LHC ruling: IR commissioners can neither issue show-cause, nor assessment order

The Lahore High Court has held that deputy commissioner and assistant commissioner of Inland Revenue can neither issue show-cause notice under section 11 of the Sales Tax Act, 1990 nor pass assessment order against the taxpayers. According to a judgment of the LHC, the FBR has delegated jurisdiction to the commissioner only and the commissioner cannot further delegate his jurisdiction to the deputy commissioners and assistant commissioners.
When contacted for comments, Shahid Jami, a Lahore-based tax lawyer observed that this is a landmark judgment which would affect not only the pending show-cause notices across the country but also those wherein assessment order has been passed and appeals are pending either before the Commissioner (Appeals) or the Appellate Tribunal Inland Revenue. He opined that such taxpayer can raise the jurisdictional issue before the appellate authorities by filing additional ground because as per settled law the legal and jurisdictional issues can be raised at any stage of proceedings and appeal is considered continuation of assessment proceedings. He further observed that sales tax working of the department may hamper until the lacuna in the jurisdiction order is resolved by issuing fresh jurisdiction order or the order of the single bench is reversed. The background facts are that a number of writ petitions were filed before the Lahore High Court challenging that the show cause notices issued under section 11 of the Sales Tax Act, 1990 by the sales tax authorities other than commissioner Inland Revenue are without jurisdiction. It was pleaded that FBR in exercise of its power under section 30 of the Sales Tax Act, 1990 had issued jurisdiction order assigning jurisdiction over the case of petitioners to the commissioner Inland Revenue Lahore and in turn the commissioner issued his own jurisdiction order and assigned the jurisdiction/ function to various deputy commissioners and assistant commissioners subordinate to him and this further delegation is prohibited as per restrictions contained in section 32(3) which provides that the officer to whom any powers are delegated under this section shall not delegate such powers.
The court accepted the writ petition and the notices issued by the deputy/ assistant commissioners have been set aside. The operative part of the judgment revealed that the question, however, arises as to how the Notification-I (jurisdiction order) and the orders issued by the various commissioners Inland Revenue are to be reconciled. The LHC has no doubt if the Notification-I was not in the field and had not been issued by the FBR, the commissioner Inland Revenue was perfectly within his right to exercise the powers conferred by sub-section (3) to prescribe the functions to be performed by officers of Inland Revenue subordinate to him in respect of such persons or classes of persons or of such areas as the commissioners would direct. However, the fact remains that FBR has now issued a notification by which it has expressed its clear intent to confer on the commissioners the functions to be exercised in respect of certain persons or classes of persons of such areas as specified in that notification. The tenor of Notification-I and Notification-II (jurisdiction order) also shows that FBR intended for the chief commissioners and commissioners of Inland Revenue to perform all administrative functions and coordination as given in the Column-4 of the Table in those notifications. Therefore to that extent, the commissioner's power to confer those functions on officers subordinate to him stood taken away and his power to do so in respect of the subject matter of Notification-I and Notification-II has been curtailed. This effectively means that in respect of the persons or classes of persons or cases or classes of cases as specified in Notification-I, only the commissioner of Inland Revenue mentioned in these notifications will exercise the power and those functions cannot be delegated by those commissioners of Inland Revenue. This is the most appropriate purposive interpretation which could be placed for holistic consideration of the Notifications I & II and the orders made by the commissioners Inland Revenue. Unless this is done, it will be tantamount to undermining the authority and the intent of the FBR and throw into complete disarray the hierarchical structure of the FBR. This is also evident from the use of the term "shall" in the Notification-I by which it has been specifically stated that the commissioners of Inland Revenue shall exercise the powers and functions as specified in Column 3 of the Notification-I. It is reiterated that if the Notification-I had not been issued by FBR, there was no impediment in the way of the commissioner Inland Revenue to prescribe functions to be performed by officers of Inland Revenue subordinate to him in case subsection (3) of section 30 of the Act, 1990. However, since a notification indeed has been issued by the FBR for the exercise of powers under section 30 of the Act, the ineluctable conclusion is that FBR intended those powers to be exercised by the commissioners of Inland Revenue to the exclusion of ail other officers of Inland Revenue and that intent of FBR cannot be set at naught by the respective commissioner Inland Revenue by further delegating those powers. More importantly, the Notification-I did not confer a power to delegate on the commissioners concerned and although the Notification-II refers to the Notification-I, it does not convey an impression that the act is being performed in the delegated exercise of powers.
In view of the above, these petitions are allowed. The impugned show cause notices are hereby set aside. It is made clear that fresh show cause notices by the commissioners Inland Revenue as conferred by Notification-I and Notification dated 01.03.2011 may be issued if the commissioners so deem fit under the circumstances, the LHC added.