IN THE HIGH COURT OF SINDH, AT KARACHI

IN THE HIGH COURT OF SINDH, AT KARACHI

Special Sales Tax Reference Application No. 67 of 2010

Present:- Mr. Justice Muhammad Athar Saeed

Mr. Justice Irfan Saadat Khan

Date of hearing : 22.02.2011

Applicant through : Mr. Khalid Jawed Khan, Advocate

Respondents through : Mrs. Masooda Siraj Advocate

JUDGMENT

IRFAN SAADAT KHAN, J: This Special Sales Tax Reference Application (SSTRA) has been filed against the order passed by the Appellate Tribunal Inland Revenue (ATIR) in Sales Tax Appeal No. 925/K-2009 dated 02.02.2010 by raising the following questions of law:-

I. Whether on the facts and circumstances of the case, the learned Tribunal misinterpreted and wrongly applied Section 66 of the Sales Tax Act, 1990?

II. Whether on the facts and circumstances of the case the learned Tribunal and the fora below misinterpreted and misconstrued SRO 679 (I)/99 dated 12.06.99.?

III. Whether on the facts and circumstances of the case the Respondent is bound to refund excess amount of sales tax paid by the Applicant, as identified in the Auditor’s Report dated 9.1.01?

IV. Whether on the facts and circumstances of the case the orders passed by the learned Tribunal and the fora below not sustainable in law?

2. Briefly stated the facts of the case are that the applicant is engaged in the manufacturing and sale of garments and other textile items and was registered as manufacturing-cum-exporter in the Sales Tax Act 1990 (The Act) since 1996 bearing Sales Tax Registration No. 12-00-6200-159-55. A dispute arose between the applicant and the sales tax department with regard to certain refunds claimed by the applicant, thereafter a raid was made by the Sales Tax Collectorate at the office of the applicant in January 1999. The applicant’s record and another documents were seized by the Custom Authorities and FIR bearing No. 1/99 dated 11.01.1999 was lodged against the applicant and criminal proceedings were also initiated before the learned Special Judge (Custom and Taxation) in case No. 9/99. Being aggrieved with the above action the applicant filed a suit bearing No. 15/99 before this Court. Thereafter the department vide an audit observation bearing No. 128 dated 23.11.1998 worked out an amount of Rs.91,93,438 payable against the applicant.

3. While the proceedings were still under way the Federal Government vide notification SRO 679 (I)/99 dated 12.06.1999 announced an amnesty scheme. The applicant thereafter approached the department to get the benefit of said amnesty scheme and asked the department vide its letter dated 22.06.1999 to inform them about the amount payable by the applicant. The applicant was thereafter informed that a principal amount of Rs.14, 345,676/- and additional tax of Rs.6, 358,666/- is outstanding against them. The applicant thereby paid a sum of Rs. 2, 07, 04, 342/- in the Government Treasury in the following manner:-

Adjustment from Rebate Claims Rs. 1, 03, 94, 664/-

Payment through Pay Orders Rs. 1, 03, 09, 678/-

--------------------------------------------------------------------------------------

Total Rs. 2, 07, 04, 342/-

4. In the suit filed by the applicant before the High Court, the Court by a consent order dated 4.07.2000 appointed M/s Ford, Rhodes, Robson & Marrow as Auditors to carry out an audit of the applicant for the disputed period of 1.09.1996 to 30.09.98 in respect of the refunds claimed by the applicant for the aforesaid period. The auditors submitted a detailed report dated 9.01.2001 and following observations were made by them:-

As per Department As per Auditor

Sales Tax. Rs. 13, 779, 850 Rs. 69, 66, 932

Additional Tax Rs. 34. 820, 995 Rs. 5, 659, 818

----------------------------------------------------------------------------------

Total Rs. 48, 600, 845 Rs. 12, 626, 750

5. That in view of the audit report submitted by the auditors the applicant’s claimed a refund in respect of excess amount paid by them, as according to them the total liability of the taxes payable amounted to Rs. 80, 98, 896/-, under the said SRO 679(I)/99, whereas the applicant had paid a sum of Rs. 2, 07, 04, 342/- and thus they are entitled to a refund of Rs.1,26,05,446/-. The case before the High Court was disposed off on 7.04.03 with the observation that the applicant may claim its refund from the appropriate forum in accordance with law. Thereafter the applicant filed its refund claim but when no response was given by the department with regard to the claim of refund made by the applicant a Suit No. 17/2004 w

as filed before the High Court for the recovery of said amount. While the above case was pending the department issued a show cause notice dated 14.02.2004 to the applicant. The Suit No. 17/2004 was thereafter disposed of by the High Court on 31.01.2006 by virtue of a consent order directing the Customs Authorities to decide the matter within 3 months in accordance with law. Thereafter the department vide Order In Original No. 94/2007 dated 31.08.2007 observed that nothing is refundable to the applicant and the claim of refund was rejected. Being aggrieved with the said order an appeal thereafter was filed before the Collector (Appeals) who also vide his Order In Appeal No.883/2008 dated 06.01.2008 refused the claim made by the applicant by holding that the said claim is an after thought and question of refund does not arise in view of the facts of the case. Again being aggrieved with the said order the applicant preferred an appeal before the Tribunal which also vide its order dated 02.02.2010 came to the conclusion that the claim made by the applicant is uncalled for and their claim of refund was rightly rejected by the authorities below as the applicant had miserably failed to qualify the statutory and legal formalities mentioned on Section 66 of the Act, SRO 679(I)/99 and the Sales Tax Refund Rules 2002. It is against the decision of Tribunal that the present Reference Application has been filed.

6. Mr. Khalid Jawed Khan learned Counsel appeared on behalf of applicant and submitted that the order passed by the authorities below are illegal as these authorities have refused to issue the legally due refund of the applicant. The learned Counsel further submitted that when an independent Auditor, vide its report dated 09.01.2001, has categorically mentioned the amount legally payable by the applicant any excess amount paid by the applicant is to be refunded to them. He invited our intention to Section 66 of the Act, the provisions of the said SRO and the Sales Tax Refund Rules 2002 in support of his contention. While elaborating his view point the learned Counsel submitted that main purpose of SRO was twofold: firstly to get the amount of tax in short span of time from the persons without getting into the rigmarole of lengthy litigation proceedings and secondly to give benefit to the persons upon whom additional amounts and penalties are due. He further submitted that the department has accepted the Auditor’s report as the same had never been objected to by the department hence when the respondents have accepted the said audit report, the applicant was quite justified in claiming the refund from the department. The learned Counsel went on to argue that it has specifically been mentioned in the said SRO that the said notification will also apply to the cases in dispute that are under adjudication.

7. The learned counsel further submitted that the said Auditors were appointed by a consent order of this Court dated 4.07.2000 and whatever amount was claimed as refund was in accordance with the said audit report. As per the learned counsel the three authorities below have passed the orders without appreciating the facts of the case and specific instructions issued by this Court and various provisions of the law including the said SRO. As per the learned Counsel the said clause has totally been ignored by the department. In the end he prayed that the departmental authorities as well as ATIR were not justified in not giving the benefit, as specifically mentioned in amnesty scheme, and thus the order passed by the forums below may be set aside or the matter be remanded back to the ATIR for passing a fresh decision keeping in view and reconsidering the arguments of the applicant in this regard. In support of his above contentions the learned Counsel has relied upon :-

Muhammad Amin V/s Province of Sindh [1992 MLD 671]

Exide Pakistan V/s Deputy Collector [2004 PTD 1449]

Pakistan Wood Craft V/s CBR [1986 PTD 126]

Filters Pakistan V/s FBR [2010 PTD 2036]

Pfizer Laboratories V/s Fed: of Pakistan [PLD 1998 SC 64]

CBR V/s Seven up Bottling Company ltd [1996 SCMR 700]

Zulfiqar & others V/s Shahadat Khan [PLD 2007 SC 582]

Jam Pari V/s Muhammad Abdullah [1992 SCMR 786]

Mrs. Anisa Rehman V/s PIAC [1994 SCMR 2232]

Chenab Fabrics V/s Govt. of Pakistan [2006 PTD 1412]

8. Miss. Masooda Siraj appeared on behalf of Respondents and supported the orders passed by the three authorities below and submitted that it was established beyond any doubt that the applicant has committed tax fraud which leads to not only criminal proceedings against the applicant but also taking other actions as provided under the law. She submitted that no doubt the Federal Government through SRO 679 has allowed amnesty to the tax payers but the present applicant has not availed such benefit in its letter in spirit and had claimed the refund in a malafide manner. She submitted that no question of law is arising out of the order passed by the ATIR and learned ATIR after discussing the law and the facts obtaining in the case has rightly come to the conclusion that the claim of refund made by the applicant is not only misplaced but also unwarranted.

9. As per the learned Counsel it is a trite proposition of law that only such questions require adjudication by this Court which could be termed as questions of law wherein in the instant Reference Application the questions raised are pure and simple questions of fact and not that of law. While explaining her point she submitted that it is clear from the conditions specified in the said amnesty scheme that the same will apply only to those cases where any adjudication or appeal proceedings were pending at the time of its promulgation in June 1999 whereas it is clear from the record that neither any appeal nor any adjudication matter against the present applicant was pending to entitle them to claim refund. She further submitted that the present claim being wholly illegal was rightly refused by the tax authorities as the said claim of refund was made without strictly adhering to the parameters and conditions laid down in the said scheme. She also invited our attention to Section 66 of the Act and stated that the parameters as laid down in the said section have not been fulfilled by the applicant, hence the Sales Tax Authorities were quite justified in rejecting their claim being not available.

10. The learned counsel also submitted that a time frame had been given for the persons claiming the refund under the provision of Section 66 of the Act which also has not been complied with by the applicant thus the said claim was rightly refused in this regard. In support of her above contentions the learned Counsel has relied upon:-

TCL 1994 L 280

West Pakistan Tank Terminal V/s Collector [2007 PTD 1744]

Tribunal Decision [2009 PTD 313]

Tribunal Decision [2009 PTD 350]

11. We have examined the case in the light of arguments of the learned Counsel and perused the record, the decisions relied upon by them and the written synopsis filed by them.

12. In order to appreciate the case in a better perspective it would be in fitness of things if the relevant provisions of law and the SRO are reproduced:-

“66, Refund to be claimed within one year. No refund of tax claimed to have been paid or over paid thorugh inadvertence, error or misconception [or refund on account of input adjustment not claimed within the relevant tax period,] shall be allowed, unless the claim is made within one year of the date of payment.

[provided that in a case where a registered person did not deduct input tax within the relevant tax period, the Collector may, after satisfying himself that input tax adjustment is due and admissible; allow the registered person to take such adjustment in the tax period as specified by the Collector;]

Provided [further] that in a case where the refund has become due on account of any decision or judgment of any officer of sales tax or court or the Tribunal, the period of one year shall be reckoned from the date of judgment or decision of such officer, court or tribunal.]

1. “S.R.O 679(1)99:- In exercise of the powers conferred by Section 34A of the Sales Tax Act, 1990, the Federal government is pleased to exempt four-fifth of the amounts of additional tax under Section 34 and penalties under section 33 of the said Act, payable on such portion of the principal amount of tax due if the said principal amount (as accrued on or before the 31^st day 1999) and the one-fifth of the amount additional tax and penalty are paid, during the period from the date of this notification up to the 28^th June, 1999, by the following classes of registered persons, namely:-

(i) person falling under various fixed sales tax schemes valid up to the 30^th June, 1998 including old fixed sales tax cases or steel sector and other sectors expired earlier:

(ii) persons registered as importers and persons owing sales tax on value added supply of imported goods:

(iii) steel melters and steel re-rollers who did not pay sales tax as per the minimum benchmark of consumption of electricity units fixed vide Central Board of Revenue letter C. Nos. 4/85-ST67,97, dated the 18^th September, 1997, dated the 21^st October, 1997 and dated the 25^th October. 1997 C.A/o. 4/93-STB/97. dated the 25^th October, 1997 and C.No.4/20 STB dated the 19^th May 1998.

(iv) distributors, wholesalers and retailers of mild steel products whose supplies became taxable with effect from the 1^st July, 1997, in terms of S. No. 33(iii) of the then Sixth Schedule to the Sales Tax Act, 1990:

(v) manufacturers and producers who incorrectly claimed input tax under No. S.R.O 1307 (I)/97, dated the 20^th December. 1997

(vi) persons who made incorrect and inadmissible input tax adjustment or have claimed and received incorrect and inadmissible refunds;

(vii) manufacturers and suppliers of knitted or woven fabrics, garments and made ups and other taxable goods who failed to pay the tax due;

(viii) suppliers of taxable goods, who failed to pay tax;

(ix) retailers whose annual turnover exceeds, Rs. five million and who failed to pay tax due:

(x) persons (spinners) who failed to remit the amount of sales tax and persons (ginners) who failed to deposit the amount of sales tax in terms of the special procedure for Ginning Industry Rules, 1996”

(xi) persons against whom arrears of tax are outstanding in terms of an audit report, demand notice, assessment order or adjudication order, show cause notice, appellate order or for any other reason: and

(xii) persons who are non-filers, wrong filers or short-filers with reference to their Return-Cum-payment Challan.

2. This notification shall also apply to cases where there is no arrears of principal amounts of tax and the arrears involve additional tax and penalty only. In such cases, four-fifth of the amount of additional tax and penalties shall be exempted if the one-fifth of the arrears of such additional tax and penalty, as was outstanding as on 31^st May, 1999, is paid into the treasury during the period from the date of this notification to the 8^th June 1999.

3. This notification shall also apply to cases in dispute or under audit or under adjudication. This notification shall also apply to cases pending in appeal under section 45 and 46 of the Act. However, if the dues are held to be not payable in view of the adjudication order or the appellate order the amount so paid in terms of this notification shall be refunded within fifteen days of the receipt of the adjudication order or appellate order as the case may be.

4. If the whole of the dues of principal amount of tax is paid by a registered person to the satisfaction of the Collector in terms of this notification he shall not be prosecuted under section 37A and 37C of the Act and the offence shall be compounded under sub section (4) of Section 37A.

5. This notification shall not entitle any registered person to claim refund of any tax, additional tax or penalty already paid. (emphasis supplied)

6. This notification unless earlier rescinded, shall remain in force up to the 28^th June 1999,”

(S.M. Kazimi)

Additional Secretary

13. It is seen from the record that vide letter dated 05.09.2001 the applicant approached the concerned Collector with the request that as they have already paid a sum of Rs. 20704342/- under the SRO 679 the same may be treated as full and final settlement for the period w.e.f 1.07.1996 to 30.06.1998 and all the offences against the company or its personnel may be compounded and in turn the applicant will withdraw all the related cases pending before the High Court. It is however not clear that whether any application thereafter was filed by the applicant before the High Court Under Order 23 Rule 1 CPC or not. Thereafter the respondent advanced a letter dated 27.09.2001 to the Special Judge (Custom and Taxation) that as the applicant have paid the principal amount and one fifth of the additional taxes availing the benefit of the said SRO no liability is outstanding against him and the offences may be compounded. The Special Judge then vide order dated 02.02.02 compounded all offences as prayed for by the Respondent.

14. The pending suit bearing No. 294/99 was dismissed by the High Court for non-prosecution on 31.10.2006 whereas the suit bearing No. 15/99 was disposed of on 07.04.2003 with the observation that the applicant may file any claim before the appropriate forum based on Auditor’s report. It is only thereafter that the applicant vide letter dated 30.04.2003 claimed the refund of the sales tax on the basis of the Auditor’s report stating therein that they have paid the sales tax amounting to Rs. 20704342/- whereas according to the working of the Auditors the payable amount comes to Rs. 9492282/- hence they are entitled to a refund of Rs. 11212060/-.

15. A Show Cause Notice dated 14.02.2004 issued by the Assistant Collector (Refund IV) clearly reveals that the applicant was given an opportunity to explain why their claim may not be rejected being inadmissible as when the letter dated 05.09.2001 was addressed by the applicant to the Collector the report of the Auditor dated 09.01.2001 was already available with them and the applicant applied to the Collector with the only prayer that the amount already paid by them amounting to Rs. 20704342/- may be treated as full and final discharge of their tax liability in respect of the period w.e.f 1.07.96 to 30.06.1998 and to compound their offences and as per the record both these prayers were granted by the concerned Collector.

16. Perusal of the said SRO clearly reveals that the benefit mentioned in the said SRO is also applicable to the persons/cases which are under dispute or under audit or under adjudication and to the cases pending in appeal Under Section 45 and 46 of the Act and it was specifically provided that if dues are held not to be payable in view of the adjudication order or appellate order, the amounts so paid in terms of notification shall be refunded within 15 days on receipt of the adjudication order or appellate order as the case may be, whereas admittedly in the present case neither any appeal nor any adjudication matter was pending so as to entitle the applicant to claim relief as provided by the said SRO by way of claiming the refund. We are of the view that the eventualities mentioned above are the only eventualities where amount paid under the notification can be refunded and there is no other eventually by which the amount may be refunded.

17. It is also evident from the various letter addressed by the applicant to the department that applicant sought refund on the basis of auditor’s report only hence the only question which requires determination in the present STRA is whether the applicant was firstly legally justified in making such claim and that whether the applicant is legally entitled to have the said refund claimed by them. Provisions of said SRO as reproduced above clearly envisages that “This notification shall not entitle any registered person to claim refund of any tax, additional tax or penalty already paid”. Now it is an admitted position that it is the applicant who approached the concerned Collector with the request that as they have already paid the taxes payable by them in view of the said SRO which may be treated as full and final settlement for the period w.e.f 1.07.96 to 30.06.98 and all the offences against the company or its personal may be compounded which request admittedly was acceded to by the custom authorities. For the sake of ease of reference we are reproducing below the entire text of the said letter dated 05.09.2001:-

“The Collector

Sales Tax Central Excise Collectorate (East)

81-C, Block-06 P.E.C.H.S

Karachi

Sub: benefit of sro 679 (I)/99 dated 12.06.99

Madam,

Please refer to our earlier letter dated 27.06.2001 (copy enclosed) with reference to the implementation of SRO 679(I)/99 and with further reference to our discussion with Mr. S. Hassan Raza Jafri, Deputy Collector (Law) on 01.09.2011. It is stated that the we have paid a sum of Rs. 20, 70, 4342/- under SRO 679 (I)/99 as per the letter of the Collectorate of Sales Tax (East), Karachi No. 11/ADC-I/ STE/UE/98/1413 dated 22.06.99. (Copy enclosed).

Thus, in terms of SRO 679(I)/99, this may be treated as full and final settlement for the period of 1996 to 1998. All the offences against the company or its personnel may kindly be compounded. As this is being treated as past and closed transaction. Its requested no further action, audit or inquiry should be undertaken against the company or its personnel. In return we shall withdraw all the related cases pending before the High Court of Sindh.(emphasis supplied).

Copies of Pay Order and relevant correspondence are enclosed.

Yours Sincerely

For United Exports Company

Shamim Ahmed

Proprietor”

18. Now if the above letter is read in juxta-position of the said SRO which clearly states that no refund shall be allowed to any person or any taxes additional tax or penalty already paid, the present claim of the refund of the applicant appears to be totally misplaced and uncalled for. It is a trite proposition of law that no body would be allowed to take advantage of his own wrong.

19. The Hon’ble Apex Court in the decision of West Pakistan Tank Terminal has observed as under:-

“The law is well settled that one can’t be allowed to take advantage of his wrong act or fraud played by him”

It is also held in the decision by this Court in the case of Chenab Fabrics as under:-

“Normally the concession/exemption notification issued under the various tax schemes are complete code in themselves until and unless provided to be otherwise and the concession/exemption is to be allowed on fulfillment of the condition specified therein”

The legal maxim “Violenti non-fit injuria” is quite clear in this regard which means that “person can’t complain of any act he passively assents to”. The applicant appears to be blowing hot and cold in the same breath; as at one hand they are embarking upon the terms and conditions of the said SRO whereas on the other hand they themselves are flouting the terms of said SRO.

20. We, therefore, in view of the above facts do not find any legal infirmity in the orders passed by the authorities below and dismiss this SSTRA by answering all the questions in negative i.e. against the applicant and in favour of department.

JUDGE

Karachi

The__________March, 2011