Stay of recovery in tax matters - II

It needs to be mentioned that the principle contained in Additional Collector-II Sales Tax, Lahore Vs M/s Abdullah Sugar Mills Ltd (2003 SCMR 1026) relied by Division Bench was misplaced, due to wrong inference drawn and after changes in law that are discussed before and are further elaborated hereunder, inter alia, on the following:

* A case is an authority for what it decides-Shahtaj Sugar Mills Ltd. through Chief Executive v. G.A. Jahangir and 2 others2004 PTD 1621 (H.C. Lah.). The case [(2003 SCMR 1026)] relied upon by the Division Bench was on an altogether different premise wherein in the absence of power to grant stay, the Supreme Court held that:

"It is an established principle of law that whatever is not prohibited, it is permitted unless it specifically violates any law or rules... . The tribunal has got power to pass an interim order. In this background it would not be apt to hold that Legislature has authorized the Tribunal to grant interim relief, but the same is not available with the High Court which is an appellate forum. There is another established principle of law which cannot be lightly brushed aside where a court is competent to allow final relief, it has also got the jurisdiction to allow interim relief."

From the plain reading of above, the law enunciated by the Supreme Court is clear that a forum having jurisdiction to decide a matter also enjoys inherent power to grant interim relief. This will apply wherever no power of stay is explicitly granted to any appellate tax authority. As regards the matter pertaining to income tax, this principle was given statutory form under section 131(5) of the Ordinance and in cases related to customs under section 194B of the Customs Act, 1969. In no way this judgement could support the contention that unless a Bench has jurisdiction of the main appeal it is not competent to adjudicate stay application. The power under the relevant provisions mentioned above is available to Appellate Tribunal Inland Revenue and Customs Appellate Tribunal and not restricted to a particular Bench that is assigned the appeal as well. There can be occasions where even appeal is not filed and only stay application is rejected by a lower forum and that order is assailed.

It is pertinent to mention that the Appellate Tribunal Inland Revenue in (2003) 88 Tax 127 (Trib.) even granted stay when the order of second round was not impugned before it. The operating part is as under:

"We have heard both the learned representatives appearing at the bar and find the prayer of the learned AR to be quite legitimate. Though, the appeal against the reassessment order made under section 62/65/132 of the Income Tax Ordinance, 1979 is pending for adjudication before the first appellate authority yet the facts remain that if the Tribunal ultimately declared reopening of the assessment under section 62/65 of the Income Tax Ordinance, 1979 to be made without lawful jurisdiction in the appeal pending before it the entire structure built on the reassessment order made under section 62/65/132 of the Income Tax Ordinance, 1979 would dash to the ground. This would also result into striking down the illegal tax demand created against the assesse. It is also pertinent to mention that the reassessment proceedings initiated by the assessing officer u/ss 62/65 of the Income Tax Ordinance, 1979 are ancillary or incidental to the main appeal pending for adjudication before the Tribunal under section 62/65 of the Income Tax Ordinance, 1979, therefore, the Tribunal is competent to grant stay of outstanding tax demand created as a result of reassessment order made under section 62/65/132 of the Income Tax Ordinance, 1979 provided the main appeal is pending for adjudication before it."

The above case escaped the attention of the Division Bench and is also not mentioned in the order of the Full Bench. It is pertinent to mention that an application for stay is independent of main appeal as per section 131(5) read with Rule 32 of Appellate Tribunal Inland Revenue Rules, 2010 [hereinafter "the Rules"].

Section 131 of the Ordinance uses two different terms, appeal and application. It reads as under:

131. Appeal to the Appellate Tribunal.- (1) Where the taxpayer or Commissioner objects to an order passed by the Commissioner (Appeals), the taxpayer or Commissioner may appeal to the Appellate Tribunal against such order.

(2) An appeal under sub-section (1) shall be-

(a) in the prescribed form;

(b) verified in the prescribed manner;

(c) accompanied, except in case of an appeal preferred by the Commissioner by the prescribed fee specified in sub-section (3); and

(d) preferred to the Appellate Tribunal within sixty days of the date of service of order of the Commissioner (Appeals) on the taxpayer or the Commissioner, as the case may be.

(3) The prescribed fee shall be 'two' thousand rupees.

(4) The Appellate Tribunal may, upon application in writing, admit an appeal after the expiration of the period specified in clause (d) of sub-section (2) if it is satisfied that the person appealing was prevented by sufficient cause from filing the appeal within that period.

(5) Notwithstanding that an appeal has been filed under this section, tax shall, unless recovery thereof has been stayed by the Appellate Tribunal, be payable in accordance with the assessment made in the case.

Provided that if on filing of application in a particular case, the Appellate Tribunal is of the opinion that the recovery of tax levied under this Ordinance and upheld by the Commissioner (Appeals), shall cause undue hardship to the taxpayer, the Tribunal, after affording opportunity of being heard to the Commissioner, may stay the recovery of such tax for a period not exceeding one hundred and eighty days in aggregate:

Provided further that where recovery of tax has been stayed under this section, such stay order shall cease to have effect on expiration of the said period of one hundred and eighty days following the date on which the stay order was made and the Commissioner shall proceed to recover the said tax:

Provided further that in computing the aforesaid period of one hundred and eighty days, the period, if any, for which the recovery of tax was stayed by a High Court, shall be excluded.

Separate Rule 32 exists under the Tribunal Inland Revenue Rules, 2010 for stay application that reads as under:

32. Procedure for filing and disposal of stay application.- (1) Every application for stay against recovery of demand of tax or ancillary proceedings shall be presented in the same manner as provided in rules 7, 8, 9, 11, 21 and 22 relating to appeals.

(2) On receipt of stay application the Registrar or any other officer authorized to act on his behalf shall fix the application for hearing as early as possible.

Rule 11(1) of Appellate Tribunal Inland Revenue Rules, 2010 reads as under:

11. Documents to accompany memorandum of appeal.- (1) Every memorandum of appeal shall be in triplicate and shall be accompanied by three clear and legible copies (one of which shall be a certified copy),-

(a) the order appealed against;

(b) order of Commissioner Inland Revenue, or as the case may be officer of Inland Revenue;

(c) copy of the grounds of first appeal;

(d) proof of payment of appeal fee; and

(e) a certificate provided in rule 12.

It is clear that if stay application is filed in the Tribunal after decision of appeal by the first appellate authority, all the documents required under Rule 11 of the Income Tax Appellate Tribunal Rules 2010 for appeal are to be provided with stay application as well. The Bench assigned hearing/disposal of stay application has to decide the matter independent of appeal and cannot insist for having jurisdiction of the appeal matter as well. This principle is enunciated in para 6 to 8 of an order of High Court of Judicature at Bombay in Writ Petition No.5704 of 2014 dated 13.11.2017 [the position of law is same in India and Pakistan]:

"6. We have given careful consideration to the submissions. The first paragraph of the impugned judgment and order shows that what was heard by the Appellate Tribunal was an application for stay made by the petitioner in the pending appeal. While deciding the application for stay, the Appellate Tribunal always could have gone into the question whether prima facie there is any merit in the appeal. However, from the impugned order, we fund that the Appellate Tribunal has recorded a final finding on merits of the appeal by holding that the appeal was devoid of any merit. In fact, the Appellate Tribunal proceeded to dismiss the appeal and, consequently, the stay application was dismissed.

7. The approach of the Appellate Tribunal is completely erroneous. What was heard before the Appellate Tribunal was the application for stay. There was no occasion for the Appellate Tribunal to go into the merits and decide the appeal itself by holding that it was devoid of any merits.

8. Therefore, the impugned order cannot be sustained and by setting aside the same, the appeal and the stay application will have to be restored to the file of the Tribunal."

It is the sole prerogative of the Chairperson to assign the jurisdiction of main appeal independent of stay application. As regards the plea taken by the Division Bench that "there may be a different/divergent order by the bench hearing appeal", it needs to be highlighted that disposal of appeal after grant/refusal of stay is an independent action. Even otherwise, if difference of opinion emerges, the case can be sent to Chairperson for constituting a Larger Bench.

It also needs to be emphasised that fixation of main appeal with stay application will defeat the very purpose of giving a taxpayer the right of stay of demand in appropriate cases and be in violation of Article 189 of Constitution as the judgment of Supreme Court in the Mehram Ali and Others v. the Federation of Pakistan and others PLD 1998 SC 1445 is binding and explicitly provides:

The right of "access to justice to all" is a fundamental right, which right cannot be exercised in the absence of an independent judiciary providing impartial, fair and just adjudicatory framework, i.e., judicial hierarchy. The courts/tribunals which are manned and run by executive authorities without being under the control and supervision of the High Court in terms of Article 203 of the Constitution, can hardly meet the mandatory requirement of the Constitution.

Even the order of Full Bench overruling the judgement of Division Bench [both cited above] did not take into account all the arguments/points/case law that decision on stay application should be based on prima facie merits of the case and well-established principles that may vary from a case to case depending on its facts and circumstances, and not going into merit or de-merits of main appeal. The right to stay of demand in appropriate cases is a fundamental right as guaranteed in Article 4 of the Constitution.

As highlighted above, in section 131 of the Income Tax Ordinance, 2001, the legislature has intentionally and purposely used two different words, "appeal" and "application", and therefore, adjudication of stay application cannot be made conditional to giving jurisdiction of main appeal to the same Bench (invariably in all the cases) to expeditiously deciding stay application (usually fixed on the very next day of filing the application). More so, there can be many instances/situations where even appeals are still pending at lower forums and order of refusal of stay applications are only impugned before the Appellate Tribunal Inland Revenue or Customs Appellate Tribunal. In a case where stay application is filed after appeal when the department starts recovery process and the bench that was marked the said appeal is not present, any other available bench can hear and decide the matter of stay in the light of well-established principles.

So far as powers of High Courts are concerned for staying tax recovery in income tax references, provisions of sub-section (7) of section 133 of the Income Tax Ordinance, 2001 [almost similar provisions exist in sub-section (7) of section 196 of the Customs Act, 1969, sub-section (8) of section 47 of the Sales Tax Act, 1990 and sub-section (7) of section 34A of the Federal Excise Act, 2005] say: "Where recovery of tax has been stayed by the High Court by an order, such order shall cease to have effect on the expiration of a period of six months following the day on which it was made unless the reference is decided or such order is withdrawn by the High Court earlier". It is clear from these provisions that High Courts are also empowered to grant stay in tax references.

Apart from statutory jurisdiction of the high courts under the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, the Customs Act, 1969 and the Federal Excise Act, 2005, they are empowered to grant stay under Article 199 of Constitution where alternate remedy is not available or illusionary or action is patently against the law. The cases relating to entertaining writs in tax matters are numerous that are compiled in 'Law & Practice of Income Tax' (in three volumes, updated till December 31, 2019) and 'Principle of Tax Laws' [fifth edition, 2018]. As regards, expiry of such an order under Article 199(4A) as substituted by Constitution (the 18th Amendment) Act, 2010 ["the 18th Amendment], the position is as under:

"An interim order made by a High Court on an application made to it to question the validity or legal effect of any order made, proceeding taken or act done by any authority or person, which has been made, taken or done or purports to have been made, taken or done under any law which is specified in Part I of the First Schedule or relates to, or is connected with, State property or assessment or collection of public revenues shall cease to have effect on the expiration of a period of six months following the day on which it is made:

Provided that the matter shall be finally decided by the High Court within six months from the date on which the interim order is made."

When read in conjunction with the main provision, the proviso clearly says that order of stay shall cease to have effect on the expiration of a period of six months following the day on which it was made unless the matter is finally decided within six months. Before the 18th Amendment, the position was different as language was unambiguous that the stay in any case will end after the expiry of six months. The proviso has made this conditional to disposal of the matter within the stipulated period otherwise the stay can go beyond six months. Cases to the contrary decided prior to the 18th Amendment are no longer relevant.

The appeal against the order of any High Court in tax matters lies with Supreme Court of Pakistan, governed by Article 185(3) of the Constitution. The Supreme Court of Pakistan may grant or refuse Leave to Appeal, and being the final adjudicator and final court of law along with granting the Leave in appropriate cases, if prayed, can suspend the order, stay the demand or pass any other appropriate interim injunction as it deems fit.

(Concluded)

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are member Adjunct Faculty of Lahore University of Management Sciences)