Appeal No.19/ST/IB of 2006, decided on 24th February, 2006. Versus Appeal No.19/ST/IB of 2006, decided on 24th February, 2006.
MUHAMMAD ANWAR ALI, MEMBER (TECHNICAL)/ CHAIRMAN).--- This appeal has been filed by Messrs New Yasin Traders, Bashir Plaza, Adamjee Road, Rawlapindi Cantt. Against Order -in-Appeal No.296 of 2005, dated 27-12-2005 passed by the learned Collector of Sales Tax (Appeals), Islamabad, which had emerged from Order-in-Original No.120 of 2005, dated 30-7-2005 passed by the Additional Collector of Sales Tax (Adjudication), Rawalpindi.
2. The brief facts of the case as reported are that during the course of audit of Sales Tax record of Messrs New Yasin Traders, Rawalpindi (hereinafter referred to as the appellants) for the period from July, 1998 to June, 2000, it was observed that the said unit had contravened the following provisions of the Sales Tax Act, 1990:--
(a) The unit declared the total supplies amounting to Rs.3,302,256 in income tax returns for the year, 1998-99 and 1999-2000, whereas according to sales tax returns for the period from May, 1999 to June, 2000 they declared total supplies amounting to 21 Rs.494,661 which yielded a difference of taxable supplies of Rs.2,807,695 without payment of sales tax of Rs.421,154 in violation of section 3 of the Sales Tax Act, 1990.
(b) The unit obtained registration in May, 1999 while they were liable to be registered on 1st July, 1998 under section 14 of the Sales Tax Act, 1990.
(c) The unit failed to deposit the due amount within prescribed time period in violation of section 6 of the Sales Tax Act, 1990.
(d) The unit also failed to maintain the required record for the taxable supplies required under section 22 of the Sales Tax Act, 1990.
(e) The unit did not issue sales tax invoice against their taxable supplies in violation of section 23 of the Sale Tax Act, 1990.
(f) The unit failed to file true and correct monthly sales tax return required under section 26 of the Sales Tax Act, 1990.
Keeping in view the above mentioned facts an amount of Rs.421,154 was recoverable from the appellants along with additional tax and penalty under sections 33, 34 and 36(1) of the Sales Tax Act, 1990.
3. A show-cause notice, dated 10-6-2002 was issued to the appellants for the alleged contraventions of the above provisions of the Sales Tax Act, 1990. After obtaining written replies from the appellants and fixing of hearings, the case was decided by the Additional Collector of Sales Tax (Adjudication), Rawalpindi vide Order-in-Original No.120 of 2005, dated 30-7-2005, by dropping the charge (d) of the show-cause notice and enforcing the recoveries in respect of other charges. A personal penalty of 3% was also adjudged. Feeling dissatisfied against this order, the appellants filed the first appeal to the Collector of Sales Tax (Appeals), Islamabad, who after getting the amounts of recovery reconciled reduced the recoverable principal amount of sales tax Rs.258,900 along with additional tax and penalty for the period prior to their registration i.e. 1-7-1998 to 20-5-1999 and Rs.97,449 plus additional tax and penalty for the post registration period i.e. 21-5-1999 to 30-6-2000 (out of which Rs.76,780 has already been paid by the appellants) partially accepting the appeal vide order-in-appeal, dated 27-12-2005. Aggrieved against this impugned order, the appellants have filed a second appeal to this forum on 4-2-2006 on the following grounds:---
(i) That the appellants are suppliers of stationery items mainly to the government departments. They obtained sales tax registration w.e.f. 20-5-1999. The audit was conducted by the Department but no audit report has been issued to them. Even the specific period was not mentioned in the notice for audit.
(ii) That the appellants have not collected the sales tax from their clients which are mostly government departments because they did not pay the sales tax as the appellants were not registered with the Sales Tax Department. It is, therefore, harsh if the appellants are asked to pay the huge amount of sales tax which they have not collected from their clients and the matter of collection of sales tax related to the period prior to the date of registration has already been settled by this Appellate Tribunal in many cases decided in the past e.g. GST 2002 CL 236 Z.U. Enterprises, Deska, Sialkot v. Collector Sales Tax, Gujranwala and Appeal No. 151/ST/IB of 2005. In addition to the above mentioned decisions the Member (Audit) Central Board of Revenue in his Letter C. No.3(2)M(Audit)/2002, dated 12-6-2002 addressed to President Chamber of Commerce and Industry, Rawalpindi, C.B.R., issued instructions on the subject of new Sales Tax Registration saying that inter alia that at the time of first audit, the Auditors generally should not ask for records information, documents etc. relating to period prior to the registration. In view of this situation the demand of sales tax as ordered by the Collector of Appeals in the impugned order may be set aside.
4. Hearings in this case were fixed on 14-2-2006 and 20-2-2006 on which dates Malik M. Irfan. Income Tax Practitioner (ITP) appeared on behalf of the appellants whereas Mr. Moeen-ud-Din Wani, Deputy Collector as Departmental Representative and Mr. Muhammad Akram, Auditor defended the Department. The learned ITP verbally reiterated the same arguments which were already submitted by them in writing. The Deputy Collector as Departmental Representative as well as vehemently argued in favour of the Department on the basis of the text of both the impugned orders.
5. The records of this case have been perused, verbal and written arguments put forth by the both sides have also been considered and it is observed that appellants voluntarily got themselves registered on 20-5-1999 as wholesaler (supplier) and the first audit was conducted by the department, the intimation of which was sent in writing on 19-7-2001 by the Assistant Collector (Audit). And the audit report containing the observations and the contraventions of the various provisions of the Sales Tax Act were forwarded to the Adjudicating Officer vide letter, dated 25-8-2001 by the Deputy Collector (Audit). It is true that the copy of this audit report was not sent or provided to the appellants. However, a proper show-cause notice containing the summary of the contraventions was issued on 10-6-2002. It is also true that the Department has made out the case against the appellants on the basis of the difference of value of supplies taken from the income tax returns of the appellants compared to the sales tax returns filed by them to the Sales Tax Department. It is a fact that section 14 of the Sales Tax Act, 1990 dealing with the requirements of sales tax registration was substituted in the Finance Act, 1998 which became effective with effect from 1-7-1998 and it required all wholesalers (including dealers) and distributors to be registered in spite of the legal requirement, the appellants did not obtain registration till 20-5-1999. No notice for compulsory registration as envisaged under section 19 of the Sales Tax Act, 1990 appears to have been issued by the Sales Tax Department.
6. There is no denying the fact that VAT mode of sales tax was a new concept and the provisions of the new Sales Tax Act, 1990 were being changed, modified and amended very frequently in the country. While glancing through the implementation efforts of various provisions of this Act, this Tribunal has come across the government's focus towards tax-payers education by highlighting the benefits of sales tax registration through C.B.R. Sales Tax General Order No.1 of 1999, dated 6-4-1999. Even as Letter vide C. No. 3(2)M(Audit)/2002, dated 12-6-2002 addressed to President Chamber of Commerce and Industry, Rawalpindi, C.B.R. issued instruction on the subject of new Sales Tax Registration saying that at the time of first audit, the Auditor generally should not ask for records information and documents etc. relating to period prior to the registration. Subsequently, the Federal Government vide S.R.O. 500(I)/2003, dated 7-6-2003 inter alia exempted the whole amount of sales tax and additional tax payable upto 1-7-2000 by persons registered before 1-7-2000 with the condition that this notification shall not apply to registered persons against whom a case of tax fraud or evasion has already been framed prior to 7-6-2003. In this case the appellants obtained voluntary registration on 20-5-1999 but the case was initiated against them by issuing a show-cause notice on 10-6-2002. Accordingly it does not fall squarely in the purview of exemptions specified therein. However, from the above it is indicative of the intention of the government that somehow more and more taxpayers should be registered and their past transactions should not be probed and penal provisions should be enforced cautiously and liberally. This Tribunal has examined the contravention Report No.514 of 2001, dated 25-8-2001 in order to ascertain whether the case was made out merely on the basis of the income tax returns for the period 1-7-1998 to 20-5-1999 and it has been found that the contravention in this case for this period has been made purely on the basis of the income tax returns filed by the c appellants under the Sales Tax Act as they were not registered whereas after the date of appellants' registration the auditors have consulted the proper sales tax returns based on the sales tax records while comparing it with the income tax returns.
7. In the judgment, dated 8-2-2000 rendered in Appeal Case No.33 of 1999 as well as judgment, dated 1-11-2001 rendered in Appeal Case No.398 of 2000 of Islamabad Bench-II of this Tribunal as quoted by the appellants, it has been held that although there is no bar on the Sales Tax Department under section 38(3) of the Sales Tax Act to solicit information of Direct or Indirect Taxes from other revenue departments who are legally bound to render necessary assistance in the course of inquiries or investigations but this does not authorize the Department to use the data or information or figures supplied by the businessmen in their income tax returns to be made the basis for assessments of sales tax liability. In view of these settled principles, the demand of sales tax liability along with additional tax and penalty adjudged in this case solely on the basis of the appellants income tax returns prior to the date of registration i.e. 20-5-1999 is hereby set aside. The liabilities adjudged by the Collector of Appeals in para.7 of the impugned order-in-appeal on the basis of the reconciliation report reproduced in para-5 of the above quoted order ascertained after the date of registration of the appellants are upheld as all such persons who obtained registration from a particular date are duty bound to maintain the actual records of sales and should make the payment of sales tax on such supplies at the standard rate of sales 'tax. The order-in-appeal is modified accordingly and the appeal is accepted to the above extent only.
8. Ordered accordingly.
C.M.A./123/Tax (Trib.) Order accordingly.