2010 PTD 975
HAFIZ AHSAAN AHMED KHOKHAR, CHAIRMAN/MEMBER (JUDICIAL).--- This appeal has been filed by Messrs AGECO Private Limited, Blue Area Islamabad, (herein after called the appellants) against the Order-in-Original No.16 of 2008, dated 20-11-2008 passed by the Additional Collector, Sales Tax and Federal Excise Regional Tax Officer Islamabad and Order-in-Appeal No. 404 of 2009, dated 8-5-2009 passed by Collector Appeals Islamabad, (hereinafter after called the respondents).
2. Brief facts of the case are, that on the basis of audit report a show cause notice was served to appellants that during the tax period from July, 2006 to June, 2007, the appellant adjusted input tax credit amounting to Rs.20,80,614 brought forwarded from previous tax period, without applying for adjustment Note and obtaining Adjustment Advice, as required under Rule 5 of the Sales Tax (Refund of Excess Input Tax to the Manufacturers) Rules, 2005 notified vide S.R.O.666(I)/2005, dated 30-6-2005, thus appellant contravened the provision of sections 73 and 10(1) of the Sales Tax Act, 1990 read with the said Rules made thereunder. It was further alleged in the show-cause notice that the appellant adjusted/deducted input tax credit amounting to Rs.32,41,757 the said adjustment was found inadmissible, because the registered person failed to produce banking instruments in respect of the transactions exceeding to fifty thousand rupees, as required under section 73 of the Sales Tax Act, 1990.
3. The appellants contested the show cause notice, submitted their reply to the respondents, agitated all the legal and factual issues before the Adjudicating Officer but the respondent No.2 rejected the stand of appellant and passed the impugned Order No.16/2008, dated 20-11-2008 against the appellant. Appellant, being aggrieved by the said order, filed an appeal before respondent No.1, who also dismissed the same vide Order No.404 of 2009, dated 8-5-2009. Feeling aggrieved, the appellant challenged both the impugned orders through filing an appeal under section 46(1) of the Sales Tax Act, 1990 before the Appellate Tribunal.
4. I have attended the argument of both the sides at considerable length. Mr. Muhammad Naeem Qazi, learned counsel for the appellants submitted that both the impugned orders are suffering from factual as well as legal infirmities and the appeal of appellant was dismissed only on technical and procedural grounds. He further submitted that the allegation involved in show-cause notice is a technical nature and there is no allegation against the appellant for claiming input tax against the fake and flying invoices, therefore the provision of section 73 of the Sales Tax Act, 1990 may not be interpreted and applied strictly. In support of his contentions with reference to section 73 of the Sales Tax Act, 1990 he relied upon the judgment of Honourable Islamabad High Court passed in Tax Reference No.100 of 2008 titled Messrs Bestway Cement Limited v. Collector Sales Tax and the judgment of this Tribunal passed in Appeal No.49/ST/IB of 2008.
5. It is further contended by the learned counsel for the appellant that the first charge mentioned in the show-cause notice was dropped by the respondent No.2, while passing the judgment and the same decision of the extent of same fact was upheld by the respondent No.1, but the appeal of appellant was dismissed only on the ground that the provision of section 73 of the Sales Tax Act, 1990 was not complied with by the appellant. Learned counsel for the appellant lastly submitted that the appeal may kindly be accepted and the impugned orders may kindly be set aside.
6. Mr. Ghulam Husnain, Senior Auditor, on the other side strongly opposed the contentions of the appellant by submitting that the appellant has clearly violated the provision of S.R.O.666(I)/2005, dated 30-6-2005 and therefore, the penalty has been rightly imposed in order-in-original by the Adjudicating Officer. He further contended that section 7 of the Sales Tax Act, 1990 deals with the determination of tax liability for adjusting the input tax subject to the provision of section 73 of the Act, 1990. The appellant had not fulfilled the requirement of section 73 of Sales tax Act, 1990, which is a substantive law, in consequence of (sic) the appellant is debarred for claiming input tax adjustment. He lastly contended that the violation cannot be treated a mere procedural or technical but it is a violation of substantive provision of law. He finally prayed that the order-in-appeal may kindly be upheld being passed in accordance with law and facts.
7. I have heard the learned counsel of both parties and minutely perused the available record.
8. Before dilating upon, on the points raised by the two sides.
9. It is very beneficial to reproduce first the section 73 of the Sales Tax Act, 1990---
" Certain transactions not admissible .---(1) Notwithstanding anything contained in this Act or any other law for the time being in force, payment of the amount for a transaction exceeding value of fifty thousand rupees, excluding payment against a utility bill, shall be made by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of the amount of the sales tax invoice in favour of the supplier from the business bank account of the buyer(:)
(Provided that on line transfer of payment from the business account of buyer to the business account of supplier as well as payment through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective buyer and the supplier).
(2) The buyer shall not be entitled to claim input tax credit, adjustment or deduction, or refund, repayment or draw-back or zero-rating of tax under this Act if payment for the amount is made otherwise than in the manner prescribed in subsection (1), provided that payment in case of a transaction on credit is so transferred within one hundred and eighty days of issuance of the tax invoice.
(3) The amount transferred in terms of this section shall be deposited in the business bank account of the supplier, otherwise the supplier shall not be entitled to claim input tax credit, adjustment or deduction, or refund, repayment or draw-back or zero-rating of tax under this Act.
Explanation ---For the purpose of this section, the term "business bank account" shall mean a bank account utilized by the registered person for business transactions, declared to the Collector in whose jurisdiction he is registered.)"
10. After studying the aforementioned section, it comes out, that the object of section 73 of Sales Tax Act, 1990 is to streamline the business transactions of all the registered persons by adopting the banks channels/through banks, so that no fraud, cheating, collusion or bogus claim can be taken place or succeed and also no wrong adjustment of tax be possible against the bogus flying and fake invoices. In the present case, the department has not denied this fact that the invoices of the supplier are genuine and no allegation has been levelled against the appellant for submitting the fake and bogus invoices.
11. The other important aspect of the appeal of appellant is that the learned Additional Collector, Mian Muhammad Ibrahim Auditor, to submit a report in the following:-
"As per direction of the Additional Collector the registered person provided its sales tax return and purchase invoice:
(i) As per orders/directions of the Additional Collector, the registered person provided its sales tax returns, purchase invoices/bills of entry and purchase register of the period objected by the audit in which the registered person carried forward the amount of sales tax without having adjustment advice from the department.
(ii) Checking of the purpose invoices/bills of entry, on test basis, revealed that all were properly maintained in the purchase register/ledger.
(iii) The tax profiles of the suppliers were checked in the file. The profiles show that all the units are operative and filing their monthly sales tax return regularly and purchase invoices are duly verified from the supplier."
12. After looking at the report of audit, the only point left against the appellant is, that he failed to produce the record of banking instruments according to section 73 of the Sales Tax Act, 1990 to the department. It is evident from the record that there is no allegation of fraud, cheating levelled against the appellant for claiming of input tax adjustment against the fake and bogus invoices and the respondent has also admitted this fact, that the purchases of the appellant had made against the valid sales tax invoices issued by the sales tax registered person and even later on, was confirmed in the report of auditor. Meaning thereby, the allegation against the appellant is of technical nature and the contravention is made against the appellant only non-producing banking instruments record.
13. The spirit and objective of section 73 of the Sales Tax Act, 1990, is to streamline the transactions of registered persons through banks and also to avoid the input tax adjustment from the fake and forged sales tax invoices. In the present case, admittedly, the respondent/department have verified all the invoices provided by the appellant as sales tax return, purchase invoices, bill of entry and purchase register, which are declared genuine and no allegation of fraud or bogus invoices has been levelled. It is settled proposition that the registered person may not be deprived from his legal money due against the Government when there is particularly no misstatement, forgery, collusion, cheating, fraudulent activity are alleged or any false claim is submitted by a registered person with the view to obtain the illegal gain or causing loss to the Government.
14. Further important to mention here that if the contravention of section 73 of the Sales Tax Act, 1990 is made by the registered person, then section 33, subsection (1), Item No.16 of the Sales Tax Act, 1990 is also relevant, which says,----
"Section 33 subsection (1) Item No.16, any person who fails to make payment in the manner prescribed under section 73 of the Sales Tax Act, 1990 such person shall pay a penalty of Rs.5,000 or 3% of the amount tax involved, whichever is higher."
15. To my mind, the contravention of section 73 of the Sales Tax Act, 1990 does not absolutely debars the registered person to claim the input adjustment, if there is no allegation of fraud, cheating, collusion, fake and bogus invoices have been levelled against the registered person.
16. The upshot of discussion is, that the appellant neither applied wrongly for wrong adjustment of tax to the department, nor made any forged/fake invoice for claiming the adjustment tax, nor tried to submit the bogus claim, nor caused any financial loss to the Government by non-depositing the amount through banking instrument. It is, therefore, held that the allegation against the appellant is only of technical nature that he had made the payments to the amount exceeding Rs.50,000 in contravention of section 73 of the Sales Tax Act, 1990, therefore, on this contravention the appellant is liable to pay only the penalty of 3% of the amount of tax adjustment involved under section 33 subsection (1) Item No.16 of the Sales Tax Act, 1990.
17. For the forgoing reasons, the appeal is partly accepted and the impugned order is modified accordingly.
18. Announced.
19. All concerned parties may be informed accordingly.
C.M.A./6/Tax(Trib.) Order accordingly.