Appeal No.7(153)ST/IB/2003 and Old No.7(88)ST/IB/2002, decided on 31st May, 2006. Versus Appeal No.7(153)ST/IB/2003 and Old No.7(88)ST/IB/2002, decided on 31st May, 2006.
1. MUHAMMAD ANWAR ALI MEMBER (TECHNICAL)/CHAIRMAN .---(1) This appeal has been filed against the Order-in-Original No.19 of 2002, dated 12-1-2002 passed by the Additional Collector of Customs, Central Excise and Sales Tax (Adjudication), Rawalpindi.
2. Brief facts of the case are that during the course of audit of Messrs Kohinoor Textile Mills, Rawalpindi conducted by the DGRRA Lahore for the years 1997-98 and 1998-99 communicated vide audit observation No.9 dated 25-9-1999 it was pointed out that while filing the return for the month of May 1998, an amount of Rs.21286819/was shown incorrectly as opening balance of carry forwarded amount of input tax. In this way sales tax payable for the months of May and June, 1998 were converted into refundable/carry forward amount and remained unpaid for a certain period. The amount of sales tax payable for those months was however, adjusted later on from the refund claims of other months but the additional sales tax of Rs.4503230 leviable under section 34 of the Sales Tax Act, 1990 was neither assessed at the time of adjustment nor paid by the manufacturer. Thus Messrs Kohinoor Textile Mills contravened section 34 of the Sales Tax Act, 1990, punishable under section 33 of ibid. A show-cause notice, dated 21-2-2000 was issued to them asking as to why they should not pay the evaded amount of tax along with additional tax and action under section 33 of the Sales Tax Act, 1990 may not be taken. After conducting the hearings and obtaining reply to the show-cause notice the adjudicating officer decided the case by ordering to pay the demanded additional tax in terms of section 34 and in addition a penalty of 3% of the additional tax involved under section 33 of the Act was also imposed.
3. Aggrieved by the above order-in-original the appellants filed the instant appeal on the following grounds:
(i) That while passing the illegal and void orders, the learned adjudicating authority has not considered the contentions raised in the reply to the show-cause notice followed by exhaustive verbal arguments at the time of hearing, relying upon the judgments of the superior Courts and of this august Tribunal, inter alia in the following cases:--
(a) The Coca Cola Export Corp. v. The Additional Collector (Appeal STA 748/LB/2001) 2002 PTD (Trib.) 1455.
(b) Messrs Blue Horizon (Pvt.) Ltd. v. Collector (Appeals) (PTCL 1999 CL. 162).
(ii) That in nutshell, these judgments hold that the input tax being a substantive right cannot be taken away or withheld on mere technical grounds. In this case, the valid and due refunds were withheld without any objection, whatsoever and were not released even after furnishing of bank guarantee as directed by the Central Board of Revenue against the said refunds. That the withholding of this amount was against law especially in presence of the specific directions by the Central Board of Revenue.
(iii) That instead of redressing the grievance of the appellants and instead of taking note of the highhandedness of the respondents, tainted with malice, the learned adjudicating officer without any justification, adjudged the additional tax, which, too, is not at all justified in the circumstances of the case.
4. The predecessor Bench of this Tribunal after conducting the hearings and listening to both the parties decided the appeal vide its judgment, dated 3-4-2003, dismissed the appeal. Aggrieved by the decision this Tribunal Messrs Koh-i-Noor Textile Mills Limited, filed Tax Appeal No. 12 of 2003 in the Lahore High Court, Rawalpindi Bench, Rawalpindi. The Honourable High Court vide its judgment, dated 29-9-2003 accepted the appeal holding that the impugned judgment was vague and did not spell out logically co-relation of facts qua the various provisions of the Sales Tax Act, referred to in the judgment. Due to these infirmities and in consent by both the learned counsel the ease was remanded to the Tribunal to decide the case afresh after providing opportunity of hearing to' both the parties. After remand of this appeal, the appellants through their advocate, Mr. Farhat Nawaz Lodhi submitted written arguments on 29-12-2005 as under:--
ON POINTS OF LAW
2. S.No.
3. Issue
4. Submission of appellants
5. 1.
6. Whether SCN is legally sustainable/tenable thus proceedable when any subsection of section 36 of the Sales Tax Act, 1990 is not mentioned therein'?
7. SCN is illegal and not tenable, relying upon the full bench judgment of the Honourable Supreme Court in case reported as Asstt. Collector Customs v. Khyber Electric Lamps Ltd. (2001 SCMR 838). As followed by the honourable Lahore High Court in a D.B. judgment reported as Messrs Zamindara Paper Mills v. Collector (2003 PTD 1257). The Collector (Adj.), Rawalpindi and the Addl. Collector (Adj.), Rawalpindi have also followed said judgment in many cases, e.g.-
(a) Appeal No.163103 by Messrs Attoek Refinery Ltd. (decided by the Worthy Collector (Appeals), Rawalpindi).
(b) Appeal No.01/03 by Messrs Al-Ahli Aluminum Ltd. (decided by the Worthy Collector (Appeals) Rawalpindi).
(c) Order-in-Original No.46 of 2005 by the Worthy Addl. Collector (Adj.), Rawalpindi.
8. N.B.
(1) Against the said orders-in-no appeal has been preferred by the respondents, hence attained finality. Thus prosecution of the appellants now, would be illegal and discriminatory as per dictum laid down by the honourable High Court in judgment reported as 2002 PTD 976. (The Collector v. Messrs Novartis).
(2) A complete list of reliance is Annexed.
9. 2
10. Whether the order-in-original is
11. Without prejudice, the contentions legally valid and enforceable raised through the earlier memo- being hopelessly time-barred? randa are reiterated. The order-in -original (issued on 21-2-2002) is badly time-barred and the same is evident from the fact of it, section 36 of the Sales Tax Act, 1990 is very clear. Now the issue is not that whether it is time-barred or not; the issue is legally competent and able to press the order-in -original into service when it is badly time-barred. Since the demand is time-barred thus recovery cannot be made. Reliance is, inter alia, placed on the following judgments of the Honourable Superior Courts:--
(i) 1992 SCMR 1898
(ii) 1992 SCMR 189
(ii) 1992 CLC 841
(iv) PTCL 1993 CLC 532
(v) 1992 CLC 841
(vi) NLR 1991 Tax 11
(vii) 1901 MU) 1459
(viii) KLR 1991 Tax 65
12. On Merits
13. Whether the respondents were legally justified to hold due and valid refunds? And the effect of withholding the due refunds (relating to exports-thus causing a loss to the exports, as well) without any legal justification and with mala fide intentions, against the express provisions of law, inter alia section 10(2) and the directives of the Worthy Chairman, C.B.R. And
14. In the case in hand, the valid and due refunds were withheld without any objections, whatsoever and were not released even after furnishing of bank guarantee against the said refunds (the bank guarantees) were furnished in consequence of the written directions of the worthy Chairman, C.B.R. Being sub-ordinates, the respondents were bound to follow his directions, in letter and spirit, as per section 72 of the Act.
15. 2.
16. Whether the learned respon-
17. No, the provisions were neither dents properly and correctly understood nor applied, properly and understood/ interpreted/ judicially. applied the relevant provisions of the Act, inter alia sections 10, 33, 35 and 72 thereof?
18. 2.
19. Whether the acts and omissions of the respondents amount to "Double Taxation"?
20. Yes, stated with deference, they do amount to double taxation since once the output tax was paid, input tax could not be retained on any technical ground. Reliance is, inter alia, placed on the following judgments:-- (a) Messrs Pfizer Ind. v. Federation of Pakistan Full Bench judgment of the Honourable. Supreme Court of Pakistan PLD 1998 SC 64).
21. (Holds that "the Govt. cannot retain the illegal recovered amount or an amount which is not due, on any technical plea").
(b) Messrs Trade Link v. Collectorate of Sales Tax, Lahore.
22. Full Bench judgment (five Members including the Worthy Chairman)---(2003 PTD (Trib.) 928).
23. 3
24. Whether, in the circumstances and facts of the case, the appellants are liable to the additional tax and penalty.
25. That instead of redressing the grievance of the appellants and instead of taking note of the highhandedness of the respondents, tainted with malice, the addl. tax and penalty was also imposed, which is not at all justified in the circumstances of the ease in hand. All the transactions and the acts were notified to the Deptt. At the relevant time, in writing, no objection ever raised.
26. Whether, in the circumstances and facts of the case, the appellants are entitled to have relief under section 67 of the Act?
27. The Act, vide section 67, also provides for a mark-up @ 14% on the delayed refunds. The appellants are fully entitled to the same, as well, since admittedly, the refunds were delayed beyond the admissible period and that too without any objections/reasons, whatsoever.
5. In response to the above written arguments of the appellants the department through the Departmental Representative submitted the following written replies:--
28. "(1) in fact, violation of certain provisions of the Sales Tax Act, 1990 is one thing and framing of charges against a person under the said law is different thing and both are mutually exclusive. Further more that the adjudicating officer is vested with the power under sections 11(2) and 36 of the Act. No other powers under the Act have been given to the adjudicating officer. Therefore, the show-cause notice has validly been issued by a competent officer under section 36 of the Act, notwithstanding the fact that this section does not find a mention in the said notice. The adjudicating officer could exercise the powers under section 36 only and could not go beyond that. Therefore, it is incorrect to say that show-cause notice was not issued under section 36 of the sales Tax Act, 1990.
(2) According to section 36(1)(2) of the Sales Tax Act, 1990, the Order-in-Original No.19 of 2002, dated 12-1-2002 was passed by the Additional Collector, adjudication is legally valid' and enforceable. The relevant section reads as under:--
29. "(36) Recovery of tax not levied or short-levied or erroneously refunded.
(1) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice.
(2) Where, by reason of any inadvertence, error or mis construction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay the Amount of tax or charge or the amount of refund erroneously made shall be served with a notice within three year so the relevant date, requiring him to show cause for payment of the amount specified in the notice".
30. In this case, the Show-Cause Notice C. No. ST/ADJ/57199/ 5051, dated 21-2-2000 and Order-in-Original C. No. ST/ADJ/ 57/99, dated 12-1-2002, were issued within time.
(3) According to section 10(3) of the Sales Tax Act, 1990, "if a registered person is liable to pay any tax (default surcharge) or penalty payable under any law administered by the Board, the refund of input tax shall be made after adjustment of unpaid outstanding amount of tax or, as the case may (default surcharge) and penalty".
31. The appellant failed to deposit due sales tax payable by them for the month of May, 1998 and June, 1998 within due date in the manner prescribed in the Act as per provision of section 3(3)(a) of the Sales Tax Act, 1990. Therefore additional tax in term of section 34 is attracted and Additional Collector (Adjudication), the Order-in-Original No.19 of 2002, dated 21-2-2002, to pay additional tax amounting to Rs.4503230 leviable in term of section 34, a penalty of 3% of the involved tax under section 33 of the said Act was also imposed.
32. The appellant claimed refund is inadmissible according to the section 10(3) of the said Act. The case is still under process and the judgment of the Honourable Appellate Tribunal has been reserved.
(4) While the appellant filing the sales tax return for the month of May, 1998, an amount of Rs. 21286819 was shown incorrectly as opening balance of carry forwarded amount of sales tax. In this way sales tax payable for the month of May and June, 1998, was converted into refundable/carry forward amount and remained unpaid for a certain period. The amount of sales tax payable for those months was however, adjusted latter on from the refund claims of other months, but the additional tax of Rs.4503230 leviable under section 34 of the Sales Tax Act, 1990, was neither assessed at the time of adjustments, not paid by the manufacturer. Therefore no double taxation will be made.
(5) It is clearly laid down in section 34 of the Sales Tax Act, that if a registered person or enrolled person does not pay the tax due or any part thereof in time or in the manner specified under this Act, rules or notification issued thereunder or claims a tax credit, refund or makes an adjustment, which is not admissible to him, he shall, in addition to the tax due, and the prescribed penalties, pay additional tax at the rate of two per cent of the tax due per month or any part thereof. In this case the appellant clearly withheld the payment of the principal amount deliberately, and paid the same after a substantial lapse of time. The appellant in fact converted the original amount into refundable/carry forward amount. According to the above clear-cut provisions of law the additional tax has been correctly payable by the appellant. On the same lines the 3% penalty payable by the appellant is also very much according to the provisions of law as laid down in section 33(2)(cc).
(6) The appellant claimed inadmissible refund according to the section 10(3) of the Sales Tax Act, 1990. Furthermore as per section 10(4) of the Sales Tax Act. "Where there is reason to believe that a person has claimed input tax credit or refund which was not admissible to him, the provisions regarding time limit shall, not apply till the investigation, including the verification of the deposit of tax claimed as refund, is completed and the claim is either accepted or rejected."
33. Furthermore according to section 67 that, "where there is reason to believe that a person has claimed the refund which is not admissible to him, the provisions regarding the payment of such additional amount shall not apply till the investigation of the claim is completed and the claim is either accepted or rejected.
34. Therefore, the appellant is not entitled to claim the mark-up @ 14% on delayed refund.
35. In view of the above, it is requested that according to the section 34 of the Sales Tax Act, 1990, the additional tax amounting to Rs.4503230 is recoverable under section 36, along with 3% penalty under section 33(2)(cc) from the Messrs Kohinoor Textile Mills Limited, Rawalpindi."
6. On 27-3-2006 and 27-4-2006 the case was heard in detail when both the sides made exhaustive arguments. Mr. Farhat Nawaz Lodhi, the learned counsel for the appellants reiterated all the arguments verbally given already in writing. The Departmental Representative also stressed upon the written arguments, dated 17-3-2006. We have examined the case records, the previous judgment of this Tribunal and the directions, dated 29-9-2003 or the Honourable Lahore High Court, Rawalpindi Bench, Rawalpindi for hearing both the sides and to decide the case through well-reasoned speaking judgment. We have observed that the appellants filed various refund claims to the Department in the months of August, 1997 to May, 1998 which according to one letter, dated 13-7-1998 addressed to the Assistant Collector amounted to Rs.21,286,818.82 under section 10 of the Sales Tax Act, 1990 which reads as under:--
36. "(10) Refund of excess amount or input tax .---(1) Subject to the provisions of subsection (2), if in relation to a tax period the total deduction of input tax and other adjustments specified in section 9 exceed the amount of output tax, the excess amount outstanding at the end of that period shall be refunded to the registered person within (ninety) days of filing of tax return subject to such conditions as may be specified by the Board:
37. Provided ---------
38. Provided further---------
(2) Notwithstanding anything contained in subsection (1), the input tax incurred in connection with a zero-rated supply shall be refunded not later than thirty days of filing of return in such manner and subject to such conditions as the Board may, by notification in the Official Gazette, specify:"
39. The appellants have stressed that the Department did not follow the statutory provisions for refunding of excess amounts of input tax within ninety days in case of local supplies and thirty days in case of zero-rated export supplies in spite of various letters written to it at different points of time. This situation adversely effected their liquidity position so much so that the matter was taken up by the exporters to the highest level of the Government i.e. the Prime Minister of Pakistan and on whose directions the then Chairman, Central Board of Revenue vide his directions, dated 21-7-1998 ordered that refunds be paid within two weeks and in case of doubt about the eligibility for want of verification, the refunds should be allowed against bank guarantees. The then Members Sales Tax, Central Board of Revenue separately issued a letter, dated 22-7-1998 to dispose of such refund claims on merit by 31st July, 1998. The appellant accordingly submitted bank guarantees on 18-9-1998 to the Assistant Collector of Sales Tax (Refund), Rawalpindi but in utter disregard to such statutory provisions of the Sales Tax Act, 1990 as well as clear-cut directions of the Prime Minister of Pakistan, Chairman, Central Board of Revenue and Member Sales Tax, Central Board of Revenue, no action was taken by the Department. As a compulsion, they started making adjustments at their own but did not fail to intimate the Department. Out of total refundable amount of R.21,286,818.82 as on May, 1998 they adjusted Rs.3,654,766.47 still leaving a balance of due refund of Rs. 17,632,052.35 as on 20-6-1998 which they informed the Assistant Collector (Refund) vide their letter, dated 13-7-1998. They adjusted another amount of Rs. 5,478,058.65 in the month of June, 1998 leaving a balance of refund due of Rs. 12,153,993.70 as on 15-7-1998 which they informed the Assistant Collector (Refund) vide their letter, dated 29-7-1998. The learned counsel for the appellants further quoted the provisions of section 67 of the Sales Tax Act, 1990 which provides that if the refund due under section 10 is not made within the time specified therein the claimants would be paid a further sum equal to 14% per annum in addition to the amount of refund due to him from the date following the expiry of the time specified to the day preceding the date of payment of refund. During this entire period of withholding of their due and legitimate amount of input adjustment neither the Department made any verification of their claims nor informed them about the reasons thereof. Subsequently, the audit staff of the Directorate-General of Revenue and Receipt Audit, Lahore conducted audit and on the basis of audit observation No.9 dated 25-9-1999 issued a show-cause notice, dated 21-2-2000 objecting to such adjustment and demanded additional tax under section 34 and penal action under section 33 of the Sales Tax Act, 1990. The adjudicating officer subsequently without paying due attention to the circumstances of the case ordered the payment of additional tax and 3% penalty under section 33 of the Act.
7. According to the appellants the show-cause notice, dated 21-2-2000 is not legal and sustainable because section 36 of the Sales Tax Act, 1990 under which the amounts are being demanded to be recovered was not mentioned at all and in view of the landmark judgments of the Honourable Apex Court reported in case-law 2001 SCMR 838, Honourable Lahore High Court in case-law 2003 PTD 1257 and followed by many other judgments of the Appellate Tribunal, Collector (Appeals) and Additional Collector (Adjudication), the show-cause notice becomes a notice without lawful foundation and as the show-cause notice was not served on the appellants as required by law, therefore, no straightforward demand notice for payment of alleged tax could be issued. In addition to the above the appellants have stressed that they had adjusted the excess input adjustment in May, 1998 whereas the show-cause notice was issued in February, 2000 and is thus time-barred under section 26 of the Sales Tax Act, 1990 and thus no recovery can be made against such an order. Their claim for adjustment of excess input tax was perfectly legal and if the same is denied then it would tantamount to double taxation and as per judgments of Honourable Supreme Court of Pakistan in case-law PLD 1998 SC 64 and the Appellate Tribunal in case law 2003 PTD (Trib.) 928, the Government cannot retain the legal amount due to them on technical grounds.
8. The written as well as oral arguments of the Departmental Representative have been examined by us. The contention of the Department that non-mention of section 36 of the Sales Tax Act, 1990 in the show-cause notice does not affect the legality of the show-cause notice because the adjudicating officer is vested with the powers under sections 11(2) and 36 of the Act and no other powers have been vested in him and further that the violation of certain provisions of Sales Tax Act, 1990 is one thing and framing of charges against a person under the said law is different thing and both are mutually exclusive is not convincing. After listening to the arguments of both the sides we have reached to the conclusion that the appellants had claimed refunds of excess amounts of input tax under section 10 of the Sales Tax Act, 1990, and the Department was bound to refund such amounts within ninety days of the filing of the returns in case of zero-rated supplies and within thirty days of filing of the returns in case of zero-rated supplies. In fact under section 67 the Department was bound to pay in addition to the actual refunds, a further sum of fourteen per cent per annum beyond the specified period of allowing refunds. The appellants even produced bank guarantees as a policy allowed by the Government so that exporters may not suffer due to adverse liquidity position. They were neither informed about any objection nor the refunds were allowed against bank guarantees defiantly even after receiving instructions from the Federal Government. The Department has not brought before us any plausible reason for withholding such refunds. When the appellants were left with no choice they chose to adjust these amounts at their own and informed the Department in writing. It is an admitted fact that the appellants were forced to take recourse to a position which was not strictly legal but the Department also remained adamant neither to reject the claims nor to make the payments. Both parties defied the prescribed law. Even the Department did not bother to compensate the appellants, in terms of payment of additional amounts at the rate of fourteen per cent per annum under section 67 of the Act. The Honourable Apex Court in its reported judgment (PLD 1998 SC 64) has held that latest judicial trend is to deprecate and to discourage withholding of a citizen's money by a public functionary on the plea of limitation or on any other technical plea if it was not legally payable by him.
9. Claims for the refunds of the amount paid as a tax or other levy on account of mistake as to want of constitutional/legal backing or because of exemption are at par. The Department issued a show-cause notice in consequence to an audit objection raised by the external auditors i.e. the DGRRA without even mentioning section 36 of the Sales Tax Act, 1990. The Honourable Apex Court in its reported judgment 2001 SCMR 838 held that demand notices in absence of statutory show-cause notices were without lawful foundation. It is well-settled proposition 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. Since prerequisite show-cause notice as required by law has not been served on the appellants in this case so therefore, no straightforward demand notice for payment of alleged short levy could be issued. Neither section 10 nor section 36 of the Sales Tax Act, 1990 has been mentioned in so many words in this case. The show-cause notice is, therefore, vague and not in conformity with the law, therefore, on this point alone the same is considered to be of no legal effect. This is a typical case of the highhandedness of the Department where the statutory rights of the appellants have been denied. They were kept in lurking position for quite long and in spite of their unabated written requests followed by reminders and in utter defiance to the policy decision of' the Federal Government through written instructions of the high-ups in the Central Board of Revenue, the officers of Sales Tax in the Collectorate paid deaf ears to such orders and kept mum on the burning issue. The rights of the tax payers/registered persons enshrined not only in the Constitution of Pakistan but also emphasized by the superior Courts and followed by the lower judicial as well as quasi-judicial forums in enumerable tax appeal cases. Neither the Department has brought any evidence before us to the effect that the principal amounts or sales tax in the form of the refunds were not due to the appellants nor such an order for the recovery of the same has been passed by the adjudicating officer. In nutshell it is acknowledged that the input tax and adjustment thereof is a substantive right of the tax payer and cannot be taken away or withheld on mere technical grounds. That in the case in hand the valid and due refunds H were withheld by the Department without any objection and were not released even after furnishing of bank guarantees, the show-cause notice issued without mentioning of the relevant sections 10 and 36 of the Sales Tax Act, 1990 are, therefore, held to be illegal. Any demand in consequence thereof in the form of additional tax and penalty is also, therefore, illegal and is hereby set aside., The appeal is, therefore, accepted and the impugned show-cause notice as well as the order-in -original are held to be illegal and of no consequence.
10. Ordered accordingly.
40. C.M.A./200/Tax (Trib.) Appeal accepted.