Sales Tax Appeal No.30/LB of 2003, decided on 3rd September, 2005. Versus Sales Tax Appeal No.30/LB of 2003, decided on 3rd September, 2005.
MEHMOOD ALAM (MEMBER (TECHNICAL)).--- This appeal is directed against Order-in-Original No.24 of 2002, dated 24-10-2002 passed by the Collector of Customs, Central Excise and Sales Tax (Adjudication), Faisalabad. The Adjudicating Officer had adjudged the following amounts against the appellants:--
(a) An amount of Rs.38,80,980 along with additional tax and 3 penalty that was payable at market price op the supply of sugar to unregistered persons but was not so paid by the appellant;
(b) An amount of Rs.4,75,847 along with additional tax and 3% penalty being the inadmissible adjustment input tax on consummation of electricity for purposes other than production of taxable goods; and
(c) An amount of Rs.43,02,474 along with additional tax and 3% penalty on account of input adjustment out of the permissible tax period i.e. in the subsequent tax period.
Adjudication proceedings had been initiated against the appellants consequent to the audit of their records for the years 1998-99 and 1999-2000. The impugned judgment deals with three different issues which we will take up separately in the foregoing paras.
(a) Recovery of further tax on supply of sugar
2. Sugar Mills were given a special treatment by the Government vide S.R.O.207(I)/98 dated 31-3-1998 lead with S.R.O.208(I)/98, dated 31-3-1998. Under the scheme of these two notifications, the sugar mills could pay sales tax at the fixed values of`Rs.14 per k.g. until 31-10-2000 irrespective of the value at which sugar was actually supplied: The Adjudicating Officer has adjudged a liability of "further tax" amounting to Rs.38,80,980 along with additional tax and penalty on the grounds that the concession extended vide S.R.O.207(I)/98 and S.R.O.208(I)/98 were riot available in respect of "further tax" as it was a separate and distinct levy. Meaning thereby that "further tax" under section 3(1A) of the Sales Tax Act was chargeable at market price of the sugar that was supplied by the appellants to the unregistered persons.
3. Learned counsel of the appellants has pleaded that section 3(1A) of the Act has been misinterpreted; that further tax is a part and parcel of the sales tax; that any exemption extended to sales tax automatically extends to further tax that exemption given under section 13 of the Act is applicable to section 3 as a whole and encompasses within itself section 3(1A) as well. Learned counsel of the appellants has further argued that supply of the similar goods cannot be taxed at .multiple values. That, to isolate the exemption for the purposes of section 3 and not applying it to section 3(1A) was against the scheme of the Act and that the impugned order was therefore, bad in law and unsustainable.
4. This aspect of the appeal is similar to as many as 25 others appeals which have been decided by this Bench vide consolidated judgment dated 27-6-2005 in Messrs Noon Sugar Mills and others v. Collector (Sales Tax) and others. In all those appeals, the issue before us was the same whereas the law points and merits involved in the present appeal are identical. It was, inter alia, observed that---
(i) S.R.O.207(I)/98 and S.R,O.208(I)/98 both dated 31-3-1998 were issued at least 3 months before the levy of further tax by insertion of section 3(1A) into the Sales Tax Act. It was therefore, impossible to imagine that a new levy that was raised by the legislature with effect from 1-7-1998 had already been exempted by a subordinate legislative authority since 31-3-1998.
(ii) "Further tax" had all the attributes of a separate and distinct levy in terms of its character, nomenclature, scope of levy and rate-structure etc. Therefore, it could not be clubbed together with the sales tax of section 3(1).
(iii) Fiscal statutes, as per judgments of the superior Courts, are to be construed strictly and the question of exemption has to be decided within. Pour corners of the law. Obviously, the text of S.R.O.208(I)/98 provided for exemption of sales tax only and the scope of thin exemption cannot be extended beyond its well defined limits on the basis of assumption.
(iv) Finally that multiple taxable values for the purpose of levy and collection of various taxes is not a new or unique proposition. Exemption values and market values of the same product in any case are different and as such it does not involve the question of misinterpretation of law.
5. The consolidated judgment of this Bench dated 27-6-2005 focuses on the above-said question of law and merits in addition to the other related issues at length. It was, inter alia, held that the exemption of sales tax granted under S.R.O.207(I)/98 read with S.R.O.208(I)/98 was not available in respect of the "further tax" as it was a separate and distinct levy. Therefore, the further tax levied under section 3(1A) of the Sales Tax Act was chargeable on market price of the sugar that was supplied by the sugar mills to the unregistered persons during the period in question irrespective of the value fixed under S.R.O.207(I)/98. Accordingly the appellant sugar mills were directed to pay the adjudged amounts of liability along with additional tax and penalty and their appeals were rejected.
6. Merits and circumstances, to the extent of this part of the appeal of Messrs Hussain Sugar, are no different. Law points raised by the counsel are the same which have already been decided upon by us. We arc, therefore, not inclined to accept this part of the appeal and direct them to pay the adjudged amount of Rs.38,80,980 along with additional tax and 3% penalty.
(b) Inadmissible adjustment of input tax on consumption of electricity and g as
7. Allegation against Messrs Hussain Sugar was that their management adjusted the input tax on electricity and Gas that has not been consumed in the manufacture of taxable goods but had been consumed in the labour colony. Plea of the learned counsel of the appellants was that these utilities were consumed in the housing colony of the mills which is a part of its industrial area where the taxable goods (i.e. sugar etc.) arc manufactured. Therefore, the input tax deducted on consumption of electricity and gas in the housing colony was within the ambit of section 8 of the Sales Tax Act.
8. In this connection, it was observed that section 7 of the Sales Tax Act authorizes a registered person to deduct input tax from such output tax that is leviable on the taxable supplies subject to the conditions which are laid down in its subsections (1), (2) and (3). Section 8 ibid, on the other hand, provides for the prohibition and restriction on such deductions or adjustments. Clause (a) of sub-section (1) of section 8 is relevant in the present context. Its reads as follows:---
"8. Tax credit not allowed .---(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on---
(a) the goods used or to be used for any purpose other than for the manufacture or production of; taxable goods or for taxable supplies made or to be made by him."
9. Text of the said clause (a) obviously bars the deduction of input tax on those goods which either do not contribute in the process of production of taxable goods directly or do not become a constituent or integral part of the taxable products. The electricity or gas consumed in housing colony of Messrs Hussain Sugar, seen in the aforesaid perspective, does not contribute to the production process of sugar. It only contributes to the comfort of the residents of colony in which case the adjustment or deduction of input tax is barred under section 8(1)(a). The case-law cited by the appellants in this regard (Messrs Pioneer Cement v. The Collector of Sales Tax, GST 2002 CL 106) does not support their contention either because the electricity in that case was consumed in the administrative office of the mills and not in its housing colony. For the above said reasons we fully endorse and uphold this part of the impugned judgment.
(c) Input adjustment out of the permissible tax period
10. Section 7(1) and its first proviso prescribed a timeframe for deduction or adjustment of input tax vis-a-vis output tax. Meaning thereby that such adjustment or deduction made subsequently is not permissible under the sales tax law. Messrs Hussain Sugar were alleged to have made adjustment of Rs.43,02,474 in violation of the bar of limitation. Consequently recovery of the afore-mentioned amount was ordered by the Adjudicating Officer along with additional tax and penalty.
11. Learned counsel of the appellants has argued that section 7 of the Sales Tax Act is directory in nature; it only embodies a procedural requirement; a bona fide lapse in observing the procedure is not liable to punitive action and similar allegations have been settled by the Appellate Tribunal in the past in favour of several appellants. That these assertions are fully supported by the earlier judgments as reported in 2002 PTD (Trib.) 1455 (Coca Cola Export Corporation v. The Additional Collector) and 2003 PTD (Trib.) 928 in addition to the other decision. It was also contended that no evidence was placed on record to show that the input tax was claimed in another tax period whereas the liability could not be raised on mere statements.
12. We have perused the records of appeal vis-a-vis these assertions. It is a fact that the show-cause notice or the impugned judgment does not disclose the detailed working of those amounts, which the appellants had, allegedly, adjusted out of the respective tax periods. A consolidated figure of such adjustments have been shown as Rs.43,02,474 but period wise break-up of the figures has not been indicated. Nevertheless, it is also a fact that the appellants too have not denied this allegations in toto. Contrarily, they have sought relies' on the basis of past precedents and in terms of various judgments to the Appellate Tribunal.
13. We have perused the judgments of the learned Appellate Tribunal that have been cited by the appellants. Our attention in this connection was also drawn to the first proviso of section 66 of the Sales Tax Act., 1990 which read as under:--
"Provided that in a case where a registered person did not deduct input tax within the relevant tax period, the Collector may, after satisfying himself that input tax adjustment is due and admissible allow the registered person to take such adjustment in the tax period as specified by the Collector."
We were further informed that the question of condonation of out of tax period input adjustment has been resolved by C.B.R. through a mechanism provided under its Sales Tax General No.2 of 2004, dated 27-5-2004. We reproduced below the text of the said Sales Tax General Order No.2 0l' 2004 for benefit of the litigants--
"SALES TAX GENERAL ORDER No.2/2004.
SUB: CONDONATION OF OUT OF TAX PERIOD INPUT ADJUSTMENT.
It has been reported to the Board that a number of cases have been made out and are pending in adjudication or appeal due to the fact that the input tax was claimed or adjusted by the registered person out of the relevant tax period:
(2) In several such cases, the Appellate Tribunal or the High Court ordered for waiver of additional tax and penalty on the ground that this was merely a procedural lapse on the part of the taxpayer in which no loss of Government revenue was involved. In fact, in cases where the taxpayer claimed input tax adjustment in a period subsequent to the period in which it should have actually been claimed in terms of section 7 of the Sales Tax Act, 1990, the taxpayer has suffered a loss on account of such late claiming and excess payment of tax in the correct tax period.
(3) Since late claiming of input tax is only a procedural lapse and no loss of the Government revenue is involved, the Board, in exercise of powers under section 7 of the Sales Tax Act, 1990, is pleased to .condone the delay in claiming or adjusting input tax, provided the following conditions are fulfilled:--
(i) the tax invoice or bill of entry on which input tax is claimed is genuine, in the name of the claimant, and contains all details specified in section 23 of the Sales Tax Act, 1990;
(ii) no input tax adjustment has earlier been taken on the same tax invoice or bill of entry.
(iii) in case of a tax invoice, payment was made in terms of section 73 of the Sales Tax Act, 1990; and
(iv) in case the input tax adjustment was claimed after three months of the tax period in which it should have been claimed in terms of section 7, the registered person. files an application to the Collector of Sales Tax having jurisdiction .giving reasons for such delay, and such Collector, on being satisfied that no input tax has been previously claimed or adjusted on such tax invoice or bill of entry, issues a written order permitting such adjustment.
(4) Thus, all cases in which input tax was claimed or adjusted by a registered person within three months after the tax period in which it should actually have been 'claimed in terms of section 7 of the Sales Tax Act, 1990 stand condoned and the same shall be verified at the time of audit. However, in cases where input was claimed after three months of the appropriate tax period, an order of the Collector of Sales Tax concerned is required for availing the benefit of this General Order. "
14. Purpose of the above discussion is to illustrate that a system or mechanism for seeking waiver of the liability accruing purely on account of a procedural lapse is, fortunately, available and is in three which the appellants did not avail. We arc, therefore, inclined to advise them to approach the Collector of competent jurisdiction and seek the needed relief in terms of the first proviso to section 66 of the Sales Tax Act, 1990, read with C.B.R's. Sale Tax General Order No.2 of 2004, dated 27-5-2UU4 cited at para. 13 above.
15. Meanwhile, the respective part of the impugned judgment relating to recovery of Rs.43,02,474 is set aside. To that extent the case is remanded back to the Collector of Sales Tax, Faisalabad for de novo consideration in the light of C.B.Rs'. Sales Tax General Order No.2 of 2004 dated 27-5-2004 and fresh order. Remaining portions of the impugned judgment are upheld. The appeal thus succeeds to that only and it is accordingly disposed of.
C.M.A./65/Tax (Trib) Order accordingly.