High Court Division :
(Special Original Jurisdiction)
Syed Refaat Ahmed J
Md Akram Hossain
Eastern Cement Industries Ltd ..........
Customs, Excise and VAT, Appellate
Tribunal, Dhaka and another.............
June 10th, 2012
Value Added Tax Act (XXII of 1991)
Sections 55 and 37
The process of determination that followed, thereafter, up to the appellate stage is, therefore, wholly confined to ascertaining the justification of imposition of penalty without the benefit, however, of prior substantive adjudgment or determination of any liability justifying the imposition of such penalty. .. .... (8)
PET Industries vs Customs, Exercise, 61 DLR 734; Abdul Motaleb vs Customs, 64 DLR 100 and Hotel Zakaria International (Pvt) Ltd. vs National Board of Revenue (NBR) 30 BLD (2010) 388
M Amin Uddin, with Munshi Moniruzzaman
Advocates-For the Petitioner.
Kashefa Hussain, AAG-For the Respondents.
Syed Refaat Ahmed J : In this Application under Article 102(2) of the Constitution a Rule Nisi was issued calling upon the Respondents to show cause as to why the Order dated 22-11-2006 passed by the Respondent No.1 in Nothi No. CEVT/CASE (VAT)-89/2005 (Annexure 'H') affirming the Order dated 5-12-2004 passed by the Respondent No.2 under Order No. 220/Musak/Appeal/2004 (Annexure-'E') by which the Order dated 11-9-2003 passed by the Respondent No.4 under Order No. 16/Musak/ 2003 (Annexure-'C') was affirmed should not be declared to have been passed without lawful authority and is of no legal effect and/ or such other or further order or orders passed as to this Court may seem fit and proper.
2. The Petitioner, a VAT registered entity, is engaged in the business of manufacturing cement. On 17-5-2003 the Respondent No.4, Deputy Commissioner issued a notice alerting the Petitioner to the fact that concerned Customs, Excise and VAT functionaries upon an inspection of a truck transporting the Petitioner's manufactured products and scrutiny and inspection of the Petitioner's factory and relevant documents found therein detected a short adjustment of Taka 4,83,878 in the Petitioner's Current Account Register in apparent violation of both the VAT Act, 1991 ("the Act") the VAT Rules, 1991 ("the Rules"). Notably, the said notice is declaratory of an offence, ostensibly proven, of supply of goods on the basis of untrue statement in Chalan, which by reference to specific provisions of both the Act and the Rules were declared to be punishable under Section 37(2) (ka) (kha) of the Act. The Petitioner having replied to the said notice the Respondent No.4 proceeded, thereafter, to consider the said response arriving at a determination reflected in the Order dated 11-9-2003. The Petitioner was asked, thereby, to adjust the Current Account Register to the amount of Taka 4,83,878 and subjected to penalty of Taka 5,00,000 under Section 37(2) of the Act. That led the Petitioner, upon deposit of the requisite 10% of the above determined amount, to file an appeal before the Respondent No.2, commissioner of Customs (Appeal). The Respondent No.2, Commissioner having affirmed the earlier demand and imposition of penalty, the Petitioner upon deposit of the requisite 15% of the amount so demanded, lodged an appeal before the Respondent No.1, Appellate Tribunal. That appeal came to be dismissed on 22-11-2006 which the Petitioner now contends was an inadequate exercise of jurisdiction by the Appellate Tribunal in that it failed to consider certain fundamental issues of law that are at issue in this Writ Petition. This Court's attention has further been drawn to the fact that even while the Petitioner's appeal was awaiting disposal by the Respondent No.1, Tribunal, the Respondents curiously adjusted the demanded amount of Taka 4,83,878 in the Petitioner's Current Account Register as evident in an Order dated 4-5-2005.
3. The learned Advocate for the Petitioner Mr Munshi Moniruzzaman submits that in the facts and circumstances the core issue to the determined by this Court is the legally untenable process initiated by the Respondents upon issuance of the initial notice of 17-5-2003 in a manner wholly discordant with the scheme of the Act. In a nutshell, that scheme is one of imposition of any penalty only upon a prior determination of facts leading to a specific finding on any liability arising under the Act. The Act does not prescribe any mode of imposition of penalty without such prior determination and in this regard it is submitted that the Order of 17-5-2003 issued in ignorance of that fact is to be found to have been issued without lawful authority and to be no legal effect. In this regard it is submitted that provisions of Section 37 of the Act are designated solely for imposition of penalty for offences found to have been committed as specified in that very section itself. However, the fact of the commission of such offence necessarily requires a prior determination and ascertainment of liability through a participatory process as designated by Section 55 of the Act. It is submitted that such prior determination is the necessary prerequisite for conferring jurisdiction upon the Respondents to exercise authority under Section 37 for imposition of penally. Mr Moniruzzaman, accordingly, submits that in the facts and circumstances the fact of wilful evasion having not been ascertained or determined in pursuance of the prescribed procedure of participatory determination as designated under Section 55 of the Act, the very assumption of authority and jurisdiction under Section 37, therefore, constitutes the arrogation of authority not vested in the concerned Respondents under law. Consequentially, the Orders emanating from such wrongful assumption pf authority are also to be declared as without any legal sanction or consequence. By that rationale, Mr Moniruzzaman submits any imposition of penally under Section 37(2) ought to have been preceded in the scheme of the Act by a Section 55(3) determination and demand of which there is found no evidence on record.
4. It is against this backdrop, that this Court is now required to determine the legal sufficiency of the entire process commencing with the issuance of the Order dated 17-5-2003 leading to the ostensible final disposal on appeal of the matter by the Respondent No. l, Tribunal on 22-11-2006. Also arising for this Court's consideration is the very act of adjustment of the disputed demanded amount effected on 4-5-2005 even before the Respondent No.1, Tribunal had an opportunity to finally determine on the justifiability of the same.
5. No Affidavit-in-Opposition has been filed in this case on behalf of the Respondents.
6. It is noted at the outset that issues concerning the construction of the applicable provisions of the Act and the distinctive features, in particular, of Sections 55 and 37 of the Act arraised in this Application are ones which have been dealt with and decided upon by this very Court in a series of cases that have clearly laid down the sequence of action under the same. The preponderant judicial view in this regard is that it is an absolute requirement of the law that the provisions of Section 55 of the Act are to be complied with to the fullest extent even before any action under Section 37 of the Act can be contemplated. The judicial insistence on such sequential action is predicated upon a strict interpretation and application of these provisions of the Act as highlight the distinctive features of processes initiated under Sections 55-and 37. This Court has repeatedly insisted in that regard on the prior exhaustion of a process initiated under section 55 strictly in accordance with the prescriptions laid down in that section. This Court has previously underscored the functional distinction between the two sections and, therefore, their spheres of operation. This Court has, accordingly, emphasized upon the fundamental objective of the Section 55 provisions being to ensure a due realization upon determination of shortfall in payment and those in section 37 to identify specific offences and the sanctions that attach to the same. This Court in that regard has held that section 55 is to be accorded primacy for determination and realization of any amount having previously fallen due. The rationale for that conclusion is provided thus in PET Industries vs Customs, Exercise reported in 61 DLR (2009) 734 at paragraph 13 and 14 at page 736.
"If the entire provision of Section 55 is considered then it would be clear that Section 55 empowers the concerned VAT authority to take steps for realization of unpaid or less paid Vat or tax upon first issue of a notice asking to show cause and then, upon hearing, within 90 days to make a final demand in respect of any Vat or tax unpaid, evaded or less paid."
On the other hand, Section 37 of the said Act defines various offences and punishments for such offence. Before any final demand could be made under Section 55(3), none of the provisions of Section 37 could be resorted to. It is needless to say as the fiscal law demands strict interpretation so equally demands for strict application by an authority authorized to apply. The VAT Act is a comprehensive tax law. It has defined the tax to be paid as VAT on the specified sales and/or services. Similarly, it has laid down elaborate procedure for realization of the tax and punishment for any violation or omission. The concerned authority is therefore, duty bound to follow the procedure as laid down in the Act for each and every action. The Act does not empower any of the authorities created to become zealot to overpower and/or overawe any tax payer. Invoking and/or resorting to Section 37 while issuing a notice under Section 55(1) of the VAT Act therefore, could not be said to have been issued bonafide for the simple reason that at the time of issue of the notice, the authority concerned had not yet arrived at as to any evasion of VAT by the petitioner."
7. Significantly, the interpretation above makes it absolutely necessary for the invocation first of a Section 55 process entailing the act of final determination through a participatory exercise under Section 55(3) on the basis of a reply or objection submitted further to a Section 55(1) notice. The ratio in the PET Industries Case is found by this Court to be pervasive of the ratio decidendi in a series of other decisions, most notably, Abdul Motaleb vs Customs reported in 64 DLR (2012), 100 as well as in Hotel Zakaria International (Pvt) Ltd. vs National Board of Revenue (NBR) reported in 30 BLD (2010), 388. This Court has repeatedly emphasized on such exhaustion of the section 55 process in its entirety culminating in a final determination before the VAT Authority can proceed under Section 37. Such insistence is premised on the legal impossibility of any attempt at even raising the spectre of punishment under Section 37 of the Act before any decision could be arrived at finally and conclusively under Section 55(3) as to the true extent, if at all, of the shortfall of the payment of any tax or arrears in taxes and the extent and nature of the concomitant liability stemming from such circumstances.
8. The above construction of law applied to the facts and circumstances highlights the fact that the very initiation of the process of holding the Petitioner accountable under law and as initiated on 17-5-2003 was legally an unsound and untenable one. If at all, on that date the Respondents pertinently may have issued a show cause notice under section 55(1) specifying prima facie reasons for any demand but significantly giving the Petitioner an opportunity to explain its position in response. Upon a clear reading of that Order of 17-5-2003 it is evident to this Court that such stage of a prior substantive determination was wholly skipped in preference to requiring the Petitioner prematurely instead to defend itself against the threatened imposition of penalty under Section 37(2). The process of determination that followed, thereafter, up to the appellate stage is, therefore, wholly confined to ascertaining the justification of imposition of penalty without the benefit, however, of prior substantive adjudgment or determination of any liability justifying the imposition of such penalty.
9. It is in that context that this Court has considered the sufficiency of the Orders both of the Respondent No.2, Commissioner of Customs (Appeal) and of the Respondent No.1, Tribunal. There is noted in both instances a glaring failure to consider the proper application of the law in the facts. This Court finds that the Respondent No. I, Tribunal, in particular, as the ultimate forum sitting in final determination of facts and ascertaining the relevant law applicable to the same wholly ignored the fact that nothing short of a prior compliance of section 55 of the Act shall enable the VAT Authority to proceed to penalize under Section 37. In this regard, this Court holds that it was incumbent upon the Respondent No.1, Tribunal to appreciate that liability has to be fixed first under Section 55 before imposition of penalty under Section 37 and that the Petitioner's case was marked by the absence of such prior essential determination. It is found that had the Tribunal properly applied its judicial mind it would readily deduce that the Petitioner, if at all, could initially submit to a Section 55 process leading to final determination under Section 55(3) after proper and due opportunity given it to be heard. Upon a clear reading of the impugned appellate Order it is evident to this Court that the Tribunal failed to do so. The Tribunal instead found on a wilful attempt on the Petitioner's part Lo evade Lax liability and, thereby, affirmed the previous Order of the Respondent No.2, Commissioner. It is by reason of the above, this Court finds on the inadequacy of the Appellate Tribunal's determination process and, thereby, on the illegality and ineffectiveness of the determination of liability as well as the imposition of penalty as above noted. It follows that, the Tribunal's Order dated 22-11-2006 along with the earlier Orders of the Respondent No. 2, Commissioner (Appeal) dated 5-12-2004 and the Order of the Respondent No.4, Deputy Commissioner dated 11-9-2003 and the notice dated 17-5-2003 are all found to have been issued without any lawful authority and to be of no legal effect. All impugned Orders having, therefore, been so quashed by this Judgment and Order it is also directed that the Petitioner shall be entitled to a refund in entirety of all deposits made in fulfilment of the prerequisites for filing the appeals both before the Respondent No.2, Commissioner (Appeal) and the Respondent No.1 Customs, Excise and VAT Appellate Tribunal.
10. Furthermore, this Court having thus found against the validity of any purported determination of a case of wilful evasion against the Petitioner, the claim to the allegedly evaded VAT being Taka 4,83,878, which the Respondents have otherwise by their Order of 4-5-2005 seemingly peremptorily adjusted in the Petitioner's Current Account Register, is also found to be shorn of any legal basis. In such circumstances, such amount shall necessarily require a readjustment in the Petitioner's favour in a manner that an equivalent amount shall now have to be credited in the Petitioner's Current Account Register. The rationale here is one of restitutio in integrum, i.e., placing the aggrieved Petitioner in the situation as by law ought to have been allowed to operate and prevail to its benefit at the material time had no prejudice been sustained by the Petitioner by the wrongful action of the Respondents on 4-52005. The Petitioner by dint of this Order shall, thereby, be restored to its original and uninjured state and position as if the adjustment Order of 4-5-2005 had never been made.
11. Given these facts and circumstances and this Court's understanding that the entire process of initiation and determination of the Petitioner's liability commencing with the notice of 17-5-2003 and culminating in the impugned Appellate Order of 22-11-2006 has been in violation or in avoidance of the prescription of the relevant provisions of the law, this Court is, however, also of the view that there is nothing in the facts and circumstances to deter the Respondents to initiate a due and proper determination process under Section 55(1) of the Act. Should the Respondents find themselves in a position to so proceed as per the requirements in Section 55, they may so proceed as per the law subject, however, to making all the refunds and the readjustment as above directed forthwith and positively prior to the issuance of any notice under Section 55(1) to the Petitioner.
12. In light of the above, this Court finds merit in the Application and substance in the Rule issued and declares the impugned Order of the Appellate Tribunal, the earlier Orders of the Respondent Nos. 2 and 4 and the initial notice of 17-5-2003 to have been issued without lawful authority and to be of no legal effect.
13. In the result, the Rule is made absolute subject to the observations and specific directions made hereinabove.
14. There is no Order as to costs.
Let the Records as earlier called for be sent down to the Respondent No.1, Customs, Excise and VAT Appellate Tribunal forthwith.