AMINA Z. BEAUTY SALON VS FEDERATION OF PAKISTAN, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 654 (2015)

Punjab Sales Tax on Services Act (XLII of 2012)---

----Ss. 24 & 56---Punjab Sales Tax on Services (Enforcement) Rules, 2014, R. 6---Recovery of sales tax---Statutory notice, non-issuance of---Effect---Petitioner was an "association of persons" engaged in business of beauty parlors and beauty clinics---Authorities served notice upon petitioner for compulsory registration/enrollment and on receipt of reply, the business premises of petitioner was sealed---Validity---Authority neither communicated any grounds for proceeding against petitioner by issuing mandatory show cause notice under S. 24(2) of Punjab Sales Tax on Services Act, 2012, nor sought any representation or provided opportunity of hearing to petitioner---Without fulfilling all requisite formalities for fixing liability of petitioner the authority simply proceeded to adopt coercive measures---Authority should have followed minimum requirement of principles of natural justice i.e., issuance of notice to petitioner---Taxing authorities could not demand amount without issuing show cause notice and providing opportunity of hearing and fixing liability in terms of relevant provisions of law---High Court directed the authority to first get petitioner registered and after conducting audit of petitioner's business, issue show cause notice and provide opportunity of hearing, hereafter, liability against petitioner could be fixed and resultantly set aside the order passed by the authority.

Messrs Bissma Textile Mills v. Federation of Pakistan and others 2002 PTD 2780; Messrs Kind Traders v. Dy. Collector and 2 others 2008 PTD 1551; Executive Engineer, Qadirabad Barrage Division, Qadirabad and others v. Ejaz Ahmad 2007 SCMR 1860; Habib Bank Limited v. Ghulam Mustafa Khairati 2008 SCMR 1516 and Dr. Ashfaq Ahmad Khan v. Deputy Commissioner of Income Tax, Peshawar and others 2012 PTD 1329 rel.

Muhammad Ajmal Khan for Petitioner.

Akhtar Ali Kureshi, Standing Counsel for Pakistan.

Muhammad Ijaz, Assistant Advocate General, along with Nadeem Salah-ud-Din, Deputy Secretary (Legal) Punjab Revenue Authority.

ORDER

MUHAMMAD SAJID MEHMOOD SETHI, J.---Brief facts, as stated in the petition, are that petitioner is an association of person and engaged in the business of beauty parlors and beauty clinics. The respondent No. 4 served a notice dated 25.04.2015 upon the petitioner for compulsory registration/enrollment with the respondent No. 3/Punjab Revenue Authority ("Authority") under Punjab Sales Tax on Services Act, 2012. The petitioner submitted its reply on 05.05.2015, whereupon respondent No. 4 proceeded to pass Order No.33 of 2015 dated 13.07.2015 for sealing the petitioner's business premises under Rule 6 of the Punjab Sales Tax on Services (Enforcement) Rules, 2014 ("Enforcement Rules"), read with section 56 of the Act ibid and in pursuance thereof the business premises of petitioner were sealed. However, respondent No. 4 de-sealed the business premises of petitioner after obtaining one post dated cheque of an amount of Rs. 700,000/- from the petitioner to be encashed on 21.07.2015. Through the instant petition, petitioner has assailed the order dated 13.07.2015 and proceedings under Rule 6 of the Enforcement Rules read with section 56 of the Act of 2012, and has made the following prayer:--

"Under the circumstances, it is respectfully prayed that this Hon'ble Court may be kind enough to declare:-

a)That no recovery of levy of tax or any other dues can straightway be made unless a show cause notice is issued, opportunity of hearing is provided and liability of the assessee is determined in term of Section 24 read with Section 33 of the Punjab Sales Tax on Services Act, 2012;

b)That entire action of demanding illegal amount of tax from the petitioner without auditing his accounts, formulating audit report and serving it upon the petitioner, issuance of show cause notice, providing opportunity of hearing and adjudging his liability by following mandatory provisions of Section 24 read with section 33 of the Punjab Sales Tax on Services Act, 2012 is void, illegal, without jurisdiction and of no legal effect;

c)That the recovery of certain amount in cash and obtaining post-dated cheque in respect of liability which is yet to be determined by the adjudicating authority and threatening the petitioner of being proceeded against if the said cheque are not encashed and all other acts and actions on the part of respondent No.4, void and illegal.

d)That respondent No.4 may kindly be restrained from enforcement of such post dated cheque which were forcibly taken from the petitioner and adopting coercive measures against him for the recovery of levy of tax, which is yet to be determined by adjudicating officer.

e)That entire actions of the respondent No.4 may kindly be declared coram non judice and non east in law as the Punjab Government has not established the Punjab Revenue Authority as yet.

It is further prayed that while granting aforesaid declaration, respondent No.3 be directed to conduct audit of the record from the petitioner, formulate audit report, serve it upon the petitioner for explaining his position and if respondent No.4 is not satisfied with the reply, send the same to the adjudication authority for issuance of show cause notice, providing opportunity of hearing and adjudging the liability of the petitioner in terms of Section 24 of the Punjab Sales Tax on Services Act, 2012 enabling the petitioner to avail legal remedies available to him."

2.Learned counsel for the petitioner submits that respondent No. 4 has neither conducted any audit of the record of petitioner, nor any audit report has been formulated, nor the same was served upon the petitioner, nor show cause notice was issued to the petitioner providing opportunity of hearing and petitioner has been penalized without fixing any liability. He contends that without adjudging the liability of petitioner, by competent authority, impugned action cannot be enforced against the petitioner and the same is illegal, void and of no legal effect. Learned counsel further submits that the impugned actions of respondents are ultra-vires to the provisions of law and the rules framed thereunder. In this regard, he has placed reliance on case law reported as Messrs Bissma Textile Mills v. Federation of Pakistan and others (2002 PTD 2780) and Messrs Kind Traders v. Dy. Collector and 2 others (2008 PTD 1551).

3.On the other hand, learned Law Officer submits that instant petition is not maintainable since the petitioner is attempting to abuse the process of law in order to evade its statutory obligations under the Punjab Sales Tax on Services Act, 2012. The petitioner has been issued a notice for sealing of business premises under Rule 6 of the Enforcement Rules and on non-compliance the business premises were sealed. Learned Law Officer further submits that the petitioner is simply a collecting agent as the incidence of sales tax is always shifted to the client/buyer/consumer and seller only plays a role of an agency between the actual taxpayer and the tax collector. Therefore, the petitioner has no locus-standi to seek any judicial relief because it is not the petitioner who is required to sustain the burden of tax which is in fact transferable to the general consumption in the national economy.

4.I have heard the arguments of learned counsel for the parties and perused the record with their assistance.

5.Sections 25, 26 and 27 of the Punjab Sales Tax on Services Act, 2012, deal with the registration of persons under the Act of 2012. Under Section 25, it is mandatory for a person to be registered under the Act, who provides any taxable service from his office or place of business in the Punjab; or is otherwise required to be registered under any of the provisions of the Act or the rules; or fulfills any other criteria or requirements which the Authority may prescribe under subsection (2) of Section 25. Under subsection (1) of Section 26 of the Act of 2012, a person who carries on an economic activity but is not required to be registered may apply for voluntary registration at any time and the Authority may register the person if the Authority is satisfied that such person fulfills the criteria laid down for voluntary registration in subsection (2) of Section 26. Section 27 of the Act of 2012 provides that if the Authority is satisfied that a person who is required to be registered and has not applied for registration, the Authority shall register the person and shall, not later than fifteen days before the day on which the registration takes effect, notify the person of the registration, the day on which it takes effect, and the registration number issued to the person. Under subsection (2) of Section 27 no person can be registered compulsorily without being given an advance notice and an opportunity of being heard in such manner as the Authority may specify.

6.From the arguments of the learned counsel for the parties and from perusal of record it is clear that although the petitioner did not get itself voluntarily registered with the Authority under section 26 of the Punjab Sales Tax on Services Act, 2012, however it is noticed that the Authority has also not compulsorily registered the petitioner under Section 27 of the Act of 2012, nor it has furnished a copy of the order by way of which the petitioner was compulsorily registered under the aforesaid provisions of law.

7.Section 24 of the Act of 2012 deals with the assessment of tax. Relevant portion of said provision is reproduced below for ready reference:--

"24. Assessment of tax.---(1) Where on the basis of any information acquired during an audit, inquiry, inspection or otherwise, an officer of the Authority is of the opinion that a registered person has not paid the tax due on taxable services provided by him or has made short payment, the officer shall make an assessment of the tax actually payable by that person and shall impose a penalty and charge default surcharge in accordance with sections 48 and 49.

(2)No order under subsection (1) shall be made unless a notice to show cause is given to the person in default within five years from the conclusion of the tax period to which the assessment relates specifying the grounds on which it is intended to proceed against him and the said officer shall take into consideration the representation made by such person and provide him with an opportunity of being heard if the person so desires.

(3). .

(4). .

(5). .

(a). .

(b). .

(6). ."

8.Perusal of the provision reproduced above shows that even if the petitioner is considered a registered person within the contemplation of Punjab Sales Tax on Services Act, 2012, even then, under section 24 of the Act of 2012, on the basis of information acquired during an audit, inquiry, inspection or otherwise, if respondent No. 4 was of the opinion that the petitioner has not paid the tax due or has made short payment on taxable services he was required to issue show cause notice to the petitioner under subsection (2) of the Section 24 and, after hearing the petitioner, any liability was to be fixed upon it by the said respondent. The Authority has neither communicated any grounds for proceeding against the petitioner by issuing the mandatory show cause notice under subsection (2) nor sought any representation or provided an opportunity of hearing to the petitioner and without fulfilling all the requisite formalities for fixing liability of petitioner, simply proceeded to adopt coercive measures. The Authority should have followed the minimum requirement of the principles of natural justice i.e. issuance of notice to the petitioner. It is well settled proposition of law that taxing authorities cannot demand amount without issuing a show cause notice and providing opportunity of hearing and fixing liability in terms of the relevant provisions of law. Reliance is placed on Executive Engineer, Qadirabad Barrage Division, Qadirabad and others v. Ejaz Ahmad (2007 SCMR 1860), Habib Bank Limited v. Ghulam Mustafa Khairati (2008 SCMR 1516 ), Dr. Ashfaq Ahmad Khan v. Deputy Commissioner of Income Tax, Peshawar and others (2012 PTD 1329), Messrs Bissma Textile Mills supra, and Messrs Kind Traders supra. Learned counsel for the petitioner has rightly relied upon the judgment passed by this Court in the case of Messrs Bissma Textile Mills supra, in which it was held that a person cannot be burdened with liability merely on the basis of an audit report with which he has not been confronted. Issuance of show cause notice is provided for in the statute itself therefore, failure to give such a notice is fatal and cannot be cured. Since the respondents themselves have failed to comply with the mandatory provisions of relevant law, the impugned actions are liable to be declared illegal and against the law. The well settled principles of law have not been followed at all and the impugned actions have been carried out in total oblivion of the relevant law.

9.For what has been discussed above, this petition is allowed and the respondent No. 4 is directed to first get the petitioner registered and, after conducting audit of petitioner's business, issue show cause notice and provide opportunity of hearing, whereafter liability of petitioner, if any, may be fixed and recovery of tax so determined shall be made strictly in accordance with law, and till that time the Authority is restrained from encashing the cheque of Rs.700,000/- received from the petitioner and from using any coercive measure against the petitioner.

MH/A-155/LPetition allowed.