J.K. BROTHERS PAKISTAN (PVT.) LTD. VS The ADDITIONAL COMMISSIONER INLAND REVENUE, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 461 (2015)

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

----S. 11(4)---Amount recoverable with notice---Limitation---Scope---Refund claim of petitioner pertained to tax period of April, 2005 and specified period of five years was to expire in May, 2010 but show cause notice regarding said refund had been issued on 28-05-2011---Validity---If a law prescribed period of time for recovery of money then after its lapse, recovery was not enforceable---Section 11(4) of Sales Tax Act, 1990 provided a period of limitation of five years for issuance of show cause notice and notice in present case having been issued after one year of expiry of relevant date was barred by limitation and thus was without lawful authority and of no legal effect and was liable to be set aside---Constitutional petition was allowed, accordingly.

Collector of Customs, Sales Tax (West), Karachi v. Messrs K and A Industries, Karachi 2006 PTD 537; XEN Shahpur Division v. Collector Sales Tax (Appeals) Collectorate of Customs Federal Excise and Sales Tax, Faisalabad and 2 others 2008 PTD 1973; Messrs Gulistan Textile Mills Ltd., Karachi v. Collector (Appeals) Customs Sales Tax and Federal Excise, Karachi and another 2010 PTD 251; West Pakistan Tanks Terminal (Pvt.) Ltd. v. Collector (Appraisement) 2007 SCMR 1318; Deputy Commissioner of Income Tax/Wealth Tax, Faisalabad and others v. Messrs Punjab Beverage Company (Pvt.) Ltd. 2007 PTD 1347; Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others 2008 SCMR 615 and Mughal-e-Azam Banquet Complex through Managing Partner v. Federation of Pakistan through Secretary and 4 others 2011 PTD 2260 ref.

Federation of Pakistan through Secretary, Finance, Islamabad and others v. Messrs Ibrahim Textile Mills Ltd. and others 1992 SCMR 1898; Collector of Customs, Sales Tax (West), Karachi v. Messrs K and A Industries, Karachi 2006 PTD 537; Messrs Rose Colour Laboratories Nayab No. 1 (Pvt.) Ltd. v. Chairman, C.B.R. and others 2003 PTD 1047; Abdul Sattar v. Federation of Pakistan through Secretary, Revenue Division/Chairman, Central Board of Revenue, Islamabad and others 2006 PTD 1171; Pakistan International Airlines Corporation v. Central Board of Revenue, Islamabad and others 1990 CLC 868 and Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and others 2001 SCMR 838 rel.

(b) Constitution of Pakistan---

----Art. 199---Sales Tax Act (VII of 1990), S. 11---Show-cause notice---Constitutional Jurisdiction of High Court--- Maintainability---Scope---Contention of Department was that constitutional petition against show cause notice under S.11 of Sales Tax Act, 1990 was not maintainable---Held, that if an act was illegal and facts of case confirmed the same illegality then there was no bar in exercising Constitutional jurisdiction---If show cause notice was ultra vires, without jurisdiction or with mala fide intent then such action was to be nipped in bud---In such circumstances, Constitutional petition was maintainable.

Northern Power Generation Company Ltd. v. Federation of Pakistan and others 2015 PTD 2052 rel.

M.M. Akram for Petitioner.

Sarfraz Ahmad Cheema for Respondents.

Date of hearing: 31st August, 2015.

JUDGMENT

MUHAMMAD SAJID MEHMOOD SETHI, J.---Brief facts, as narrated in this writ petition, are that respondent No.1 issued show cause notice C.No.329 dated 28.05.2011 to the petitioner, requiring to show cause as to why input tax refund amounting to Rs.2,488,515/- claim for the tax period 04/2005 may not be rejected in terms of section 11(2) of the Sales Tax Act, 1990 and why penal action may not be taken under section 33 of the said Act. In response to the said notice, petitioner submitted its reply stating therein that the show cause notice is void ab initio as the same has been issued beyond the limitation of five years as prescribed in subsection (4) of section 11 of the Sales Tax Act, 1990 and requested the respondent No.1 to withdraw the show cause notice and issue refund to the petitioner. Through instant petition, aforesaid show cause notice has been challenged with the following prayer:--

"Under the facts and in the circumstances of the case, it is most respectfully prayed that the impugned show cause notice dated 28-05-2011 may graciously be declared void ab-initio, illegal, without jurisdiction and of no legal effect and in consequential relief the Respondents may graciously be directed to issue the Refund of Rs.2,488,515/- claimed for the tax period April, 2005.

It is further prayed that pending the petition before this Honourable Court, the Respondent No.1 may graciously be directed not to pass the final order till the decision on the writ petition by this Honourable Court."

3.Learned counsel for petitioner contends that the impugned show cause notice has been issued and served upon the petitioner beyond the period of five years as prescribed in subsection (4) of Section 11 of the Sales Tax Act, 1990. Further submits that the recovery of tax cannot be made after the expiry of statutory period of limitation. Adds that the impugned show cause notice is void ab-initio and liable to be declared illegal and without lawful authority. He relied upon case law reported as Collector of Customs, Sales Tax (West), Karachi v. Messrs K & A Industries, Karachi 2006 PTD 537, XEN Shahpur Division v. Collector Sales Tax (Appeals) Collectorate of Customs Federal Excise and Sales Tax, Faisalabad and 2 others (2008 PTD 1973) and Messrs Gulistan Textile Mills Ltd., Karachi v. Collector (Appeals) Customs Sales Tax and Federal Excise, Karachi and another (2010 PTD 251).

4.On the other hand, learned counsel for the respondents submitted that in compliance with the direction of learned Appellate Tribunal Pakistan, issued in S.T.A. No. 1115/LB/2009, dated 01.04.2011, the impugned show cause notice was issued to the petitioner. Further submits that the learned Tribunal vide aforesaid judgment remanded the case to the officer with competent jurisdiction under section 45(1) of the Sales Tax Act, 1990, with the direction to pass fresh order after verification and hearing of both sides. Adds that since the earlier show cause issued by the then Assistant Collector (Refund) has been set aside by the learned Tribunal on the grounds of jurisdiction, therefore, in the light of Tribunal's direction fresh show cause notice has been issued by an officer (i.e. Additional Commissioner Inland Revenue) under section 45(1) of the said Act, having competent jurisdiction, thus, the impugned show cause notice is within time. He further argues that the instant writ petition is not maintainable against issuance of notice. He has placed reliance on case law reported as West Pakistan Tanks Terminal (Pvt.) Ltd. v. Collector (Appraisement) (2007 SCMR 1318), Deputy Commissioner of Income Tax/Wealth Tax, Faisalabad and others v. Messrs Punjab Beverage Company (Pvt.) Ltd. (2007 PTD 1347), Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others (2008 SCMR 615) and Mughal-e-Azam Banquet Complex through Managing Partner v. Federation of Pakistan through Secretary and 4 others (2011 PTD 2260).

5.Arguments heard and record perused.

6.Admittedly, the first show cause notice in the instant case was issued on 01.11.2006, which was decided vide Order-in-Original 96/ 2007 dated 03.02.2007, by the then Assistant Collector (Refund). Feeling aggrieved by the aforesaid order, the petitioner preferred an appeal under section 45-B of the Act ibid before the then Collector (Appeals) who vide Order-in-Appeal No.298/2008 dated 29.02.2008 partially modified the said Order-in-Original. Again feeling aggrieved by the order of Collector (Appeals), petitioner filed second appeal before learned Appellate Tribunal Inland Revenue, Lahore through S.T.A. No.1115/LB/2009, which was disposed, vide order dated 01.04.2011, with the following observations:--

"7. In view of the above we deem it fit to set aside the impugned order and remand the case to the officer with competent jurisdiction under section 45(1) of Sales Tax Act, 1990 with the directions to pass fresh orders after verification and hearing both sides. The appellant is directed to produce supportive documents before the officer having competent jurisdiction for scrutiny and verification. The adjudicating officer should verify from the record as to whether sales tax returns were filed by M/s. Jannat Textile and amount of Sales Tax against the under reference invoices were deposited by them against the supplies shown to have been made to the appellant."

7.It is evident from the order passed by learned Tribunal that first show cause notice was issued by an officer, who has having no jurisdiction to issue the same. It has also been admitted in para No. 3 of the parawise comments submitted by the respondents that earlier show cause notice issued by the then Assistant Collector (Refund) was set-aside by the learned Tribunal on the grounds of jurisdiction. Section 11(4) of the Act ibid provide the period of limitation of five years for issuance of show cause notice. In the instant case, refund claim pertains to the tax period of April, 2005 and the specified period of five years was to expire in May, 2010, but the impugned show cause notice has been issued on 28.05.2011 i.e. beyond limitation. It has been held by the Hon'ble Supreme Court of Pakistan in Federation of Pakistan through Secretary, Finance, Islamabad and others v. Messrs Ibrahim Textile Mills Ltd. and others (1992 SCMR 1898) that if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable. In the case of Messrs Ibrahim Textile Mills Ltd. supra, Hon'ble Supreme Court, while considering the issue of recovery of short-levied duty after expiry of time prescribed for issuance of recovery notice, held as under:

"4. Due consideration was given as to whether the respondents should not pay the short-levied duty and whether the State should suffer in public finance. But the cardinal principle of law is that all are equal before law, whether citizen or State. Secondly if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts. Thirdly, while construing a financial statute, its terms are strictly to be followed. Keeping in view these principles, for short-levied duties on account "of inadvertence, error or misconstruction", section 32(3) of the Customs Act, 1969 provides that for recovery notice shall be served `within six months'. If that not done, like "a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable."

Notice, in the present case, having been issued after one year of the expiry of the relevant date is barred by limitation and thus is without lawful authority and of no legal effect and is liable to be set aside. Reliance in this regard can also be placed on the following judgments:

(i)Collector of Customs, Sales Tax (West), Karachi v. Messrs K and A Industries, Karachi (2006 PTD 537)

(ii)XEN Shahpur Division's case supra

(iii)Messrs Gulistan Textile Mills Limited's case supra

(iv)Messrs Rose Colour Laboratories Nayab No. 1 (Pvt.) Ltd. v. Chairman, C.B.R. and others (2003 PTD 1047)

(v)Abdul Sattar v. Federation of Pakistan through Secretary, Revenue Division/Chairman, Central Board of Revenue, Islamabad and others (2006 PTD 1171)

(vi)Pakistan International Airlines Corporation v. Central Board of Revenue, Islamabad and others (1990 CLC 868)

(vii)Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and others (2001 SCMR 838).

8.The objection of the learned counsel for the respondents that the writ petition against impugned show cause notice was not maintainable, is not of much substance. If an act is illegal and facts of the case confirm the said illegality, there is no bar in exercising writ jurisdiction. Superior courts of the country have already held that if the show cause notice is ultra vires, without jurisdiction or with mala fide intent, such action is to be nipped in the bud. Reference, in this regard, can be made to the case of Mughal-E-Azam Banquet Complex 2011 PTD 2260 and Northern Power Generation Company Ltd. v. Federation of Pakistan and others (2015 PTD 2052).

9.For what has been discussed above, the impugned show cause notice C.No. 329 dated 28.05.2011 is declared illegal and without jurisdiction. Resultantly, the instant writ petition is allowed.

RR/J-9/LPetition accepted.