Tax cases: High Courts stay orders not to lapse after six months

The stay orders granted by different High Courts in tax related cases would not automatically expire after lapse of six months under the Constitutional Provisions of Article 199 (4A). Official sources told Business Recorder here on Friday that the Federal Board of Revenue had repeatedly been directing all Chief Commissioners Inland Revenue to apply for vacation of stay orders in tax-related cases where 6 months have passed after the grant of stay orders.
It has been estimated that arrears to the tune of Rs 130 billion are stuck up due to litigation. However, the whole issue needs to be understood in the light of the Constitution and amendments made in the relevant provisions of the Constitution from time to time.
Under the current Constitutional Provisions of Article 199 (4A), the stay order granted by the High Court shall not expire ipso facto after lapse of six months, but would continue to be in force even after the lapse of the period of six months. So, if a stay is got to be vacated, an application for vacation of stay has to be filed. However, if the writ petition is decided by the High Court before a period of six months, stay orders shall be vacated with the order; otherwise, it would remain in force.
Officials explained that the issue of recovery of tax, where a case is in litigation, can best be understood by dividing such cases into their respective categories. First, cases where appeal/reference has been filed under section 133 of Income Tax Ordinance, 2001, section 47 of Sales Tax Act, 1990 or section 34A of Federal Excise Act, 2005. Second, cases where writ petition has been filed before the High Court under Article 199 of the Constitution of Pakistan, 1973.
In the first category of cases, where appeal/reference has been filed under the respective laws, stay is granted by the High Court under those laws and not under Article 199 (4A) of the Constitution of Pakistan, 1973. Under section 133 (7) of the Income Tax Ordinance, 2001, 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of a period of six months, following the day on which it was made, unless the appeal is decided or such order is withdrawn by the High Court earlier. In case of section 47(8) Sales Tax Act, 1990, 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 is made unless the reference is decided, or such order is withdrawn, by the High Court earlier. Under section 34A(7) of the Federal Excise Act, 2005, 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 is made unless the reference is decided, or such order is withdrawn, by the High Court earlier.
Officials clarified that the provisions of all three statutes including Income Tax Ordinance 2001, Sales Tax Act, 1990 and Federal Excise Act 2005 on the issue are identical. The relevant provision of the Income Tax Ordinance 2001 reflects that where a stay has been granted by the High Court against the recovery of tax by an order it shall have a maximum life of six months. The life of the order shall be counted from the date of stay order. However, this life may be curtailed to less than six months if the reference is decided or stay is withdrawn by the High Court before the six months. After the lapse of six months (if reference is not decided) the stay order passed earlier shall cease to exist.
Officials stated that in the second category of cases where stay against recovery has been granted by the High Court under Article 199(4A) of the Constitution of Pakistan, 1973 the conditions for recovery of tax after the expiry of six months from the date of stay order are altogether different under the current Constitutional Provisions of Article 199(4A) of the Constitution.
To have a better understanding of the issue constitution history of the Article (4A), sources while explaining background said that the Article 199 (4A) originally inserted in the Constitution of Pakistan, 1973 vide section 8(c) of the Constitution (Fourth Amendment) Act, 1975 (71 of 1975) effective November 21, 1975. The text of the Article 199 (4A) and amendments made to it say, "199 (4-A) 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, assessment or collection of public revenues shall cease to have effect on the expiration of a period of sixty days following the day on which it is made, unless the case is finally decided, or the interim order is withdrawn, by the court earlier."
Sources said that the maximum period for stay against recovery was sixty days. However, the stay order could have been withdrawn earlier than sixty days. The Article 199 (4A) in its present form was amended through C.E.O. No 24 of 2002 w.e.f. August 21, 2002 and later on it was validated through section 10 of the Constitution (Seventeenth Amendment) 2003 (3 of effective December, 2003. The text of the Article 199 (4A) and amendments made to it says, "199 (4-A) 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".
Officials said that a material change has been made in the constitutional provision by inserting a proviso at the end and omitting the words "unless the case is finally decided, or the interim order is withdrawn, by the court earlier". This proviso although says that the life of stay order against recovery shall be of six months but this limit is conditional as it is binding the Court that the case shall be decided within six months from the date of interim order. This amendment has taken back the power of the High Court to withdraw the stay order before or after six months without deciding the appeal/reference.
However, if the reference is decided earlier than six months the stay order shall be vacated automatically. The Judgement of Supreme Court referred as CP No 716 of 1999 dated 06.12.2000 has been made prior to the amendment made in the Article 199 (4A) by inserting a proviso through C.E.O. No 24 of 2002 w.e.f. August 21, 2002 and later on it was validated through section 10 of the Constitution (Seventeenth Amendment) Act, 2003 (3 of 2003) effective from December, 31, 2003.
Later, Article 199(4A) in its present form has been amended separating the proviso through section 72 of the Constitution (Eighteenth Amendment) Act, 2010 (10 of 2010). This is a sort of editorial change, sources maintained. The amended Article "199 (4-A), says that 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. Therefore, under the present Constitutional Provisions of Article 199 (4A), the stay order granted by the High Court shall not expire ipso facto after a lapse of six months but would continue to be in force even after the lapse of the period of six months. So, if a stay has got to be vacated, an application for vacation of stay has to be filed. However, if the writ petition is decided by the High Court before the six months period the stay shall be vacated with the order, otherwise, it will remain in force, the officials added.