ASSESSMENT
AUDIT & ADJUDICATION
UNDER THE SALES TAX
ACT
A presentation by:
Mr. Muhammad Mansha Sukhera
B.Com, DCMA, MBA, LLB, FCA
Senior Partner
Rafaqat Mansha Mohsin Dossani Masoom & Co.
Chartered Accountants
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SALES TAX LAW
ASSESSMENT
AUDIT
ADJUDICATION
SALES TAX LAW

FISCAL STATUTES

CONSTITUTIONAL VALIDITY

ENECTMENT/PROMALGATION

HISTORY

CONCEPT OF SALES TAX

STAGES OF ENFORCEMENT
FISCAL STATUTES

Main





Sales Tax Act, 1990
Federal Excise Act, 2005
Customs Act, 1969
Income Tax Ordinance, 2001
Helping






Constitution of Pakistan, 1973
General Clauses Act, 1897
Limitation Act, 1908
Rules of interpretation
Code of Civil/ Criminal procedures – selected provisions –
search, service of notice etc.
Precedents.
CONSTITUTIONAL VALIDITY

Preamble

Fundamental rights Art. 8 to 28

Legislation power

Rule of law Art 4, 25, 2A

Islamic Provision. Art. 227
Art. 77
ENACTMENT/ PROMULGATION
TAX LEGISLATION POWER. ART. 77
 “No tax shall be levied for the purposes of the Federation except
by or under the authority of Act of Majlis-e-Shoora
(Parliament).”
Federal Legislative List Entry 49
 “Taxes on the sales and purchases of goods imported, exported,
produced, manufactured or consumed.”
 Other taxes (Entry 43-50), 59 incidental or ancillary matter
Legislation Power– Article 141
 Law for whole or part of Pakistan including extra territorial
operation - Majlis-e-Shoora (Parliament
 Law for Province or any its part –Provincial Assembly
ENACTMENT/ PROMULGATION
Article 142
Subject matter of Federal legislative and concurrent list

Matter in Federal legislative list- Parliament

Matter in Concurrent List- Parliament and Provincial Assembly.

Matter not mentioned in both Lists- Provincial Assembly

Federation area not included in any province and matter not
mention in the above lists- Parliament.
Tax to be levied on the basis of ability to pay.
Legislature prerogatives
 quantum of tax
 Conditions subject to which tax is levied
 Manner of assessment and recovery
ENACTMENT/ PROMULGATION
Taxing statute may be declared unconstitutional if
 plainly discriminatory
 No machinery for levy and assessment
 Confiscatory- acquisition of property PLD 1997 SC 582=1997PTD
1555 SC
Interpretation of entry in legislative lists.
 Living and permanent document, wide construction not narrow,
Harmonise construction, promote economic and social activities.
 summary of items and no detail, power of legislation for associated,
ancillary and related matter. 1999PTCL 645 (SC) =1999 PTD 1135 =
79 TAX 433, 1997PTD 1555 (SC)
Delegation tax legislation power
 No delegation of legislation power of enacting taxing statute and
imposition of tax except exemption and procedure of assessment
and recovery. PLD 1977 Lahore 1327,
PTCL 99 CL 493 SC
HISTORY
World History


Before 1St world war
 Excise tax was very old tax
 Excise tax was major source of Revenue in the European
countries
 Custom duties was the major source of revenue in State (USA)
After 1st world war
 Modern multistage turnover taxes were developed during and
after 1st world war
 VAT began when France adopted in 1954
 Subsequently vat was taken up by other European countries.
 Rate of tax 10 to 23 %
 In United state sales tax remain major source of revenue since
2nd world war
 In USA single stage taxes existed in more than 40 states and
only 2 states adopted multistage turnover taxes upto 1971
HISTORY
IndoPak.


Pre-partition- Sales tax was Provincial subject under the Government of
India Act 1935
After Independence Pakistan adapted
 the Government of India Act 1935
 Pakistan General sales tax 1948 enacted and enforce from April 1, 1948
 Standard rate 6 pies per Rupee
 Sales Tax Act 1951 enacted and enforce from July 1,1951.
 rate 12.50%
 Sales tax Act 1990 enacted and enforce from July 1, 1990- Vat




Historical Construction
What was the law before
what was the mischief and defects in the earlier law
What is the new law
What remedies has been provided in the new to suppress the mischief
in the old law.
HISTORY
Other Canon of Construction



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


Cannon of literal construction
 Letter of law and not sprite of law
 Language plain no matter what ever consequence
 ambiguity or doubt in favour of subject
Purposes interpretation
Contextual interpretation
Golden interpretation – as a whole
Harmonized Construction
Construction to save and not to destroy the LAW
Construction agreeable to justice and reason.
CONCEPT





Direct vs.. Indirect tax
VAT (Value Added Tax)
Multi-stage vs.. Single Stage Tax
Consumer Tax.
Exceptions
Direct vs.. Indirect tax



That a direct tax is one which is demanded from the
very person, who it is intended or desired should pay it
whereas indirect taxes are those, which are demanded
from one person in the expectation and intention that he
shall indemnify himself at the expenses of another, like
custom duties, excise taxes and sales tax, which are
born by the consumer. ((1997) 76 Tax 5(S.P), Elahi
Cotton case, pg.678.
Burden of tax (PTCL 2005 CL 754(S.C) Fecto Belarus
case) purchaser vs.. vender
Component of Cost/Sales price – explicit or implicit.(
VAT (Value added tax)




Mechanism of levy and crystallizing the liability by
allowing the adjustment of input tax provided in the
provisions of sales tax Act 1990 is a VAT system.
In nutshell sales tax is payable on value addition
Importer-manufacturer-distributor-retailer State tax
collecting Agents
purchase supply value ad.
Value -ex
100
150.0
50.0
Tax
15
22.5
7.5
Value –inc.
115
175.5
57.5
Sales tax is going in treasury of State on value addition
basis other than import.
Multi-stage tax



Sales tax levied and collected under the Sales Tax Act
1990 on each stage of taxable supply made till it
reached to consumer or ultimate user.
Sales tax charged and collected under the Sales Tax Act
1951 was ONE POINT LEVY usually called single stage
tax.
Illustration as follows:
Purchases Supplies
RP 1
RP 2
Val.
Addition
IMPORT STAGE
Tax on
Val.
Addition
15.0
7.5
Price ex
Tax
Price Incl.
100.0
15.0
115.0
150.0
22.5
172.5
50.0
7.5
57.5
MANUFACTURING STAGE
Melting ingot
Price ex
Tax
Price Incl.
150.0
22.5
172.5
250.0
37.5
287.5
100.0
15.0
115.0
15.0
RP 3
Part making
Price ex
Tax
Price Incl.
250.0
37.5
287.5
325.0
48.8
373.8
75.0
11.3
86.3
11.3
RP 4
Bicycle mfg.
Price ex
Tax
Price Incl.
325.0
48.8
373.8
450.0
67.5
517.5
125.0
18.8
143.8
18.8
DICTRIBUTOR/ DEALER
Price ex
Tax
Price Incl.
450.0
67.5
517.5
600.0
90.0
690.0
150.0
22.5
172.5
22.5
600.0
90.0
690.0
800.0
120.0
920.0
386.3
534
72%
200.0
30.0
230.0
30.0
RP 5
RP 6
RETAILER
Price ex
Tax
Price Incl.
Price exclusive of aggregate s tax
S tax % in ultimate price charged to customer if no VAT
120.0
Tax
Rate %
15%
Consumer tax




Sales tax is a tax on consumption because the incident
of tax charged under section 3 has to pass on the
consumer ultimately.
The provision regarding input as well as out put as
defined in the definition clause of the Act read with
section 7and 8 thereof are on the modalities prescribed
to protect interest of the exchequer against any
pilferage, evasion or fraud.
Every maker of a taxable supply is an agent of the
State to receive the amount on its behalf and then pass
it on to the next supplier till finally the consumer bear
the burden.
PTCL 2002 CL 115 (LHC) Mayfair Spinning Mill Case.
Exceptions



Taxable supplies specified in the Third
schedule. S.3(2a), 21 items, juices. Ice
cream, beverages, syrups, cigarettes,
toilet soap, biscuits, tissue paper etc.
Special procedure for scope and payment
of tax S.71
Disallowing Input S. 7, 8, 8B and 73.
STAGES OF ENFORCEMENT

Charging / Imposition of Tax

Assessment

Collection / Recovery
Charging / Imposition of tax




Subject matter – persons, goods, event,
transitions, object – value or volume etc.
Rate of tax – single rate, different rates, range
of rates.
Period – month, quarter, years etc.
Timing – time of delivery, accrual, receipt,
clearing, deeming, agreement etc.
Construction of charging section




Strict construction – strictly construed in favour the subject and against the
State.
Words of law vs. Import of provision. “We may here observe that the taxing
statue the courts must look to the words of the statue and interpret it in the
light of what is clearly expressed. It cannot imply anything which is not
expressed, it cannot import provisions in the statue so as to support
assumed deficiency” (1975) 31 Tax 78 (SC) Hirjna & Co case.
Letter of law vs.. Spirit of law.
“ In determining whether or not a particular matter comes within a taxing
statute it is only the letter of law be looked into. There is ample authority
for the proposition that in a fiscal case, form is of primary importance, the
principle being that if the person sought to be taxed comes within the letter
of law, he must be taxed, however great a hardship may thereby be
involved but on the other hand if the Crown cannot bring the subject within
the letter of law he is free, however, apparent may be that his case comes
within what might be called the spirit of law.” (1974) 29 TAX 188 (SC) Mst.
Wazirunissa Begum case.
Construction of charging section



Benefit of doubt, ambiguity, alternative or several interpretation
should be given the taxpayer.
“ The cardinal principle of interpretation of a fiscal statue seem to
be that all charge upon the subject are to be imposed by clear and
unambiguous words. There is no room for any intendment nor there
is any equity or presumption as to a tax. A fiscal provision of a
statue is to be construed liberally in favour of the taxpayer and in
case of any substantial doubt, same is to be resolved in favour of
the citizen.” (1992) 66 TAX 246 (SC) Mehran Associates case,
(1996) 74 TAX 81 (SC) B.P Biscuit case.
“ all charge upon the subject must be imposed by clear and
unambiguous language because in some degree they operate as
penalties; the subject is not to be taxed unless the language of the
statute clearly imposes the obligation and language must not be
strained in order to tax a transaction, which had the legislature
thought of , it would have covered by appropriate words, B. P
Biscuit case
Strict construction rules


Property right effected.
Imposition of tax deprive of the subject from their
property rights protected and guaranteed by the
Constitution- Art. 24

Tax is a compulsory execution of money from the
subject

Tax is a penalty

Burden of proof – Initial burden is on the Authority to
prove that the person falls within the ambit of charging
section, once it is discharged the onus is shifted on the
person to prove that he is entitled to exemption .
Strict construction rules



Level of compliance – charging sections are mandatory
in nature and required to comply completely.
Benefit of doubt, ambiguity, two or several interpretation
of charging section is to be given to the citizens.
Exemption provision are opponent to charging provision
and are construed liberally in favour of the State and
against the subject because their burden of tax is to be
borne by the other citizen paying tax.
Charging vs. Exemption




Exemption provision are opponent of charging provision.
Exemption provision are liberally construed in favour of
the State and against the subject because the burden of
tax is to be borne by other member of the State.
Burden is on the person claiming exemption to prove
that he falls within the exemption provision and fulfils
the exemption requirements and conditions.
Benefit of doubt, ambiguity, or alternative interpretation
of exemption provision is to be given to the State except
claimant of exemption is State or state divisions,
charitable institutions, or meant for economic
development.
Assessment


Assessment stage of a fiscal statue is a part of machinery provision
and procedural in nature dealing with determination of tax liability
of the taxpayer as well as value of the subject matter and all other
proceeding and steps involved and culminate into assessment order.
Component of assessment


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

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Registration provision
Filing of Returns
Audit
Assessment proceedings – SCN – Reply – submission – proofs.
Assessment order.
Revision/ review, appeal effect
Cannon of construction of assessment provisions –Liberal
construction in favour of the State and against the subject to
crystallize and effect the recovery. (2002) 86 TAX 138 (KHC) Deans
Associates case. 2002 PTD 2112 LHC), PLD 1961 SC 119, PTCL 1990
CL 386
Original vs.. revised assessment / assessment vs.. re-assessment.
Recovery




Recovery and collection provision of the fiscal statue are also part of
machinery provision and are construed in the same manner as
assessment provision in order to make the recovery of tax efficient
and effective – Liberal construction – in favour of the state and
against the subject.
Mode of Recovery and collection of tax
Pre- assessment / adjudication
 Advance payment of tax
 Withholding or collection of tax at source
 Payment with return
Post assessment / adjudication
 Demand Notice
 Deduction or adjustment from refund or money of the
taxpayer in the control of income, custom, excise authority
Recovery






By notice from the person holding money of the taxpayer
By stopping removal of good from business premises.
By notice to any person to stop clearance of imported or
manufactured goods or attachment of bank accounts.
Seal of business premises
Attach and sell or sell without attachment movable or immovable
property
Attach and sell movable and immovable property of guarantor
where such guarantor has failed to make the payment of tax
under guarantee, bond or instrument.

Write off of arrears by the Board or authorised officer by the Board
as prescribed. S. 48(1A)

Sales tax officer has the power of Civil Court for recovery of tax . S.
48(2)

Section 48 – Sales Tax Rules, 2006, Cheaper XI
ASSESSMENT

DEFINITION

KINDS/CLASIFICATION

SCOPE & PROCEEDINGS

ASSESSMENT ORDER/ EFFECTS
Definition /meaning



Statutory
The expression “ Assessment” has not been defined in the Sales Tax
Act 1990. However, the word assessment was defined in the
repealed Income tax Ordinance 1979 as “ Assessment includes reassessment and additional assessment and the cognate expression
shall be construed accordingly.” S. 2(7)
Dictionary meaning:
 Black law dictionary, seventh edition, page 111
 “Determination of the rate or amount of something, such as
a tax or damages (assessment of losses covered by
insurance). 2) Imposition of something, such as tax or fine,
according to as established rate; the tax or fine so imposed.
Definition / meaning

Longman’s dictionary of contemporary English, New
edition, page 64


“ The act of assessing; the value or amount at which
something is calculated.”
Excellent Legal Words and Phrases by Mian
Muhibullah Kakakhel, volume 1, page 557 & 559

“ Assessment” in relation to taxation or revenue means the
process of ascertaining or adjusting ; determining the share
of a tax or duty to be paid by the person or apportioning the
same among different taxable persons.”
Definition /meaning

Judicial Meaning:

1992 PTD 513 (HC) ref. Muhammad Amjad vs.. The
Commissioner of Income tax.

“ The word ‘Assessment’ is uses in the statute as meaning
sometime, the computation of Income, sometime the
determination of the amount of tax payable, sometime the
whole procedure laid down in the statue for imposing liability
on the taxpayer. The word assessment must be understood
in each section of the statute with reference to the context in
which it is used; in some sections it has a restricted
meaning and is used as distinct from reassessment. The
method prescribed by the statute for making an assessment
of tax, using the word assessment in its most comprehensive
sense as including the whole procedure for imposing liability
upon the taxpayer consist of the following steps:
Definition /meaning

In the first place, taxable income of the assessee has to be
computed

In the next place, the sum payable by him on the basis of such
computation has to be determined.

Finally , a notice of demand in the prescribed form specifying the
sum so payable has to be served upon the assessee. (pg 518)

PLD 1989 Lah. 121, Punjab Cables vs.. G.O.P

The word assessment in relation to taxation or Revenue means the
process of ascertaining, adjusting, determining the share of a tax or
duty to be paid by a person or apportioning the same among different
taxable persons. Further, that assessment in relation to taxation
includes all steps necessary which are taken in the legitimate exercise
of power to tax.” 2002 PTD 750(LHC)
Kinds / classification

Assessment concepts- Assessment & Re-assessment, Original &
Revised assessment, Deemed assessment, Agreed assessment, etc.

Original assessment kinds.


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Self assessment
Provisional assessment
Assessment on the basis of return
Normal assessment
Best judgement assessment/ Ex-parte assessment.
Revised assessment kinds.




Review vs.. revision
Review
Amended, Escape, Additional or Re-assessment
Rectified assessment
Kinds / classification

Revision

Revision of assessment by:
Board
 Collector
 Commissioner
 IAC
 Appellant Authority
 Courts

Assessment Scope

Sales Tax Act 1990.

Assessment of Tax. S.11

Recovery of tax not levied or short levied or erroneously refunded.
S. 36


Revision By:
 Board or Collector S. 45A
 Collector of Sales tax Appeals,
 S.45B
 Appellate Tribunal S.46
 High Court – Reference – S.47
 Board under ADR. S47A
Correction of errors. S. 57
Assessment Scope




Sales Tax Act 1951
Assessment. S.10
 Assessment on the basis of return
 S. 10 (2)- Sales Tax Officer is satisfied about the correctness and
completeness of the return.
Normal assessment. S. 10(3)- Sales Tax Office is not satisfied about
the correctness or completeness of the return and call for any
information, particulars, books, record, documents, etc. and
determine the tax payable
Best judgement assessment. S. 10(4) – Returned not filed or record,
documents, books not produces- Exparte judgement shall be made
after giving an opportunity of being heard.
Assessment Scope

Revision by Commissioner of Sales Tax. S. 16

Tax not assessed – escape assessment- Reassessment S.28

Revision by Inspecting Assistant Commissioner to the assessment
order of Sales tax officer. S.28A

Rectification of mistake. S30

Appeal to Appellate Assistant Commissioner. S14

Appeal to appellate Tribunal. S 15

Reference to High Court. 17
Assessment of tax

Section 11(1)

Non filer of Return

Filer of return making short payment due to miscalculation.

Show Cause Notice by Sales tax Officer

Order of assessment of tax, including imposition of penalty and
default surcharge.

Show Cause Notice and order of assessment abated if non filer file
the return and pays the tax along with penalty and default
surcharge.
Assessment of tax

Section 11(2) – Invoking of:





Non payment due tax on supply made.
Short payment of due tax on supply made.
Claim of inadmissible of input tax credit.
Claim of inadmissible of Refund.
Reasons and grounds



of non payment
of short payment
claim of in admissible input tax or refund
shall be other than non filing of return or short payment
due to miscalculation.
Assessment of tax

Section 11(4)

Assessment order shall determine






Sales tax actually payable
Determination of amount of tax credit
Determination of amount of refund
Imposition of penalty
Charge of default surcharge
Prerequisites

Issuance of show cause Notice by the sales tax authority having
jurisdiction over the case and competent u/s 45
Assessment of tax

SCN specifying the reasons and ground on the basis of which it is issued
and intended to proceed.

Taking into consideration the representation of the taxpayer

Providing opportunity of being heard




Limitation of passing the order- 90 days from the issuance of scn or
extended period of 90 days by the collector for the reasons to be recorded
in writing.
Determination of tax liability
Non obstante
Minimum tax liability by the non filer of return to be adjudicated by the
sales tax department not below the rank of assistant collector as prescribed
by Board. S 11(5)
Recovery of tax u/s 36

Section 36 (1) – Invoking of

Non levy of tax by the reason of collusion

Non levy of tax by the reason of deliberate act.

Short levy of tax by the reason of collusion.

Short levy of tax by the reason of deliberate act.

Tax erroneously refunded by the reason of collusion.

Tax erroneously refunded by the reason of deliberate act.
Recovery of tax u/s 36



Service of show cause notice on the
person liable to pay such amount of tax
Service of notice within 5 years from the
due date of payment u/s 6 and date of
refund in case of refund.
Amount of tax required to be paid should
be specified in the show cause notice.
Recovery of tax u/s 36

Section 36(2) – Invoking of:
 Non levy of tax by the reason of inadvertence.

Non levy of tax by the reason of error.

Non levy of tax by the reason of misconstruction.

Short levy of tax by the reason of inadvertence.

Short levy of tax by the reason of error.

Short levy of tax by the reason of misconstruction.

Erroneous refund of tax by the reason of inadvertence.

Erroneous refund of tax by the reason of error.

Erroneous refund of tax by the reason of misconstruction.
Recovery of tax u/s 36




Section 36(2) – Mandatory conditions
Issuance of show cause notice to the person liable to
pay non levied, short levied tax or erroneous refund.
Service of notice within 3 years from the due date of
payment of tax u/s 6 and date of refund in case of
erroneous refund.
Amount of non levied, short levied or erroneous refund
required to be paid must be SPECIFIED in the Notice.
Recovery of tax u/s 36

Section 36(3) – Mandatory conditions

Consideration of objections of the person served with show cause
notice by the empowered sales tax officer.

Determination of the amount of tax or charge in the order payable
by the person on whom the show cause notice is served.


Order shall be passed within 90 days from the date of issuance of
show cause notice or within extended period as the Collector may
for the reasons to be recorded in writing fix.
The Collector is empowered to extend the period for passing the
order by maximum 90 days.
Recovery of tax u/s 36

Section 36(4) – Calculation of Limitation period, 5 year u/s 36(1), 3
years u/s 36(2).

In case of non levied or short levied the due date of payment u/s 6.

In case of import the time of payment of custom duty under the
Custom Act 1969.

In case of Taxable supply made, date of filing of return of the
period.


In case of taxable goods, supplies or classes of supplies other than
zero rated supplies as specified in the notification by the Board, the
time or date as specified by Board for the payment of tax in respect
of such supplies in the Notification in the Official Gazettee.
In case of erroneous tax refund, the date of refund.
Revision by Board u/s 45

Section 45A (1) (2) (3) – Revision by Board

Suo moto exercise of revisional jurisdiction by the Board.

Calling for and examining the Record of any departmental
proceeding under the Act or Rules made there under.

Object of revision to check and satisfy itself about the legality or
propriety of any decision or order passed under such proceeding.

Revision of the decision or order of the any sales tax authority.

Discretion of passing any order as Board think fit –quash, annul,
cancel, modify, vary, maintain, set-aside etc.
Revision by Board u/s 45



No order of enhancement or imposition of penalty or fine or sales
tax greater than original levied unless person effected by the order
is given an opportunity of showing cause and of being heard.
No exercise of revisional jurisdiction where appeal before the
Collector of Sales Tax (appeals) u/s 45B or before the Appellate
Tribunal is pending. 45A(2)
No revision order after the expiry of 5 year from the date of original
decision or order of sub-ordinate officer. 45A(3)
Revision by Collector u/s 45A(2)

Suo moto exercise of revisional jurisdiction by the Collector.

Calling for and examining the record of any proceeding under the
Act or Rules made there under.

Checking and satisfying itself about the legality or propriety of any
decision or order passed in such proceeding.

Original order to be revised shall have been passed by the officer of
sales tax sub-ordinate to Collector.

Discretion of passing any order as the Collector deemed fit.

Limitation of 5 year from the date of original order for exercise of
revisional jurisdiction.

(2007) 96 TAX 155 (LHC) New Ammaur industries, PTCL 2001 CL
615, Khan trading Company, (2004) 89 Tax 429 LHC, Muskzar
Knitwear.
Rectification of clerical errors u/s
57


Correction of Clerical or arithmetical errors.
Such error should be in the
 Assessment
 Adjudication
 Order 0r
 Decision

Correction of such error may be made at any time without any
limitation.

The same sales tax authority or successor in office can exercise the
power of correction u/s 57.

Notice shall be given to the registered person or person effected
from such correction.
Adjudication

Definition / meaning

Kinds and classification

Subject matter

Adjudication authorities and powers

Adjudication proceedings and rules

Adjudication Order and effects
Adjudication- meaning


Statutory
The term adjudication has not been defined in
the in the sales tax law, therefore, reference to
the dictionary and judicial meaning of the term
adjudication be made to understand it.

Dictionary meaning

Black Law Dictionary, 7th Edition, page 42.


“The legal process of resolving a dispute”
“ Process of judicially deciding a case.”
Adjudication - meaning

Judicial meaning.



“The word ‘ adjudication’ means judicial determination of a
cause after taking into consideration the material on record and
after the hearing the parties” PLD 1957 Lah 1040, Razia Begun
case.
“ to adjudicate, necessarily implies settling a matter. This is
synonymous with the word ‘adjudge’. The adjudication process
may be before an administrative authority, before a Court of
law. Even if it is before as administrative agency, the rights are
to be adjudged after notice to parties and the findings are to be
recorded specifically.”
“Adjudication is defined as hearing , after notice of legal
evidence on the factual issues involved”. (2004) 90 TAX 17
(LHC), Prime chemicals case.
Adjudication kinds/classifications




Judicial adjudication
adjudication by Court of Law – Civil court, Session court, High
Court, Supreme Court- where the process of trial, evidence, and
witness on oath is taken
Quasi judicial adjudication
Adjudication of cases by Collector Sales Tax (appeals) and Appellate
Tribunal – where elementary rules of justice is followed i.e., Notice
of hearing, opportunity of being heard, examination of documents,
consideration and disposal of grounds and argument with reasons.

Administrative adjudication

Adjudication of cases by executive authorities, like Sales tax
authorities, Board, FTO, President.

Private adjudication – Arbitration
Scope and subject matter


Section 45
Adjudication matters





Assessment of tax cases
Charging of default surcharge
Imposition of penalty
Recovery of tax erroneously refunded
Other contravention under the Act or Rules
frame there under.
Adjudication authorities and powers
Additional Collector Cases u/s 11(2) and 36 with out any limit of
tax involved or tax erroneously refunded.
Deputy Collector
Cases u/s 11(1) –
Cases u/s 11(2) and 36 exceeding Rs 1 million
and does not exceed 2.5 millions –Tax or
Refund
Assistant Collector
Cases u/s 11(2) and 36 exceeding Rs. 10,000
but does not exceeds Rs 1 million – Tax
involved or refund
Superintendent
Cases u/s 11(2) and 36 up to Rs. 10,000. Tax
involved or Refund
Any officer of sales
tax with any other
designation
Such cases as may be notified by the Board.
Adjudication authorities and powers



Board power to vary the jurisdiction of the authority and
regulate the adjudication system , transfer of cases,
extension of time limit in exceptional circumstances.
Tax means principal amount of sales tax other than
default surcharge and where only default surcharge in
involved the amount of default surcharge.
Time limit for pending cases on June, 30 2006 was
extended up to December 31, 2006.
Adjudication proceeding and rules



Sales tax authorities invested with adjudication powers
must comply with the provision of the Act, Rules and
natural justice. (PLD 1968 Kar. 599)
A proper show cause notice stating therein brief facts of
the case, the offence committed and the evidence on the
presumption of which the offence is based should be
issued to the person concerned before taking any action
against such person. 1968 P.Cr.L.J 127
The show cause notice must be issued by the authority
competent to adjudicate the case and not by the lower
authority.
Adjudication proceeding and rules




Show cause notice without mentioning stipulated grounds and
reason is defective and against the law. PTCL 2002 CL 1, Khyber
Electric Lamp case.
Non availing the opportunity of being heard could not be
complained the violation of principles of natural justice. (PTCL 1986
CL 35
Service of show cause notice on the concerned person , in the laid
down manner, on his last known address and record of service must
be kept.
Hearing should be granted by the adjudicating officer himself and
not by an officer sub-ordinate to him. (AIR 1965 Ker 286)
Adjudication proceeding and rules



Opportunity to rebut the evidence and
statements on which charge is made – copy,
examination etc.
Plea and arguments be brought on record and if
not admitted then be rebutted with reason.
Speaking order with reasons.
Exparte decision only where no reply of show
cause notice is received with in stipulated period
and service of notice is proved on the concerned
person.
Adjudication proceeding and rules




Order in cyclostyled form should be avoid as such orders indicate
non application of mind by the Adjudication authority. (PTCL 1986
CL 86.
Date of dispatch and date of order must be indicated in the order to
enable the aggrieved person to avail the remedies. No delay
between the two dates.
Successor in office must give fresh hearing opportunity and himself
should hear the argument to decide the case.
Sales Tax authorities are not bound to follow the rules of pleading
and evidence or witness on oath as required in Civil courts. PTCL
1986 CL 172, PTCL 1990 CL 370
Adjudication order and effects


Adjudication order is the decision of the adjudication
authority on the issue of assessment of tax, imposition
of default surcharge, penalty, erroneous refund,
inadmissible tax inputs or other contravention or charges
levelled by the referring authority.
Effects



Exchequer
Right of recovery subject to revision or effect of appeals
Registered person

Duty to pay adjudicated tax subject to rectification or effect of
appeal remedies.
Audit

Definition / meaning

Kinds / Classifications

Scope and Procedure

Audit report and effects
Audit – meaning



Audit meaning – The term audit has not been defined in
the Sales Tax Act 1990, however the meaning,
connotation colour and shade of the term audit shall be
construed according to the subject or context in which it
is used.
Generally the term audit means the examination of
record to form the audit opinion – inception, enquiry,
investigation, search, confirmation, vouching, verification
are the techniques or methods employed for the purpose
of audit –Substantive audit – Compliance audit – factual
and legal
Dictionary
Audit - Kinds


Kinds – under sales tax law
 Annual audit – S.25 (2)
 Special audit – S. 32 A
 Audit of retailer – S. 32 AA
 Investigative audit – S 38 & 40 (2003) 88 TAX 1, SC, Master
ent., (2005) 92 TAX 59, SC, Mega Tech
 Revenue audit – VOl 11 No.3 TAX FORUM 51 (Bestway Cement
Ltd.)
Kinds – General
 Statutory audit
 Financial Audit
 Management /system audit
 Operation audit
 Internal vs. External audit
 Continues vs. interim audit
 Tax audit
 Desk audit
 Compliance audit
Audit scope and procedures




Annual audit
 Access to record, documents –s.25
 Sale tax General order No. 1 of 2004 Part IV.
Special Audit
 Special audit by Chartered accountants or Cost and management
Accounts. S. 32A
 Sales tax Rule 2006, Chapter VI
Audit of Retailer S. 32AA
Investigative audit
 Authorised officers to have access to premises, stocks, accounts and
records – S.38
 Power to call for information s.38A
 Obligation to produce documents and provide information. S. 38B
 Search under warrant s. 40
 Posting of sales tax officer. S. 40B
Tax audit report



Audit report is at best an opinion of the auditor and
material in support of the department version. The audit
report is nothing more than part of charge sheet which
needs to be established through the process of
adjudication. A material collected during the course of
audit is only an evidence to support the case of the
department in adjudication proceedings. (PTCL 2004 CL
84)
Contravention report or statement of allegation prepared
by the department to be proved through Adjudication
process.
Components – Non levied tax , short levied tax,
inadmissible input tax, erroneous refund, other
contraventions of law and rules. Sec. 25(4)
Jurisdiction

Subject matter jurisdiction – persons, good, object,
event, transactions, etc.

Territorial Jurisdiction – Place, region, residence, etc.

Pecuniary jurisdiction – financial, Monetary, Value

Original jurisdiction, revisional jurisdiction, appellate
jurisdiction, Advisory Jurisdiction, writ jurisdiction. Etc.
Jurisdiction


Question of jurisdiction
Question of jurisdiction could be raised at any stage.
 Being question of law

Goes to the root of the case

Correct application of law is the duty of the judge and
petitioner is not bound to engage the counsel.

Complete end of justice is the object of law and
technicalities should not defeat the end of justice.
Jurisdiction


Question of jurisdiction goes to the root of case can be raised for the first
time even while appearing before the highest Court of country. 2006 SCMR
1630
Exception


question of jurisdiction raised by the party and repudiate when it goes against it.
When equity is against the person raising the question of jurisdiction and if
upheld the consequence would be to perpetuate an ill-gotten gain or to bring
about a plainly unjust consequence.
Territorial or pecuniary jurisdiction which are the matter of civil code procedure and suit
valuation act.

PLD 1968 SC 278, “Judge must wear all the law of country on the sleeve of his robe”

Jurisdiction conferred by Constitution or law and not by consent or acquiescence.
2004 SCMR 1622.



Order with out jurisdiction is void PLD 1975 sc 331 2006 SCMR 1713, PLD 1958
SC104, PLD 1973 SC326, PLD 2002 SC 630, 2003 SCMR 59, 2004 SCMR 28, 1798,
Non fulfilment of mandatory condition render the order void being passed without
lawful authority.
PLD 1971 SC 124., 1991 SCMR 599 Allied Bank case. PTCL 2000 CL 465
Jurisdiction



Exercise of jurisdiction by the Incompetent
Tribunal is void. PLD 1960 SC 237
Where the assessment is required to be made
by the Assistant Collector and the assessment is
made by the deputy collector, assessment is
without jurisdiction –PTCL 1993 CL 301, Pakistan
Oxygen Ltd., PTCL 1990 CL 337, PTCL 1994 CL
840 Hoechst Pharmaceutical Pakistan (pvt)
limited.
Coram non judice.
Show Cause Notice

Non issuance of show cause notice PLD 1971 SC 591 Collector
Sahiwal case

Show cause notice without jurisdiction, GST 2003 CL 63,LHC,
Service Industries, PLD 1963 SC 136 , Ittehad chemicals case.

Defective Show cause notice proceedings void





without mentioning section and sub section
without mentioning prescribed grounds and reasons
with out mentioning exact amount of tax payable.
PTCL 2003 CL 362,LHC, D.I. G Khan Cement,( 2001) 84 TAX 133
SC, Khyber Electric, Zamidara Paper mill case 2004 PTCL 212, LHC
= 2003 GST 439, (2003) 88TAX 128 LHC, Atlas Tyres case, Caltex
2005 PTD 480 (SC)
Ground not mentioned in the show cause notice cannot be
adjudicated (2004) 90 TAX 146, KHC, Excide Pakistan case., 1987
SCMR 1840, Rahim Din case.
Show Cause Notice


Intimation of audit observation does not constitute show cause
notice. PTCL 2005 CL 224 KHC.
Show cause notice must indicate it is a show cause notice and the
respondent is to make aware that if not responded the adverse
action might be taken. PTCL 2003 CL 224 KHC, United Export case.

Show cause holding in one case and vacating in an other case is
discrimination. PTCL 2002 CL 50 KHC, Novartis Pakistan case.

Question of validity of show cause notice could be raised at any
stage, (2003) 88 TAX 128, 2004 PTCL 212, Zimandara case.

Time barred notice void. (2007) 96 TAX 229 (LHC) Shafiq traders
vs.. collector Customs. , (1963) 7 TAX 442 SC Nagina Silk mills
Opportunity of being heard




AUDI ALTERAM PARTEM
Opportunity of being heard provided by the statue not
given to the taxpayer – order is void and incurable and
subsequent proceeding also null and void and bound to
fall.PLD 1971 SC 591, Collector Shawal case.
Opportunity of being heard is a principle of natural
justice and part and parcel of every statute, 1964 PLD
410 SC Fazalur Rehman case.
Opportunity not only in writing but also in personal
hearing. 1994 SCMR 2232, 1999 PTD 1358 KHC,
Siemens case.
Opportunity- Mandatory

1971 SCMR 681 , Collector, Sahiwal & others
vs.. Muhammad Akhtar.

“ The principle so far as this country is concerned, is
accordingly well settled that where notice required to
be given by the statue is a mandatory notice, then
the failure to comply with such a mandatory
requirement of the statute would render the act void
ab initio as being as act performed in disregard of the
provision of the Statute . Furthermore, any further
action taken on the basis of such a void order would
also be vitiated and the defect at the initial stage
would be incurable by a hearing at a subsequent
stage.” PG. 685
Limitation


Law of limitation is based on the maxims:
 Delay defeats equity.
 Time and tide wait for none.
 Law helps the vigilant and not the indolent.
 Delay of justice denial of justice
Question of limitation.

Pure question of limitation can be raised at any stage of appeal PLD
1968 Dacca 701,
Mixed question of law and fact where record is required to be
examined , is to be raised at the initial stage.
PLD 1969 SC
167, PLD 1985 SC 153

Limitation is the matter of statue and be decided by the court or
authority and not left to pleading by the party. 2006 PTD 271 (SC)

Scope of raising question of law 2004 PTD 2479, 90 TAX 191

Limitation



Law of limitation is a law of procedure and change in law of
procedure is applicable retrospectively to the pending cases. 1993
PTD 459 (SC) = 67 TAX 17, CIT vs.. Asbestos Cement industry.
Change in limitation law cannot revive or extend the limitation
period already expired. 1993 PTD 459 (SC), (2005) 91 TAX 258
(LHC), Fawad Textiles.
Start of Limitation



In case of issuance of show cause notice or passing order, as
stipulated in the statute
In case of review, revision, appeal, date of service of notice, in
case of dispute of service, date of Knowledge. 2002 PTD 399 =
85 TAX 397
Limitation start from the date of knowledge and not from the
date of communication of order. (2002) 85 Tax 397, Qureshi
Ghee, SC, AJK
Limitation

No limitation run against void order. 2000 PTD 2707, 1996 SCMR
856, 1986 SCMR 1238, PLD 1963 SC 382.

Limitation create the right in favour of the opposite party. 2007 PTD
1387 SC.



Limitation does not extinguish the right but bar the remedy –
acknowledge of tax time barred debt or adjustment after expiration
of period of limitation is held justified. 2007 SCMR 1318.
Time once started cannot be stopped. 1963 PTD 633= 70 TAX 442
(SC).
Each and every day to be explained for condo nation of delay but in
case of Revenue matter condo nation application be considered
sympathetically. 42 TAX 140, 2002 PTD 506
Limitation

Time barred order void – extension under the exceptional circumstance provided by
the statue could be made accordingly and showing such circumstance in writing. 96
TAX 229 (LHC).

Limitation provisions regarding fixing of tax liability are mandatory. PTCL 2005 CL
836

Right accrued through expiration of limitation can not be waived. )2007) 96 TAX 229
(LHC) Shafiq traders.

Waiver of question of limitation. 2003 PTD 1899 (SC).

Limitation is question of law or fact. 2005) 92 TAX 253, 2006 SCMR 425, PLD 1969 SC
187, PLD 1990 SC 80, 2005 PTD 78 (SC).

State or public functionary do not enjoy preferential treatment in case of condo
nation of limitation.

Time cannot be extended but condoned. 1960 PTD1253 HC =21 TAX 279

Litigants cannot be made suffer for laches and inaction of the Department. 1967 PTD
614, 15 TAX 219

Correct application of law, whether question of law of limitation is raised or not. 2004
PTD 2479= 90 TAX 191 Asim spinning mills case. Garton case.

Vested right of escapement
“ There is hardly any doubt that once time
prescribed for doing an act by an executive
authority expires, the taxpayer is clothed with
a vested right of escapement of assessment”
324E, (2007) 96 TAX 229 (LHC), Shafiq Trader vs.. Collector of
Custom. (1963) 7 TAX 442 (SC) Nagina Silk Mills, (1982) 138
ITR462.
Case laws

Constitutionality validity






Ellahi cotton. 76 TAX 5= 1997 PTD 1555 (SC)
Hunza 79 TAX 433 (SC) =1999 PTD 1135
Shikhoo Sugar 1998 PTD 2421 (SC)
Gatron PTCL 1999 CL 359
Pfizer Laboratories PTCL 1998 CL 354 (SC
Army Welfare 1992 SCMR 1652
Case laws

Charging



Sanghar sugar 2007) 96 TAX 105 (SC)
Wapda 2002 PTD 2077 (LHC)
Al-Hilal Motors, 2004 PTD 868 (KHC)
Case laws

Assessment







Audit


Muskzar Knitwear (2004) 89 TAX 429 (LHC)
Adjudication



Mayfair spinning PTCL 2002 CL 115 (LHC)
Khyber electric (2001) 84 TAX 133 (SC)
Caltex oil, 91 TAX 277 (SC), 2005 PTD 480
State Cement 1998 PTD 2999 (SC), Piecemeal demand u/s 36.
Attock Cement 1999 PTD 1892 (SC) = 80 TAX 30
K & A Industry , 2006 PTD 537 (SC), Notice beyond limitation.
AA steel mills Ltd. 2004 PTD 624
Khyber electric (2001) 84 TAX 133 (SC)
Revision




(2007) 96 TAX 155 (LHC ) New ammar industries
(2002) 85 TAX 458 (LHC) Flying Paper and board
Revision confined to departmental proceeding- Flying case
No order of CBR for fresh audit u/s 45 A, 2004 PTD 714. (LHC) Muskzar case.
Speaking order


Reason and record are two hallmarks of all judicial and quasi-judicial
proceeding. An order not supported by reasons is just like an oral
order which no judicial authority could ever pronounce. Kings and
Lords.
PLD 1970 SC 173, Mollah Ejhar Ali v. Government of Pakistan “
there in no doubt that the High Court’s order which is unfortunately
perfunctory gives the impression of hasty off-hand decision which,
although found to be correct in its result, is most deficient in its
content. If summary order of rejection can be made in such terms,
there is no reason why a similar order of acceptance saying ‘ there
is considerable substance in the petition which is accepted’, should
not be equally blessed. This will reduce the whole judicial process to
authoritarian decrees without the need for logic and reasoning
which have always been the tratitional pillars of judicial
pronouncement investing them with their primary excellence of
propriety and judicial balance.
Speaking order

Litigants who bring their disputes to the law Courts with the
incidental hardships and expenses involved to expect a patient and
a judicious treatment of their cases and their determination by
proper orders. A judicial order must be a speaking order manifesting
by itself that the Court has applied its mind to the resolution of the
issues involved for their proper adjudication. The ultimate result
may be reached by a laborious effort, but if the final order does not
bear an imprint of that effort and on the contrary discloses
arbitrariness of thought and action, the feeling with the painful
results, that justice has neither been done nor seem to have been
done is inescapable. When the order of a lower Court contains no
reasons, the appellate Court is deprived of the benefit of the views
of the lower Court and is unable to appreciate the processes by
which the decision has been reached.”

Reasons and exercise of power, 1998 SCMR 2268, Airport support
service case., 1998 SCMR 2419, Zain yar khan v.WAPADA

Quasi judicial order should, in principal carry due reasons, PLJ 1999
SC 1105
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