D.G. KHAN CEMENT COMPANY LIMITED, LAHORE vs COLLECTOR OF CUSTOMS, SALES TAX AND CENTRAL EXCISE, MULTAN and 2 others

MUHAMMAD KHALID ALVI, J.---Brief facts leading to the instant appeal are that the records of the appellant were audited by Special Auditor. As a result thereof certain discrepancies were found and the matter was reported to respondent No,2. Respondent No,2 on 6-2-2001 issued a show- cause notice to the appellant for payment of Sales Tax with respect to period 1994-95, 1995-96 and 1996-97 demanding a sum of Rs,10,48,487. The show-cause notice was contended by the appellant and after hearing the parties respondent No,2 Adjudicating Officer vide order, dated 24-4-2001 dropped the charge against the appellant with respect to the year 1994-95 on account of it being barred by time, however for the other two financial years an amount of Rs,9,93,582 as Sales Tax alongwith additional tax was demanded and the penalty of Rs,49,679 was also directed to be paid.

This order was assailed by the appellant through an appeal before respondent No,3 which was dismissed vide order, dated 18-11-2002. The same is being assailed through the instant appeal.

2. Learned counsel for the appellant contends with reference to PTCL 2002 Case-law Page 1 that the impugned show-cause notice, dated 6-2-2001 did not contain the specific allegation of any collusion or deliberate act on the part of the appellant therefore its case fall under subsection (2) of section 36 of the Sales Tax Act for which a period of limitation provided for the issuance of show- cause notice is only three years, thus the show-cause notice issued on 6-2-2001 was patently barred by time.

3. On the other hand, learned counsel for the Federal Government contends that the judgment relied upon by the appellant is not applicable in the instant case because the said judgment was rendered by the Hon'ble Supreme Court under the Customs Act and not under the Sales Tax Act.

Further adds that in subsection (2) of section 32 of the Customs Act, the word "deliberate" is missing as against section 36(1) of the Sales Tax Act. Therefore, according to him, there is no identity between the provisions of two distinct statutes. It is further submitted that the allegations contained in the show-cause notice do indicate the deliberate acts of the appellant attracting the provisions of subsection (1) of section 36 of the Sales Tax Act.

4. We have considered the arguments advanced by the learned counsel for the parties. Since the identity and object of section 36 of the Sales Tax Act and section 32 of the Customs Act requires to be examined on the touch stone of the case-law referred by the learned counsel for the appellant, therefore, both the provisions are reproduced ready reference:-- "(36) Recovery of tax not levied or short-levied or erroneously refunded.--(i) Whereby reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount for tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show-cause for payment of the amount specified in the notice.

(2) Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levelled or made or has been short-levied or has been erroneously refunded, the person liable to pay the amount of tax or charge or the amount of refund erroneously made shall be served with a notice within three years of the relevant date, requiring him to show-cause for payment of the amount specified in the notice."

"(32) Untrue statement, error etc.---(1) If any person, in connection with any matter of customs,--

(a) makes or signs or causes to be made or signed, or delivers or causes to be delivered to an officer of customs any declaration, certificate or other document whatsoever, or

(b) make any statement, in answer to any question put to him by an officer of customs which he is required by or under this Act to answer.

(knowing or having reason to believe that such document or statement is false) in any material particular, he shall be guilty of an offence under this section.

(2) Where, by reason of any such document or statement as aforesaid or by reason of some collusion, any duty or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within three years of the relevant date requiring him to show-cause why he should not pay the amount specified in the notice."

(3) Where, by reason of any inadvertence, error or misconstruction, any duty or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within three years of the relevant date requiring him to show-cause why he should not pay the amount specified in the notice.

The relevant part of the judgment relied upon by the learned counsel for the appellants i,e, PTCL 2002 Case-Law Page 1 is also reproduced below:-- "Show-cause notices under subsections (2) and (3) of section 32 of the Act are two distinct and separate types of notices as different grounds and different period for service of notice in each subsection has been prescribed. Under subsection (2) for non-levy, short-levy or erroneous refund, specific allegations of any collusion between the assessee and the Customs Staff has to be levelled with proper particulars in the show-cause notice which has to be served with three years of the relevant date whereas under subsection (3) if non-levy, short-levy or erroneous refund is done due to inadvertence, error or misconstruction then show-cause notice to the importer has to be served within six months of the non/short-levy. If such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirement of subsection (2) and (3) of section 32 of the Act.

It is necessary under subsection (1) of section 31 of the Act to show that declarant and the knowledge or had the reason to believe that declaration or statement made by him was untrue/false and in absence of such allegation notice would be vague and would not be in accordance with law. Similarly, notice under subsection (2) of section 32 of the Act must contain the allegation of collusiveness and notice under subsection (3) of section 32 of the Act should speak of inadvertence, error or misconstruction and without such allegations the notice would be defective and against law."

The show-cause notice, dated 6-2-2001 which was issued to the appellant by respondent No,2 was containing the following statement requiring show-cause notice:- "The respondent did not issue any Debit Note regarding purchases returned rejected. That had resulted in differences in Input Tax claimed by the respondent. These variations were a result of making payment for only those goods which were accepted. However, since the supplier has sent a sales tax invoice pertaining to the total goods dispatched, the respondent claimed input tax on the total amount. As such following input tax adjustments made by the respondent were unlawful and sales tax involved was recoverable alongwith additional tax.

Year Sales Tax 94-95 54905 95-96 938593 96-97 54989 108487"

5. Under section 36 of the Sales Tax Act, 1990, two periods of limitation have been provided for issuance of show-cause notice in cases where the tax has not been levied or short-levied. Under subsection (1), the period of limitation is five years and the cases in which this period is applicable are those where the taxpayer has either colluded with somebody for such short payment or had made some deliberate acts or omissions for short payment of the tax. Therefore, the State has been given a longer period of limitation i,e, five years so that such a person should not go scot free.

Under subsection (2) of section 36, the period of limitation for issuance of show-cause notice is restricted to three years only. Under this subsection, the grounds available for issuance of show- cause notice are inadvertence, error or some misconstruction on the part A of the tax payer meaning thereby, that it was due to some innocent act of the tax payer that the tax was either not paid or short-paid. Therefore, the Legislature restricted its limitation to three years as against those persons who had some mala fide intention and were covered under subsection (1) of section 36 of Sales Tax Act. It is thus evident from the above analysis of the two subsections that the authority who has to issue such a show-cause notice, will have to make out a case in the show-cause notice itself that under which provision the case falls and will also have to incorporate the grounds and reasons in his show-cause notice very clearly and explicitly so that it could be ascertained whether the show-cause notice issued falls under subsection (1) or (2) section 36 of Sales Tax Act. Failure on the part of authority issuing show-cause notice would render the show-cause notice invalid and illegal.

6. In the instant case, the words of the show-cause notice indicate that the same is a narrative of facts without indicating whether it was a result of collusion or deliberate act of the taxpayer or whether it was a result of inadvertence, error or misconstruction. Therefore for this reason the show-cause notice cannot be said to be a show-cause notice under subsection (1) or (2) of section 36. At the most; even if this notice is treated to be a valid notice under subsection (2) of section 36, still it is beyond the described period of limitation of three years.

7. Although the word "deliberate" is not used in subsection (2) of section 32 of the Customs Act, 1969 but it contains the element of collusion and some false statement on the part of the importer while subsection (3) of section 32 relates to inadvertence error or misconstruction on the part of the importer. Both these subsections of the Customs Act carry different limitation periods for issuance of showcase notice as in the Sales Tax Act. Therefore, it is evident that the provisions of section 32 of the Customs Act, 1969 and 36 of the Sales Tax Act are identical in nature and the object of specifying the different sets of circumstances is also identical. In this view of the matter, the case- law referred by the learned counsel for the appellant is fully applicable in the instant case as well.

8. For what has been stated above, this appeal is allowed, the order, dated 18-11-2002 is setaside.

Resultantly, the show-cause notice, dated 6-2-2001 is declared to be illegal being barred by time.

No order as to costs.