URBAN DEVELOPERS ASSOCIATES VS COMMISSIONER INLAND REVENUE, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 2242 (2016)

(a) Federal Excise Act (VII of 2005)---

----S. 9---Payment of duty---Liability---Intendment or presumption on interpretation of law---Scope---Bank account of petitioner was attached on the basis of alleged tax demand raised by authorities---Validity---Person sought to be taxed could only be taxed when he come within the letter of law---No one could only look for intendment or language used in law and there was no room for intendment or presumption on interpretation of law---If revenue seeking to tax could not bring subject within letter of law, the subject was free, no matter such a construction of law could cause serious prejudice to the revenue---No one could be taxed unless the charging provision had clearly imposed obligation---High Court declared orders/actions attaching bank account of petitioner to be illegal and without lawful authority---High Court directed the authorities to refund the amount illegally recovered from petitioner---Constitutional petition was allowed in circumstances.

A & B Food Industries Limited v. Commissioner of Income Tax/Sales, Karachi 1992 SCMR 663 and Commissioner Inland Revenue, Lahore v. Saritow Spinning Mills Ltd., Lahore 2016 PTD 786 ref.

(b) Interpretation of statutes---

----Fiscal statute---Two interpretations---Charging section of a fiscal statue is key and pivotal provision, which imposes a fiscal liability upon a taxpayer/person thus it should be strictly construed and applied, so far the revenue is concerned---Where a provision is susceptible to two possible interpretations, it should be liberally considered in favour of taxpayer/citizen particularly where there is substantial doubt about import and application of a charging section, such doubt must be resolved in favour of taxpayer/citizen---Courts has to go by language clearly employed by Legislature in a fiscal statue and the same has to be interpreted to the benefit of subject and benefit of any ambiguity should go to him---Any person can be made liable when clearly shown to be falling within its scope and is made liable under letter of law.

Collector of Customs, Customs House, Lahore and 3 others v. Messrs S. M. Ahmad & Company (Pvt.) Limited, Islamabad 1999 SCMR 138; Star Textile Ltd. and 5 others v. Government of Sindh through Secretary Excise and Taxation Department, Sindh Secretariat, Karachi and 3 others 2002 SCMR 356; Messrs Bilz (Pvt.) Ltd. v. Deputy Commissioner of Income-Tax, Multan and another 2002 PTD 1; Province of the Punjab through Secretary, Government of the Punjab Excise and Taxation Department and others v. Muhammad Aslam and others 2004 SCMR 1649 and Jamnadas Mehta v. Mst. Hajiani Mariam Bai and others (PLD 1964 (W.P.) Kar. 43 rel.

Sh. Aqeel Ahmed for Petitioner.

Imran Rasool for Respondents.

ORDER

MUHAMMAD SAJID MEHMOOD SETHI, J.---Brief facts of the case are that petitioner's bank account No.BTA-004888-00-6, maintained with respondent No.3, was attached by respondents Nos.1, 2 and 5, on basis of an alleged tax demand created against respondent No.4, and a Pay Order No.2402021 dated 09.03.2015 amounting to Rs.10,158,726/- was issued by respondent No.3 from said account in favour of respondent No.2. Through instant petition, petitioner has assailed the order dated 06.05.2015, passed by respondent No.1, and letter/order dated 23.07.2015, issued by respondent No.3, whereby prayer for return of pay order, withdrawal of illegal attachment/orders along with prayer for de-freezing the said account and cancellation of pay order, has been turned down. The relief sought from this Court, through instant petition, is as under:--

a."The impugned order dated 06.05.2015 issued by the respondent No.1 may kindly be set aside by declaring it as illegal, issued without lawful authority and of no legal effect; and, the respondents Nos.1 and 2 may very graciously be directed to return the Pay Order issued from the Petitioner accounts, beside withdrawing their order of illegal attachment of the Petitioner's account.

b.The impugned letter dated 23.07.2015 issued by the respondent No.3 may kindly be declared as illegal, issued without lawful authority and of no legal effect, by directing the respondent No.3 to defreeze the Petitioner's account and cancel the Pay Order issued therefrom in favour of the respondent No.2.

c.The respondents Nos.1, 2, 3 and 4 may, in addition to the cost of the instant and other cases, be burdened with appropriate fine payable as compensation to the petitioner for the mental agony and reputation damage caused to it.

d.During the pendency of this petition the respondents may be restrained from encashing the Pay Order No.2402021 dated 09.03.2015 amounting to Rs.10,158,726.00 issued by the respondent No.3 from the bank account of the petitioner in favour of the respondent No.2, and, the respondent No.3 may be directed to let the petitioner operate its account for its ongoing business transaction.

e. .."

2.Learned counsel for petitioner submits that no tax dues were outstanding against the petitioner, at the time of illegal attachment of its bank account. He adds that a tax demand created against respondent No.4 cannot be lawfully effected against petitioner. He further submits that petitioner is an entirely different entity, independent from respondent No.4, having different partners, separate Firm Registration number and clearly distinguishable NTN, therefore, the impugned orders/actions are not sustainable in the eye of l aw.

3.On the other hand, learned counsel for respondents defends the impugned orders and submits that petitioner has failed to point out any illegality or legal infirmity in the impugned orders.

4.Arguments heard. Available record perused.

5.The operative part of impugned order dated 06.05.2015, passed by respondent No.1, is reproduced hereunder:--

i)As per ground No.6 taken by the petitioner, Urban Developers comprised of two partners namely Mr. Tahir Javed s/o Muhammad Ashiq and Mr. Riaz Ahmed Chohan S/o Saeed Ahmed Chohan. Mr. Riaz Ahmed Chohan resigned from Urban Developers on 18.06.2012.

ii)M/s Urban Developers was a partnership firm established in 1999 and Mr. Riaz Ahmed Chohan was a partner for the period to which FED liability pertained. According to Partnership Act, 1932 partner of the firm is jointly and severally responsible for any liability of the firm. It is pertinent to mention again that as per "addendum to agreement of dissolution a partnership in Urban Developers dated 27.06.2012" Partnership firm, M/s. Urban Developers was dissolved vide agreement dated 18.06.2012 i.e. at a much later stage.

iii)The plea taken in ground No.6 stating that Mr. Riaz Ahmed Chohan had been absolved from all his liabilities whatsoever incurred during his partnership tenure and that he settled his total accounts with the surviving partner, is also not tenable since section 9 of the FED Act, 2005 clearly states that in case a business enterprises is discontinued/ closed or ceases to exist, any amount of duty payable by the enterprise, if cannot be recovered, every person who was owner or partner of the said enterprise, shall, jointly and severally, be liable for payment of such duty.

6.Perusal of reproduced part of the impugned order itself shows that recovery of duty/dues can be effected from an owner/partner of the firm. Undeniably, a shareholder of petitioner, Riaz Ahmed Chauhan, had been a partner in respondent No.4, yet no claim against respondent No.4 becomes a liability of petitioner under any principle of law and equity. Petitioner is an entirely different entity, independent from respondent No.4, having different partners, distinct Firm Registration number and clearly distinguishable NTN, though its name is somewhat similar to that of respondent No.4, as is obvious from the following:--

7.The impugned findings of the respondent No.1 regarding recovery of outstanding duty payable by respondent No. 4 from petitioner under section 9 of the Federal Excise Duty ("FED") Act, 2005, are also bereft of any substance. The relevant Section 9 of the FED Act, 2005 is reproduced below for ready reference:--

9. Liability for payment of duty in the case of private companies or business enterprises or in case of sale of business ownership.---(1) Notwithstanding anything contained in any other law for the time being in force, where any private company or business enterprise is closed or discontinued or otherwise ceases to exist and any amount of duty chargeable on the company or business enterprise, whether before, or in the course of, or after its liquidation cannot be recovered from the company or business enterprise, every person who was a owner of, or partner in, or director of, the company or business enterprise shall, jointly and severally with such persons, be liable for the payment of such duty.

(2) In the case of sale or transfer of ownership of a business or part thereof involving any charge of duty to another person as an ongoing concern, the chargeable duty shall be paid by the person to whom such sale is made or ownership is transferred provided that if any amount of duty payable by such person remains unpaid, such unpaid amount of duty shall be the first charge on the assets of the business and shall be payable by the transferee of business:

Provided that no business enterprise or a part thereof shall be sold or transferred unless the outstanding duty is paid and a no objection certificate in this behalf from the Commissioner concerned is obtained.

(3) In case of termination of a business or part thereof involving any outstanding charge of duty, a person terminating such business or part thereof shall be required to account for and pay the outstanding charge of duty as if no such termination has taken place.

From bare perusal of above quoted section, it is quite clear that where a partnership is closed or discontinued or otherwise ceased to exist and any amount of duty chargeable on such business enterprise, whether before, or in the course of, or after its liquidation, cannot be recovered from the business enterprise, every person who was a partner in business enterprise is jointly and severally liable for the payment of such duty. Section 9 of FED Act, 2005, further provides that in case of termination of a business or part thereof, involving any outstanding charge of duty, a person terminating such business or part thereof is required to account for and pay the outstanding charge of duty as if no such termination has taken place. Proviso to subsection (2) of Section 9 of the FED Act, 2005, provides that no business enterprise or a part thereof can be sold or transferred unless the outstanding duty is paid and in this regard, a no objection certificate is to be obtained from the Commissioner concerned. Therefore, by virtue of Section 9 of the FED Act, 2005, respondent department can recover outstanding amount of duty payable by respondent No. 4, after its dissolution, from its former partners in accordance with law after issuance of show cause notice and after granting them opportunity of hearing, if such duty cannot be recovered from respondent No. 4, but not from the petitioner which is entirely different entity and a separate legal person.

8.It is well-settled that one can only look for the intendment or language used in law and there is no room for intendment or presumption on interpretation of law. Person sought to be taxed, could only be taxed when he came within the letter of law. If the revenue seeking to tax cannot bring the subject within letter of law, the subject is free, no matter such a construction may cause serious prejudice to the revenue. The subject is not to be taxed unless the charging provision clearly imposes obligation. Reference in this regard can be made to A & B Food Industries Limited v. Commissioner of Income Tax/Sales, Karachi (1992 SCMR 663) and Commissioner Inland Revenue, Lahore v. Saritow Spinning Mills Ltd., Lahore (2016 PTD 786).

In the case of Saritow Spinning Mills Ltds., Lahore supra, this Court has held as under:--

"12. We are also conscious of the well-established proposition of law that if a person sought to be taxed comes within the letter of the law, he must be taxed, however great a hardship may thereby be involved but on the other hand, if the state cannot bring the subject within the letter of the law he is free, however apparent it may be that his case is within what might be called the spirit of the law. Even if two views are possible from reading of the said provisions of law, even then the view which favours the citizen/assessee has to be given preference over the second view for the reason, firstly, that charge upon the subject are to be imposed by clear and unambiguous words, secondly, fiscal provision of a statute is to be construed liberally in favour of the taxpayer and in case of any substantial doubt, the same is to be resolved in favour of the citizen."

9.Needless to add here that the charging section of a fiscal statute is the key and pivotal provision, which imposes a fiscal liability upon a taxpayer/person, thus it should be strictly construed and applied, so far revenue is concerned, but where it is susceptible to two possible interpretations, it should be liberally considered in favour of taxpayer/ citizen particularly where there is substantial doubt about the import and application of a charging section, such doubt must be resolved in favour of taxpayer/citizen. Courts have to go by language clearly employed by Legislature in a fiscal statute. It has to be interpreted to the benefit of subject and benefit of any ambiguity should go to him. A person can be made liable when clearly shown to be falling within its scope and is made liable under letter of law. Reliance in this regard can be placed upon Collector of Customs, Customs House, Lahore and 3 others v. Messrs S. M. Ahmad & Company (Pvt.) Limited, Islamabad (1999 SCMR 138), Star Textile Ltd. and 5 others v. Government of Sindh through Secretary Excise and Taxation Department, Sindh Secretariat, Karachi and 3 others (2002 SCMR 356), Messrs Bilz (Pvt.) Ltd. v. Deputy Commissioner of Income-Tax, Multan and another (2002 PTD 1), Province of the Punjab through Secretary, Government of the Punjab Excise and Taxation Department and others v. Muhammad Aslam and others (2004 SCMR 1649) and Jamnadas Mehta v. Mst. Hajiani Mariam Bai and others (PLD 1964 (W.P.) Karachi 43).

10. Resultantly, instant petition is allowed. The impugned orders/ actions are declared to be illegal and without lawful authority. Consequently, respondents are directed to refund the amount illegally recovered from petitioner within a period of 15-days from the receipt of certified copy of this order.

MH/U-2/ LPetition allowed.