Mechanism of Recovery: The tax should be an identified or ascertained amount on the basis of assessment by a tax official or by the assessee. Recovery proceedings get underway in relation to a subsisting assessment under the law. Recovery follows an assessment.
Section 36 provides a mechanism for 'recovery of tax not levied or short levied or erroneously refunded'. Sub-section (1) whereof caters recovery of tax not levied, not charged, short levied or erroneously refunded through or by reason of collusion or a deliberate act.
Some tax gurus argue that sub-section (1) is with reference to what has been more clearly spelled in section 2(37) of the Act, titled 'tax fraud'. Su-section (2) of the section is relevant where the tax was not charged, not levied, short levied or refund was not because of or based on a collusion or a deliberate act or where the cause was inadvertence, error or misconstruction.
Obviously recovery proceedings under section 36(2) can proceed after an assessment of the tax not charged, not levied, short levied, erroneously refunded was already made.
TO HAVE THE DUE PERCEPTION OF SECTION 36 VIZ. A VIZ. SECTION 11 OF THE ACT, FOLLOWING PRONOUNCEMENTS OF THE SUPERIOR COURTS CAN BE RESTATED WITH ADVANTAGE:
(a). Legislative intention must be gathered from the language used in the enactment.
(b). Legislative intent and purpose must be given effect to and not thwarted on any vague and nebulous theoretical concept (PTCL 1992 CL. 363).
(c). The statute must be construed as a whole.
(d). One must have regard to strict letter of Law. (PTCL 1989 CL. 638).
(e). The statutory words should not be given wider meanings. (PTCL 1989 CL. 638).
(f). Every word used by Legislature must be given its true meaning and the provisions construed together in a harmonious manner. (PTCL 2005 CL. 652).
(g). No surplusages or redundancy can be attributed to the legislative organ of the State. (PTCL 2005 CL. 652).
(h). Preamble is a guideline to the provisions of the Act (PTCL 1989 CL 638).
In D. G. Khan Cement Co Ltd vs. Collector of Customs and Others (PTCL 2003 CL. 362), it was held:
"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 two different sets of circumstances is also identical. Although the word "deliberate" is not used in sub-section (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 sub-section 3 of section 32 relates to inadvertence, error or misconstruction on the part of the importer. Both these sub-sections of the Customs Act carry different limitation periods for issuance of show cause notice as in the Sales Tax Act."
The provision of section 36(2) applies only where the authorities were in a position to levy or charge tax but failed to do so due to inadvertence, error or misconstruction (Based on PLD 1977 Lah. 300) Recovery notice for short levied duties on account of inadvertence, error or misconstruction, to be served within three years otherwise unenforceable, (Based on PTCL 1993 CL 532).
Section 36 becomes operational after the issue of a show cause notice under a section authorising such issue of notice. Before this it does not come into play. For purposes of issue of show cause notice there has to be an amount of tax assessed. Assessment of tax precedes show cause notice. For the purpose powers are handy to the revenue officials under section 11. The recovery process gets underway in the next phase after assessment.
SUB-SECTION (3) OF SECTION 36 RECALLED:
THIS TAKES US TO SUB-SECTION (3) OF SECTION 36 READING:
"The officer of Sales Tax empowered in this behalf shall, after considering the objections of the person served with a notice to show cause under sub-section (1) or sub-section (2), determine the amount of tax or charge payable by him and such person shall pay the amount so determined."
Some professionals plead that powers of 'assessment' of tax vested in the officers of sales tax are manifest from the above law. This argument is countered by the assertion that according to title of the section, it is 'recovery' dealt with by the sub-section.
The next rebuttal is that the sub-section says: "The offer of sales tax empowered in this behalf". When one looks for the required powers 'in this behalf', he concludes that section 36 is not clueful for the purpose. Availability of powers of assessment to an Officer of Sales Tax is under section 11. All that section 36 deals with is 'recovery' under specified situations. One should be guided by: "Preamble is a guideline to the provisions of the Act". (PTCL 2005 CL 652). It is this subject the provisio caters and the powers referred are the powers of 'recovery' in the specified situations.
THE WORD 'DETERMINATION' IS DEFINED BY THE LANGUAGE AND LEGAL DICTIONARIES AS FOLLOWS: WEBSTER'S NEW WORLD DICTIONARY
1. A determining or being determined (in all senses of the verb).
2. A firm intention.
3. The quality of being resolute; firmness of purpose.
4. In law, the ending of an estate or of an interest in property.
THE NEW OXFORD DICTIONARY OF ENGLISH:
1. Firmness of purpose; resoluteness; the determination of the players has been excellent.
2. The process of establishing something exactly, typically by calculation or research: determination of molecular structure.
-- Law the settlement of a dispute by the authoritative decision of a judge or arbitrator.
-- Law a judicial decision or sentence.
3. The controlling or deciding of something's nature or outcome: genetic sex determination.
4. Law the cessation of an estate or interest.
5. A tendency to move in a fixed direction.
THE BLACK'S LAW DICTIONARY (SIXTH EDITION):
The decision of a court or administrative agency. It implies an ending or finality of a controversy or suit. Piccone v. U. S., 186 Ct.Cl. 752, 407 F.2d 866, 873. To settle or decide by choice of alternatives or possibilities. The ending or expiration of an estate or interest in property, or of a right, power, or authority. The coming to an end in any way whatever.
A "determination" is a "final judgement" for purposes of appeal when the trial court has completed its adjudication of the rights of the parties in the action.
See also Determination; Decision; Decree; Finding; Judgement; Opinion.
The word 'determine' or 'determination' conveys sense of finality. Such a message of finality the words 'assess' or 'assessment' do not convey. 'Assessment' is an earlier stage. Though this is a dock in travel to the 'determination' stage.
The Lahore High Court, in the case of Sunrays Textiles Mills Ltd vs. Customs, Excise and Sales Tax Appellate Tribunal and Others, (2006) 93 TAX 179 (H.C. Lah.), S.T.A. No 479 of 2002, decided on 08-02-2005, has held:
"The determination of the amount of "the tax due" involved the procedure of adjudication or at minimum the procedure of assessment. In the present case neither had the adjudication proceedings concluded into "an adjudication order against the appellant nor was an "assessment order" passed. The amount of sales tax stated in the show-cause notice therefore did not consequent into "the tax due" to become outstanding against the appellant."*
-- Monthly Taxation. February, 2006, Pages 184.
IN THE SAME JUDGEMENT THE LAHORE HIGH COURT HAS OBSERVED:
"No demand notice or assessment order or adjudication order or appellate order against the appellant were passed to be enforced for recovery of "the tax due" from the appellant. As such there was nothing 'outstanding' against the appellant as "arrears of tax". Although the departmental claim had not yet matured into "the tax due" or its arrears to be outstanding in terms of the notification or the law, yet by a fiction the benefit of the notification was extended to the persons under the show-cause notices as well.
THE SEEMING OBJECT THERETO MUST BE:
(i). to collect the revenue;
(ii). to solicit recovery which otherwise would be cumbersome or improbable;
(iii). to settle disputes; and
(iv). to give relief to the assessees against the additional tax and penalties either outstanding or to become outstanding in future in the pending cases." *
-- Monthly Taxation. February, 2006, Pages 185.
Obviously, 'recovery' can be in relation to a determined amount. It can not be of 'departmental claim', which in the light of following words of Lahore High Court in the supra judgement (Sunrays Textile Mills vs. Customs, Excise & Sales Tax Appellate Tribunal), is a stage prior to 'assessment':
"The appellant was under a "show-cause notice" to explain the alleged short payment of the sales tax of Rs 964,159. The adjudication proceedings were initiated but had not yet concluded.
Therefore the alleged amount of short paid sales tax could only be termed as the departmental claim. It had not matured into the adjudicated amount of "the tax due" as a consequence of an adjudication order under the relevant provisions of the Sales Tax Act, 1990 or the appeal proceedings. Nor could it be termed as "the tax assessed"; either self-assessed by the registered person or by an order of assessment of an officer of the Sales Tax. It was not even "the tax demand" through an appropriate Notice of Demand."
-- Monthly Taxation. February, 2006, Pages 180.
The words "determine the amount of tax" in sub-section (3) refer to recovery of the amount in relation to a show cause notice issued after assessment under section 11. Such a view is fortified by the words "and such person shall pay the amount so determined". Thus in terms of sub-section (3), it would mean that out of the assessed amount of tax, recovery of a part or whole may be allowed by an officer of sales tax.
The word 'determine' has to be distinguished from 'assessment'. Lot of rationality and judicial mind would be required for assessment. As against this, it may also be administrative expediency 'to determine' what amount should be recovered in a go - whole or part in the wake of an assessed amount of tax subsisting.
To say that according to the system is vogue, the assessment and recovery issues are dealt with by the CBR officials through one show cause notice by reference to one section (section 36) does not take one to anywhere. If the CBR is doing that it is upto them.
Good luck to them so far. The law remains what it is - no powers of assessment to officer of sales tax under section 36. Of course there may be nothing wrong if in a show cause notice reliance is placed on both sections 11 and 36. Without reference to section 11 a valid recovery notice can not come into being, we would hold.
STAGES IN TAXATION: The Sindh High Court, in the case of Kohinoor Textile v. Federation of Pakistan 2002 PTD 121, has held:
"Section 37 of the Central Excise Act empowers the Central Board of Revenue to make rules so as to carry out the purpose of the Act. Section 37(2) in turn prescribes a number of items for which the rules could be made, without of course limiting the general rule making power for those items which are not so mentioned therein.
The delegation thus, is only for assessment or collection, but no for the creation or imposition of a charge. The terms 'assessment' points out to the process of ascertaining, adjusting or determining the amount of tax payable (see Punjab Cables v. Government of Pakistan PLD 1989 Lah. 121); whereas the term 'charge' denotes the very imposition or levy of the tax (see Friends Sons v. Deputy Collector PLD 1989 Lah. 337). Similarly 'collection' means the very process of recovery of the tax.
In other words for any tax or in any taxing statute there are three stages; firstly, the imposition or creation of the very tax or levy known as the 'charge'. The provisions which deal with the latter are called the charging sections.
Secondly, the qualification of the tax of levy which is called 'assessment' and thirdly, the recovery of the levy or tax is called 'collection'. The latter two are the machinery provisions, which are contained in the machinery sections of the statute." (Quoted by Customs, Excise & Sales Tax Appellate Tribunal, Bench-III, Karachi, in Tip Top Dry Cleaners (Pvt) Ltd - Sales Tax Appeal No K-287/03/5619)
In his "Principles of Statutory Interpretation", (8th Edition. Page - 634-635), Justice Guru Parsanna Singh, Former Chief Justice, High Court of Madhya Pardesh, Chairman, Madhya Pardesh, Law Commission and Lokayukt, Madhya Padesh (India), deals with stages of taxation. He states:
"There are three stages in the imposition of a tax viz. (1) declaration of liability in respect of persons or property; (2) assessment of tax that quantifies the sum which the person liable has to pay; and (3) methods of recovery if the person taxed does not voluntarily pay. The expression 'tax due' usually refers to an ascertained liability on assessment but its meaning may very according to context."
To support his contention Guru Parsanna Singh has cited Kalwa Dewdattam v. Union of India, AIR 1964 SC 880 p. 883: 1964 (3) SCR 191; Harshad Mehta v. Custodian, AIR 1998 SC 2291, p. 2298: 1998 (5) SCC 1 and Harshad Mehta v. Custodian supra.
This scribe is not suggesting that the cited identifications of stages in the process of levy and recovery etc of taxes by Guru Parsanna Singh and Sales Tax Appellate Tribunal have sort of sacro sanctity.
One may or may not agree on their identification or as such on their sequencing. But their existence and such catering by different law provisions has to be acknowledged. Being attempted is that in the matter of taxation of a subject there are different stages or processes.
Legal construction should be to bring harmony between different provisions of law. However, efforts should not be made to strain different processes in one section of the law if the words of law do not make that out. What is being driven home is that 'recovery' is a separate, different and distinct process from 'assessment'. 'Recovery' gets underway after assessment.
(A former Chairman of ICAP and ICMAP Joint Committee, the author is a sales tax lawyer).
(Concluded)
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