Sales Tax Appeals Nos.2111, 2112, 2113/LB of 2002, decided on 10th May, 2005. Versus Sales Tax Appeals Nos.2111, 2112, 2113/LB of 2002, decided on 10th May, 2005.
MEHMOOD ALAM, MEMBER (TECHNICAL).-- -By this judgment we intend to dispose of Sales Tax Appeals Nos.2111/LB of 2002, 2112/LB of 2002 and 2113/LB of 2002 involving the common question of law and merits. These appeals were lodged by the Water and Sanitation Agency (WASA), Gujranwala respectively against Order-in-Original Nos.4/ST/2002, 5/ST/2002 and 6/ST/2002 all dated 16-3-2002 passed by the Assistant Collector (Adjudication), Gujranwala.
2. The facts giving rise to these appeals are that three business firms namely Messrs Grand Electric Company; Messrs. Gul Muhammad Khan and Sons and Messrs M.I. Corporation made supplies of substantial quantities of taxable goods to WASA during 1998-99 and 2000-2001 for construction. of sewerage system in the city of Gujranwala. These supplies were, allegedly, made by the respective firms without payment of several millions rupees of sales tax and without their registration with the Sales Tax Department. By not doing so, these three firms were alleged to have contravened the respective provisions of the Sales Tax Act, 1990. Consequently, they were proceeded against and liabilities of sales tax, those of the additional tax and penalty etc. were A adjudged against them by the Adjudicating Officer through separate orders. WASA was also impleaded in these proceedings as a party on the charges that being a Government Agency, it was under obligation to receive taxable supplies only from those persons who were registered under the Sales Tax Act, 1990 in terms of the Cabinet Division's decision contained in their Letter No.4(11)/98-Coord-II, dated 18-4-1998: That, by receiving taxable supplies from the unregistered persons, WASA was guilty of abetment in the evasion of sales tax and was liable to punitive action under section 33(5) of the Sales Tax Act. These charges were communicated to WASA, Gujranwala through the respective show-cause notices; they were given the opportunity of hearing, their explanations were considered which finally resulted in the imposition of penalties on them and these proceedings culminated into the impugned orders.
3. The appellant department was heard by us on 21-4-2005 through its Advocate whereas the Sales Tax Department was represented by Mr. Zulqarnain, Deputy Superintendent. Main contentions of learned counsel for the appellant were that the impugned orders were illegal and. void due to the following reasons:---
(a) WASA Gujranwala was a Government department. Its main (sic) maintenance of water and sewerage system. Accordingly tender and contract were awarded by WASA to three business firms namely Messrs M.I. Corporation, Messrs Gul Muhammad Khan and Sons and Messrs Grand Electric Co. for the construction of sewerage system in the city of Gujranwala.
(b) Accordingly sewerage system was constructed by these firms in terms of the said tender and contract. Sewerage system itself is an immovable property as it does not fall within the definition of goods as provided under section 2(12) of the Sales Tax Act, 1990. As such the immovable property and fixed assets so constructed were not chargeable to sales tax.
(c) Construction of sewerage system was a Turn-key project. Hence it does not fall within the ambit of definition of "supply" as provided in section 2(33) of the Sales Tax Act. Besides, it does not tantamount to a taxable activity within the meanings of section 2(35) of the Act ibid.
(d) The tender documents as well as the contracts were silent about the payment of sales tax whereas the element of sales tax was not included in cost of the project.
(e) According to section 3 of the Sales Tax Act, 1990 the sales tax is leviable on sale and supply which are made in furtherance of any business or taxable activity. If any of these elements are missing, the sales tax cannot be levied. In the present case, involving construction of sewerage system, both the element of sale and supply were not attracted.
(f) According to Circular No.4(47)STB/98(Pt.II) issued by the C.B.R. on 2nd April, 2002 the sales tax is not leviable on immovable property such as buildings and roads. It is otherwise a general practice that the sales tax is not levied on the contractors engaged in the business of construction of buildings, roads, etc. The impugned levy was therefore exceptional and discriminatory.
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4. The arguments detailed at (a) to (f) in para.3 above were also deliberated upon by the learned counsel in Appeals Nos.387/LB of 2002, 468/LB of 2002 and 479/LB of 2002 that were lodged respectively by Messrs. M.I. Corporation, Messrs Gul Muhammad Khan & Sons and Messrs Grand Electric Co. against the respective adjudication orders. These three appeals have since been decided by this Bench through a consolidated judgment C. No.387, 468, 479/02/426, dated 12-5-2005. The abovesaid arguments were not accepted by the Bench for the reasons recorded therein. Consequently the respective adjudication orders as had been appealed against were upheld whereas the appeals were rejected.
5. The present order thus focuses on a single issue as to whether or not the imposition of penalties on WASA under section 33(5) of the Sales Tax Act, 1990 was justified. In this connection, the learned counsel of WASA has particularly argued that:---
(i) Penalty under the Sales Tax Act can only be imposed when there is a clear and transparent intention to fraud the Government. However, in the instant case no element of fraud exists.
(ii) Besides, the penalty under the Sales Tax Act can only be imposed when there is a deliberate cause of loss to the department whereas WASA has caused no loss to the Government in the instant case.
6. We have considered these two arguments at length. To us it appears that the public authorities at WASA, Gujranwala were probably not aware of the Cabinet Division's decision as contained in their Letter No.4(11)/98-Coor-II, dated 18-4-1998 which made it obligatory on the part of Government Departments to receive taxable supplies from the registered persons only. If they had known this decision, they would B have included the element of sales tax in the tender documents and respective contracts and should also have insisted on compliance of sales tax law. Because of this lack of knowledge, they could not appreciate full implications of the entire episode and, unwillingly, became oblivious to the requirements of the sales tax statutes. WASA authorities may not have had any deliberate intention to defraud the Government of her legitimate revenue but the fact remains that the Government was deprived of a substantial amount of the sales tax revenues either on account of their apathy or for lack of sufficient care.
7. We are also mindful of the fact that imposition of heavier penalties on WASA is unwarranted because such penalties will ultimately be paid by them out of the public funds which is determined to the public interests. In consideration of these reasons we are inclined to take a lenient view and reduce the pitch of penalty. Accordingly, the penalties imposed in each of the impugned orders are reduced to Rs.50,000 (Rupees fifty thousand) and the respective adjudication orders as were passed against WASA shall be treated to have been modified to that extent.
H.B.T./186/Tax(Trib.) ????????????????????????????????????????????????????????????????????????? Order accordingly.