2019 P T D 1780
[Lahore High Court]
Before Muhammad Sajid Mehmood Sethi, J
FAISALABAD ELECTRIC SUPPLY COMPANY LTD. (FESCO)
Versus
FEDERATION OF PAKISTAN through Secretary, Finance, Islamabad and others
Writ Petition No. 257828 of 2018, decided on 14th May, 2019.
(a) Sales Tax Act (VII of 1990)---
----S. 25 & proviso---Access to record, documents, etc.---Conduct of audit under S. 25 of the Sales Tax
Act, 1990---Nature of proviso to S. 25 of the Sales Tax Act, 1990 whereby audit could only be
conducted once in three years---Retrospective application of such proviso---Scope----Question before
the High Court was whether proviso to S. 25 of the Sales Tax Act, 1990 which provided that audit under
S. 25 of the Sales Tax Act, 1990, was to be conducted only once in three years, had retrospective
application and whether it was available to a taxpayer already undergoing audit---Held, that proviso to
S. 25 of the Sales Tax Act, 1990 was measure to curtail excessive exercise of power to conduct audit of
a registered person and aimed at restraining repeated and protracted audit proceedings eroding
Constitutional rights and safeguards available to taxpayers---Rationale behind such proviso was that a
statutory power must be exercised justly and reasonably--- Where audit proceedings under S. 25 of the
Act were pending at the time of insertion of proviso to S. 25 of the Sales Tax Act, 1990; benefits of rule
of retrospective application was available to such a taxpayer--- Section 25 of Sales Tax Act, 1990 was
neither a charging provision nor it created a liability and provided procedure for monitoring self-
assessment procedure available to taxpayer---Said proviso functioned to exclude cases of excessive use
of power while original design of law to conduct audit justly, fairly and reasonably was retained---High
Court held that proviso added to S. 25(2) of the Sales Tax Act of 1990, being procedural, beneficial and
curative in nature, would apply retrospectively---Constitutional petition was allowed, accordingly.
Independent Newspapers Corporation (Pvt.) Ltd. and another v. Chairman, Fourth Wage Board
and Implementation Tribunal For Newspaper Employees, Government of Pakistan, Islamabad and 2
others 1993 SCMR 1533; Collector of Sales Tax and Central Excise, Lahore v. Baba Farid Sugar Mills
Ltd., Okara 2004 PTD 823; Messrs Hamdard Dawakhana v. Commissioner of Income-Tax, Karachi
PLD 1980 SC 84 and Syed Matloob Hassan v. Brooke Bond Pakistan Limited Lahore 1992 SCMR 227
rel.
(b) Interpretation of statutes---
----Procedural amendments--- Retrospective application of such amendments---Scope---Presumption of
retrospective application existed with regard to amendments which were of procedural nature---
Alterations in procedure were retrospective, unless there was good reason against such retrospective
application.
Maxwell on The Interpretation of Statutes and Commissioner of Income Tax (Central-I) v.
Vatika Township (P) Ltd. (2015) 1 SCC 1 rel.
(c) Constitution of Pakistan---
----Art. 199---Constitutional jurisdiction of High Court---Scope---Exercise of discretionary taxation
powers not reasonably---Scope---Discretionary powers of taxing authorities were to be reasonably
exercised and if there was some arbitrariness, High Court had ample jurisdiction to interfere in the
matter. [p. 1785] G
Messrs Novitas International v. Income Tax Officer (Films Circle) and others 1991 PTD 968 and
Commissioner of Inland Revenue, Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and
others 2018 SCMR 1328 rel.
Mian Ashiq Hussain and Mudassar Shuja-ud-Din for Petitioners.
Ch. Zafar Iqbal, Sarfraz Ahmad Cheema and Ch. Shakeel Ahmad for Respondents.
Date of hearing: 3rd April, 2019.
JUDGMENT
MUHAMMAD SAJID MEHMOOD SETHI, J.---This consolidated judgment shall dispose of
instant writ petition along with following connected writ petitions as common questions of law and facts
are involved in this case:-
1. W.P. No.4821 of 2019 titled Messrs Pakistan Cycle Industrial Cooperative Society Limited v.
The Federation of Pakistan through the Secretary, Ministry of Finance, Islamabad and others
2. W.P. No.249511 of 2018 titled Seasons Foods (Pvt.) Ltd. v. Federation of Pakistan through
Secretary, Finance and others
3. W.P. No.259453 of 2018 titled Rahat Ghee Mills (Pvt.) Limited v. Federation of Pakistan
through Secretary, Finance and others
2. The grievance agitated through instant petition with certain facts is that petitioner-FESCO was
subjected to audit under Section 25 of the Sales Tax Act, 1990 ("the Act of 1990") for five out of six
years i.e. from the financial year 2008-09 to financial year 2013- 14. The case was again selected for
audit under Section 72B of the Act for the financial year 2015-16 i.e. tax period from July 2015 to June
2016, which according to petitioner, is unlawful, being contrary to the proviso added to subsection (2) of
Section 25 of the Act of 1990 through the Finance Act, 2018, which is applicable retrospectively to
pending audit proceedings pertaining to tax periods prior to 01.07.2018. The stance of the petitioner-
FESCO regarding retrospective application of the aforesaid proviso was rejected by respondent No.4
vide order dated 03.11.2018. Through instant petition, petitioner-FESCO has assailed aforesaid rejection
letter dated 03.11.2018 and subsequent proceedings.
Brief facts of the connected case i.e. W.P. No.4821 of 2019 are that petitioner was audited for the
tax period July 2010 to June 2011 (financial year 2010-11). The audit report under Section 25(3) of the
Act was issued by respondent No.3, which was responded by petitioner in its reply dated 29.10.2018.
The case was again subjected to audit for the financial year 2013-14 and audit report dated 29.06.2017
was issued by respondent No.3. The case has again been selected for audit for the financial year 2015-
16. Petitioner's reply was filed on 26.12.2018, claiming the benefits of retrospective operation of the
aforesaid proviso. The stance of petitioner was, however, rejected through letter dated 15.01.2019,
issued by respondent No.3. The petitioner, being aggrieved of the rejection of its claim of retrospective
application of the proviso added to Section 25(2) of the Act by the Finance Act, 2018, has filed this
petition.
In the connected case i.e. W.P. No.249511 of 2018, petitioner was audited for tax year 2014 and
proceedings were completed. Petitioner was again selected for audit for tax year 2016, which has been
assailed on the strength of proviso added to Section 25(2) of the Act of 1990 through Finance Act, 2018.
The facts and circumstances and prayer in connected W.P. No.259453 of 2018 are almost same as in
W.P. No.249511 of 2018.
3 Arguments heard. Available record perused.
4. The question before this Court is whether proviso added to subsection (2) of Section 25 of
the Act of 1990 would be retrospective or prospective in its application. Section 25 envisages
the powers of the Commissioner and provides complete procedure for conducting audit of a
registered person culminating into passing of an appropriate order. For facility of reference,
Section 25 of the Act ibid is reproduced hereunder:-
5.
"25. Access to record, documents, etc.---(1) A person who is required to maintain any record or
documents under this Act or any other law shall, as and when required by Commissioner, produce
record or documents which are in his possession or control or in the possession or control of his agent;
and where such record or documents have been kept on electronic data, he shall allow access to the
officer of Inland Revenue authorized by the Commissioner and use of any machine on which such data
is kept.
(2) The officer of Inland Revenue authorized by the Commissioner, on the basis of the record,
obtained under sub-section (1), may, once in a year, conduct audit:
Provided that in case the Commissioner has information or sufficient evidence showing that such
registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland
Revenue, not below the rank of Assistant Commissioner, to conduct an inquiry or investigation under
section 38:
Provided further that nothing in this subsection, shall bar the officer of Inland Revenue from conducting
audit of the records of the registered person if the same were earlier audited by the office of the Auditor-
General of Pakistan.
Provided also that audit under this section shall be conducted only once in every three years."
The proviso added to Section 25(2) ibid, through the Finance Act, 2018, provides that audit under said
Section shall be conducted once in every three years. There exists a presumption of retrospective
application in regard to amendments which are of a procedural nature. This position was stated in
'Maxwell on The Interpretation of Statutes':
"The general principle, however, seems to be that alterations in procedure are retrospective, unless there
be some good reason against it."
In Commissioner of Income Tax (Central-I) v. Vatika Township (P) Ltd. [(2015) 1 SCC 1)], Supreme
Court of India has justified the retrospective treatment of a procedural provision conferring a benefit on
some persons in the following words:
"33. .... If a legislation confers a benefit on some persons but without inflicting a corresponding
detriment on some other person or on the public generally, and where to confer such benefit appears to
have been the legislators object, then the presumption would be that such a legislation, giving it a
purposive construction, would warrant it to be given a retrospective effect. This exactly is the
justification to treat procedural provisions as retrospective."
5. The proviso in question is a measure to curtail excessive exercise of power to conduct audit of a
registered person. This amendment aims at restraining repeated and protracted audit proceedings eroding
constitutional rights and safeguards available to taxpayers under the provisions of the Constitution. The
idea behind is that a statutory power must be exercised justly and reasonably. Excessive use of lawful
power is not admirable. Reliance is placed upon Independent Newspapers Corporation (Pvt.) Ltd. and
another v. Chairman, Fourth Wage Board and Implementation Tribunal For Newspaper Employees,
Government of Pakistan, Islamabad and 2 others (1993 SCMR 1533).
The learned Division Bench of this Court has already held in Collector of Sales Tax and Central Excise,
Lahore v. Baba Farid Sugar Mills Ltd., Okara (2004 PTD 823) that beneficial amendments should be
made applicable to pending proceedings. Since the audit proceedings under Section 25 of the Act were
admittedly pending at the time of the enforcement of the amendment, the benefits of rule of
retrospective application is available to the petitioner.
6. The argument of respondents that the proviso carves out an exemption from the main provision
and, being exemption clause, it should be interpreted strictly, is misplaced. Exemption presupposes a
charge or liability. Section 25 is neither a charging provision nor it creates a liability. Generally
speaking, it provides procedure for monitoring self-assessment procedure available to the taxpayer. The
proviso functions to exclude the cases of excessive use of power while the original design of law to
conduct audit justly, fairly and reasonably is retained. Restraining the misuse of authority, which may
have negative and disastrous effects on the ongoing and running business of the taxpayers while keeping
them subject to just and reasonable monitoring is perfectly legitimate. The Hon'ble Supreme Court of
Pakistan, in Messrs Hamdard Dawakhana v. Commissioner of Income-Tax, Karachi (PLD 1980
Supreme Court 84), has ruled as under:-
"It is true that ordinarily the function of the proviso is to except out of a previous enacting part of a
statute something which, but for the proviso, would have been within the enacting part, but it is not an
inflexible rule of construction that a proviso in a statute should always be read as a limitation upon the
effect of the main enactment. Generally, the natural presumption is that but for the proviso the enacting
part of the section would have included the subject-matter of the proviso; but the clear language of the
substantive provision as well as the proviso may establish that the proviso is not a qualifying clause of
the main provision, but is in itself a substantive provision. ...."
There is nothing extra ordinary in the case of the present petitioners, hence, the cases are fit for
ordinary application of the above said rule of interpretation.
7. The next contention of respondents that the proviso is inconsistent with the spirit of Section
25(2) of the Act of 1990 is not well-founded; firstly, because the permission to conduct audit once in a
year was not a mandate to conduct audit every year; secondly, the proviso added through the Finance
Act, 2018 is extension of the same safeguard against excessive repetition of audit proceedings; thirdly,
even if, for the sake of argument, there is some inconsistency, the later inconsistent law will be read as
having impliedly repealed earlier provision. No exception to the ordinary rule of interpretation has been
made out on behalf of the respondents. Reference is made to Syed Matloob Hassan v. Brooke Bond
Pakistan Limited Lahore (1992 SCMR 227), wherein it is held that the statute later in date prevails.
8. Under the law, a proviso deals with the subject, which is covered by the enacting part of the
provision. The proviso only carves out an exception which would fall within the language and meaning
of the enacting part. It only limits the operation of the main enacting part to the extent it is indicated in
the proviso. The proviso added by the Finance Act, 2018 to Section 25(2) of the Act of 1990 restrains
excessive use of power in conducting audit while retaining just and fair application of law for the
purposes of the statute.
9. Needless to say that discretionary powers of taxing authorities should be reasonably exercised
and if there is some arbitrariness, this Court has ample jurisdiction to interfere in the matter. A taxpayer
should not be allowed to be pestered and dragged indefinitely through an unending process of scrutiny
and audit of his accounts, which would affect his business. Reference can be made to Messrs Novitas
International v. Income Tax Officer (Films Circle) and others (1991 PTD 968) and Commissioner of
Inland Revenue, Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and others (2018 SCMR
1328).
10. In view of the above, this petition, along with connected petitions, is allowed. The impugned
letter dated 03.11.2018 is declared to be illegal and without lawful authority. The proviso added to
subsection (2) of Section 25 of the Act of 1990, being procedural, beneficial and curative, will apply
retrospectively and respondent-authorities are directed to proceed in accordance with law.
KMZ/F-17/L Petitions allowed.
