Sales Tax Appeal No.1207/LB of 2003, decided on 6th March, 2006. Versus Sales Tax Appeal No.1207/LB of 2003, decided on 6th March, 2006.

MEHMOOD ALAM, MEMBER (TECHNICAL)--- Messrs Crescent Sugar Mills, Faisalabad (hereinafter referred to as the appellants) were proceeded against by the learned Adjudicating Officer on several allegations pursuant to an audit report covering the period October, 2000 to June, 2002. The matter was adjudicated upon in the due process and the following liabilities were consequently adjudged against the appellants vide Order-in-Original No. 29/2003, dated 13-6-2003:

(a) Penalty of Rs. 2,500 on account of adjustment of further tax;

(b) Sales tax of Rs.382,385 for violation of section 73 of the Sales Tax Act along with additional tax and 3% penalty;

(c) Sales tax of Rs.1,827,278 for not including the "permit duty" in Sales tax of Rs.15,841 on account of inadmissible input along with additional tax and 3% penalty;

(d) Sales tax of Rs.101,673 being inadmissible input on telephone bills along with additional tax and penalty;

(f) Sales tax of Rs.309,161 on electricity bills along with additional tax and 3% penalty;

(g) Sales tax of Rs.368,700 on sale of vehicle; and

(h) Further tax of Rs.25,244 on supplies made to Fair Price Shops along with additional tax and 3% penalty.

2. The above-said orders have been appealed against on multiple grounds which have been given due consideration. Parties have been heard. Parawise comments submitted by the respondent department as well as the records of appeal have been perused. Observations of this Bench vis-a-vis each of the impugned order, as mentioned at (a) to (h) of para 1 above, are respectively recorded in the following paragraphs.

3. (a) Penalty of Rs.2,500.

The main objection was settled by the learned Adjudicating Officer but the penalty of Rs.2,500 was imposed under section 33(2)(cc) of the Act for violation of procedure. We are of the view that penalty was correctly imposed under the respective statutory provision of the Act and as such this issue does not merit any further consideration.

4. (b) Violation of section 73.

The liability of Rs.382,385 along with additional tax and penalty was adjudged against violation of section 73 of the Sales Tax Act read with subsection (1) ibid. The payments in this case were not transferred by the appellants to the seller within the prescribed period of time but such payments were transferred thereafter. The limitations prescribed in section 73 leave no discretion with the Authority. The bar of limitation is specific and absolute in character and it cannot be condoned. No adjustment of input tax is admissible in cases involving the infringement of the provisions of section 73. The distinction made by the learned counsel with regard to the prescribed mode of payments vis-a-vis the, limitation on transfer thereof is not tenable. We are of the view that no mistake of law was made by the learned Adjudicating Officer in the interpretation of section 73. The infringement was correctly construed; the liability was rightly adjudged and penalty was correctly imposed.

5. (c) Non-inclusion of permit duty in the value of supply.

Learned counsel of the appellants pleads that permit fee on the movement of spirit is a provincial levy; it is not recovered from the customers by the appellants and therefore cannot be included into the value of supply in terms of section 2(46) of the Sales Tax Act, 1990. Judgment of the Honourable Lahore High Court in Writ Petition No.7235 of 1994 was also cited in support of the above contention. This judgment of the Honourable High Court, however, does not help the appellants. Reason being that the impugned order in this writ petition was not set aside with reference to the chargeability of sales tax. Contrarily the order impugned was set aside by the Honourable Court because the petitioner had been condemned unheard and the principle of "audi alteram partem" was held in favour of the petitioner. Consequently the petitioner was directed to appear before the respective Authority and the Authority concerned was directed to pass assessment order after hearing the petitioner. As such the above-cited judgment of the Honourable High Court cannot he pressed into service by the appellants on a question of law involving the interpretation of section 2(46) of the Sales Tax Act. The question of law involving the inclusion of permit duty in the value of supply has already been interpreted by the Tribunal in Sales Tax Appeal No. 768/LB/2000. This appeal too was lodged by Messrs Crescent Sugar and was decided against them. The learned Adjudicating Officer has correctly relied upon the said judgment and we see no reason to interfere with his order.

6. (d) Input claimed on wire and cable.

Records of appeal indicate that contention of the appellants was partly accepted at the original stage and the audit objection to the extent of Rs.78,251 was settled. Demand for the remaining amount of Rs.15,841 however was enforced along with additional tax and penalty. Input claim of the appellants to the extent of such wires and cables etc. was disallowed as were not the "stock-in-trade", in terms of S.R.O. 578(I)/98. The prohibition of section 8(I)(b) of the Act read with S.R.O. 578(I)/98 was rightly applied and the liability and penalty was correctly adjudged. We see no force in argument of the appellant in this behalf and maintain this part of the impugned judgment as well.

7. (e) Inadmissible input claimed on telephone bills.

We agree with interpretation of the learned Adjudicating Officer that section 8(1)(a) of the Sales Tax Act bars the claim of input tax on those goods which are not used for the manufacture of taxable goods or taxable supplies. It is difficult to assume that the entire telephonic facility, as claimed by the mills, was exclusively used in furtherance of taxable activity or it directly contributed to the production or supply of goods. Moreso because the manufacture of sugar is only a seasonal activity, the mills, for about 8 months in a year, remain closed. Any reasonable apportionment of the input claim on this account is also not possible. Besides no case-law has been cited by the appellants in support of their contention. We are therefore, inclined to believe that the sales tax law was correctly applied by the learned Adjudicating Officer according to the departmental practice and the impugned order with regard to the input claimed on telephone bills was correctly passed in accordance with law.

8. (f) Inadmissible input claimed on electricity bills.

Inadmissible adjustment of Rs.1,545,803 against electricity bills relating to a period of 20 months was initially alleged in the show-cause notice. Nevertheless an amount of Rs.1,236,642 was settled whereas amount of Rs. 309,161 was held recoverable along with additional tax and penalty. We are of the view that the liability was rightly ascertained by the learned Adjudicating Officer by applying the principle of law and equity and in line with the departmental practice. The same rule of apportionment was applied in this case as well as had been applied in the cases of other sugar mills in the past. As such no discriminatory or illegal treatment was meted out to the appellants.

9. (g) Sale of vehicle without payment of sales tax.

Sales tax on disposal of fixed assets, according to a judgment of the Honourable High Court of Sindh, was not chargeable. The Sales Tax Department, however, filed an appeal against the said decision and consequently the matter was sub judice with the Honourable Supreme Court. Keeping in view the aforesaid position in mind, the learned Adjudicating Officer passed an order to the effect that the amount of Rs.368,700 may be recovered subject to the outcome of appeal and decision of the Apex Court. The cause of appeal vis-a-vis the above-said order does not arise as no adverse action has apparently been ordered. Nevertheless, for satisfaction of the appellants, we direct that the impugned amount of Rs.368,700 be not recovered until the appeal of the department is decided upon by the Honourable Supreme Court and it shall only be recovered if the appeal is decided in favour of the revenue.

10. (h) Supplies made to the fair price shop without payment of further tax.

It has been argued that the fair price shop of the mills is not a separate person under the law. It cannot have a separate Registration Number because it is a part of the mills and is located on the same premises. Also that the fair price shops are established compulsorily' under section 3 of the Punjab Fair Price Shop Factories Ordinance, 1971 for sale of article of daily use to the workers on cheaper rates. Besides no further tax was ever recovered on the sales made from these shops to the workers in the past. It has further been argued that the sales tax was charged on the consideration in money which the appellants actually received from the workers. Hence the value at which the sales tax was charged was in accordance with section 2(46) of the Sales Tax Act, 1990. We are inclined to agree to the above-said assertion of the learned counsel. We further agree that the provision of section 3(1A) of the Sales Tax Act, as it then existed on the statute, could not be involved against the appellants in view of the above-stated facts. To that extent the appeal is accepted and orders of the learned Adjudicating Officer for recovery of Rs.25,244 along with additional tax and penalty etc. are set aside.

11. Accordingly the order impugned, dated 13-6-2003 stands modified to the extent of paras. 9 and 10 of this judgment Rest of the appeal being devoid of merits, is rejected and disposed of.

H.B.T./177/Tax (Trib.) Order accordingly.