Customs Appeal No.120/ST/IB of 2004, decided on 30th January, 2006. Versus Customs Appeal No.120/ST/IB of 2004, decided on 30th January, 2006.
MUHAMMAD WALI KHAN, MEMBER (TECHNICAL).--- This judgment disposed of Appeal No. 120/ST/IB/2004 filed by Messrs Attock Oil Company, Islamabad (hereinafter called the appellants) against the Order-in-Appeal No. 94/2004, dated 27-9-2004 passed by the Collector of Customs, Sales Tax and Central Excise (Appeals), Rawalpindi (hereinafter called the appellate authority).
2. Briefly, facts emanating from the impugned Order-in-Appeal No.94 of 2004, dated 27-9-2004 and leading to the appeal are that during the course of audit of accounts of the appellants for the period from July, 1998 to June, 2000 by M/s. M. Yousaf Adil Saleem and Company, Chartered Accountants, Karachi the appellants were found to have violated the provisions of the Sales Tax Act, 1990 (hereinafter called the Act) in the following manner: -
(i) During the month of November, 1999 the appellants did not pay sales tax amounting to Rs.35,757.00 on supplies of crude oil valuing to Rs.238,382.00 in violation of Sections 3 and 6 of the Act. As such the aforesaid amount of sales tax was recoverable from the appellant along with additional tax.
(ii) During the period under audit the appellants did not pay sales tax on differential amount arising due to exchange rate difference in violation of sections 2(46)(a), 3 and 6 of the Act. The amount of sales tax not paid on the differential amount of consideration worked out at Rs.386,686.00 which was recoverable from them along with additional tax and penalty.
(iii) During the period under audit the appellants did not pay sales tax amounting to Rs.273,000.00 on sale of movable assets of the value of Rs. 1,820,000.00 in violation of Sections 3 and 6 of the Act. The said amount of sales tax was recoverable from them along with additional tax and penalty.
In the light of above, principal amount of Rs.695,443.00 was recoverable from the appellants along with additional tax and penalty.
3. Accordingly, the appellants were served with show-cause notice bearing No.CA/ST/18/AOC/2000/01/19709, dated 14-6-2001 for the recovery of the sales tax amounting to Rs.695,443.00 and for imposition of penalty under section 33 of the Act and additional tax under section 34 thereof. The case was subsequently heard by the Deputy Collector (Adjudication), Rawalpindi (hereinafter called the Adjudicating Officer). On the basis of arguments advanced by both sides, the Adjudicating Officer came to the conclusion that non-payment of sales tax of Rs.35,75'7.00 on the supply of crude oil could not be proved as verification of payments made by the appellants proved that they had paid this amount along with additional tax. However, according to him non-payment of the remaining amount of sales tax as detailed at (ii) and (iii) of para 2 above was established. He accordingly ordered that the evaded amount of sales tax shall be recovered from the appellants along with additional tax that is due under section 34 of the Act. He also imposed a penalty equal to 3% of the amount involved under section 33 of the Act on the appellants. Aggrieved of the decision of the Adjudicating Officer, the appellants filed an appeal with the appellate authority but were unsuccessful since the appellate authority upheld the decision of the Adjudicating Officer. Hence the appellants have filed the second appeal in this Tribunal.
4. Mr. Farukh Jawad Panni, Advocate appearing for the appellants argued the case at length. He mainly focused his arguments on the following points:-
(i) The show-cause notice issued to his clients contains no details of alleged evasion of sales tax at Rs.695,686.00. As such the same is bad in law.
(ii) Sometimes the appellants are paid consideration in foreign exchange by Government of Pakistan and others at a time of gap of 45 days plus after the delivery or receipt of consideration.
As such any gain or loss in relation to exchange rate is of no consequence for sales tax purposes as explained by C.B.R. on 21-9-2004.
(iii) No sales tax is leviable in respect of sale of fixed assets in the hands of a registered person who is not carrying out of the business of sale of second hand goods (taxable activity) but is registered as a manufacturer as held by Ministry of Law through its letter dated 3-6-2000 and by the Tribunal in its judgment reported as 2002 PTD (Trio) 1455 and by the Honourable Sindh High Court in a case reported as 2002 PTD 976.
(iv) Appointment of special auditor (Messrs M. Yousaf Adil Saleem and Co.) was not made in accordance with the provisions of rule 4 of the Special Audit Rules, 1998 and therefore fixation of any tax liability against the appellants on the basis of an unlawful report is not valid and lawful.
5. Controverting the arguments advanced by the learned counsel for the appellants learned D.R. made the following submissions:--
(i) The show-cause notice mentions the amount of sales tax and orders passed by the lower forums as a consequence thereof give details of the case and have been lawfully passed.
(ii) Levy of sales tax on exchange gain is lawful and justified as the sales tax is levied on the value of supplies received by the supplier within the meaning of section 2(46)(a) of the Act as the differential amount received by the appellants is part of the value of supply. Section 2(46)(a) defines the value of supply as "the consideration in money including all federal and provincial duties and taxes, if any, which the supplier receives from the recipient of the supply but excluding the amount of tax" and thus covers all costs incidental to the supply. Therefore, the demand has validly been raised.
(iii) The department, concedes that demand of sales tax relating to sales of motor vehicle is not justified provided input tax at the time of purchase of such assets have not been claimed and adjusted,
(iv) (a) The appointment of special auditors was in accordance with the law and the said special auditors were appointed under section 32A of the Act. They were also notified vide S.R.O. 579(I)/99, dated 17-5-1999. The terns of reference was also conveyed to the auditors by C.B.R. The special auditors i.e. Messrs M. Yousaf Adil Saleem and Co. Chartered Accountants conducted the audit of appellants' record under the cover of the aforesaid law and notification pursuant to the terms of reference issued vide CBR letter C.No.1(18)ST/AIU/98,dated 26-9-1998. Therefore, it is not correct to say that the tax liability, adjudged against the appellants on the basis of the audit report of the aforesaid auditors is unlawful. On the contrary, the tax liability has validly been raised and determined by the lower forums.
(b) The words "term of reference" as defined in rule 2(3) with reference to rule 5 of the special audit rules which refers to the format in which special auditors should submit their reports and rule 6 of these Rules provides for the penalties to be imposed in case of violation of any clause of the terms of reference by the special auditors. This rule has nothing to do with the appellants. The special auditors were legally appointed as per the provisions of the Act.
(c) The Honourable Lahore High Court in their judgment reported as 2002 PTD 387 has not termed the special audit as illegal but lays down the procedure, which the Board and special auditors should follow while taking the assignment. This judgment was issued on November 1, 2001 which the special audit, of the appellants was concluded in March, 2001. Therefore the procedure prescribed by the Honourable Court cannot be applied in this case. Even S.R.U. No.206(I)/2001 dated 2-4-2001 as referred to by the appellants cannot be applied retrospectively. Further, the appellants have not challenged the special audit at the time of audit. The appointment of sales tax auditors cannot be challenged at this belated stage, once the audit has been conducted and record duly provided by the appellants which has been completed with this consent. Once the Collectorate has prepared contravention report, and the competent authority issued show-cause notice it cannot be challenged at this stage.
(d) The judgment of the Honourable Tribunal in Appeals Nos. 93/2002 and 101/2002 relied upon by the appellants to declare special audit as illegal and ultra vires is without any jurisdiction. The Honourable Appellate Tribunal not being a High Court or Supreme Court does not enjoy the constitutional powers to quash any primary or secondary legislation on the pretext that the same is ultra vires of the Constitution or any Act of the Parliament as held by the Honourable Lahore High Court vide judgment dated 21-11-2001 in the Sales Tax Appeal No.185 of 2001 of Kamalia Sugar Mills Limited in the following terms:--
"We therefore, do not find any difficulty in holding that the Tribunal as forum of appeal possesses the powers, which are exercisable by the Collector, and sales- tax officer exercising their jurisdiction under sections 36 and 11(2) of the Sales Tax Act, 1990. A close analysis to the .provisions of sections 36 and 11(2) read with section 46(4) of the Sales Tax Act, 1990 shows that the powers of the Tribunal are limited and these powers confined, as an appellate power, in respect of matters falling within the parameters of sections 36 and 11(2) of the Act. These powers inter alia do not include the powers of judicial reviews as are available to the Civil Court .in exercise of their plenary jurisdiction and the High Court or Supreme Court in exercise of their constitutional jurisdiction. We therefore accordingly held that powers of judicial review as available to the superior Courts, under the Constitution and Civil Courts under the plenary jurisdiction are not available to the Tribunal. In the parameters of their limited jurisdiction as Appellate Tribunal they could not examine the vires of S.R.O. 207(1)/98 and S.R.O. 751(1)/2000. Both the S.R.Os. were issued by the Central Board of Revenue in exercise of the jurisdiction vested in them under section 2(46) of the Sales Tax Act, 1990. The Tribunal was not vested with any power to call into question the vires of these S.R.Os. and strike down the same being ultra vires, hence we find that the Tribunal exceeds its jurisdiction in deciding the question of vires of the relevant S.R.Os. on this score, the judgment of the Tribunal is therefore not sustainable in the eyes of law and we accordingly, hold as such."
(v) The Honourable High Court in Tax Appeal No.4 of 2003 has held that "thus the scheme of law as envisaged by the legislature appears to be that imposition of penalty under section 33 and levy of additional tax under section 34 was made mandatory and discretion of Adjudicating Officer was taken away but in order to grant relief in appropriate cases jurisdiction was conferred on the Central Board, of Revenue under the substituted section 34A".
He therefore prayed that the appeal does not merit consideration and may be dismissed.
6. We have heard both the parties and examined record of the case. Perusal of record shows that the case instituted against the appellants leading to the instant appeal. is admittedly based on the audit report of Messrs M. Yousaf Adil Saleem and Company, Chartered Accountants, Islamabad, Karachi, Lahore, Faisalabad and Multan and from the reply to the show-cause notice submitted by the appellants and recorded in the order of the Adjudicating Officer it is crystal clear that contents of the audit report; the violation of the provisions of law by the appellants pointed out in the said report and the amount of tax alleged to have not been paid by them i.e. Rs.695,443.00 shown in the show-cause notice were well-known to them. Therefore, they did not find any flaws in the show-cause notice at the original stage of adjudication, and made written as well as oral submissions on the basis of facts of the case before the Adjudicating Officer. Therefore they were clear in their minds as to the charges framed against them and submitted their reply to the said notice and contested the case accordingly. Therefore they cannot now agitate that the show-cause notice is vague or bad in law or that the appointment of auditors was not legal as by their own conduct and record they are estopped to agitate these points; and the law of estoppel will run against them. Coming to the facts of the case, from perusal of the order of the Adjudicating Officer, and that of the appellate authority it has transpired that the appellants contested the allegations on all the three counts shown as in para 2 above. However, the Adjudicating Officer accepted their claim with reference only to the charge of non-payment of sales tax of Rs.35,757.00 on the supply of crude oil when he was satisfied that the appellants had already made payment of this amount. Therefore the allegation that they did not pay sales tax on the supply of crude oil during the month of November, 1999 was dropped by the Adjudicating Officer and there is no dispute left for us to decide on this count.
7. So far as the remaining amount of sales tax of Rs.659,686.00 (69,5443.00-35757.00 = 695,686.00) is concerned, out of this amount Rs,386,686.00 pertains to the allegation that the appellants did not pay sales tax on the differential amount of consideration which they received after Appellant (sic) of the correct rate of exchange. It is the case of the appellants that sometimes they have paid the consideration in foreign exchange by Government of Pakistan and others at a time gap of 45 days plus after the delivery or receipt of consideration. As such any gain or loss in relation to exchange rate is of no consequence for the purpose of sales tax. In this regard, they have relied upon C.B.R. Letter C. No.1(30)STR/99(Vol.I),dated 21-9-2004. This letter, a copy of which is available on record, is signed by Dr. Muhammad Zubari, Secretary (STR & C) and is addressed to Mr. Naeem Tirmizi, Partner, Messrs Anjum Asim Shahid Rehman, Chartered Accountants, Islamabad the contents of which are reproduced below:---
"I am directed to refer to your letter Ref. T-274/2004/1052, dated 30-8-2004 on the subject cited above and to clarify that in terms of clause (44) of section 2 of the Sales Tax Act, 1990, a supply shall he deemed to have taken place at the earlier of the time of delivery of goods or the time when any payment is received by the supplier in respect of the supply.
(2) The above-stated text makes it ample clear that if the time of delivery of goods is earlier than the time of receipt of payment, the due date or time of supply for the purposes of calculation and payment of sales tax shall be the time when the goods are delivered."
The learned DR, on the other hand, claimed that value of supply as per clause (46)(a) of section 2 of the Act is the consideration in money including all federal and provincial duties and taxes, if any, which the supplier received from the recipient of the supply except the sales tax. He claimed that the amount received by the appellants, as exchange rate difference is nothing but part of the consideration in money for which they had made the supply. He explained that according to the appellants' own admission where they have paid the consideration in foreign exchange it realization in Pak rupees takes 45 days and if there is any exchange rate difference during this period it is paid to the appellants. He claimed that the payment in Pak rupees equal to the foreign exchange received by the appellants is nothing but consideration received by them and this consideration being the value of supply the sales tax has to be computed on this value notwithstanding the fact that realization of this value took 45 days since payment of its equivalent in dollars preceded the date of supply. Therefore he claimed that the consideration in Pak rupees in exchange of foreign currency received by the appellants is the value, of supply on which the sales tax was to be paid.
8. The appellants are alleged to have violated the provisions of sections 2(46)(a), 3 and 6 of the Act. Before dilating upon the rival contentions of both the parties it will be appropriate to reproduce below the provisions of sections 2(46)(a), 3 and 6 of the Act as it existed at the relevant period to have a clear picture of the legal position:--
Section 2(46) of the Act
"2(46) "value of supply" means,
(a) in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax."
Section 3 of the Act
"3. Scope of tax .---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of (fifteen) per cent of the value of--
(a) taxable supplies made in Pakistan by a registered person in the course of furtherance of any (taxable activity) carried on by him; and
(b) goods imported into Pakistan.
(1A) ---------------
(2) ----------------
(3) The liability to pay the tax shall be:-
(a) in the case of supply of goods in Pakistan, of the person making the supply, and
(b) in the case of goods, imported into Pakistan, of the person importing the goods."
(3A) --------------
(4) ----------------
(5) ----------------
(6) ----------------
Section 6 of the Act
"(6) Time and manner of payment.-(1)
(2) The tax in respect of taxable supplies made in Pakistan during a tax period shall be paid by the registered person at the time of filing the return in respect of that period under Chapter-V:
Provided that Board may, by a notification in the official Gazette, direct that the tax in respect of all or such classes of supplies (other than zero rated supplies) of all or such taxable goods, as may i2e specified in the aforesaid notification, shall be charged, collected and paid in any other way, mode, manner or at time as may be specified therein.
(3) ----------------
From the perusal of the aforesaid provisions of the law it becomes crystal clear that the sales tax at the relevant point in time was to be charged, levied and paid @ 15% of the value of taxable supplies made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him and value of taxable supply was the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier received from the recipient of that supply but excluding the amount of tax (sales tax) and the supplier was bound to pay the tax in respect of that supply at the time of filing of the return i.e. by the 15th day of the next month in terms of section 2(9) of the Act read with section 26 thereof in respect of the tax period in which the supply was made i.e. the month preceding the month in which the return was to be filed.
9. There is no dispute that there was a "supply" which in fact was a "taxable supply" made by the appellants in "furtherance of" their "taxable supply" and that the sales tax was to be paid @ 15% of the "value of the supply." This being the factual position the contention of the appellants that any loss or gain on account of exchange rate is of no consequence of sales tax has no legal force since the difference in exchange rate is an integral part of the value of supply. The appellants' second contention is that if the difference in exchange rate is to be taken into account, then the time of supply as defined in clause (44) of section 2 of the Act will come into play and in that event the date of realization being later in the time than the date of supply, the tax will have to be calculated by taking the date of supply being earlier in time as clarified by C.B.R. in its letter quoted above. We are of the view, that the appellants' contention carries weight. There is no dispute that the consideration was received by the appellants in dollars and between the time of receipt of the consideration by the appellants and. its realization after 45 days exchange rate fluctuated with the result that sales tax authorities are demanding sales tax by taking the value of supply by including the difference accruing to the appellants due to exchange rate difference on the date of actual realization of the consideration. This being the case, the question for consideration is whether the date of supply is earlier or the date of realization of the consideration preceded the date of supply. The record is silent about this question as both the parties have not provided us with information about these dates to determine the appellants' tax liability. This question needs to be determined. The appropriate forum for this determination is the original Adjudicating Officer. We accordingly remand this case to the original Adjudicating Officer to determine which date preceded i.e. the date of supply, or the date of actual realization of the consideration. If the date of supply is earlier, the appellants shall not be liable to pay the demanded tax in terms of clause (44) of Section 2 of the Act and if the date of realization is earlier they will pay the said tax.
10. The next allegation against the appellants pertains to, the non-payment of sales tax on movable assets. The case of the appellants is that they disposed of fixed assets (vehicles and photocopying machine) which fall in the category of fixed assets of the appellants. Since they are not carrying on business of sale of such goods to be treated as "taxable activity" but are registered as manufacturers, they claim, they are not liable to pay sales tax on such sales. They have relied upon the Ministry of Law's letter dated 3-6-2000, the Tribunal's judgment reported as 2002 PTD (Trio) 1455 and Honourable Sindh High Court's judgment reported as 2002 PTD 976 to fortify their contention. The learned DR conceded that demand of sales tax on sale of motor vehicle is not justified provided input tax at the time of purchase thereof was not claimed and adjusted.
Under S.R.O. 578(I)/98, dated 12-6-1998 which was then in the field there was mbar on claiming input tax adjustment in respect of a number of items listed therein including vehicles and office equipments. Photocopying machine is nothing but an office equipment. Therefore in the presence of the ban on making adjustment of input tax the question of adjustment of input tax paid on such machines and vehicles does not arise. In any case the onus lies on the respondents to prove, that the appellants claimed input tax adjustment on the vehicles and photocopying machines in question. This onus has not been discharged. We are, therefore, of the view that imposition of sales tax on sale of the items in question, in such a situation, would amount to taxing these items twice which cannot be allowed. As such we hold that demand of sales tax on sale of fixed assets on which input tax has either not been proved to have been claimed or is not allowed under the law is not justified. We accordingly set aside the impugned orders passed by the lower forums on this count.
11. Adverting to the question of imposition of penalty under section 33 and additional tax under section 34 of the Act, as has been discussed above, the liability of the appellants with reference to difference in-exchange rate has yet to be determined and demand of sales tax on disposal of-fixed assets was not justified. Therefore imposition of penalty and additional tax is also not justified. We accordingly remit the same. The appeal is disposed of accordingly.
12. Announced.
13. Parties may be informed accordingly.
C.M.A./220/Tax(Trib.) Order accordingly.