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Sales Tax Appeal No. H-188 of 2006, decided on 31st March, 2008.

----Ss. 25, 32, 36 & 38---General Clauses Act (X of 1897), S.24-A---Notice of demand of tax along with additional tax and penalty issued by Assistant Collector (Adjudication) on basis of charges framed as a consequence of special audit report---Validity---Authority had not denied assessee"s statement made in his affidavits that audit of his company had not been performed by Chartered Accountants, but had been done by their clerks as none of Chartered Accountants had ever visited company or examined their books of accounts---Order of special audit passed at the back of assessee was not lawful exercise of jurisdiction---Show-cause notice was vague and lacking legal requirements and proper proof---Additional tax and penalty could not be proposed against assessee in absence of his wilful and contumacious default in payment of tax---Impugned order was set aside in circumstances. Asstt: Collector v. Khyber Elec. Lamps 2001 CMR 838; D.G. Khan Cement v. Collector of Customs 2003 PTD 1275; Caltex v. Collector 2005 PTD 480; Atlas Tyres v. Addl. Collector 2003 PTD 1593; State Cement v. Collector 2002 MLD 180; Kashmir Sugar v. Collector PTCL 2001 CL 558; Federation of Pakistan v. Ibrahim Textile 1992 SCMR 1898; Rose Color v. Chairman C.B.R. 2003 PTD 1947; PLD 1964 SC (sic); 2002 MLD 296; 1987 CLC 1246; 1988 CLC 22; 1988 SCMR 1563; 1959 ITR 388 (SC of India); (1967) 15 Taxation 103; 1978 PTD 8 SC Ind. ; (1979) 120 ITR 576;1988 PTD (Trib.) 117; 1988 PTD (Trib.) 117; 1990 PTD (Trib.) 705; 1995 PTD (Trib.) 1100; 1988 PTD 135; I.T.As. Nos. 2376, 2377 & 2378/KB of 1984-85, dated 25-5-1989; I.T.A. No.1058/KB of 1994-95 and I.T.A. No.434/KB of 1995-96; 2002 PTD 102; 2004 SCMR 456; 2002 PTD (Trib.) 300; 2005 PTD 1984; 2005 PTD 1978; 2005 PTD 1953; 2003 PTD 1445 and 2004 PTD 2771 ref. 1998 SCMR 2268; 1998 SCMR 2419 and 1999 SCMR 1071 rel. Muhammad Nasim for Appellant. Muhammad Rafique for Respondent.

The controversy leading to the present case started with the issuance of a letter to the appellant by Assistant Collector, Sales Tax, Hyderabad on 7-6-2005. The said letter stated that under section 32(a) of the Sales Tax Act, 1990 the Central Board of Revenue had appointed Messrs Riaz Ahmed and Co. Chartered Accountants to conduct special audit under sections 25 and 38 at the Sales Tax Act, 1990 for the period commencing October, 2003 and ending March, 2005. 2. As a consequence of audit a number of charges were framed against the appellant and accordingly a demand of tax along with additional tax and penalty was imposed by the respondent. The vires of the said order was challenged by means of an appeal before the Collector (Appeals) who vide his order, dated 4-10-2006 rejected the appeal and upheld the order passed by the Additional Collector. The present appeal challenges the validity of the said order. 3. It has now been contended that the audit in the present case was admittedly not performed by the firm of Chartered Accountants who were appointed by the C.B.R., the report seems to have been submitted by a firm which is different from the firm appointed, the audit report was not produced before the lower forums, the audit was not performed by the Chartered Accountants or their partners of the firm, rather the work was done but the clerks and assistants since none of the partners of the firm ever visited and examined the accounts of the appellant, the audit was not performed according to the mandate of the C.B.R., since deviations and differences were to be supported by acceptable evidence and the report was to be submitted by 31-8-2005 whereas as per report itself it was submitted after November 24, 2005, the findings in the audit report were never furnished to the appellant by the auditors, the audit report stands contradicted by detailed Audit performed by the appellant"s own Auditors- and findings given by the Board"s appointed auditors are totally false and concocted. 4. It has further been contended that the show-cause notice issued under section 36 is invalid as:--

(i) The show-cause notice is vague since the Audit Report was not identified therein and the source of allegations as per appellant"s accounts was not identified. It did not state that the issuing author was exercising any power under section 36(1), 36(2) or 36(3). It was only a notice for collection of a demand which did not exist. Justification in terms of sections 36(1) apropos allegations of a "deliberate act" and "collusion" are missing from the show-cause notice. The learned Additional Collector before issuing the show-cause notice has not examined the truth and reliability of the audit report and the books of accounts of the registered person were neither called for nor the truth of Audit Report ascertained. Reliance is placed on:

2001 SCMR 838 Asstt: Collector v. Khyber Elec. Lamps, 2003 PTD 1275, D.G. Khan Cement v. Collector of Customs, 2005 PTD 480 Caltex v. Collector, 2003 PTD 1593 Atlas Tyres v. Addl. Collector, 2002 MLD 180 State Cement v. Collector, PTCL 2001 CL 558 Kashmir Sugar v. Collector, 1992 SCMR 1898 Federation of Pakistan v. Ibrahim Textile and 2003 PTD 1947 Rose Color v. Chairman C.B.R.

(ii) It is submitted that the jurisdiction to recommend the case to Adjudication Authorities vested in a Collector and not in a Deputy Collector/Assistant Collector. Accordingly Press Report, dated 31-10-2001 appeared in Business Recorder has been produced. These are only specific jurisdictional orders passed by C.B.R. in terms of section 31 of the Sales Tax Act and were binding on all officers. These were also binding in terms of section 72 of the Sales Tax Act. The C.B.R. is the apex authority to delegate jurisdictional powers or to withdraw which powers under section 32 of the Sales Tax Act. Further these orders were passed by the C.B.R. to eradicate and meet the public complaints on a large scale. The subordinate officers were not entitled to disobey them.

(iii) The orders of C.B.R. only demonstrate that this function even if earlier assigned to the Assistant Collectors had been withdrawn from them since Oct. 2001 and there was no order thereafter further amending these orders. Atleast no such distribution, contrary to the above was shown. This related to a plenary power and these were directions of the C.B.R. and it cannot possibly be suspected that these instructions related to the Audit Teams of Auditor General of Pakistan on which C.B.R. of course admittedly held no jurisdiction to issue instructions. In result the show-cause notice and ONO and the Order in First Appeal are liable to cancellation as without jurisdiction. Reliance is placed on:

(i) PLD 1964 SC (sic) and (ii) 2002 MLD 296

(iv) The whole exercise of audit is false, concocted and incorrect. The audit report was kept concealed in violation of section 25(4) of Sales Tax Act, 1990.

(i) by the so-called auditors;

(ii) by the Dy. Collector;

(iii) by the Addl. Collector also.

(v) The audit report has not been served on the appellant until today. The department is precluded from submission before the Appellate Forum and even before the Tribunal it has not been brought on record rather suppressed:--

1987 CLC 1246 (Lahore), 1988 CLC 22 (Peshawar) and 1988 SCMR 1563

(vi) The show-cause notice is not served other notices not served in accordance with the Sales Tax Act. The ONO is liable to annul. The recovery of tax is from the Company and from principal officer Board of Directors but notices have not been served on them. Notice has to be served upon the person from whom it is intended or his agent i.e. the principal officer of the company. In terms of section 27 of General Clauses Act. Notice sent to the factory is invalid exercise. On whom it is served is not known. The objection has been taken since the beginning of proceedings but service was not proved. M/O Law"s orders are violated. Reliance is placed on:

1959 ITR 388 (SC of India), 1967 PTD 189, 1978 PTD 8 SC of India, (1979) 120 ITR 576, 1988 PTD (Trib.) 117, 1988 PTE (Trib.) 117, 1990 PTD (Trib.) 705, 1995 PTD (Trib.) 1100, 1988 PTD 135 (H.C. Lahore), ITA Nos. 2376, 2377 & 2378/KB of 1984-85, dated 25-5-1989, ITA No. 1058/KB of 1994-95 and ITA No.434/KB of 1995-96, dated 19-1-1996, 2002 PTD 102 (Karachi H.C.).

(vii) There is no justification for proposing additional tax and penalty since there was no default of appellants and atleast the alleged default is not wilful and deliberate and the matter was being agitated in the appeals.

2004 SCMR 456, 2002 PTD (Trib.) 300, 2005 PTD 1984, 2005 PTD 1978, 2005 PTD 1953, 2003 PTD 1445 and 2004 PTD 2771. 5. On the basis of said averments, the appellant seeks set-aside of the impugned order. 6. The D.R. maintains that the reply already furnished before Collector (Appeals) are sufficient to be considered and supported the impugned order for the reasons given therein. The learned departmental representative relied upon the replies already furnished before the Collector (Appeals). 7. Rival parties have been heard. After giving serious consideration to the facts and arguments addressed by both the sides we are of the opinion that since a copy of the order passed by the C.B.R. under section 32A of the Sales Tax Act had not been furnished by the C.B.R. itself and a justification towards the selection of the case had not been furnished, and that the order of Special Audit had been passed at the back of the appellant, and it is observed that the jurisdiction has been incorrectly, unlawfully exercised in violation of section 24A of General Clauses Act. This view is supported from dictums of the Supreme Court of Pakistan reported as 1998 SCMR 2268, 1998 SCMR 2419 and 1999 SCMR 1071. 8. It is evident from records that the audit had not been performed by the Chartered Accountants, it was done by their clerks. There was nothing wanting so far as the appellant"s company was concerned. It appears that none of the Chartered Accountants ever visited the appellant"s company or examined and considered any books of accounts, the audit report was not submitted in accordance with the directives of the C.B.R. Proper evidence which was desired to be furnished does not appear to have been furnished. The show-cause notice by itself is vague, and lacks legal requirements. 9. The jurisdiction exercised by the Additional Collector (Adjudication) the same has not been correctly and properly exercised in view of the instructions of C.B.R. The basic action of assigning jurisdiction to issue notice under section 36 and pass an order therefore lacks in jurisdiction and proceedings are rendered as coram non judice since:

(i) the proceedings in this case have been undertaken without seeking recourse to the Qanoon-e-Shahadat, 1984;

(ii) there are more than three affidavits two before Collector (Appeals) and two before us which have not been repudiated through counter affidavits. The statements of the appellant therefore are not open to question;

(iii) there is no jurisdiction for proposing additional tax and penalty since there is no default what to say, of wilful and contumacious default whatsoever. 10. On the basis of said legal objections the impugned orders are set-aside. However, the respondent will be at liberty to proceed against the appellant in accordance with law and on the basis of evidence, if they are so advised. S.A.K./128/Tax (Trib.) Appeal accepted.

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