2008 PTD 1869
ZAFAR-UL-MAJEED, MEMBER (TECHNICAL).---- The facts giving rise to this appeal sales tax refund claim amounting to Rs.17 million in LTU Lahore on the basis of Central Board of Revenue's orders issued vide C No.2(1)ST/L&P/2000(Pt) dated 28-8-2006.This amount was deposited by the appellant against show-cause notice dated 4-9-1999 issued by the Department followed by Order-in-Original No.ST-13/2002 dated 19-2-2002 whereby Collector (Adjudication), Lahore adjudged the same amount as sales tax payable on account of (i) suppression of value of supplies, (ii) suppression of production and (iii) supply of wastage. The Adjudicating Officer adjudged the amount of sales tax on suppression of value on the basis of value determined by the Valuation Committee after including 40% addition in the value of cost of local taxable supplies as- plant, machinery and equipment was imported by the appellant under S.R.O. 27(I)/98 dated 17-1-1998 without payment of customs duty and sales tax. Subsequently, Federal Government vide S.R.O. 455(I)/2004, dated 12-6-2004 and S.R.O. 501(I)/06, dated 31-5-2006 absolved the plant, machinery and equipment imported under S.R.O.27(I)/98 from conditions of minimum value addition and export provided the importers opted to forego the benefit of duty concession availed under the aforesaid S.R.O. Further, the CBR, vide its Order C No. 2(1)ST/I,.&P/2000(Pt) dated 28-8-2006, had directed that all sales tax demands raised on account of the importer's failure to fulfil the conditions laid down in the notification dated 17-1-1998 should be withdrawn, including the cases made out by different field formations demanding payment of sales tax on 40% value addition against local supplies and that sales tax recovered from such importers-cum-manufacturers on this account should be refunded even if demands have been established through quasi-judicial orders. The appellant's refund claim to the extent of Rs.15,527,245 pertaining to the value addition was allowed by the Deputy Collector vide refund payment Order No.125/2006, dated 4-9-2006 while the remaining amount of Rs.1,472,755 was disallowed on the ground that it was not covered by Board's order dated 28-8-2006, and that the same was adjudged against the appellant on account of suppression of production and tax on sale of wastage, vide Order-in-Original No.ST-13 of 2002, dated 19-2-2002 which had attained finality. The appellant filed appeal against this order before Collector (Appeals), Lahore which was rejected vide Order-in-Appeal No. 202/ST of 2006, dated 25-11-2006. The appellant has challenged this order through the instant appeal.
2. The appellant's case is that the deduction of an amount of Rs.1,472,775 from their refund claim was without any reason or logic as the appellant did not make any supplies without payment of sales tax. The shortage in production reported by the department was due to shrinkage of fabrics, that takes place during its processing. The shrinkage is more than 20% as also approved by the Collector 'of Customs in DTRE but the departmental auditor calculated it @ 5% notwithstanding the fact that an audit team of the sales tax department headed by the Deputy Collector, LTU, Lahore vide verification report, dated 18-6-2006 confirmed the shrinkage ranging from 21% to 26%.
3. The department has opposed the appeal through written comments filed on 29-5-2007. The only plea taken by the department is that the amount of Rs.1,472,775 was disallowed on account of suppression of production and sale of wastage adjudged vide Order-in-Original No.ST-13 of 2002 which had attained finality and, therefore, could not be challenged. Nobody appeared to represent the department on three consecutive dates of hearing fixed on 5-11-2007, 14-11-2007 and 26-11-2007 despite notice. Therefore, taking ex parte proceedings against the department, the case is being decided on the basis of facts available on record and the written comments submitted by the department.
4. I have examined the record of the case and given due consideration to the contention raised by the parties. The appellant's refund claim has been disallowed mainly on the ground that the amount in question pertained to tax on suppressed production and sale of wastage. No break-up/detail of these aspects has been given in the refund payment order or the impugned order-in-appeal. On the other hand appellant's contention that shortage in production was due to shrinkage is supported by the physical verification report, dated 16-8-2006 produced by a team of officers of sales tax department headed by Mr. Muhammad Saeed Watto, Deputy Collector which confirms shrinkage of fabrics upto 26%. Copy of the report has been attached as Annex-D to the appeal. The department has neither controverted the findings of this report in the written comments nor produced any evidence to prove the charges about suppression of production or supply of wastage/ scrap. The argument that this amount was adjudged vide a separate order-in-original which had attained finality is also not tenable as the refunded amount of Rs.15,527,245 was also adjudged vide the same order. While major part of the withhold a small part of the claim on this ground.
5. In view of what has been discussed in the preceding para., I find considerable merit in appeal. The appeal is accordingly accepted, the impugned order is set aside and the department is directed to refund the balance amount of appellant's claim.
C.M.A./81/Tax (Trib.) Appeal accepted.