LAHORE: While closing doors on all the manipulative ways used by tax evaders to avoid sales tax payments under Sales Tax Act, 1990, the Lahore High Court (LHC) in a landmark verdict declared the collection of short-tax amount without issuance of prior show cause notices as legal.
It is to be noted that after the LHC judgment, now any person filing false or incorrect declarations are liable to recovery of due tax without formal issuance of show cause.
The LHC pronounced the verdict on a petition, challenging recovery proceedings without issuance of prior notices. Lahore RTO Chief Commissioner Shafqat Mehammad and his team represented the tax department in the court. They contended that it was mandatory for the taxpayers to file true and correct declarations. They argued that when it was established that the taxpayer had falsified facts and figures, then on the basis of evidence available on record or with the Annexures of the returns, the recovery proceedings could be initiated against the person who has filed such return. They declared that such a situation left the department with no option but to go after the persons filing incorrect declarations with the aim evade sales tax.
After hearing to arguments and taking the relevant laws into account, the LHC in its verdict declared that it the legal obligation of the tax department to recover short-paid amount of sales tax from the petitioner under section 11-A of the Sales Tax Act, 1990 on the basis of monthly sales tax returns filed.
According to the judgment, section 11-A of the Act of 1990 enables the tax department to collect short paid amounts without any prior show cause notice and prejudice to any action prescribed under Section 48 of the Act of 1990. The purpose of this section is to enable the tax department to recover the amount of less paid tax from the tax due as indicated in the returns without recourse to the person. The tax due is determined from the returns filed by a person and the information contained in the returns. The default become apparent from the return filed and no further information/document is needed. The return filed by the tax payer is the evidence which proves the default and renders the person liable for short paid amount under Section 11-A of the Act of 1990.
The LHC declared that there was no dispute with respect to the assessment of tax. The dispute pertains to collection of sales tax by the Petitioners under the Special Procedure Rules, 2007 prescribed for steel melters and re-rollers and the collection of extra tax and further tax on the billed amount. In these cases the Petitioners are merely collection agents wherein they recover the extra-tax, further tax on the billed amount and sales tax at the rate of Rs.4 per unit consumed through the electricity bills and deposit the same in the government treasury. Incorrect disclosure of units consumed or tax collected does not give rise to an assessment dispute. In fact, it suggests that the Petitioners have deliberately evaded their obligation of depositing the necessary tax, sales tax, extra tax or further tax.
The counsel for the Petitioners was unable to explain why there was a discrepancy in the units of electricity consumed in “Annexure-C”. His emphasis was on the fact that due process under Section 11 of the Act of 1990 must be followed to assess the tax due from the Petitioners, if any. In the same way there is no explanation for the incorrect disclosure of the tax collected (extra tax and further tax). The Petitioners have also argued in their petitions that the tax collected is their output tax. It is the grievance of the Petitioner that this fact should have been considered before acting under Section 11-A of the Act of 1990. Again this argument is misconceived as this point has already been agitated and decided by this Court in STR No.105 and 106 of 2011.
Therefore, in view of the aforesaid for the purposes of Section 11-A of the Act of 1990 the electricity bills relied upon form part of the returns filed and the action initiated under Section 11-A of the Act of 1990 is based on the information provided in the returns of the Petitioners, LHC added.
It is to be recalled that the Lahore Electric Supply Company Limited (Lesco) through petitioner W.P.No.29138/2013 submitted that the Lesco had been filing its monthly sales tax returns as required under Section 26 of the Act of 1990. The returns are being filed electronically through the E-portal. The tax department issued three separate notices in which it has alleged that the petitioner has short paid the sales tax with respect to steel melters and re-rollers and hence the short paid amount has been made recoverable under Section 11-A of the Act of 1990.