It is a well-established principle that statutory authorities, while exercising statutory powers vested in them, have to observe the principles of natural justice. This is more than necessary especially where their actions are going to have adverse effects for the affected parties.
One of the requirements of natural justice is that if a decision, already taken and communicated to an interested party needs to be changed subsequently, such a change should not be effected without the affected party being given an opportunity of being heard.
In tax proceedings, which are quasi-judicial in nature, the authorities are increasingly becoming indifferent to the established principles of natural justice. Perhaps, in the frenzy of collecting revenues to achieve their pre-fixed (ambitious) targets, they completely ignore the fact that even a very good order, otherwise justifying the quantum of tax can be held as void by courts if proper opportunity of being heard is not extended to the taxpayer. This legal position has been highlighted in various judgements eg Munir Mushtaq v. Collector of Customs (Exports), Customs House, Karachi and another PLD 1999 SC1111, Muhammad Khan v. Shamsuddin and others (1975) 31 TAX 94 (S.C. Pak.), CIT, East Pakistan v. Fazlur Rehman and CIT, East Pakistan v. Sayeedur PLD 1964 SC 410Siemens Pakistan Engineering Ltd v. Federation of Pakistan & Others 1999 PTD 1358 [High Court Sindh] and 2004 PTD 2051.
Tax authorities under respective statutes are vested with wide powers, exercise of which can lead to substantial financial repercussions for the citizens. These powers are abused every day by passing orders, which are arbitrary, illegal and determining tax demands in a highly undesirable manner. The world 'discretion' in itself implies vigilant circumspection and care. It was, therefore, laid down in Ibrahim v. Emperor AIR 1933 Sind 49 that wherever the legislature concedes wide discretion, it also imposes a heavy responsibility. The use of discretion cannot be arbitrary. It cannot be vague and fanciful but has to be legal and regular - Gordan Das Baldev Das v. Governor General in Council AIR 1952 Punjab 103 at 10. It is natural to assume that when a statute confers a discretionary power, the authority will use it properly and not arbitrarily or capriciously.
The Supreme Court in CIT Pakistan v. Fazlur Rehman & Sayeedur Rehman (1964) 10 Tax 49 (S.C. Pak) = 1964 SCC 176 held that the maxim "no man should be condemned unheard" is not confined to courts but extends to all proceedings, by whomsoever held, which may affect the person or property or other rights of the parties concerned in the dispute, and the maxim will apply with no less force to proceedings which affect liability to pay a tax.
The Sindh High Court in Siemens Pakistan Engineering Co Ltd v. Federation of Pakistan & Others (1999 PTD 1358), made the following remarks:
"Audi alteram partem ie no-one shall be condemned unheard is a universally established principle of law. This rule is applicable to both judicial and non-judicial proceedings (1994 SCMR 2232). The legislature being cognisant of this principle of natural justice has incorporated the same in the Sales Tax Act, 1990 in the various provisions of the Sales Tax Act relating to adjudication of cases".
The relevant sections of the Sales Tax Act, 1990 referred to in the above judgement at the material time read as under:
"44. Issue of show cause notice before confiscation of goods or imposition of penalty.- No order under this Act shall be passed for the confiscation of any goods or for imposition of any penalty unless the owner of the goods, if any, or the concerned person:
(a) is served a notice in writing (unless the owner or the person concerned accepts the notice orally) of the grounds on which it is proposed to confiscate the goods or to impose the penalty;
(b) is given an opportunity of making a representation against such confiscation or imposition of penalty in writing (unless the owner or person concerned indicates in writing his preference to present an oral representation) within such reasonable time as the officer of Sales Tax may specify; and;
(c) is given a reasonable opportunity of being heard in person or through a counsel or duly authorised agent."
Section 45(2) relating to appeals read as follows:
"(2) The Collector of Sales Tax (Appeals) may, after making such further inquiry as may be necessary and after giving both parties to the appeal an opportunity of being heard, passes such order as he thinks fit, confirming, varying, altering, setting aside or annulling the decision or order appealed against:"
Section 46(4) of the Act relating to Appeals to Appellate Tribunals postulated that: "(4) The Appellate Tribunal, after giving the parties to the appeal, an opportunity of being heard may pass such orders in relation to the matter before it as it thinks fit."
The expression "opportunity of being heard" also appears in various sections of Income Tax Ordinance, 2001. Some of these are:
Section 74(6) & (7)
(6) An order under sub-section (3) or (4) shall be made after providing to the applicant an opportunity of being heard and where his application is rejected the Commissioner shall record in the order the reasons for rejection.
(7) The Commissioner may, after providing to the person concerned an opportunity of being heard, by an order, withdraw the permission granted under sub-section (3) or (4).
Section 122(9)
(9) No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard.
Section 122B(2)
(2) Where, after making such inquiry as is necessary, Regional Commissioner considers that the order requires revision, the Regional Commissioner may, after providing reasonable opportunity of being heard to the taxpayer, make such order as he may deem fit in the circumstances of the case.]
Section 132(2)
(2) The Appellate Tribunal shall afford an opportunity of being heard to the parties to the appeal and, in case of default by any of the party on the date of hearing, the Tribunal may proceed ex parte to decide the appeal on the basis of the available record.]
Section 161(1A)
(1A) No recovery under sub-section (1) shall be made unless the person referred to in sub-section (1) has been provided with an opportunity of being heard.
Section 170(4)
(4) The Commissioner shall, within sixty days of receipt of a refund application under sub-section (1), serve on the person applying for the refund an order in writing of the decision after providing the taxpayer an opportunity of being heard.
Section 172(5)
(5) No person shall be declared as the representative of a non-resident person unless the person has been given an opportunity by the Commissioner of being heard.
Section 182(2)
(2) The penalties specified under sub-section (1) shall be applied in a consistent manner and no penalty shall be payable unless an order in writing is passed by the Commissioner, Commissioner (Appeals) or the Appellate Tribunal after providing an opportunity of being heard to the person concerned.
Section 214B(1), Proviso
Provided that no order imposing or enhancing any tax or penalty than the originally levied shall be passed unless the person affected by such order has been given an opportunity of showing cause and of being heard.
Section 221(2)
(2) No order under sub-section (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.
Rule 1(5), Part I, Sixth Schedule
(5) The Commissioner shall neither refuse nor withdraw recognition of any provident fund, unless he has given to the trustees of the fund a reasonable opportunity of being heard.
Rule 1(3), art II of Sixth Schedule
(3) The Commissioner shall neither refuse nor withdraw approval to any superannuation fund or any part of a superannuation fund unless he has given the trustees of that fund a reasonable opportunity of being heard.
Rule 1(3), Part III of Sixth Schedule
(3) The Commissioner shall neither refuse nor withdraw approval to any gratuity fund unless he has given the trustees of that fund a reasonable opportunity of being heard.
It is by now well-established that wherever in any statute, the expression "opportunity of being heard" appears, the judgement of the Sindh High Court supra will apply squarely and with full force without any exception. The Sind High Court has made elaborate observations in respect of the real scope of the expression "opportunity of being heard" as under:
"It will be observed that in all the aforesaid three sections, the law requires that no order affecting the rights of a person shall be passed without providing him an opportunity of being heard. The word, "hear" according to The Chambers Dictionary (1994 Edition) means "to perceive by the ear, to have or exercise the sense of hearing, to listen, or be spoken of". The past participle "heard" means "actin of perceiving sound" and the noun "hearing" means "power or act of perceiving sound; an opportunity to be heard; judicial investigation and listening to evidence and arguments". The Standard International Dictionary (1973 Edition), Part I, defines "hear" to mean "to listen, to perceive by means of the ear, to listen to officially, judicially". The phrase "opportunity of being heard" would, therefore, mean that the party concerned should be allowed to present his point of view, explanation, clarification and arguments by spoken words which should be heard by the officer passing the order. An explanation given in writing is perceived by the sense seated in the eye has generally not been considered sufficient. Experience has shown that many doubts, complaints and misunderstandings between parties are cleared, resolved and removed when they meet face to face and communicate by word of mouth. Appearance in person and explanation by word of mouth, therefore, is placed on a higher footing both in daily life and in judicial and administrative proceedings where rights of parties are involved. Therefore, it is not the written explanation or the answer submitted to the show-cause notice but the expression of spoken words of the person concerned which have been emphasised by the Legislature in the relevant provisions relating to Appeals in the Sales Tax Act. Consequently, an officer before passing an order which would adversely affect the rights of a party should hear that person's explanation, clarification and argument in his defence submitted by him personally or through his counsel or his duly authorised agent. If such a hearing is not given to the person concerned, the order would be in violation of not only the principles of natural justice but also of the statutory requirements and consequently would be invalid.
The above directions/observations of the Sindh High Court are an eye-opener for the tax authorities. They do not bother to consider the written arguments/replies of the taxpayers what to talk of giving them "personal hearing" and recording of their spoken arguments. Applying the principle laid down by the Sindh High Court one would find that hardly a few orders by the tax authorities, both adjudicating and appellate, would stand the test of natural justice. It is tragic that the tax machinery (responsibility squarely lies with the FBR and the ministry of law) in its statutory functions is blatantly violating the principle of natural justice. The higher courts, including the Tax Appellate Tribunal, have time and again even passed strictures against the tax authorities for such lapses, but the concerned authorities in the FBR never bother to initiate any departmental proceedings against these officers. This shows how much respect they have for the higher courts (their claims in press releases and interviews are mere lip-service).
The Supreme Court of Pakistan, in the case of Anisa Rehman v. PIAC, 1994 SCMR 2232, set aside the order of reversion of the employee on the ground that she had not been heard before the impugned order reverting her to a lower grade was passed with the observation that it would be open to the employer to take fresh action after hearing the appellant in accordance with law.
The important questions relating to statutory requirements of "hearing" in person have been answered by the Sindh High Court in Siemens Pakistan Engineering Co Ltd v. Federation of Pakistan & Others (1999 PTD 1358) as under:
"The next question which arises for consideration is whether the requirement of personal hearing would be fulfilled if the hearing is given by one officer and the order is passed later on by another officer who has not heard the explanation, clarification and the arguments of the party concerned.
The answer is simple. If the Legislature did not want to provide an opportunity to the person concerned to present his case by spoken words before the Sales Tax Authority it would not have included the phrase "giving an opportunity of being heard" in sections 44, 45 and 46 of the Sales Tax Act. The wordings of section 44(c) of the Act are very significant in this respect because it clearly requires that the person concerned should be given a reasonable opportunity of being heard in person.
If the officer has not heard the person concerned he would not have knowledge of the explanation given and the arguments advanced by the latter and consequently would not be qualified to pass an order because the hearing by a predecessor does not mean or amount to a hearing by the officer passing the order.
Such an officer would be ignorant of the explanation, clarification and arguments advanced by the party concerned and would pass the order on the basis of his own perception and understanding of the issues in question. In this respect it would be advantageous to reproduce here a short paragraph from the "Judicial Review of Administrative Action" by S.A. de Smith, (1973 Edition), page 193, which reads as follows:-
"Must he who decides also hear? In general, the answer is in the affirmative. It is a breach of natural justice for a member of a judicial tribunal or an arbitrator to participate in a decision if he has not heard all the oral evidence and the submissions. The same principle has been applied to members of the administrative bodies who have taken part in decisions affecting individual rights made after oral hearings before those bodies at which they have not been present; for bias and ignorance alike preclude fair judgement upon the merits of a case."
A similar view was expressed more than 75 years ago, in the case of Mahmood Khan and others v. Ghazanfar Ali and others, AIR 1920 Lahore 247, by Abdul Raoof, J. of the Lahore High Court, who accepted the contention of the appellant that the fact that the arguments had been heard by another officer made it absolutely necessary for the learned Munsif who was going to deliver the judgement to have allowed the parties to put their case before him and consequently remanded the case to the trial Court for disposal according to law.
In the present case also, it is an admitted position that the Additional Collector-I (respondent No 4) who passed the impugned order, dated 12-6-1998 was not the officer who had heard the petitioner's counsel on various dates and especially on the last date of hearing on 25-10-1997. The said officer (respondent No 4) thus passed the impugned order without giving a personal hearing to the petitioner, which is not only a violation of the principles of natural justice but also of the statutory requirement of section 44 of the Sales Tax Act."
The above remarks/observations of the Sindh High Court make it abundantly clear that the scope of the word "opportunity of being heard" requires adequate and personal hearing and not mere formality of issuing notice or discussing some aspects of reply of the party in a casual manner. This principle is applicable in all kinds of tax proceedings where the statute specifically requires personal hearing or even if there is no such command in law but the order/action of the authority can increase the tax burden of the taxpayer or where past and closed transactions are to be reopened. It is customary these days that the tax authorities just shrug away the written replies or verbal arguments of the taxpayers dubbing the same as "irrelevant" without refuting the same with plausible arguments. This practice is against the established principles of natural justice.
In conclusion, it can be said that any order which resulted in civil consequences is a quasi-judicial order and in all such orders principles of natural justice must be followed. The tax authorities must observe principles of natural justice in passing orders against any taxpayer. The principles of natural justice must always be kept in view and fulfilled while taking action, initiating proceeding and passing orders under the fiscal laws. Any order which violates the principles of natural justice is a void order as held by Supreme Court in 1959 PLD 45 (SC) and (1964) 70 Tax 49 (S.C. Pak).
(The writers, tax lawyers and partners in HUZAIMA & IKRAM (Tax and Pakistan), are Adjunct Professors at Lahore University of Management Sciences)