HUB: An appellate bench of High Court of Balochistan (BHC) allowed a Special Tax Reference Application (STRA) filed by M/s Usman Ltd, Hub, Balochistan impunging and order passed by Appellate Tribunal Inland Revenue of Pakistan Karachi Bench Karachi.
The STRA was filed by the company through Imran Iqbal Advocate under Section 47 of the Sales Tax Act, 1990 against the order dated 28-1-2020 whereby the Appellate Tribunal, while deciding the appeal filed by the respondent has passed observation permitting the respondent/department to initiate prosecution proceedings against the applicant under Section 37A of the Sales Act 1990. S.T.R.A No.01 of 2020.
The facts relevant to the instant reference is that during scrutiny of Sales Tax Returns Cum Payment Challan of M/s Usman Ltd. bearing Sales Tax Registration No.0601-5205-002-19, for the tax periods April 2003 to June 2003, it was observed that the registered person had carried forward an amount of Rs.1,703,628,51/- in column No.10 of the Sales Tax Return Cum Payment Challan for the tax period April 2003. However, in column No.05 of the Sales Tax Return Cum Payment Challan, for the tax period May 2003, an amount of Rs.4,976,858,69/- was claimed as tax credit. It was observed that the excess amount of Rs.3,273,230.00 claimed as tax credit was not admissible to the Appellant and alleged this act of the registered person as tax fraud under Section 2(37) of the Sales Tax Act, 1990, which resulted in alleged non-payment of sales tax amounting to Rs.1,368,384/- for the tax period May, 2003 and Rs.1,904,846/- for the tax period June, 2003. Subsequently, show cause notice dated 26th October, 2011 bearing No.7(1)Usman/A&P/RTO/Hub/2010/151, was issued to the applicant by the Additional Commissioner, Inland Revenue, Regional Tax Office, Quetta, which was made basis for orders-inoriginal No.10 of 2012 dated 23rd January 2012; that the appeal preferred by the applicant against the order-in-original under Section 45-B of Sales Tax Act, 1990 before the Commissioner (Appeals) Karachi was allowed, vide Order-in-Appeal No.62 of 2012 S.T.R..ANos.01 of 2020 3 Only for viewing purpose. Contact office for certified copy. dated 28th April 2012, whereas, the appeal filed by the respondent was rejected being barred by time by the Appellate Tribunal Inland Revenue of Pakistan Karachi Bench vide order date 28th January 2020, however, the impugned observation was also passed. Hence, this reference.
The counsel for the petitioner contended that the criminal prosecution under section 37A of the Sales Tax Act, 1990 can only be initiated after the tax liability of the taxpayer has been duly assessed or the taxpayer is found to have committed the act/omission knowingly, dishonestly or fraudulently and with the intent of achieving the result; that the proceedings so initiated against the petitioner were not sustainable vide order dated 28th April 2012 passed by the Commissioner Inland Revenue Appeals III, Karachi, but the Appellate Tribunal Inland Revenue of Pakistan Karachi Bench Karachi, while concurring with the order of the Commissioner Inland Revenue, permitted the initiation of criminal proceedings against the petitioner under Section 37A of the Sales Tax Act, 1990, and thus committed an error; that only after the determination of the tax liability (i.e., civil liability), the criminal prosecution can be initiated. The grievance of the petitioner is that the learned Appellate Tribunal while passing the impugned order has wrongly granted permission to the respondent for initiation of criminal proceedings against him, despite the fact that the case against the applicant was declared as one having no legal effect. The sole question in the instant case is that when the liability of tax fraud was not proved against the applicant, whether any prosecution can be initiated against any individual.
The perusal of the case file reveals that initially a show cause notice dated 26th October 2011 was issued to the applicant for the year period pertaining to 2003, and the learned Additional Commissioner Inland Revenue, Regional Tax Office, Quetta, vide order-in-original dated 23rd January 2012 directed the applicant to pay the tax amount Rs. 32,73,230/- alongwith default charges of Rs. 57,28,152. The applicant being aggrieved preferred an appeal before the Commissioner-in-Land Revenue, which was allowed and the orderin-original dated 23rd January 2021 was set aside, whereas the appeal filed by the respondent before the Appellate Tribunal Inland Revenue of Pakistan Karachi was also dismissed, but permission was granted to the respondent for initiating prosecution proceedings against the applicant. It is to be seen here that prior to fixing the liability of payment of due tax, payment and default, whether, the prosecution proceedings can be initiated. Undoubtedly, whenever civil and criminal cases involve similar or identical subject-matters, the proceedings before the criminal Court must not necessarily be suspended. However, where the subject-matter of both the proceedings is so closely inter-related that outcome of the civil/tax proceedings might have a material bearing on the criminal proceedings, safer course in such a situation is to abandon the criminal proceedings till the finalization of civil/tax matter. But, in a case when the civil liability is not proved and the taxpayer is cleared from the civil/tax liability, no proceedings in respect of same transaction/liability can be initiated. In the instant matter too, the applicant has been cleared from the liability, irrespective of the fact that whether on merit or on the point of limitation, when no liability exists against him, no criminal/prosecution proceedings in respect of same allegation can either be initiated or proceeded. Even otherwise, the default/civil liability is to be established on the basis of deliberate and intentional failure to pay the levied tax, but prior to ascertaining the intention of any taxpayer, the department has to prove the civil liability, whereafter, the intention of failure is to be seen/adjudged. The august Supreme Court of Pakistan held that to constitute the offence of wilful default the prosecution, in addition to establishing default, has to prove that the default was willful, being an intentional and conscious act. Consequently mere inability to pay will not constitute the offence of wilful default meaning thereby that the element of willfulness must be present where there is a default, on whether a default simpliciter would be a culpable act is not sustainable, thus, is set aside to the extent of passing observation that “However the Department may initiate prosecution proceedings against the respondent/taxpayer under Section 37A of the Sales Tax Act, 1990.” The petition stands accepted in the above terms, the bench held in its judgment.