Commissioner Inland revenue Zone-I Lahore Vs Ms Brothers Engineering 135-Upper Mall Lahore

Stereo. H C J D A 38.

Judgment Sheet

IN THE LAHORE HIGH COURT LAHORE

JUDICIAL DEPARTMENT

Case No: STR No.18050/2017

Commissioner Inland Versus M/s Brothers Engineering Revenue (Pvt.) Limited

JUDGMENT

Date of hearing 05.10.2026 Applicant by Mr. Muhammad Idrees Aslam, Advocate Respondent by: Nemo.

Muhammad Ajmal Zahid, J.— Through this Reference Application under Section 47 of the Sales Tax Act, 1990 (“the Act”), the applicant-department has called in question the order dated 18.01.2017 passed by the learned Appellate Tribunal Inland Revenue, Lahore (“the learned Tribunal”) in S.T.A. No.44/LB/2009.

2.Briefly stated, the facts giving rise to the instant Reference are that, in an earlier round of litigation, this Court remanded the matter to the Collector of Sales Tax, Lahore, for determination of the effect and applicability of Circular Letter No.1/5-STB/2003 dated 07.06.2003 and SRO 500(I)/2003 dated 07.06.2003 upon the tax liability of the respondent. Pursuant to the said remand, the Collector of Sales Tax, vide order dated 06.02.2007, declined to extend the benefit of the aforesaid SRO to the respondent, principally on the ground that the case was hit by condition (b) of SRO 500(I)/2003 dated 07.06.2003.

3.Aggrieved by the said order, the respondent preferred an appeal before the learned Tribunal, which, vide order dated 18.01.2011, dismissed the appeal and upheld the order of the Collector of Sales Tax. The respondent thereafter approached this

Court through Sales Tax Reference No.80/2011. Vide order dated 21.09.2016, this Court remanded the matter to the learned Tribunal for fresh adjudication in accordance with law. Upon reconsideration, the learned Tribunal, through the impugned order dated 18.01.2017, accepted the respondent's appeal, set aside the order passed by the Collector of Sales Tax and extended the benefit of SRO 500(I)/2003 dated 07.06.2003 to the respondent in respect of sales tax liabilities pertaining to taxable supplies made prior to 01.07.2000. Hence, the instant Reference Application at the instance of the department.

4.Vide order dated 25.04.2017, this Court admitted the instant Reference on the following question of law:

“Whether on the facts and circumstances of the case, the ATIR was justified to declare the order Collector Sales Tax and Federal Excise, Lahore dated 06-02-2007 as illegal; relying solely on observation of Hon'ble High Court in divergent matters, without independent application of mind and without discussing the legal effect/implication of SRO 500(1)/2003 dated 07-06-

5.Learned counsel for the applicant-department contends that the learned Tribunal erred in law and on facts in setting aside the order passed by the Collector of Sales Tax. According to him, the respondent was not entitled to the benefit of SRO 500(I)/2003 dated 07.06.2003 because its case fell within condition (b) thereof, the controversy involving tax evasion. It is further contended that the learned Tribunal relied upon observations made by this Court in other matters without independently examining the applicability and legal effect of the SRO in the facts of the present case. On this basis, learned counsel submits that the impugned order is legally unsustainable and liable to be set aside.

6.Learned counsel for the respondent, on the other hand, supports the impugned order and submits that the learned Tribunal, upon reconsideration of the matter pursuant to the order

of remand passed by this Court, correctly found that the department had failed to establish tax evasion or fraud on the part of the respondent. It is contended that condition (b) of the SRO could not be invoked merely on the basis of an allegation of evasion, particularly where the underlying dispute was bona fide and the alleged evasion had not been established through any cogent material.

7.We have heard learned counsel for the parties and have examined the available record.

8.The controversy essentially turns upon the applicability of SRO 500(I)/2003 dated 07.06.2003, read with Circular Letter No.1/5-STB/2003 issued on the same date, and, in particular, the exclusion contained in condition (b) thereof. The department's case is that the respondent was disentitled to the benefit of the SRO because its case involved tax evasion.

9.The learned Tribunal, while deciding the matter after remand, recorded the following findings:

“In recent Reference the Honorable Lahore High Court has also observed that “there is weight in arguments by learned counsel for the applicant that in case of bonafide dispute the case does not fall within the word “evasion” as used in clause (b)”. The learned DR also failed to prove that the appellant involved in the tax evasion/fraud. In view of the foregoing discussion the appeal is accepted and order of Collector is set aside being of no legal effect. The entire sales tax liabilities on the taxable supplies made by the appellant prior to 1st July, 2000 are declared stand exempted by the CBR by virtue of SRO 500(I)/2003 dated 07.06.2003 and circular letter No.1/5-STB/2003 even dated. We order accordingly.”

10.A plain reading of the aforesaid findings makes it evident that the learned Tribunal did not extend the benefit of the SRO merely because this Court had made certain observations in other proceedings. The Tribunal also examined the factual basis of the department's objection and specifically found that the

departmental representative had failed to establish that the respondent was involved in tax evasion or fraud. Thus, the Tribunal's conclusion rested on two interconnected considerations: first, the legal distinction between a bona fide dispute and an established case of evasion for purposes of condition (b); and, second, the failure of the department to substantiate the allegation of evasion or fraud.

11.It is a settled principle that an exemption or concession granted through a statutory notification or subordinate legislation must be claimed and considered strictly in accordance with its language and the conditions prescribed therein. Where the instrument itself excludes a particular category of cases from its benefit, the exclusion cannot be ignored. Equally, however, an exclusionary condition cannot be invoked merely on the basis of an allegation which remains unsubstantiated. The authority seeking to deny a statutory concession on the ground that a prescribed exclusion applies must establish the factual foundation necessary for attracting that exclusion.

12.In the present case, the department sought to deny the benefit of SRO 500(I)/2003 on the premise that the respondent's case involved tax evasion. The learned Tribunal, however, recorded a categorical finding that the department had failed to establish tax evasion or fraud. The applicant-department has not been able to point out any material from the record demonstrating that this finding is the result of misreading or non-reading of evidence. Nor has any material been identified which could establish that the Tribunal applied a legally erroneous test while determining the applicability of condition (b) of the SRO. The condition (b) of the SRO 500(I)/2003 is reproduced hereunder:- “b) this notification shall also not apply to the registered persons against whom a case of tax fraud or the evasion has already been framed; and”

The language of condition (b) of SRO 500(I)/2003 makes it clear that the benefit of the notification is unavailable to a registered person against whom a case of tax fraud or tax evasion has already been framed. The use of the expression “has already been framed” contemplates the existence of a case of tax fraud or evasion duly framed against the registered person; a mere allegation or suspicion, without supporting material, would not, by itself, suffice to attract the exclusionary clause. In the present case, the learned Tribunal has recorded a categorical finding that the department failed to establish tax evasion or fraud. The applicant- department has neither identified any evidence that was misread or overlooked by the learned Tribunal nor demonstrated that the finding suffers from any legal infirmity. In the absence of such material, the exclusion contemplated under condition (b) cannot be invoked merely on the basis of an allegation of tax evasion.

13.The objection that the learned Tribunal relied upon observations made by this Court in other matters and thereby failed to exercise independent judgment is, in our view, misconceived. A judgment or observation relied upon by a forum has to be read in its proper factual and legal context. The mere fact that the learned Tribunal referred to an observation of this Court does not, by itself, establish that it abdicated its own jurisdiction or failed to independently examine the controversy. What is material is whether the Tribunal applied the governing legal provision to the facts before it. In the present case, the impugned order demonstrates that the Tribunal considered the department's allegation of tax evasion and found it to be unsupported by sufficient evidence.

14.Furthermore, the allegation of tax evasion and its legal consequence under condition (b) cannot be treated as synonymous. The mere assertion by the department that a transaction or tax liability involves evasion does not, without more, establish that the exclusion contained in the SRO has been attracted. The competent

authority must examine the substance of the controversy and determine whether the facts and material on record establish the circumstances contemplated by the exclusionary condition. In the instant case, the learned Tribunal found that such factual foundation had not been established.

15.It is also significant that the matter had already travelled to this Court in Sales Tax Reference No.80/2011, whereupon the controversy was remanded to the learned Tribunal for fresh adjudication in accordance with law. The learned Tribunal thereafter reconsidered the matter and passed the impugned order. At this stage, the applicant-department was required to demonstrate a specific legal infirmity in the decision rendered after remand. A mere disagreement with the Tribunal's appreciation of the material, or a reiteration of the departmental position that the respondent was involved in tax evasion, does not, in the absence of a demonstrated error of law, furnish sufficient basis for interference in reference jurisdiction.

16.The jurisdiction of this Court under Section 47 of the Act is confined to questions of law arising from the order of the learned Tribunal. Although this Court may certainly examine whether the Tribunal has correctly construed and applied the relevant statutory provision, notification or subordinate legislation, the reference jurisdiction is not intended to provide a forum for a fresh appraisal of factual matters merely because another view may be possible. Interference is warranted where the impugned order suffers from an error of law, proceeds upon an erroneous interpretation of the applicable statutory instrument, or contains a finding demonstrably vitiated by misreading or non-reading of material evidence.

17.Tested on the above principles, no such infirmity has been demonstrated in the impugned order. The learned Tribunal considered the applicability of SRO 500(I)/2003 dated 07.06.2003 and, in particular, the department's objection based upon condition

(b)thereof. It’s finding that the alleged tax evasion or fraud had not been established has not been shown to be perverse, based on misreading or non-reading of material evidence, or founded upon an incorrect interpretation of law. The reliance placed upon observations of this Court in other matters was merely part of the reasoning and did not constitute the sole basis of the decision.

18.We may also observe that the question of law framed at the time of admission proceeds, inter-alia, on the premise that the learned Tribunal had acted “solely” on the observations of this Court in divergent matters and without independent application of mind. The impugned order, however, does not support such a premise. The Tribunal independently recorded a factual finding that the department had failed to establish tax evasion or fraud and then applied that finding to the exclusion contemplated by condition (b) of the SRO. Consequently, the very foundation of the question as framed is not borne out from the record.

19.For the foregoing reasons, we are of the considered view that the applicant-department has failed to demonstrate any error of law in the impugned order dated 18.01.2017 passed by the learned Tribunal in S.T.A. No.44/LB/2009. The question of law is, therefore, answered against the applicant-department and in favour of the respondent. The impugned order is maintained. Consequently, the instant Reference Application is dismissed.

20.Office is directed to transmit a copy of this judgment, under the seal of the Court, to the learned Appellate Tribunal Inland Revenue, Lahore, in terms of Section 47(5) of the Sales Tax Act, (Hassan Nawaz Makhdoom) (Muhammad Ajmal Zahid) Judge Judge

M. Tahir*