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ASSESSMENT AUDIT & ADJUDICATION UNDER THE SALES TAX ACT

A presentation by:
Mr. Muhammad Mansha Sukhera B.Com, DCMA, MBA, LLB, FCA Senior Partner Rafaqat Mansha Mohsin Dossani Masoom & Co. Chartered Accountants

SALES TAX LAW ASSESSMENT AUDIT ADJUDICATION

SALES TAX LAW

FISCAL STATUTES CONSTITUTIONAL VALIDITY ENECTMENT/PROMALGATION HISTORY

CONCEPT OF SALES TAX


STAGES OF ENFORCEMENT

FISCAL STATUTES

Main

Sales Tax Act, 1990 Federal Excise Act, 2005 Customs Act, 1969 Income Tax Ordinance, 2001

Helping

Constitution of Pakistan, 1973 General Clauses Act, 1897 Limitation Act, 1908 Rules of interpretation Code of Civil/ Criminal procedures selected provisions search, service of notice etc. Precedents.

CONSTITUTIONAL VALIDITY

Preamble Fundamental rights Art. 8 to 28 Legislation power Art. 77

Rule of law Art 4, 25, 2A

Islamic Provision. Art. 227

ENACTMENT/ PROMULGATION
TAX LEGISLATION POWER. ART. 77 No tax shall be levied for the purposes of the Federation except by or under the authority of Act of Majlis-e-Shoora (Parliament).
Federal Legislative List Entry 49 Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed. Other taxes (Entry 43-50), 59 incidental or ancillary matter

Legislation Power Article 141 Law for whole or part of Pakistan including extra territorial operation - Majlis-e-Shoora (Parliament Law for Province or any its part Provincial Assembly

ENACTMENT/ PROMULGATION
Article 142 Subject matter of Federal legislative and concurrent list Matter in Federal legislative list- Parliament Matter in Concurrent List- Parliament and Provincial Assembly. Matter not mentioned in both Lists- Provincial Assembly Federation area not included in any province and matter not mention in the above lists- Parliament. Tax to be levied on the basis of ability to pay. Legislature prerogatives quantum of tax Conditions subject to which tax is levied Manner of assessment and recovery

ENACTMENT/ PROMULGATION
Taxing statute may be declared unconstitutional if plainly discriminatory No machinery for levy and assessment Confiscatory- acquisition of property PLD 1997 SC 582=1997PTD 1555 SC Interpretation of entry in legislative lists. Living and permanent document, wide construction not narrow, Harmonise construction, promote economic and social activities. summary of items and no detail, power of legislation for associated, ancillary and related matter. 1999PTCL 645 (SC) =1999 PTD 1135 = 79 TAX 433, 1997PTD 1555 (SC) Delegation tax legislation power No delegation of legislation power of enacting taxing statute and imposition of tax except exemption and procedure of assessment and recovery. PLD 1977 Lahore 1327,
PTCL 99 CL 493 SC

HISTORY

Before 1St world war Excise tax was very old tax Excise tax was major source of Revenue in the European countries Custom duties was the major source of revenue in State (USA)

World History

After 1st world war Modern multistage turnover taxes were developed during and after 1st world war VAT began when France adopted in 1954 Subsequently vat was taken up by other European countries. Rate of tax 10 to 23 % In United state sales tax remain major source of revenue since 2nd world war In USA single stage taxes existed in more than 40 states and only 2 states adopted multistage turnover taxes upto 1971

HISTORY

Pre-partition- Sales tax was Provincial subject under the Government of India Act 1935 After Independence Pakistan adapted the Government of India Act 1935 Pakistan General sales tax 1948 enacted and enforce from April 1, 1948 Standard rate 6 pies per Rupee Sales Tax Act 1951 enacted and enforce from July 1,1951. rate 12.50% Sales tax Act 1990 enacted and enforce from July 1, 1990- Vat
Historical Construction What was the law before what was the mischief and defects in the earlier law What is the new law What remedies has been provided in the new to suppress the mischief in the old law.

IndoPak.

HISTORY

Cannon of literal construction Letter of law and not sprite of law Language plain no matter what ever consequence ambiguity or doubt in favour of subject
Purposes interpretation Contextual interpretation Golden interpretation as a whole Harmonized Construction Construction to save and not to destroy the LAW Construction agreeable to justice and reason.

Other Canon of Construction

CONCEPT

Direct vs.. Indirect tax VAT (Value Added Tax) Multi-stage vs.. Single Stage Tax Consumer Tax. Exceptions

Direct vs.. Indirect tax

That a direct tax is one which is demanded from the very person, who it is intended or desired should pay it whereas indirect taxes are those, which are demanded from one person in the expectation and intention that he shall indemnify himself at the expenses of another, like custom duties, excise taxes and sales tax, which are born by the consumer. ((1997) 76 Tax 5(S.P), Elahi Cotton case, pg.678. Burden of tax (PTCL 2005 CL 754(S.C) Fecto Belarus case) purchaser vs.. vender Component of Cost/Sales price explicit or implicit.(

VAT (Value added tax)

Mechanism of levy and crystallizing the liability by allowing the adjustment of input tax provided in the provisions of sales tax Act 1990 is a VAT system. In nutshell sales tax is payable on value addition Importer-manufacturer-distributor-retailer State tax collecting Agents purchase supply value ad. Value -ex 100 150.0 50.0 Tax 15 22.5 7.5 Value inc. 115 175.5 57.5 Sales tax is going in treasury of State on value addition basis other than import.

Multi-stage tax

Sales tax levied and collected under the Sales Tax Act 1990 on each stage of taxable supply made till it reached to consumer or ultimate user. Sales tax charged and collected under the Sales Tax Act 1951 was ONE POINT LEVY usually called single stage tax. Illustration as follows:

Purchases Supplies

Val. Addition

Tax on Val. Addition 15.0 7.5

Tax Rate %

RP 1

IMPORT STAGE Price ex Tax Price Incl. MANUFACTURING STAGE Melting ingot Price ex Tax Price Incl. Part making Price ex Tax Price Incl. Price ex Tax Price Incl. 100.0 15.0 115.0 150.0 22.5 172.5 50.0 7.5 57.5

15%

RP 2

150.0 22.5 172.5 250.0 37.5 287.5 325.0 48.8 373.8

250.0 37.5 287.5 325.0 48.8 373.8 450.0 67.5 517.5

100.0 15.0 115.0 75.0 11.3 86.3 125.0 18.8 143.8

15.0

RP 3

11.3

RP 4

Bicycle mfg.

18.8

RP 5

DICTRIBUTOR/ DEALER Price ex Tax Price Incl. RETAILER Price ex Tax Price Incl.

450.0 67.5 517.5

600.0 90.0 690.0

150.0 22.5 172.5

22.5

RP 6

600.0 90.0 690.0

Price exclusive of aggregate s tax S tax % in ultimate price charged to customer if no VAT

800.0 120.0 920.0 386.3 534 72%

200.0 30.0 230.0

30.0

120.0

Consumer tax

Sales tax is a tax on consumption because the incident of tax charged under section 3 has to pass on the consumer ultimately. The provision regarding input as well as out put as defined in the definition clause of the Act read with section 7and 8 thereof are on the modalities prescribed to protect interest of the exchequer against any pilferage, evasion or fraud. Every maker of a taxable supply is an agent of the State to receive the amount on its behalf and then pass it on to the next supplier till finally the consumer bear the burden. PTCL 2002 CL 115 (LHC) Mayfair Spinning Mill Case.

Exceptions

Taxable supplies specified in the Third schedule. S.3(2a), 21 items, juices. Ice cream, beverages, syrups, cigarettes, toilet soap, biscuits, tissue paper etc. Special procedure for scope and payment of tax S.71 Disallowing Input S. 7, 8, 8B and 73.

STAGES OF ENFORCEMENT

Charging / Imposition of Tax Assessment Collection / Recovery

Charging / Imposition of tax

Subject matter persons, goods, event, transitions, object value or volume etc. Rate of tax single rate, different rates, range of rates. Period month, quarter, years etc. Timing time of delivery, accrual, receipt, clearing, deeming, agreement etc.

Construction of charging section

Strict construction strictly construed in favour the subject and against the State. Words of law vs. Import of provision. We may here observe that the taxing statue the courts must look to the words of the statue and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statue so as to support assumed deficiency (1975) 31 Tax 78 (SC) Hirjna & Co case. Letter of law vs.. Spirit of law. In determining whether or not a particular matter comes within a taxing statute it is only the letter of law be looked into. There is ample authority for the proposition that in a fiscal case, form is of primary importance, the principle being that if the person sought to be taxed comes within the letter of law, he must be taxed, however great a hardship may thereby be involved but on the other hand if the Crown cannot bring the subject within the letter of law he is free, however, apparent may be that his case comes within what might be called the spirit of law. (1974) 29 TAX 188 (SC) Mst. Wazirunissa Begum case.

Construction of charging section

Benefit of doubt, ambiguity, alternative or several interpretation should be given the taxpayer. The cardinal principle of interpretation of a fiscal statue seem to be that all charge upon the subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to a tax. A fiscal provision of a statue is to be construed liberally in favour of the taxpayer and in case of any substantial doubt, same is to be resolved in favour of the citizen. (1992) 66 TAX 246 (SC) Mehran Associates case, (1996) 74 TAX 81 (SC) B.P Biscuit case. all charge upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties; the subject is not to be taxed unless the language of the statute clearly imposes the obligation and language must not be strained in order to tax a transaction, which had the legislature thought of , it would have covered by appropriate words, B. P Biscuit case

Strict construction rules

Property right effected. Imposition of tax deprive of the subject from their property rights protected and guaranteed by the Constitution- Art. 24 Tax is a compulsory execution of money from the subject Tax is a penalty Burden of proof Initial burden is on the Authority to prove that the person falls within the ambit of charging section, once it is discharged the onus is shifted on the person to prove that he is entitled to exemption .

Strict construction rules

Level of compliance charging sections are mandatory in nature and required to comply completely.
Benefit of doubt, ambiguity, two or several interpretation of charging section is to be given to the citizens. Exemption provision are opponent to charging provision and are construed liberally in favour of the State and against the subject because their burden of tax is to be borne by the other citizen paying tax.

Charging vs. Exemption

Exemption provision are opponent of charging provision.

Exemption provision are liberally construed in favour of the State and against the subject because the burden of tax is to be borne by other member of the State. Burden is on the person claiming exemption to prove that he falls within the exemption provision and fulfils the exemption requirements and conditions.
Benefit of doubt, ambiguity, or alternative interpretation of exemption provision is to be given to the State except claimant of exemption is State or state divisions, charitable institutions, or meant for economic development.

Assessment

Assessment stage of a fiscal statue is a part of machinery provision and procedural in nature dealing with determination of tax liability of the taxpayer as well as value of the subject matter and all other proceeding and steps involved and culminate into assessment order.
Component of assessment

Registration provision Filing of Returns Audit Assessment proceedings SCN Reply submission proofs. Assessment order. Revision/ review, appeal effect

Cannon of construction of assessment provisions Liberal construction in favour of the State and against the subject to crystallize and effect the recovery. (2002) 86 TAX 138 (KHC) Deans Associates case. 2002 PTD 2112 LHC), PLD 1961 SC 119, PTCL 1990 CL 386 Original vs.. revised assessment / assessment vs.. re-assessment.

Recovery

Recovery and collection provision of the fiscal statue are also part of machinery provision and are construed in the same manner as assessment provision in order to make the recovery of tax efficient and effective Liberal construction in favour of the state and against the subject. Mode of Recovery and collection of tax

Pre- assessment / adjudication Advance payment of tax Withholding or collection of tax at source Payment with return Post assessment / adjudication Demand Notice Deduction or adjustment from refund or money of the taxpayer in the control of income, custom, excise authority

Recovery

By notice from the person holding money of the taxpayer By stopping removal of good from business premises. By notice to any person to stop clearance of imported or manufactured goods or attachment of bank accounts. Seal of business premises Attach and sell or sell without attachment movable or immovable property Attach and sell movable and immovable property of guarantor where such guarantor has failed to make the payment of tax under guarantee, bond or instrument.

Write off of arrears by the Board or authorised officer by the Board as prescribed. S. 48(1A) Sales tax officer has the power of Civil Court for recovery of tax . S. 48(2)

Section 48 Sales Tax Rules, 2006, Cheaper XI

ASSESSMENT

DEFINITION KINDS/CLASIFICATION SCOPE & PROCEEDINGS ASSESSMENT ORDER/ EFFECTS

Definition /meaning

Statutory The expression Assessment has not been defined in the Sales Tax Act 1990. However, the word assessment was defined in the repealed Income tax Ordinance 1979 as Assessment includes reassessment and additional assessment and the cognate expression shall be construed accordingly. S. 2(7) Dictionary meaning: Black law dictionary, seventh edition, page 111 Determination of the rate or amount of something, such as a tax or damages (assessment of losses covered by insurance). 2) Imposition of something, such as tax or fine, according to as established rate; the tax or fine so imposed.

Definition / meaning

Longmans dictionary of contemporary English, New edition, page 64

The act of assessing; the value or amount at which something is calculated.

Excellent Legal Words and Phrases by Mian Muhibullah Kakakhel, volume 1, page 557 & 559

Assessment in relation to taxation or revenue means the process of ascertaining or adjusting ; determining the share of a tax or duty to be paid by the person or apportioning the same among different taxable persons.

Definition /meaning

Judicial Meaning:

1992 PTD 513 (HC) ref. Muhammad Amjad vs.. The Commissioner of Income tax.

The word Assessment is uses in the statute as meaning sometime, the computation of Income, sometime the determination of the amount of tax payable, sometime the whole procedure laid down in the statue for imposing liability on the taxpayer. The word assessment must be understood in each section of the statute with reference to the context in which it is used; in some sections it has a restricted meaning and is used as distinct from reassessment. The method prescribed by the statute for making an assessment of tax, using the word assessment in its most comprehensive sense as including the whole procedure for imposing liability upon the taxpayer consist of the following steps:

Definition /meaning

In the first place, taxable income of the assessee has to be computed In the next place, the sum payable by him on the basis of such computation has to be determined. Finally , a notice of demand in the prescribed form specifying the sum so payable has to be served upon the assessee. (pg 518) PLD 1989 Lah. 121, Punjab Cables vs.. G.O.P

The word assessment in relation to taxation or Revenue means the process of ascertaining, adjusting, determining the share of a tax or duty to be paid by a person or apportioning the same among different taxable persons. Further, that assessment in relation to taxation includes all steps necessary which are taken in the legitimate exercise of power to tax. 2002 PTD 750(LHC)

Kinds / classification

Assessment concepts- Assessment & Re-assessment, Original & Revised assessment, Deemed assessment, Agreed assessment, etc.
Original assessment kinds.

Self assessment Provisional assessment Assessment on the basis of return Normal assessment Best judgement assessment/ Ex-parte assessment.

Revised assessment kinds.


Review vs.. revision Review Amended, Escape, Additional or Re-assessment Rectified assessment

Kinds / classification

Revision

Revision of assessment by:


Board Collector Commissioner IAC Appellant Authority Courts

Assessment Scope

Sales Tax Act 1990. Assessment of Tax. S.11 Recovery of tax not levied or short levied or erroneously refunded. S. 36 Revision By: Board or Collector S. 45A Collector of Sales tax Appeals, S.45B Appellate Tribunal S.46 High Court Reference S.47 Board under ADR. S47A Correction of errors. S. 57

Assessment Scope

Sales Tax Act 1951 Assessment. S.10 Assessment on the basis of return S. 10 (2)- Sales Tax Officer is satisfied about the correctness and completeness of the return. Normal assessment. S. 10(3)- Sales Tax Office is not satisfied about the correctness or completeness of the return and call for any information, particulars, books, record, documents, etc. and determine the tax payable

Best judgement assessment. S. 10(4) Returned not filed or record, documents, books not produces- Exparte judgement shall be made after giving an opportunity of being heard.

Assessment Scope

Revision by Commissioner of Sales Tax. S. 16 Tax not assessed escape assessment- Reassessment S.28 Revision by Inspecting Assistant Commissioner to the assessment order of Sales tax officer. S.28A Rectification of mistake. S30 Appeal to Appellate Assistant Commissioner. S14

Appeal to appellate Tribunal. S 15


Reference to High Court. 17

Assessment of tax

Section 11(1) Non filer of Return Filer of return making short payment due to miscalculation.

Show Cause Notice by Sales tax Officer


Order of assessment of tax, including imposition of penalty and default surcharge.

Show Cause Notice and order of assessment abated if non filer file the return and pays the tax along with penalty and default surcharge.

Assessment of tax

Section 11(2) Invoking of:


Non payment due tax on supply made. Short payment of due tax on supply made. Claim of inadmissible of input tax credit. Claim of inadmissible of Refund.

Reasons and grounds


of non payment of short payment claim of in admissible input tax or refund

shall be other than non filing of return or short payment due to miscalculation.

Assessment of tax

Section 11(4) Assessment order shall determine


Sales tax actually payable Determination of amount of tax credit Determination of amount of refund Imposition of penalty Charge of default surcharge

Prerequisites

Issuance of show cause Notice by the sales tax authority having jurisdiction over the case and competent u/s 45

Assessment of tax

SCN specifying the reasons and ground on the basis of which it is issued and intended to proceed. Taking into consideration the representation of the taxpayer Providing opportunity of being heard Limitation of passing the order- 90 days from the issuance of scn or extended period of 90 days by the collector for the reasons to be recorded in writing. Determination of tax liability Non obstante Minimum tax liability by the non filer of return to be adjudicated by the sales tax department not below the rank of assistant collector as prescribed by Board. S 11(5)

Recovery of tax u/s 36

Section 36 (1) Invoking of

Non levy of tax by the reason of collusion


Non levy of tax by the reason of deliberate act. Short levy of tax by the reason of collusion. Short levy of tax by the reason of deliberate act. Tax erroneously refunded by the reason of collusion. Tax erroneously refunded by the reason of deliberate act.

Recovery of tax u/s 36

Service of show cause notice on the person liable to pay such amount of tax Service of notice within 5 years from the due date of payment u/s 6 and date of refund in case of refund.

Amount of tax required to be paid should be specified in the show cause notice.

Recovery of tax u/s 36

Section 36(2) Invoking of: Non levy of tax by the reason of inadvertence.

Non levy of tax by the reason of error. Non levy of tax by the reason of misconstruction.

Short levy of tax by the reason of inadvertence.


Short levy of tax by the reason of error. Short levy of tax by the reason of misconstruction. Erroneous refund of tax by the reason of inadvertence. Erroneous refund of tax by the reason of error. Erroneous refund of tax by the reason of misconstruction.

Recovery of tax u/s 36

Section 36(2) Mandatory conditions Issuance of show cause notice to the person liable to pay non levied, short levied tax or erroneous refund.

Service of notice within 3 years from the due date of payment of tax u/s 6 and date of refund in case of erroneous refund. Amount of non levied, short levied or erroneous refund required to be paid must be SPECIFIED in the Notice.

Recovery of tax u/s 36

Section 36(3) Mandatory conditions Consideration of objections of the person served with show cause notice by the empowered sales tax officer. Determination of the amount of tax or charge in the order payable by the person on whom the show cause notice is served. Order shall be passed within 90 days from the date of issuance of show cause notice or within extended period as the Collector may for the reasons to be recorded in writing fix.

The Collector is empowered to extend the period for passing the order by maximum 90 days.

Recovery of tax u/s 36

Section 36(4) Calculation of Limitation period, 5 year u/s 36(1), 3 years u/s 36(2). In case of non levied or short levied the due date of payment u/s 6. In case of import the time of payment of custom duty under the Custom Act 1969. In case of Taxable supply made, date of filing of return of the period. In case of taxable goods, supplies or classes of supplies other than zero rated supplies as specified in the notification by the Board, the time or date as specified by Board for the payment of tax in respect of such supplies in the Notification in the Official Gazettee. In case of erroneous tax refund, the date of refund.

Revision by Board u/s 45

Section 45A (1) (2) (3) Revision by Board Suo moto exercise of revisional jurisdiction by the Board. Calling for and examining the Record of any departmental proceeding under the Act or Rules made there under. Object of revision to check and satisfy itself about the legality or propriety of any decision or order passed under such proceeding. Revision of the decision or order of the any sales tax authority. Discretion of passing any order as Board think fit quash, annul, cancel, modify, vary, maintain, set-aside etc.

Revision by Board u/s 45

No order of enhancement or imposition of penalty or fine or sales tax greater than original levied unless person effected by the order is given an opportunity of showing cause and of being heard. No exercise of revisional jurisdiction where appeal before the Collector of Sales Tax (appeals) u/s 45B or before the Appellate Tribunal is pending. 45A(2) No revision order after the expiry of 5 year from the date of original decision or order of sub-ordinate officer. 45A(3)

Revision by Collector u/s 45A(2)

Suo moto exercise of revisional jurisdiction by the Collector.


Calling for and examining the record of any proceeding under the Act or Rules made there under.

Checking and satisfying itself about the legality or propriety of any decision or order passed in such proceeding.
Original order to be revised shall have been passed by the officer of sales tax sub-ordinate to Collector. Discretion of passing any order as the Collector deemed fit. Limitation of 5 year from the date of original order for exercise of revisional jurisdiction. (2007) 96 TAX 155 (LHC) New Ammaur industries, PTCL 2001 CL 615, Khan trading Company, (2004) 89 Tax 429 LHC, Muskzar Knitwear.

Rectification of clerical errors u/s 57

Correction of Clerical or arithmetical errors. Such error should be in the Assessment Adjudication Order 0r Decision Correction of such error may be made at any time without any limitation.

The same sales tax authority or successor in office can exercise the power of correction u/s 57.
Notice shall be given to the registered person or person effected from such correction.

Adjudication

Definition / meaning Kinds and classification Subject matter Adjudication authorities and powers

Adjudication proceedings and rules


Adjudication Order and effects

Adjudication- meaning

Statutory The term adjudication has not been defined in the in the sales tax law, therefore, reference to the dictionary and judicial meaning of the term adjudication be made to understand it. Dictionary meaning Black Law Dictionary, 7th Edition, page 42.

The legal process of resolving a dispute Process of judicially deciding a case.

Adjudication - meaning

Judicial meaning.

The word adjudication means judicial determination of a cause after taking into consideration the material on record and after the hearing the parties PLD 1957 Lah 1040, Razia Begun case. to adjudicate, necessarily implies settling a matter. This is synonymous with the word adjudge. The adjudication process may be before an administrative authority, before a Court of law. Even if it is before as administrative agency, the rights are to be adjudged after notice to parties and the findings are to be recorded specifically. Adjudication is defined as hearing , after notice of legal evidence on the factual issues involved. (2004) 90 TAX 17 (LHC), Prime chemicals case.

Adjudication kinds/classifications

Judicial adjudication
adjudication by Court of Law Civil court, Session court, High Court, Supreme Court- where the process of trial, evidence, and witness on oath is taken Quasi judicial adjudication Adjudication of cases by Collector Sales Tax (appeals) and Appellate Tribunal where elementary rules of justice is followed i.e., Notice of hearing, opportunity of being heard, examination of documents, consideration and disposal of grounds and argument with reasons. Administrative adjudication Adjudication of cases by executive authorities, like Sales tax authorities, Board, FTO, President. Private adjudication Arbitration

Scope and subject matter

Section 45 Adjudication matters


Assessment of tax cases Charging of default surcharge Imposition of penalty Recovery of tax erroneously refunded Other contravention under the Act or Rules frame there under.

Adjudication authorities and powers


Additional Collector Cases u/s 11(2) and 36 with out any limit of

tax involved or tax erroneously refunded.

Deputy Collector

Cases u/s 11(1) Cases u/s 11(2) and 36 exceeding Rs 1 million and does not exceed 2.5 millions Tax or Refund Cases u/s 11(2) and 36 exceeding Rs. 10,000 but does not exceeds Rs 1 million Tax involved or refund Cases u/s 11(2) and 36 up to Rs. 10,000. Tax involved or Refund Such cases as may be notified by the Board.

Assistant Collector

Superintendent

Any officer of sales tax with any other designation

Adjudication authorities and powers

Board power to vary the jurisdiction of the authority and regulate the adjudication system , transfer of cases, extension of time limit in exceptional circumstances.
Tax means principal amount of sales tax other than default surcharge and where only default surcharge in involved the amount of default surcharge. Time limit for pending cases on June, 30 2006 was extended up to December 31, 2006.

Adjudication proceeding and rules

Sales tax authorities invested with adjudication powers must comply with the provision of the Act, Rules and natural justice. (PLD 1968 Kar. 599) A proper show cause notice stating therein brief facts of the case, the offence committed and the evidence on the presumption of which the offence is based should be issued to the person concerned before taking any action against such person. 1968 P.Cr.L.J 127

The show cause notice must be issued by the authority competent to adjudicate the case and not by the lower authority.

Adjudication proceeding and rules

Show cause notice without mentioning stipulated grounds and reason is defective and against the law. PTCL 2002 CL 1, Khyber Electric Lamp case. Non availing the opportunity of being heard could not be complained the violation of principles of natural justice. (PTCL 1986 CL 35 Service of show cause notice on the concerned person , in the laid down manner, on his last known address and record of service must be kept.

Hearing should be granted by the adjudicating officer himself and not by an officer sub-ordinate to him. (AIR 1965 Ker 286)

Adjudication proceeding and rules

Opportunity to rebut the evidence and statements on which charge is made copy, examination etc. Plea and arguments be brought on record and if not admitted then be rebutted with reason. Speaking order with reasons. Exparte decision only where no reply of show cause notice is received with in stipulated period and service of notice is proved on the concerned person.

Adjudication proceeding and rules

Order in cyclostyled form should be avoid as such orders indicate non application of mind by the Adjudication authority. (PTCL 1986 CL 86. Date of dispatch and date of order must be indicated in the order to enable the aggrieved person to avail the remedies. No delay between the two dates. Successor in office must give fresh hearing opportunity and himself should hear the argument to decide the case. Sales Tax authorities are not bound to follow the rules of pleading and evidence or witness on oath as required in Civil courts. PTCL 1986 CL 172, PTCL 1990 CL 370

Adjudication order and effects

Adjudication order is the decision of the adjudication authority on the issue of assessment of tax, imposition of default surcharge, penalty, erroneous refund, inadmissible tax inputs or other contravention or charges levelled by the referring authority.

Effects

Exchequer Right of recovery subject to revision or effect of appeals

Registered person

Duty to pay adjudicated tax subject to rectification or effect of appeal remedies.

Audit

Definition / meaning Kinds / Classifications

Scope and Procedure Audit report and effects

Audit meaning

Audit meaning The term audit has not been defined in the Sales Tax Act 1990, however the meaning, connotation colour and shade of the term audit shall be construed according to the subject or context in which it is used.

Generally the term audit means the examination of record to form the audit opinion inception, enquiry, investigation, search, confirmation, vouching, verification are the techniques or methods employed for the purpose of audit Substantive audit Compliance audit factual and legal
Dictionary

Audit - Kinds

Kinds under sales tax law Annual audit S.25 (2) Special audit S. 32 A Audit of retailer S. 32 AA Investigative audit S 38 & 40 (2003) 88 TAX 1, SC, Master ent., (2005) 92 TAX 59, SC, Mega Tech Revenue audit VOl 11 No.3 TAX FORUM 51 (Bestway Cement Ltd.) Kinds General Statutory audit Financial Audit Management /system audit Operation audit Internal vs. External audit Continues vs. interim audit Tax audit Desk audit Compliance audit

Audit scope and procedures

Annual audit Access to record, documents s.25 Sale tax General order No. 1 of 2004 Part IV.
Special Audit Special audit by Chartered accountants or Cost and management Accounts. S. 32A Sales tax Rule 2006, Chapter VI Audit of Retailer S. 32AA

Investigative audit Authorised officers to have access to premises, stocks, accounts and records S.38 Power to call for information s.38A Obligation to produce documents and provide information. S. 38B Search under warrant s. 40 Posting of sales tax officer. S. 40B

Tax audit report

Audit report is at best an opinion of the auditor and material in support of the department version. The audit report is nothing more than part of charge sheet which needs to be established through the process of adjudication. A material collected during the course of audit is only an evidence to support the case of the department in adjudication proceedings. (PTCL 2004 CL 84) Contravention report or statement of allegation prepared by the department to be proved through Adjudication process. Components Non levied tax , short levied tax, inadmissible input tax, erroneous refund, other contraventions of law and rules. Sec. 25(4)

Jurisdiction

Subject matter jurisdiction persons, good, object, event, transactions, etc. Territorial Jurisdiction Place, region, residence, etc.

Pecuniary jurisdiction financial, Monetary, Value


Original jurisdiction, revisional jurisdiction, appellate jurisdiction, Advisory Jurisdiction, writ jurisdiction. Etc.

Question of jurisdiction

Jurisdiction

Question of jurisdiction could be raised at any stage. Being question of law

Goes to the root of the case Correct application of law is the duty of the judge and petitioner is not bound to engage the counsel.

Complete end of justice is the object of law and technicalities should not defeat the end of justice.

Jurisdiction

Question of jurisdiction goes to the root of case can be raised for the first time even while appearing before the highest Court of country. 2006 SCMR 1630 Exception

question of jurisdiction raised by the party and repudiate when it goes against it. When equity is against the person raising the question of jurisdiction and if upheld the consequence would be to perpetuate an ill-gotten gain or to bring about a plainly unjust consequence.
Territorial or pecuniary jurisdiction which are the matter of civil code procedure and suit valuation act.

PLD 1968 SC 278, Judge must wear all the law of country on the sleeve of his robe Jurisdiction conferred by Constitution or law and not by consent or acquiescence. 2004 SCMR 1622. Order with out jurisdiction is void PLD 1975 sc 331 2006 SCMR 1713, PLD 1958 SC104, PLD 1973 SC326, PLD 2002 SC 630, 2003 SCMR 59, 2004 SCMR 28, 1798, Non fulfilment of mandatory condition render the order void being passed without lawful authority.

PLD 1971 SC 124., 1991 SCMR 599 Allied Bank case. PTCL 2000 CL 465

Jurisdiction

Exercise of jurisdiction by the Incompetent Tribunal is void. PLD 1960 SC 237 Where the assessment is required to be made by the Assistant Collector and the assessment is made by the deputy collector, assessment is without jurisdiction PTCL 1993 CL 301, Pakistan Oxygen Ltd., PTCL 1990 CL 337, PTCL 1994 CL 840 Hoechst Pharmaceutical Pakistan (pvt) limited. Coram non judice.

Show Cause Notice

Non issuance of show cause notice PLD 1971 SC 591 Collector Sahiwal case
Show cause notice without jurisdiction, GST 2003 CL 63,LHC, Service Industries, PLD 1963 SC 136 , Ittehad chemicals case. Defective Show cause notice proceedings void

without mentioning section and sub section without mentioning prescribed grounds and reasons with out mentioning exact amount of tax payable.

PTCL 2003 CL 362,LHC, D.I. G Khan Cement,( 2001) 84 TAX 133 SC, Khyber Electric, Zamidara Paper mill case 2004 PTCL 212, LHC = 2003 GST 439, (2003) 88TAX 128 LHC, Atlas Tyres case, Caltex 2005 PTD 480 (SC)

Ground not mentioned in the show cause notice cannot be adjudicated (2004) 90 TAX 146, KHC, Excide Pakistan case., 1987 SCMR 1840, Rahim Din case.

Show Cause Notice

Intimation of audit observation does not constitute show cause notice. PTCL 2005 CL 224 KHC. Show cause notice must indicate it is a show cause notice and the respondent is to make aware that if not responded the adverse action might be taken. PTCL 2003 CL 224 KHC, United Export case.

Show cause holding in one case and vacating in an other case is discrimination. PTCL 2002 CL 50 KHC, Novartis Pakistan case.
Question of validity of show cause notice could be raised at any stage, (2003) 88 TAX 128, 2004 PTCL 212, Zimandara case. Time barred notice void. (2007) 96 TAX 229 (LHC) Shafiq traders vs.. collector Customs. , (1963) 7 TAX 442 SC Nagina Silk mills

Opportunity of being heard


AUDI ALTERAM PARTEM Opportunity of being heard provided by the statue not given to the taxpayer order is void and incurable and subsequent proceeding also null and void and bound to fall.PLD 1971 SC 591, Collector Shawal case.

Opportunity of being heard is a principle of natural justice and part and parcel of every statute, 1964 PLD 410 SC Fazalur Rehman case. Opportunity not only in writing but also in personal hearing. 1994 SCMR 2232, 1999 PTD 1358 KHC, Siemens case.

Opportunity- Mandatory

1971 SCMR 681 , Collector, Sahiwal & others vs.. Muhammad Akhtar.

The principle so far as this country is concerned, is accordingly well settled that where notice required to be given by the statue is a mandatory notice, then the failure to comply with such a mandatory requirement of the statute would render the act void ab initio as being as act performed in disregard of the provision of the Statute . Furthermore, any further action taken on the basis of such a void order would also be vitiated and the defect at the initial stage would be incurable by a hearing at a subsequent stage. PG. 685

Limitation

Law of limitation is based on the maxims: Delay defeats equity. Time and tide wait for none. Law helps the vigilant and not the indolent. Delay of justice denial of justice Question of limitation. Pure question of limitation can be raised at any stage of appeal PLD 1968 Dacca 701, Mixed question of law and fact where record is required to be examined , is to be raised at the initial stage. PLD 1969 SC 167, PLD 1985 SC 153 Limitation is the matter of statue and be decided by the court or authority and not left to pleading by the party. 2006 PTD 271 (SC)

Scope of raising question of law 2004 PTD 2479, 90 TAX 191

Limitation

Law of limitation is a law of procedure and change in law of procedure is applicable retrospectively to the pending cases. 1993 PTD 459 (SC) = 67 TAX 17, CIT vs.. Asbestos Cement industry. Change in limitation law cannot revive or extend the limitation period already expired. 1993 PTD 459 (SC), (2005) 91 TAX 258 (LHC), Fawad Textiles. Start of Limitation

In case of issuance of show cause notice or passing order, as stipulated in the statute In case of review, revision, appeal, date of service of notice, in case of dispute of service, date of Knowledge. 2002 PTD 399 = 85 TAX 397 Limitation start from the date of knowledge and not from the date of communication of order. (2002) 85 Tax 397, Qureshi Ghee, SC, AJK

Limitation

No limitation run against void order. 2000 PTD 2707, 1996 SCMR 856, 1986 SCMR 1238, PLD 1963 SC 382.
Limitation create the right in favour of the opposite party. 2007 PTD 1387 SC. Limitation does not extinguish the right but bar the remedy acknowledge of tax time barred debt or adjustment after expiration of period of limitation is held justified. 2007 SCMR 1318. Time once started cannot be stopped. 1963 PTD 633= 70 TAX 442 (SC). Each and every day to be explained for condo nation of delay but in case of Revenue matter condo nation application be considered sympathetically. 42 TAX 140, 2002 PTD 506

Limitation

Time barred order void extension under the exceptional circumstance provided by the statue could be made accordingly and showing such circumstance in writing. 96 TAX 229 (LHC). Limitation provisions regarding fixing of tax liability are mandatory. PTCL 2005 CL 836 Right accrued through expiration of limitation can not be waived. )2007) 96 TAX 229 (LHC) Shafiq traders. Waiver of question of limitation. 2003 PTD 1899 (SC). Limitation is question of law or fact. 2005) 92 TAX 253, 2006 SCMR 425, PLD 1969 SC 187, PLD 1990 SC 80, 2005 PTD 78 (SC). State or public functionary do not enjoy preferential treatment in case of condo nation of limitation. Time cannot be extended but condoned. 1960 PTD1253 HC =21 TAX 279 Litigants cannot be made suffer for laches and inaction of the Department. 1967 PTD 614, 15 TAX 219 Correct application of law, whether question of law of limitation is raised or not. 2004 PTD 2479= 90 TAX 191 Asim spinning mills case. Garton case.

Vested right of escapement


There is hardly any doubt that once time prescribed for doing an act by an executive authority expires, the taxpayer is clothed with a vested right of escapement of assessment
324E, (2007) 96 TAX 229 (LHC), Shafiq Trader vs.. Collector of Custom. (1963) 7 TAX 442 (SC) Nagina Silk Mills, (1982) 138 ITR462.

Case laws

Constitutionality validity

Ellahi cotton. 76 TAX 5= 1997 PTD 1555 (SC) Hunza 79 TAX 433 (SC) =1999 PTD 1135 Shikhoo Sugar 1998 PTD 2421 (SC) Gatron PTCL 1999 CL 359 Pfizer Laboratories PTCL 1998 CL 354 (SC Army Welfare 1992 SCMR 1652

Case laws

Charging

Sanghar sugar 2007) 96 TAX 105 (SC) Wapda 2002 PTD 2077 (LHC) Al-Hilal Motors, 2004 PTD 868 (KHC)

Case laws

Assessment

Mayfair spinning PTCL 2002 CL 115 (LHC) Khyber electric (2001) 84 TAX 133 (SC) Caltex oil, 91 TAX 277 (SC), 2005 PTD 480 State Cement 1998 PTD 2999 (SC), Piecemeal demand u/s 36. Attock Cement 1999 PTD 1892 (SC) = 80 TAX 30 K & A Industry , 2006 PTD 537 (SC), Notice beyond limitation.

Audit

Muskzar Knitwear (2004) 89 TAX 429 (LHC)

Adjudication

AA steel mills Ltd. 2004 PTD 624 Khyber electric (2001) 84 TAX 133 (SC)

Revision

(2007) 96 TAX 155 (LHC ) New ammar industries (2002) 85 TAX 458 (LHC) Flying Paper and board Revision confined to departmental proceeding- Flying case No order of CBR for fresh audit u/s 45 A, 2004 PTD 714. (LHC) Muskzar case.

Speaking order

Reason and record are two hallmarks of all judicial and quasi-judicial proceeding. An order not supported by reasons is just like an oral order which no judicial authority could ever pronounce. Kings and Lords. PLD 1970 SC 173, Mollah Ejhar Ali v. Government of Pakistan there in no doubt that the High Courts order which is unfortunately perfunctory gives the impression of hasty off-hand decision which, although found to be correct in its result, is most deficient in its content. If summary order of rejection can be made in such terms, there is no reason why a similar order of acceptance saying there is considerable substance in the petition which is accepted, should not be equally blessed. This will reduce the whole judicial process to authoritarian decrees without the need for logic and reasoning which have always been the tratitional pillars of judicial pronouncement investing them with their primary excellence of propriety and judicial balance.

Speaking order

Litigants who bring their disputes to the law Courts with the incidental hardships and expenses involved to expect a patient and a judicious treatment of their cases and their determination by proper orders. A judicial order must be a speaking order manifesting by itself that the Court has applied its mind to the resolution of the issues involved for their proper adjudication. The ultimate result may be reached by a laborious effort, but if the final order does not bear an imprint of that effort and on the contrary discloses arbitrariness of thought and action, the feeling with the painful results, that justice has neither been done nor seem to have been done is inescapable. When the order of a lower Court contains no reasons, the appellate Court is deprived of the benefit of the views of the lower Court and is unable to appreciate the processes by which the decision has been reached. Reasons and exercise of power, 1998 SCMR 2268, Airport support service case., 1998 SCMR 2419, Zain yar khan v.WAPADA Quasi judicial order should, in principal carry due reasons, PLJ 1999 SC 1105

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