Sales Tax Appeal No. K-171 of 2005, decided on 8th October, 2005. Versus Sales Tax Appeal No. K-171 of 2005, decided on 8th October, 2005.
ZAFAR IQBAL (MEMBER TECHNICAL).--- This appeal challenges the vires of the order dated 11-6-2005, passed by the Collector of Customs, Sales Tax and Central Excise Adjudication, Karachi-II.
2. According to the records, the facts of the case are that the appellant was served with show-cause notice on 26-4-2004, wherein as many as six charges on various counts for the violations of the Sales Tax Act, 1990 were alleged.
3. The appellant on 17-5-2004 vide its reply to the show-cause notice denied the said allegations. The appellant inter alia stated that:---
(i) the working of the department as shown in the table in support of this allegation does not reveal the correct scenario. The true position is that we have submitted the final returns for the years 1999-2000 and 2000-2001 as per Apportionment Rules, 1996, read with section 7(1) of the Sales Tax Act, 1990, and in compliance with the Order-in-Original No.100/01, dated 30-8-2001, according to which our carried forward entitlement stands to Rs.218.558 million for the year 2000-2001, instead of 280.862, as shown in the monthly return of June, 2001 and also taken up by the audit team for reconciling the carried forward amount. Now we may request you to please withdraw this allegation;
(ii) it is pointed out here that the learned auditors have taken the gross value of domestic purchase without considering the computation method, instead of figures actually shown in the returns. Our client shown the adjustment for domestic purchases for Rs.5.371 million instead of gross Rs.6.221 million, which` means that they did not lodge claim for adjustment of Rs.0.850 million. Further it is observed that the auditors also ignored the wording of S.R.O. 578(I)/98, dated 12-6-1998, according to which a registered person cannot adjust input tax for the goods specified therein, if the said goods are acquired otherwise than stock in trade. Thus the auditors also ignored the items, which were acquired by the refinery as stock in trade, being a manufacturer of POL products. The Central Board of Revenue has also explained "stock in trade" in their brochure. In the light of above it is requested to please withdraw the allegation under reference;
(iii) it is to explain that PRL and NRL share the crude oil imported by them in compliance of directives issued by Ministry of Petroleum. Our clients Messrs PRL were under the concept that they are importing and transferring the share of Messrs NRL only that is why they did not claim input tax involved nor they showed the output tax involved in such transaction. At the time of filing the final return for the year 2000-2001, this misconception was came to our knowledge and we guide them and advised to incorporate the figures of output tax and input tax relating to transaction with NRL as required by the said Rules, to apportion the actual and final entitlement of PRL.
It was only due to misconception and as such there was no loss of revenue to the exchequer hence the mistake is ignorable. Further as per section 7 of the Sales Tax Act, 1990, tax liability can only be determined after the adjustment of input tax, whereas the learned auditors have totally ignored the provisions of law and the fact that PRL did not lodge input tax adjustment claimed in respect of NRL share. In the light of above it is quite clear that there is nothing wilful or deliberate on the apart of taxpayer, therefore, it is requested to please withdraw the allegation in the interest of justice;
(iv) we would like to inform you that as per our reply to. the audit observation letter dated 31-10-2002, we had explained in the light of the judgments of Honourable High Courts of Lahore and Karachi that different buyers of LPG maintain their current account with our client, which does not fall within the purview of definition under section 2(44) of the Sales Tax Act, 1990. In support of above, we had submitted the copy of page No.22 of the Annual Report, 2001 along with the details thereof and some copies of letters of Foundation Gas for June, 2002 and the sales tax invoice raised by PRL.
Now as the issue of taxability on advances received from customers has been finalized/resolved through the judgment dated 11-11-2003 issued on 29-1-2004 by the Honourable Supreme Court of Pakistan and the tax involved in the said advances has also been paid at the time of actual supply therefore, nothing is outstanding as payable in this regard. As far as the demand of additional tax and penalty is concerned, keeping in view of various judgments of superior Courts including above referred judgment, it is stated that same is unwarranted as the act of the registered person was not deliberated or wilful and there is also no loss to the Government exchequer. Therefore, it is requested that the allegation may kindly be withdrawn;
(v) it is stated that it is not correct that we did not explain the variation pointed out by the audit team despite of issuance of various reminders. The variation pointed out in the observation was not correct and we informed the audit team about the actual variation, which was Rs.848.751 million instead of Rs.864 million as pointed out by the audit team. Further, we had explained and submitted the reconciliation worksheet vide our Letter No.A/PRL/S.Tax/Ret/03/01/71, dated 27-1-2003 and received in LTU on the same date.
(a) The purchases of crude oil from NRL are recorded on accrual
? basis in books of accounts that is as per value actually payable/ paid by PRL to NRL during a financial year.
(b) The purchases of crude oil from NRL are being recorded in sales tax record on payment basis in a tax period when sales tax is actually paid by PRL to NRL during a financial year.
The audit team has been failed to consider the "Record Keeping Procedure" of the registered person. In view of above and considering the worksheet it is quite clear that there is no loss of revenue despite the variation in values between books of accounts and sales tax record. It is therefore requested that the said allegation may please be withdrawn.
(vi) we would like to draw your attention to the following facts:---
Under the then provision of section 7(1) during the period 2000-2001, a registered person was entitled to deduct input tax during the tax period in which he made the payment of tax relating to his purchases, section 7(1) of the Sales Tax Act, 1990 is reproduced for your ready reference:-
"7. Determination of tax liability.---(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9."
Messrs PRL adjusted the input tax in a tax period during which they paid tax as required by the law. The demand/recovery of the same will amount to double taxation. The instant issue has been settled by the superior Courts, thus the allegation is not tenable. In the light of above you are requested to please withdraw the allegation.
4. The matter came up for decision before the learned respondent who vide his order dated 11-6-2005 dropped five charges out of six and directed for the payment of demand raised vide objection number (ii), and also directed for payment of additional tax and penalty in respect of charges (ii) and (iii) of the show-cause notice in the following terms:---
"....I have gone through the record of the case, and also considered the written and verbal arguments put forth by the respondent as well as by the departmental representative. My observations and findings on the points raised in the show-cause notice and the replies thereof, are as under:
(i) As far as demand of Rs.37.759 million is concerned, the final return filed by Messrs Pakistan Refinery Limited shows the correct position of the input tax entitlement. The position of entitlement has been verified by the department also, and confirmed that Messrs Pakistan Refinery Limited has correctly claimed the input tax according to their entitlement. Hence, nothing is recoverable from the respondent on account of this issue. I, therefore, order to drop this charge.
(ii) As regards the payment of inadmissible input tax under S.R.O. 578(I)/98 read with section 8(i)(b) of the Sales Tax Act, 1990 is concerned, the department and the respondent have submitted reconciliation statement that Rs.0.73 million is now inadmissible. Both the parties are agreed on this amount. I, therefore, order to recover Rs.0.733 million along with additional tax (to be calculated upto the date of actual payment) from the respondent under sections 36(1) and 34 of the Sales Tax Act, 1990. A penalty @ 3% of the amount of tax involved is also imposed under section 33(2)(cc) of, the Sales Tax Act, 1990.
(iii) As far as the payment of sales tax of Rs.33.869 million is concerned, the department has submitted a reconciliation report that Messrs Pakistan Refinery has made supplies to Messrs National Refinery from July, 2000 to June, 2001, the sales tax of these supplies was not paid at the time when supplies were made but ultimately paid in the mouth of September, 2001 through final return, so additional tax is recoverable from the respondent. It has been confirmed by the department that principal tax has been paid but the same was not paid within due time, thus additional tax and penalties are recoverable from the respondent. I, therefore, order to recover additional tax of Rs.263.274 million under section 34 of the Sales Tax Act, 1990 from the respondent. A penalty @ 3% of the amount of tax involved is also imposed under section 33(2)(cc) of the Sales Tax Act, 1990.
(iv) As regards the payment of sales tax on advances is concerned, it has been confirmed by the department in the reconciliation report that tax on advances has been paid, but only additional tax is recoverable from them under section 2(44) of the Sales Tax Act, 1990, which stales that supply is deemed to have taken place at earlier of the time of delivery of the goods or the time when any payment is received by the supplier in respect of that supply. This means that sales tax is chargeable if the amount is received in advance. The Honourable Supreme Court of Pakistan in C.A. No.1866/99, has also confirmed this fact that tax will be charged from the time when any payment is received and not from the time when supply is made but the additional tax could be waived. I, therefore, order to drop this charge.
(v) As far as the payment of sales tax amounting to Rs.28.157 million is concerned; the reconciliation report submitted by department and the respondent mutually agreed and stated that the figures have been reconciled/tallied. Hence, nothing is recoverable on this issue. I, therefore, order to drop this charge.
(vi) As regards the payment of inadmissible input tax amounting to Rs.574.136 million is concerned, which was not claimed by the respondent the department has submitted that the case may be adjudicated in the light of order in Appeal No.194 of 2000, dated 12-5-2001, passed by the Honourable Appellate Tribunal, Karachi, wherein the appeal of the respondent was accepted that it was their genuine right to claim input tax. I, therefore, order to drop this charge..."
5. The vires of the said order has been challenged by way of the present appeal.
6. The learned counsel appearing on behalf of the appellant contended that;---
(a) it is evident from the impugned order and the records as well that the instant case is not a case of wilful or deliberate evasion of tax and therefore, falls outside the scope of section 36(1) of the Sales Tax Act, 1990;
(b) the impugned order is illegal being issued on the basis of a void show-cause notice;
(c) imposition of additional tax and penalty is also illegal and against the settled principle of law when the act of taxpayer is not wilful or deliberate.
7. On the basis of said averments, the appellant prayed that:---
(i) the demand raised on the basis of a void show-cause notice is illegal;
(ii) the order contained in para. (ii) of the Order-in-Original is contrary to the findings given in para. (i) of the impugned order, thus these contradictory findings are not maintainable;
(iii) the act of the appellant was not wilful or deliberate hence the demand of additional tax and penalty was not warranted by law;
(iv) the orders passed in para. (iii) of the impugned order are against the settled principle of law.
8. The respondent's representative, however, maintained that the impugned order is perfectly in order and stated that for the reasons enumerated in the said order the demands enforced be asked to be paid by the appellant.
9. Rival parties have been heard and case record examined. The following issues have been raised by the pleadings of the parties:---
(a) Whether the show-cause notice served by the learned respondent under section 36(1) of the Sales Tax Act, 1990 is a valid notice'?
(b) Whether sub-paras (ii) and (iii) of para. 8 of the order-in? original ordering to recover additional tax and penalty are in conformity with the settled principle of law? And whether the department succeeded in proving that the act of the appellant was wilful and deliberate?
10. As regards the first issue, in terms of subsection (1) of section 36 of the Sales Tax Act, 1990, it is necessary on the part of the respondent to show that the taxpayer by reason of some collusion or deliberately acted for non-payment of tax. The show-cause notice dated 26-4-2004 failed to reflect whether alleged act of non-payments was the result of collusion or the same was a deliberate step to deceive the Government. The onus to prove the allegations of collusion or of a deliberate act lay on the department. It is well-settled principle of law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all.
11. And since pre-requisite show-cause notice as required by law has not been served on the appellant, therefore; no straightforward demand notice for payment of alleged short levy could be issued. It is necessary under subsection (1) of section 36 of the Sales Tax Act, 1990, to show that the taxpayer had the knowledge or had the reason to believe that his acts are the result of a collusion or are deliberate otherwise allegation would be vague and would not be in accordance with law.
12. It is not ascertainable from the grounds and reasons given in the notice whether the appellant knowingly and deliberately withheld the payment of sales tax or it was the result of a bona fide mistake and consequently, it could not be definitely said that case would fall under subsection (1) of the Sales Tax Act, 1990. The respondent while treating it a case of deliberate evasion of the tax proceeded in the matter whereas the stance of the appellant is that non-payment of tax was due to misconstruction of law and there were explainable reasons for that.
13. From the perusal of records, there is no dispute as regards the facts from which it is proved that there was deliberate failure on the part of the appellant to pay the sales tax. Indeed the appellant had deposited the amount due in the Government treasury, though slightly late. In these circumstances, it would not be said the appellant had deliberately evaded to pay the sales tax or was a defaulter. A penal action cannot be taken unless and until, it is established that act of non-payment of tax was wilful or intentional.
14. As regards the next point, it relates to levy of additional tax and penalty. In absence of the charge of' collusion or of a deliberate action, the levy of additional tax and penalty was not called, for the reason that the show-cause notice does not disclose whether there was a wilful default on the part of the appellant.
15. In these circumstances, demand of additional tax and penalty was not justified. This appeal is accordingly allowed and the impugned order is modified accordingly.
H.B.T./189/Tax(Trib.) ????????????????????????????????????????????????????????????????????????? Appeal allowed.