Versus M. Raza Qureshi , Dr. Akhtar Hussain
SAEED AKHTAR, MEMBER (TECHNICAL).--- This appeal is directed against Order-in-Appeal No. 247 of 2006 passed by the learned Collector (Appeals), Customs, Sales Tax and Federal Excise, Multan issued vide C. No.347/App/MTN/ST/05/942, dated 22-4-2006 where under the appeal filed against Order-in-Original No.25 of 2005, dated 22-7-2005 was dismissed.
2. Brief facts of the case are that during the course of audit of sales tax record of Messrs Layyah Sugar Mills Limited, Layyah for the period 2000-2001 and 2001-2002 the auditors observed following discrepancies which resulted in the issuance of show-cause notice to the registered person:--
(i) Under-valuation of supply to associates.
(ii) Under-valuation
(iii) Input tax adjustment without invoices
(iv) Non-payment of sales tax on advances
The learned Deputy Collector (Adjudication), after hearing both the parties, dropped/settled charges relating to observation Nos.3 and 4 i.e. input tax adjustment without invoices and non-payment of sales tax on advances. The liability against charge Nos.1 and 2 i.e. under-valuation on supply to associates and under-valuation were established against the appellant and the appellant was directed to deposit sales tax amounting to Rs.4,95,084 along with additional tax and penalty @ 3% of the tax involved in respect of charge No.1 whereas an amount of Rs.10,74,076 along with additional tax and penalty @ 3% of the tax involved was adjudged in respect of charge No.2. The appellant then respondent feeling aggrieved with the decision of the learned Deputy Collector (Adjudication) filed appeal before the learned Collector (Appeals), Multan who after considering the contentions of the parties dismissed the appeal against which the present appeal has been filed before this Tribunal under section 46 of the Sales Tax Act, 1990. The main contentions of the learned counsel for the appellant were as under:--
3. The appellant is a Company with limited liability incorporated under the relevant provisions of law. The audit of the ales tax record of the appellant for the tax period 2000-2001 and 2001-2002 was conducted by the sales tax auditors who raised four audit observations: A show-cause notice was issued to the appellant and after adjudication of the case, the learned Deputy Collector (Adjudication) dropped/settled two out of the four audit observations. As a consequence of adjudication, the appellant was directed to pay sales tax amounting to Rs.15,69,160 along with additional tax and penalty @ 3% of the tax involved under sections 36, 34 and 33 of the Sales Tax Act, 1990. The appeal filed against the order-in-original was dismissed by the learned Collector (Appeals), Multan. The appellant feeling aggrieved with the decision has filed the instant appeal on the following grounds:-
(i) The impugned order is devoid of judicious application of mind. It has failed to discuss or let alone mention the logic and reasoning advanced by the appellant, resulting in the price difference between the two categories of sugar being manufactured and sold by the appellant. The impugned order is devoid of independent application of mind and reasoning, therefore, liable to be set aside.
(ii) The charge of under-valuation of supply to the associates undertaking is belied by the record and has baselessly been levelled against the appellant. The respondent has failed to advert to the contention of the appellant and the chart prepared from the duly kept registers of the appellant and realize that the price of ultra refined sugar is still verifiable from the properly kept stock registers of the appellant. Moreover the figures calculated by the sales tax authorities are notional without any reference to the applicable principles as well. The impugned order with respect to this charge is liable to be set aside.
(iii) The show-cause notice and determination thereon contained in the order-in-original is hit by the mischief of proviso to sections 11 and 36 of the Sales Tax Act, 1990. The impugned order is barred by limitation and is liable to be set aside. The show-cause notice, the order-in-original and the order-in-appeal alleged evasion of notional figures which themselves are belied by the report submitted by the auditors. It is a matter of record that throughout the relevant record of the appellant depicts clearly that the ultra refined sugar was categorized in price higher than the commercial grade sugar.
(iv) The respondent while passing the impugned order has failed to appreciate the relevant provisions of law and material before it while deciding the charge No.2 which is under-valuation of stock plant. The impugned order itself records the admission of the auditors that the stock plant may be valued according to net realizable value or cost whichever is lower but subsequently it approves calculation at the gross profit percentage basis picked up from the annual audited accounts. Such reliance is not only erroneous but also irrelevant for the determination of issue under consideration. Annual audited accounts are only meant for shareholders. The act does not recognize such a document. Even otherwise the formula on which liability has been calculated is absurd and untenable in the eyes of law.
(v) The impugned order fails to take into account the relevant notification of C.B.R which is binding on the auditors and. the respondent. The C.B.R. in its Notification bearing C.No. 5 (49) ST-INT.AUDIT/2001, dated 17th November, 2001 has laid down the list of documents which may be considered by the auditors while conducting audit. It is evident from the notification itself that annual audited accounts do not form basis for establishing allegation under the relevant heading. The impugned order relating to the audit observation, therefore, needs to be set aside.
4. The respondents were represented by learned D.R. Dr. Akhtar Hussain, who was assisted by Mr. Irf an Ahmad, Auditor. The learned D.R. contended that there is no force in the argument of learned counsel that the order-in-original is hit by the time limitation as contained in the proviso to sections 11 and 36 of the Sales Tax Act, 1990. It was contended that the time limitation is directory in nature and not mandatory. The respondents opposed the contentions of learned counsel for the appellant and contended that the appellant evaded sales tax by suppressing the value of ultra refined sugar while making supplies to the associated person. It was contended that the sales tax was evaded by suppressing the value of supplies to the associated persons. It was further contended that the value of ultra refined sugar should have been higher than the value/price of commercial grade sugar and the appellant deliberately suppressed the value of ultra refined sugar. The appellant under the law was required to supply ultra reined sugar to the associated person on the open market price as laid down under section 2(46)(a)(ii) of the Sales Tax Act, 1990. It is mandatory on the registered person to pay sales tax on the open market price when supplies are made to associated person. In view of above facts, the appeal against the charge does not merit consideration and may be dismissed.
5. The learned D.R. further contended that according to record of appellant they had an opening stock of 76712 bags of sugar on 1-10-2001 valuing to Rs.6,39,49,041. The appellant cleared this quantity of sugar on the value of Rs.6,39,61,185 which reflected vale addition of Rs.12,144 only. This meager amount of value addition is not justified. It is pertinent to note that the value of 1 bag of sugar cleared was Rs.833.62 whereas as per declaration of the appellant, the value of 1-bag of ultra refined sugar ranged from Rs.847 to Rs.978 during the period 1-1-2001 to 30-10-2001. The appellant has himself declared in his books of accounts, the gross profit margin of 9.35% during the period 2001-2002 which has not been considered in the above cited opening stock of sugar which proves the fact that sales tax was evaded by way of under valuation. In view of the above facts, the appeal against the charge lacks merit and may be dismissed.
6. We have considered the contention of both the parties and perused the appeal file available before us. The learned counsel contended that the order-in-original is barred by limitation as it is hit by the mischief of proviso to section 11 and 36 of the Sales Tax Act, 1990. The learned D.R. contended that the time limitation contained in section 36 and 11 of the Sales Tax Act, 1990 is directory in nature and not mandatory. We have considered the contentions of both the parties and we are of the view that no consequences have been laid down for the violation of time limitation contained in sections 11 and 36 ibid and this limitation is directory and not mandatory as held by this Tribunal in different cases. The auditors initially raised four audit observations and during the course of adjudication two audit observations were settled/dropped whereas liability against the observation Nos. 1 and 2 was confirmed by the learned Adjudicating Officer. The appeal filed by the registered person against the two audit observations i.e. under-valuation of supply to associates and under-valuation of stock was dismissed. The learned counsel for the appellant at the time of hearing contended that it is not correct that the value of ultra refined sugar supplied to the associated person was less than the value of commercial grade sugar. The learned counsel produced a list pertaining to the supplies of commercial grade sugar and ultra refined sugar during the period 1-10-2001 to 30-9-2002 containing the value of sugar of both the grades supplied on different dates along with amount of sales tax involved in each case. The scrutiny of the list revealed that in most of the case, value of the ultra refined sugar was slightly higher than the value of the commercial grade sugar. However, in some of the cases, the value of the ultra refined sugar was less than the value of the commercial grade sugar. The learned D.R. was asked to justify his stance regarding supply of ultra refined sugar at value lower than the value of commercial grade sugar but no satisfactory explanation was given. The learned D.R., however, contended that the supplies of ultra refined sugar were made to the associated person in violation of section 2(46)(a)(ii) of the Sales Tax Act, 1990. It was contended that appellant was required to make supplies at the open market price excluding the amount of tax. In view of above position it is necessary to determine the open market price for the determination' of correct amount of sales tax. In view of the above facts, we find it appropriate to remand the case pertaining to this charge to the learned adjudicating officer for re-determination of sales tax liability, if any, after determination of open market price of the sugar. The respondent-Collectorate is directed to furnish relevant information/evidence to the learned Adjudicating Officer relating to open market price of ultra refined sugar supplied by different manufacturers during the relevant period. The impugned order pertaining to the charge is set aside and the case is remanded to the learned Adjudicating Officer for de novo consideration on merit after determination of open market price and affording opportunity of hearing to both the parties. The appellant is also directed to produce before the sales tax authorities and learned Adjudicating Officer the relevant record in support of his contentions.
7. The learned counsel for the appellant during the course of hearing contended that the sales tax authorities were required to examine the sales tax record of the registered person as is specified by the C.B.R. in its letter C.No. 5(49)/ST-INT-Audit/2001, dated 17-11-2001 only. It was contended that the sales tax authorities were not competent to examine the books of accounts of registered person for determining the sales tax liability during the course of audit. The learned counsel further contended that the annual audited accounts are only meant for the share holders and the sales tax auditors have nothing to do with the annual audited accounts of the registered person for the purposes of conducting sales tax audit. The learned D.R. stated that the value of stocks was suppressed by the appellant with a view to evade sales tax. It was further contended that nominal value addition of Rs.12,144 has been made against the value of stock amounting of Rs.6,39,49,041.
8. We have heard the contention of both the parties and observed that sales tax registered person is required to maintain sales tax records according to the provisions of sections 22 and 23 of the Sales Tax Act, 1990. So far as letter of C.B.R. vide C.No. 5(49)ST-INT AUDIT/2001, dated 17th November, 2001 is concerned, it appears to have been issued to avoid confusion among the registered persons regarding provision of record to the auditors for purposes of audit under the sale tax law. In this letter, C.B.R. has prescribed minimum record for different categories of registered persons which can be demanded by the auditors. However, a letter of C.B.R cannot supersede the requirement of maintenance of sales tax record and its production before the sales tax authorities as prescribed under sections 22 and 23 of the Sales Tax Act, 1990. In our views C.B.R's. letter is directory in nature while provisions of Sales Tax Act, 1990 are mandatory and if audit trial requires production of other documents in terms of sections 22 and 23 ibid, the registered person is legally bound to furnish further documents/information to the sales tax authorities. We have observed that the present sales tax system is based on self-assessment procedure where a taxpayer has been allowed to make assessment of his tax liability himself and maintain prescribed sales tax records without any interference from the sales tax authorities. The only control over revenue collection is through audit of the sales tax record. It is, therefore, not justified to restrict the auditors to certain listed records for the purposes of determination of tax liability during audit scrutiny. The C.B.R letter is not in the form of notification. In our views, the registered person is required to maintain sales tax record as laid down under sections 22 and 23 of the Sales Tax Act, 1990 and produce the same as and when required by the authorities for ascertainment of correct tax liability of registered person.
9. In view of above facts, we find it appropriate to direct the learned Adjudicating Officer to re-determine the tax liability of the appellant in respect of audit observation No. 2 in the light of sales tax records maintained by the registered person under the Sales Tax Act, 1990. It is also pertinent to point out that value addition cannot be fixed under the provisions of the Sales Tax Act, 1990 and the registered person is duly bound to pay full amount of sales tax on the supplies made` by him during tax period as there is no justification for evasion of sales tax through suppression of value. The value addition of Rs.12,144 against the value of Rs.6,39,49,041 appears not justified. In view of the above facts, we are of the view that there is need for re-determination of sales tax liability, if any, against the charge after examining of sales tax records maintained by the registered person under sections 22 and 23 of the Sales Tax Act, 1990 the impugned order against the charge is set aside and the case is remanded to the learned Adjudicating Officer for de novo consideration on merit after affording opportunity of hearing to both the parties. The registered person is required to furnish all the relevant sales tax record maintained by him as laid down in the Sales Tax Act, 1990 before the auditors of the Sales Tax Collectorate, who are directed to scrutinize the sales tax records and submit a report before the learned Adjudicating Officer with a period of 60 days from the date of issuance of this order.
10. The appeal stands disposed of accordingly.
H.B.T./148/Tax (Trib.) Order accordingly.