2007 PTD 2259

ZAFAR UL MAJEED, MEMBER (TECHNICAL).--- The facts giving rise to this appeal are during the course of audit of the appellant's sales tax record for the period March, 2001 to July, 2001, it was observed that the appellant charged sales tax 1 % during the period from April, 2001 to 17-6-2001 and 2% from 18-6-2001 onwards as turnover tax without getting prior permission from the Collectorate of Sales Tax whereas he was required to pay tax @ 15 % along with further tax on sales to unregistered persons being wholesalers as registered with the sales tax department. The appellants as such, evaded sales tax amounting to Rs.92,106. The case was adjudicated by the Deputy Collector (Adjudication), Lahore vide Order-in-Original No. 21/ST/2003 dated 31-8-2003 whereby the appellant was directed to pay aforesaid amount of sales tax along with additional tax and a penalty of Rs.27,632 under section 33(2)(cc) of the Sales Tax Act. The appellant filed appeal against the order which was rejected by Collector Customs, Sales Tax and Central Excise (Appeals-II), Lahore vide Order-in-Appeal No.261 of 2005 dated 20-6-2005 which has been impugned in this appeal.

2. In the instant appeal, it has been argued that the appellant was doing retail as well as wholesale business before April, 2001 along with his brother. On 29-3-2001 their premises was surveyed by an army team and in May, 2001 they received a compulsory registration certificate as wholesalers. Meanwhile, in March, 2001 the appellant decided to separate his business from his brother's and deals only in retail. The Collectorate of Sales Tax was accordingly requested vide letter dated 14-5-2001 for deregistration/enlistment as retailer under section 3AAA of the Sales Tax Act, and started paying sales tax as provided therein. The department instead of allowing his request, audited his sales tax record and raised demand of tax and penalty treating him as wholesaler. The appellant's case is that he, being a retailer, correctly paid tax during the period in question and later on exempted vide the Sixth Schedule to the Sales Tax Act.

3. Learned D.R. defended the impugned order on the ground that the appellant was registered by the army survey team as wholesaler but he, without getting prior approval from the Collector in this regard, started paying sales tax on the turnover as retailer on his own which was not permissible. He, however, conceded during the course of arguments that after the audit period in question, the appellant continued to file nil returns against the compulsory registration which were accepted by the department and that the department never made any effort during this period to ascertain whether the appellant was actually doing the wholesale business or not.

4. I have perused the record and heard the parties. Admittedly, before April, 2001, the appellant was doing retail as well as wholesale business. When the Sales Tax Collectorate, on the basis of survey conducted by an army team, compulsorily registered the appellant as wholesaler, he moved an application dated 14-5-2001 for deregistration and enlistment as retailer in terms of the provisions of section 3AAA of the Act which was duly received by the Collectorate of Sales Tax on 15-5-200.1. Instead of verifying the contents of the application and a decision on its on merit, the department made out a contravention case and raised demand to tax and penalty treating the appellant as wholesaler. Admittedly, the department did not make any effort to establish that the appellant was actually engaged in wholesale business after compulsory registration nor the D.R. could prove it from the record before me. On the contrary, the department, as conceded by the D.R. has all along been accepting the nil returns filed by the appellant against his registration as wholesaler which goes to prove the appellant's case that he was not doing any wholesale business. Under these circumstances, I find that the impugned order is not maintainable under the law.

5. For the aforesaid reasons, the appeal is accepted and the impugned order is set aside.

C.M.A./96/Tax(Trib.) Appeal accepted.