CHAUDHARY SUGAR MILLS LTD. VS CHIEF COMMISSIONER, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 527 (2015)

Sales Tax Act (VII of 1990)---

----Ss. 36(1), 3 (1A), 45-A & 66----Constitution of Pakistan, Art. 199---Constitutional petition---Maintainability---Recovery of tax erroneously refunded---Power of Federal Board of Revenue or Commissioner to call for records---Refund to be claimed within one year---Past and closed transaction---Second show cause notice, validity of---Revisional powers of Federal Board of Revenue and Commissioner---Collector (Refund) rejected refund of amount claimed by petitioner under S. 3 (1A) of Sales Tax Act, 1990; but Appellate Tribunal, declaring rejection of refund illegal, set aside order of rejection---Department in compliance of appellate order, passed Sales Tax Refund Order and refunded amount as claimed by petitioner---Assistant Commission (LTU), later, issued second show cause notice to the petitioner on ground that as incidence of tax had been passed on to consumers, earlier refund had been erroneously made and proposed recovery of same under S. 36 (1) of Sales Tax Act, 1990---Validity----Department could not assail order passed by Appellate Tribunal, which had attained finality and could not deviate from said order---Department while passing Sales Tax Refund Payment Order, had made specific reference to the Appellate Order and judgment of Supreme Court whereby levy of one per cent had been set aside---Refund amount claimed had been examined, processed, sanctioned and adjusted in favour of petitioner in terms of S. 66 of Sales Tax Act, 1990---In presence of Appellate order and refund order, respondents were not justified to issue second show cause notice, as matter of refund had become past and closed transaction---Respondents could not reopen the matter at their own sweet will and whims---Respondents, for all intents and purposes, had accepted and acknowledged finality of Appellate order in favour of petitioner---Once matter was settled finally and conclusively between parties, that too up to level of Appellate Tribunal, department had no jurisdiction to go beyond spirit of (Appellate) order, which was binding on them under law---Order of Appellate Tribunal was very clear and same had already determined controversy between parties finally and conclusively, leaving no merit of any further interpretation---Under S. 45-A of Sales Tax Act, 1990, any impropriety and illegality in any order or decision passed by Officer of Inland Revenue could be checked by Federal Board of Revenue or by Commissioner himself by exercising their revisional powers---No other provision existed in Sales Tax Act, 1990 authorizing sales tax functionary to review or reopen past and closed transaction---Provisions of S. 45-A of Sales Tax Act, 1990 did not empower any other authority subordinate to Federal Board of Revenue or to Commissioner to reopen and review order passed lawfully---Issuance of impugned show cause notice reopening past and closed transaction by department having no revisional jurisdiction was act of assumption of wrong jurisdiction---Impugned show cause notice was illegal and without lawful authority---Constitutional petitioner, in circumstances, was maintainable---Impugned show cause notice was held illegal and without lawful authority---Constitutional petition was allowed in circumstance.

Edulji Dinshaw Limited v. Income-tax Officer 1990 PTD 155 = PLD 1990 SC 399; Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII South Zone, Karachi and others 1992 PTD 1 = 1992 SCMR 250; Gatron (Industries) Limited v. Government of Pakistan and others 1999 SCMR 1072; Irshad Ahmed and another v. Federation of Pakistan and 6 others 2009 PTD 1949; Army Welfare Sugar Mills Ltd. v. Federation 1992 SCMR 1652; Pak Suzuki Motor v. Secretary Revenue Division 2007 PTD 501 and Deputy Commissioner of Income Tax/Wealth Tax, Faisalabad and others v. M/s. Punjab Beverages Company (Pvt.) Ltd. 2007 PTD 1347 ref.

Mughal-e-Azam Banquet Complex through Managing Partner v. Federation of Pakistan through Secretary and others 2011 PTD 2260; Messrs Tandlianwala Sugar Mills Ltd. and others v. Federation of Pakistan and others 2001 PTD 2094; Arshad Hussain v. Collector of Customs and others 2010 PTD 104; Zarai Taraqtati Bank Limited and others v. Mushtaq Ahmed Korai 2007 SCMR 1698; Noor Muhammad and others v. Ghulam Rasul and others 1999 SCMR 705; Messrs Ashar International (Pvt.) Ltd. Faisalabad v. C.I.R., Faisalabad 2011 PTD (Trib.) 2347 and Northern Power Generation Company Ltd. v. Federation of Pakistan and others 2015 PTD 2052 rel.

Muhammad Akram Nizami for Petitioner.

Sarfraz Ahmed Cheema for Respondents.

Date of hearing: 25th August, 2015.

JUDGMENT

MUHAMMAD SAJID MEHMOOD SETHI, J.---This consolidated judgment shall dispose of instant writ petition along with W.P. No. 18757 of 2012 titled "M/s. Ramzan Mills Ltd. v. Chief Commissioner etc." as common questions of law and facts are involved in both the petitions.

2.Brief facts relevant for disposal of instant writ petition are that petitioner filed refund/adjustment of sales tax amounting to Rs.4,473,381/- paid during 1998-99 under section 3(1A) of the Sales Tax Act, 1990 in the light of judgment delivered by Hon'ble Supreme Court, wherein the levy of 1% further tax was declared illegal. Subsequently, the petitioner received Show Cause Notice ("SCN") dated 26.07.2000 from the office of Deputy Collector Sales Tax (Refund), Collectorate of Sales Tax, Faisalabad, wherein the aforesaid claim was proposed to be rejected in terms of section 3-B of the Sales Tax Act, 1990. On account of failure to pass an appealable order on the said SCN, petitioner was constrained to approach Federal Tax Ombudsman, Lahore through a complaint requesting therein that the respondents be directed to pass appealable order regarding the aforesaid refund claim submitted by the petitioner. In compliance with the direction of Federal Tax Ombudsman, Assistant Collector (Refund) working under respondents Nos.1 and 3 passed Order-in-Original No.04/2009 and the refund of petitioner amounting to Rs. 44,73,891/- was rejected. Ultimately, petitioner filed an appeal before Appellate Tribunal (Inland Revenue), Lahore, which was accepted and the order passed by lower forum was declared illegal and accordingly set aside, vide order dated 27.04.2011. Sales Tax Refund Payment Order dated 27.08.2011 was passed in compliance with order of the Appellate Tribunal and the amount of refund claim was sanctioned and accordingly refunded to the petitioner. Respondent No. 2/ Assistant Commissioner (LTU) has issued another SCN dated 20.06.2012 claiming that the earlier refund was erroneously made and recovery under section 36(1) of the Sales Tax Act, 1990 was proposed. Through instant petition, petitioner has assailed the SCN dated 20.06.2012 with the following prayer:--

"Under the above mentioned facts, circumstances and grounds it is most respectfully prayed that the impugned Show Cause Notice issued by the Respondent No.2, since has been issued without any lawful authority and jurisdiction may kindly be declared illegal and accordingly set aside."

3.Learned counsel for the petitioner submits that by virtue of order dated 27.04.2011, passed by Appellate Tribunal, the issue involved in the impugned SCN has already been settled and since no reference had been filed against the said order before appropriate forum, therefore, the impugned SCN is now a past and closed transaction. Further submits that the amount of sales tax now proposed to be recovered, was sanctioned and paid by the Additional Commissioner (Inland Revenue) after due deliberations, scrutiny of record and proper appreciation of legal aspects of the issue and that respondent No. 2 being junior to the officer who processed and finalized the impugned refund payment order cannot overpower the jurisdiction of his senior authority. Adds that if the respondent was aggrieved of the aforesaid order, jurisdiction of the Commissioner or the Board could have been invoked under section 45-A of the Sales Tax Act, 1990, instead of issuing second SCN, which is absolutely without jurisdiction. Finally submits that respondent No. 2 was not an authorized officer to initiate any action of recovery proceedings under the relevant laws. In support of his submissions, he referred to case law Edulji Dinshaw Limited v. Income-tax Officer (1990 PTD 155 = PLD 1990 SC 399, Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII South Zone, Karachi and others 1992 PTD 1 = 1992 SCMR 250, Gatron (Industries) Limited v. Government of Pakistan and others 1999 SCMR 1072 and Irshad Ahmed and another v. Federation of Pakistan and 6 others 2009 PTD 1949.

4.On the other hand, learned counsel for the respondents submits the refund order was provisionally issued without prejudice to any action which is subsequently found inadmissible and that perusal of the record shows that the refund was issued without counting for the guidelines set by the Superior Courts. Further submits that the incidence of taxation in the cases of indirect taxes is invariably passed on to the consumer, therefore, the petitioner was not entitled to the refund claimed and received by him. Adds that the impugned SCN was rightly issued to recover the erroneously refunded amount under section 36(2) of the Sales Tax Act, 1990. Finally submits that this writ petition is not maintainable against the impugned SCN, in view of the law laid down in Army Welfare Sugar Mills Ltd. v. Federation 1992 SCMR 1652, Pak Suzuki Motor v. Secretary Revenue Division 2007 PTD 501, Deputy Commissioner of Income Tax / Wealth Tax, Faisalabad and others v. M/s. Punjab Beverages Company (Pvt.) Ltd. (2007 PTD 1347) and Mughal-e-Azam Banquet Complex through Managing Partner v. Federation of Pakistan through Secretary and others (2011 PTD 2260).

5.I have heard the arguments of the learned counsel for the parties.

6.Perusal of record shows that first SCN dated 26.07.2000 was issued by Deputy Collector Sales Tax (Refund) on the ground that incidence of tax had been passed on to the consumers in terms of section 3B of the Sales Tax Act, 1990. Therefore, the petitioner was called upon to show cause as to why their refund should not be rejected. Relevant portion of the said SCN is reproduced below for ready reference:

"2. It transpired during scrutiny of the case that the claimant deposited 1% further tax in government exchequer after charging it from the unregistered recipients of taxable supplies. This means the claimant did not pay this tax from his own pocket rather collected it from recipients of taxable supplies under the Sales Tax Act, 1990 and incidence of the same has been passed on to the consumers in terms of section 3B of the Sales Tax Act, 1990. Moreover, the honourable Supreme Court of Pakistan declared levy of 1% further tax as illegal and has not passed any order regarding refund of the further tax collected and deposited by the appellants.

3. On the basis of above mentioned facts M/s Chaudhary Sugar Mills Ltd, Gojra-Pensra Road, Gojra are called upon to show cause as to why their refund amounting to Rs. 4,473,891/- should not be rejected under section 3B of the Sales Tax Act, 1990."

7.Order-in-Original on the said SCN was passed by the Assistant Collector (Refund) on 19.08.2009, after a period of almost nine years, whereby the refund of the petitioner was rejected in terms of section 3B as the Assistant Collector (Refund) came to the conclusion that incidence of tax was passed on to the end consumer and the petitioner has also charged the amount of further tax from the buyer. Appeal filed by the petitioner against the said order before Collector, Customs, Sales Tax and Federal Excise (Appeals), Lahore was also dismissed being devoid of any merits. Ultimately the orders rejecting refund were assailed by the petitioner before learned Appellate Tribunal (Inland Revenue), Lahore, which, while relying on the judgment passed by the Supreme Court of Pakistan in the case reported as Messrs Tandlianwala Sugar Mills Ltd. and others v. Federation of Pakistan and others (2001 PTD 2094), whereby the levy of 1% further tax on sugar was set-aside being illegal, accepted the appeal of the petitioner and held the petitioner entitled to claim refund of amount paid by it as further tax. Relevant portion of the order dated 27.04.2011 of the learned Appellate Tribunal is as under:--

"4. Further observed that the respondents deposited an amount of Rs. 44,73,891/- in the exchequer by way of 1% further tax and when the above decision of the Supreme Court of Pakistan came in the field, obviously the respondents were entitled to claim refund of the amount paid by them as further tax. So, keeping in view of the aforementioned discussion, we are constrained to agree with the contentions of the learned counsel which certainly carries much weight. It is pertinent to mention here that in the presence of the reported judgment of the Hon'ble Supreme Court of Pakistan cited supra we have no ambiguity in our mind to vacate the orders of the forum below and set-aside the order-in-original and order-in-appeal and feel no hesitation to accept the appeal of the appellant."

8.After examination of the case record, Sales Tax Refund Payment Order dated 27.08.2011 was passed by competent authority in compliance with aforementioned order dated 27.04.2011 passed by the learned Appellate Tribunal and the amount of refund claim was sanctioned and accordingly refunded to the petitioner. In spite of implementation of the said order of Appellate Tribunal in letter and spirit, respondent No. 2 has proceeded to issue the impugned SCN again on the ground that the incidence of tax had been passed on to the consumers, therefore why the erroneously refunded amount might not be recovered under section 36(1) of the Sales Tax Act, 1990. Relevant portion of the second SCN is reproduced below for ready reference:--

"2. It is case of the incidence of taxation. The superior courts have made an observation in various judgments where incidence of taxation in the cases of indirect taxes is invariably passed on to the consumer. Furthermore the courts have also observed that it is also not possible to ascertain from invoices that incidence of tax was passed on to the consumer or not.

3. The main question arises in the instant case is to ascertain that a taxpayer of sales tax after realization of the tax, which admittedly was not realizable or was in excess of the tax payable, could retain the same or claim refund thereof; notwithstanding his position of an agent only for deposit of the amount with the assessing authority. The registered person cannot claim any right over the same, on the basis of any principle as he does not have absolute right to refund.

4. In view of the aforementioned facts and the case laws it transpires that Messrs Chaudhary Sugar Mills had failed to prove that burden of incidence had not been passed on as per the guidelines of the superior courts."

9.Admittedly, the respondent department has not assailed the aforesaid order dated 27.04.2011 passed by the learned Appellate Tribunal (Inland Revenue), Lahore, which has attained finality and now the respondents cannot deviate from the aforesaid order. Reference in this regard can be made to Arshad Hussain v. Collector of Customs and others (2010 PTD Karachi 104). In that case Appellate Tribunal dismissed the appeal for non-prosecution and the order of the Tribunal was not challenged before the High Court, therefore, the learned Division Bench of the Hon'ble Sindh High Court observed as under:--

"9. Without going into the legality or otherwise of the order of the Tribunal dismissing the appeal for non-prosecution and the order-in-original as the same have not been challenged before us, we may observe that under the theory of merger the Order-in-Original had merged in the order of the Tribunal and has become a past and closed transaction."

10.It is also noticed that in the Sales Tax Refund Payment Order dated 27.08.2011, issued by Deputy Commissioner, LTU Lahore, a specific reference has been made to the aforesaid decision of learned Appellate Tribunal and judgment of the Hon'ble Supreme Court, whereby levy of 1% further tax was set aside in the cases reported as Messrs Tandlianwala Sugar Mills Ltd. supra, filed by the petitioner and others. Accordingly, the refund amount was examined, processed, sanctioned and adjudicated in favour of the petitioner in terms of Section 66 of Sales Tax Act, 1990. In presence of aforesaid order passed by the learned Appellate Tribunal and the refund order, the respondents were not justified to issue second SCN dated 20.06.2012 as the matter of refund of amount of Rs. 4,473,891/- to the petitioner has become past and closed transaction which cannot be reopened by the respondent department at its own sweet will and whims. The tenor of SCN itself shows that it has been issued in violation of the order of learned Appellate Tribunal, which has already set the controversy between the parties at naught and the order has, admittedly, remained unchallenged till to date. Respondents, for all intents and purposes, have accepted and acknowledged the finality of order dated 27.04.2011 passed by Appellate Tribunal in favour of petitioner. No legal and moral justification is existed to reopen the issue which has attained finality and is a past and closed transaction for all purposes. In this regard, reliance can also be placed on Zarai Taraqtati Bank Limited and others v. Mushtaq Ahmed Korai (2007 SCMR 1698) and Noor Muhammad and others v. Ghulam Rasul and others (1999 SCMR 705).

11.It is well settled that once a matter is settled finally and conclusively between the parties, that too up to the level of Appellate Tribunal, the respondent authorities have no jurisdiction to go beyond the spirit of the aforesaid order, which is binding on them under the law. In the circumstances, the impugned SCN is absolutely illegal and without lawful authority. The learned Legal Advisor of respondents has argued that the refund was provisional in nature, as is evident from Para-5 of the Sales Tax Refund Payment Order dated 27.08.2011, which clearly states that the refund order is provisional, without prejudice to any action which may be taken against the claimant in case the claim is subsequently found inadmissible due to any reason. Suffice it to say that the aforesaid order passed by Appellate Tribunal is very clear and it has already determined the controversy between the parties finally and conclusively, leaving no merit of any further interpretation. In view of the aforesaid, this argument has no force, thus, the same is repelled.

12.Learned counsel for the respondents has argued that the refund was issued without counting for the guidelines set by the Superior Courts, therefore, impugned SCN was rightly issued to recover the erroneously refunded amount. On the other hand, learned counsel for the petitioner has argued that respondent No. 2 had no authority to reopen and review the matter which has already attained finality and, for satisfaction in respect of legality or propriety of Sales Tax Refund Payment Order dated 27.08.2011, issued by Deputy Commissioner, LTU Lahore, jurisdiction of the Commissioner or the Board could have been invoked under section 45A of the Sales Tax Act, 1990, instead of issuing second SCN, which is absolutely without jurisdiction. In order to appreciate this argument of the learned counsel, it would be appropriate to reproduce relevant provisions of section 45A of the Act which reads as under:-

"45A. Power of the Board and Commissioner to call for records.

(1)The Board may, of its own motion, call for and examine the record of any departmental proceedings under this Act or the rules made thereunder for the purpose of satisfying itself as to the legality or propriety of any decision or order passed therein by an Officer of Inland Revenue, it may pass such order as it may think fit:

Provided that no order imposing or enhancing any penalty or fine requiring payment of a greater amount of Inland Revenue than the originally levied shall be passed unless the person affected by such order has been given an opportunity of showing cause and of being heard.

(2)

(3)

(4)The Commissioner may, suo motu, call for and examine the record of any proceeding under this Act or the rules made thereunder for the purpose of satisfying himself as to the legality or propriety of any decision or order passed by an officer of Inland Revenue subordinate to him, and pass such order as he may deem fit."

Perusal of above mentioned provisions of section 45A of the Sales Tax Act, 1990, shows that in case, any impropriety and illegality is observed in any order or decision passed by an Officer of Inland Revenue subordinate to Federal Board of Revenue or the Commissioner, it should have been checked by the Federal Board of Revenue or by the Commissioner himself by exercising their revisional jurisdiction under section 45A of the Act. There is no other provision in the Sales Tax Act authorizing a sales tax functionary to review or reopen past and closed transactions and the provisions of section 45A do not empower any other authority subordinate to Federal Board of Revenue or to the Commissioner to reopen and review an order passed lawfully. Therefore, the issuance of impugned SCN by reopening a past and closed transaction by the respondent No. 2 having no revisional jurisdiction in this case is also an act of assumption of wrong jurisdiction. In this regard I find myself in agreement with the observations of learned Inland Revenue Appellate Tribunal passed in its judgment reported as Messrs Ashar International (Pvt.) Ltd., Faisalabad v. C.I.R., Faisalabad (2011 PTD (Trib.) 2347).

13.The next argument of learned counsel for the respondents is that writ is not maintainable against impugned SCN which is assailable before higher adjudicating authorities. This argument also is not of much substance for the reason that once a controversy is finally and conclusively settled by a Court / Tribunal of competent jurisdiction, the same cannot be restarted or reactivated on its own. Superior courts of the country have already held that if the liability in the show cause notice is palpably unlawful or 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 Mughal-E-Azam Banquet Complex v. Federation of Pakistan and others (2011 PTD 2260), Northern Power Generation Company Ltd. v. Federation of Pakistan etc. (2015 PTD 2052). Since, the impugned SCN is not legally justified, therefore, the objection of maintainability of petition raised by learned counsel for the respondents is overruled and the constitutional petition is held to be maintainable.

14.In view of the above discussion, impugned Show Cause Notice is held to be illegal and without lawful authority. The concerned revenue authorities have also extended the benefit of aforesaid order dated 27.04.2011 passed by the learned Appellate Tribunal, regarding the refund of 1% further tax, to Messrs Ramzan Mills, the petitioner company in the connected W.P. No. 18757 of 2012, as well and accordingly Sales Tax Refund Payment Order was also passed in its favour and the amount of refund claim was sanctioned and refunded to the said petitioner. Therefore, keeping in view the conduct of revenue authorities and equality clause as contained in the Constitution of Islamic Republic of Pakistan, 1973, said petitioner is also entitled to the same relief and, consequently, the impugned SCN dated 20.06.2012 is also held to be illegal and without lawful authority. Both the writ petitions are allowed in the above terms.

SL/C-24/LPetition allowed.