the period July-2006 to June-2008 it was inter alia observed that it had illegally reduced its output tax against "Credit Notes" issued with regard to certain sales returns as the said Credit Notes were not available on its record. Accordingly, it was charged with the evasion of sales tax amounting to Rs.509,278/- and Special Excise Duty (SED) of Rs.14,277/-. The Deputy Commissioner Inland Revenue issued Show Cause Notice dated 05-10-2009 to Respondent No.1 calling upon it to explain as to why the aforesaid sales tax and SED may not be recovered from it along with default surcharge and why other penal action may not be taken against it under Section 33 of the Sales Tax Act, 1990, and Section 19 of the Federal Excise Act, 2005. Adjudication proceedings commenced which culminated in Order-in-Original No.03/2010 dated 23-7-2010. The Adjudicating Officer held that the charge was established against Respondent No.1. Since the Order-in-Original was passed beyond the time prescribed in Section 36(3) of the Act as it then existed on the Statute Book, the Adjudicating Officer made it a point to mention in the said Order that the Federal Board of Revenue (the "Board") had extended the time-limit till 31-7-2010 for deciding the matter in exercise of the powers available to it under Section 74 of the Act. Respondent No.1 preferred an appeal before the CIR (Appeals) which was accepted vide order dated 22-12-2010 on the ground that the Order-in-Original was hit by limitation. The CIR (Appeals) held that the Board's extension was of no avail to the Department inasmuch as it was obtained after the expiry of the initial limitation prescribed by Section 36(3). The Department filed an appeal before the Tribunal but the same was dismissed on 2-9-2013. It has now come up in reference before this Court.

3.The Petitioner Department has urged that the following questions of law arise from the Tribunal's Order dated 2-9-2013 which require determination by this Court:

a.Whether on the facts and in the circumstances of the case, the learned Appellate Tribunal Inland Revenue (ATIR) was justified to reject the departmental appeal on the ground of limitation, whereas the case was decided within the extended period after proper approval from the FBR under Section 74 of the Sales Tax Act, 1990?

b.Whether the ATIR was not under obligation to apply the law correctly in view of the judgment of the Hon'ble Islamabad High Court (PTCL 2009 CL 35) irrespective of the fact whether the same was presented before the Tribunal or not?

c.Whether the ATIR was justified in ignoring the judgment of the Hon'ble Islamabad High Court (PTCL 2009 CL 35) deciding a similar question of law?

4.Notice was issued to Respondent No.1 but it has not entered appearance despite service. It is, therefore, proceeded ex parte.

5.Learned counsel for the Petitioner contended that the Tribunal's Order dated 2-9-2013 as also of the CIR (Appeals) dated 25-8-2010 were passed on misapprehension of law. The Board had extended the time for adjudication of the case by the Adjudicating Officer upto 30-7-2010 in exercise of its powers under Section 74 and no exception could be taken thereto. The Order-in-Original was valid as it was passed within the extended period. He further contended that Section 74 conferred special powers on the Board. It was an independent provision and was not subservient to Section 36. Therefore, the Board was competent to extend time under Section 74 even after the expiry of the initial limitation stipulated in Section 36. He relied upon "Messrs Abbasi Enterprises and another v. Collector of Sales Tax, Peshawar and 3 others" (2008 PTD 2025).

6.We have heard the learned counsel and have perused the record.

7.There is no cavil with the proposition that the law of limitation is founded on public policy and State interest. It is vital for an orderly and organized society. In "Atta Muhammad v. Maula Bakhsh and others" (2007 SCMR 1446), the Hon'ble Supreme Court of Pakistan explained the object and scope of the law of limitation as under:--

"9. We may add that public interest requires that there should be an end to litigation. The law of limitation provides an element of certainty in the conduct of human affairs. Statutes of limitation and prescription are, thus, statutes of peace and repose. In order to avoid the difficulty and errors that necessarily result from lapse of time, the presumption of coincidence of fact and right is rightly accepted as final after a certain number of years. Whoever wishes to dispute this presumption must do so, within that period; otherwise his rights if any, will be forfeited as a penalty for his neglect. In other words, the law of limitation is a law which is designed to impose quietus on legal dissensions and conflicts. It requires that persons must come to Court and take recourse to legal remedies with due diligence".

In "Dr. Muhammad Javaid Shafi v. Syed Rashid Arshad and others" (PLD 2015 SC 212), the Hon'ble Apex Court added:

"From the various dicta/pronouncements of the superior courts, it can be deduced without any fear of contradiction that such law [the law of limitation] is founded upon public policy and State interest. This law is vital for an orderly and organized society and the people at large, who believe in being governed by systemized law. The obvious object of the law is that if no time constraints and limits are prescribed for pursuing a cause of action and for seeking reliefs/remedies relating to such cause of action, and a person is allowed to sue for the redressal of his grievance within an infinite and unlimited time period, it shall adversely affect the disciplined and structured judicial process and mechanism of the State which is sine qua non for any State to perform its functions within the parameters of the Constitution and the rule of law".

In "Savitri Rani Malik v. Commissioner of Income Tax" (186 ITR 701), the Gauhati High Court held that statutes of limitation are jurisprudential necessities because they achieve peace and good administration.

8.Section 36(3) of the Act as it stood at the relevant time provided that the Officer of Sales Tax shall make an order under Section 36 for recovery of tax not levied or short levied or erroneously refunded, as the case may be, within 120 days of the issuance of show cause notice excluding any period during which the proceedings were adjourned on account of a stay order or Alternate Dispute Resolution proceedings or the time taken through adjournment by registered person not exceeding thirty days. The aforesaid period could, however, be extended by the Collector upto 60 days for reasons to be recorded in writing. The aforesaid time-lines were varied by the Legislature through different Finance Acts. However, there was a lot of controversy on the question as to whether the limitation provided under Section 36(3) was mandatory or directory. The overwhelming view was that it was mandatory. Reference in this regard is made to "M/s Super Asia Muhammad Din Sons (Pvt.) Ltd. v. The Collector of Sales Tax, Gujranwala, and others" (2008 PTD 60). The issue was eventually decided by the Hon'ble Supreme Court of Pakistan through judgment dated 31-3-2017 delivered in Civil Appeal No.682 (titled: "The Collector of Sales Tax, Gujranwala and others v. M/s. Super Asia Muhammad Din & Sons and others") and connected matters wherein it was conclusively determined that the provisions of Section 36(3) were mandatory.

9.Section 74 was inserted in the Act by the Finance Ordinance, 2002. It confers additional powers on the Board to condone time limit. At the relevant time it read as under:--

74. Condonation of time-limit.---Where any time or period has been specified under any of the provisions of the Act or rules made thereunder within which any application is to be made or any act or thing is to be done, the [Board] may, in any case or class of cases, permit such application to be made or such act or thing to be done within such time or period as it may consider appropriate:

Provided that the Board may, by notification in the official Gazette, and subject to such limitations or conditions as may be specified therein, empower any [Collector] to exercise the powers under this section in any case or class of cases.

10.In the instant case, admittedly the Adjudication Officer did not decide the matter within the prescribed period. The Board, in exercise of its powers under Section 74, extended the time-limit till 31-7-2010 through its letter dated 3-6-2010 which was issued well after the expiry of limitation provided under Section 36(3). The argument of Respondent No.1 before the CIR (Appeals) and the Tribunal was that the Board could grant extension before the expiry of the limitation under Section 36(3) and not after that. In its judgment dated 31-3-2017 in Civil Appeal No. 682 of 2008 supra, the Hon'ble Supreme Court held that Section 74 had a general application and would have an overriding effect over the first proviso to Section 36(3) and would be taken as an exception thereto. It ruled:

"As regards the reliance placed on Section 74 of the Act, it provides that where a time frame has been stipulated in the Act within which an act or thing is to be done, the Board, or the Commissioner notified by the Board, are empowered to permit such act or thing to be done within such time period as they may consider appropriate. Passing an order under Section 36(3) of the Act is certainly an act or thing to be done under the Act. Therefore, the Board (which expression shall hereafter include Commissioner notified by the Board) has the power under Section 74 of the Act to permit the passing of an order under the aforesaid section within such time period as it may consider appropriate. While applying the principles of harmonious construction, we find that the proviso is restricted in its application to the section it is attached to, whereas Section 74 of the Act is of general applicability and shall apply to all the provisions of the Act and the rules framed thereunder. This provision will undoubtedly have an overriding effect over the first proviso to Section 36(3) supra and can be held to be an exception thereto. The purpose of Section 74 supra is to give a separate overriding power to the Board to permit any act or thing to be done under the statute within such time period as it may deem appropriate, which undoubtedly is independent of any other provision of the Act which provides a time frame. To restrict the time period that can be granted under Section 74 supra to the maximum period available under the first proviso to Section 36(3) of the Act would render the former absolutely redundant and superfluous which cannot be countenanced under the settled rules of interpretation which do not allow such redundancy to be attributed to the legislative intent. Therefore, where the Board has permitted the passing of an order under the proviso within a time frame different from that contained therein, this new time frame shall be deemed to be the relevant one."

11.In view of the above-mentioned dictum we hold that the Board was competent to extend the time-limit for decision of case by the Adjudicating Officer even though the original limitation had expired.

12.It, however, needs to be emphasized that the Board does not have unfettered power to extend time. This is despite the fact that Section 74 is couched in very general terms. In its judgment in Civil Appeal No.682 of 2008 supra, the Hon'ble Supreme Court laid down the following conditions for exercise of the aforesaid power:

i)Time could only be extended after application of mind.

ii)The power to extend time must be exercised within a reasonable time.

iii)The extension must for a reasonable period. It cannot be for an indefinite period.

iv)For the purpose of Section 36(3), after the expiry of the two time-lines envisaged in the first proviso thereof, the Board would have six months within which it may grant an extension which should not exceed six months.

v)If the reasonable time as mentioned hereinabove lapses, the transaction would be treated as past and closed and a vested right would accrue in favour of the registered person.

13.We have examined the record placed before us. The Petitioner has not filed a copy of the Board's letter dated 3-6-2010 through which it granted the extension. Therefore, we could not determine whether it conformed with the conditions laid down by the Hon'ble Supreme Court in its aforementioned judgment. In particular, it needs to be seen whether the time was extended with due application of mind. Since we are inclined to remand the matter to the CIR (Appeals), he shall also attend to this issue.

14.In view of the foregoing, we answer the above-noted questions in the negative, i.e. in favour of the Department and against Respondent No.1. Resultantly, this application is allowed and the matter is remanded to the CIR (Appeals) who shall decide the appeal of Respondent No.1 afresh in accordance with the directions made hereinabove.

15.Office shall send a copy of this judgment to the Tribunal under the Seal of this Court as per law.

KMZ/C-21/L Case remanded.