2010 PTD 408

1. DR. RIAZ MEHMOOD, (MEMBER (JUDICIAL).--- 1. The appellant has assailed, in this appeal, the Order-in-Original No.87/01, dated 18-10-2001, passed by the learned Additional Collector, Faisalabad, whereby among others, a demand of' sales tax had been raised on the basis of units of electricity consumed by Messrs S.Q. Textile Mills.

2. The brief facts, giving rise to this appeal, are that audit of Messrs S.Q. Textile Mills was conducted by the Senior Auditors, Sales Tax, Faisalabad for the period 1-1-2000 to 30.4-2001 and the following discrepancies were pointed out:-

(i) Sales Suppressed

2. During scrutiny of record it was observed that the production declared by the said unit far less with respect of electricity units consumed by the registered person. The declared production was also compared with the market having same kind of unit and was found far less than the average which shows. The registered person suppressed his production as well as sale the calculation is appended below:-

3. Month

4. Declared

5. *Assessed

6. Difference

7. Sales Tax

8. Electricity prod, in prod, in in bags payable consumed bags bags

9. Total

10. 23823

11. 32992

12. 9169

13. 3197546

14. 2784743

15. * Calculation is as under:-

16. Total unit consumed for the said period = 2787743 units.

17. Assessed consumption of electricity for the production of 1 Kg yarn = 1.8608 unit (declared by the unit)

18. Total assessed production for the said period = 2784743/1.8608 = 1496529/- kg(32992 bags)

19. As per above calculation, the unit has removed 9169 bags of yarn from the business premises without charging/paying sales tax. Therefore, sales tax amounting to Rs.31,79,546 is recoverable along with additional tax in violation of sections 3, 22, 23 and 26 of the Sales Tax Act; 1990 and also liable to penal action under section 33 ibid.

(ii) Short realization of sales tax

(a) During checking of purchase, sale and inventory record of the unit it was observed that the unit had supplied taxable goods from business premises without paying sales tax. Detail is as under:-

20. Opening balance of finished goods

21. 1250 bags

22. Produced during the period

23. 24530

24. Return from customers:

25. 400

26. Purchases:

27. 130

28. Available for sale:

29. 26310

30. Sold during the period upto 13-5-01

31. 25376

32. Finished goods stock.

33. 357

34. Difference of finished goods:

35. 577

36. Value of finished goods:

37. Rs.11,55,154

38. Sales tax payable:

39. Rs.1,90,600

(b) Opening balance of raw material:

40. 162000 Kg

41. Purchase upto 12-5-01:

42. 2002137

43. Total available for use;

44. 21664137 Less:

45. Issued to below room:

46. 1797278

47. Sale;

48. 222922

49. Used:

50. 2020200

51. Raw Material stock:

52. 106600

53. Shortage of stock:

54. 37337

55. Value of raw material @ 21 kg

56. Rs.7,84,077

57. Sales Tax recoverable:

58. Rs.1,29,372

59. Thus the unit violated sections 3, 6, 7, 11, 23 and 26 of the Sales Tax Act, , 1990. Therefore, sales tax amounting to Rs.3,19,972 along with additional tax is recoverable from the unit under sections 34 and 36 of the Act, 1990 and also liable to penalty under section 33 ibid.

(iii) Inadmissible input tax on electricity

60. The registered person is not entitled to adjust input tax on electricity bills issued in the month of January, 2000 because the government gave the credit of GST amount on the electricity bills issued in the month of February, 2000. Thus the sales tax amounting to Rs.95,571 along with additional tax is recoverable under sections 34 and 36 of the Sales Tax Act, 1990.

(iv) Inadmissible input on electricity supplied to offices

61. Section 3(1)(a) of the Sales Tax Act, 1990 requires that the taxable supplies made in Pakistan shall be chargeable to sales tax by the registered person in the course of furtherance of any taxable activity carried on by him and section 8 of the Sales Tax Act, 1990 also requires that the registered person is entitled to adjust input tax only on the goods which are used for furtherance of business activity, while the registered person adjusted input tax on electricity (bills) used for office purposes that is not part of furtherance of business activity and is not covered in the definition of section 3(1)(a) of the Sales Tax Act, 1990. So Sales Tax amounting to Rs. 16,630 is recoverable under sections 34 and 36 of the Sales Tax Act, 1990.

3. On the basis of above Messrs S.Q. Textile Mills, Faisalabad were charged with the violation of sections 3, 6, 7, 11, 22, 23 and 26 of the Sales Tax Act, 1990. They were called upon to show-cause as to why sales tax amounting to Rs.36,11,719 along with additional tax should not be recovered from them and why penal action should not be taken against them under the Sales Tax Act, 1990.

4. The show-cause notice was contested. The defence took the following plea:-

(i) Sales Suppressed

(a) That the allegation is based on presumption and imagination. The audit has arbitrary alleged that 2.8608 units of electricity are used production of 1 kg of yarn, which is factually incorrect and without any substance of legal force. In presence quantitative as well as qualitative accounts, there is no logic to derive assertions through presumptions and whims.

(b) That the audit has alleged neither impropriation of raw martial to the extent of the alleged under production of finished goods nor procurement of raw material for the same purpose.

(c) That the audit has not provided any proof regarding receipt of consideration in money against the supply of goods said to have been suppressed by the respondents.

(d) That in the absence of any evidence regarding procurement of raw material, receipt of consideration in money and moreso in the non-existence of any buyer, a mere presumption cannot execute the sale which requires a seller and a buyer both positively. Sales of goods warrants physical transfer of goods and ownership to any other person against certain consideration in money without which no transaction on account of sale/purchase can be deemed to have been affected. If otherwise any assertion is made, it would tantamount to harassment of the registered person on one hand and professional incompetence of the audit on the other hand.

(e) That the units of electricity used in a month are compared with that of production of yarn in the subsequent month which reflects that the audit has based their observation on mere surmises and guess work without any factual strength.

(f) That the units of electricity used in offices are not excluded from that of the total units while computing the so-called under production of yarn.

(g) That the respondents have never declared that 1.8608 units of electricity are used for the manufacturing of 1 kg of yarn. This ratio of production of yarn and units of electricity neither exists on record nor can be ascertained, otherwise through an arbitrary and whimsical manner.

(h) The version of the audit regarding the said ratio is self-contradictory as the uniform production of 2062 bags of yarn per month has been assessed against the veriable consumption of electricity for each month that is sufficient to prove professional incompetence and inefficiency on the part of audit. Details are given below:--

62. Month

63. Assessed Production (bags)

64. Units of electricity

65. 01/2000

66. 2062

67. 180928

68. 02/2000

69. 2062

70. 138520

71. 03/2000

72. 2062

73. 159248

74. 04/2000

75. 2062

76. 158332

77. 05/2000

78. 2062

79. 153228

80. 06/2000

81. 2062

82. 181956

83. 07/2000

84. 2062

85. 142744

86. 08/2000

87. 2062

88. 165912

89. 09/2000

90. 2062

91. 165228

92. 10/2000

93. 2062

94. 157456

95. 11/2000

96. 2062

97. 185232 _

98. 12/2000

99. 2062

100. 167284

101. 01/2001

102. 2062

103. 204671

104. 02/2001

105. 2062

106. 220128

107. 03/2001

108. 2062

109. . 214704

110. 04/2001

111. 2062

112. 189112

113. Total:

114. 2784743

5. It is evident from the above chart that the audit had assessed production of 2062 bags of yarn for the month of February, 2000 and February, 2001 as against consumption of 138520 and 220128 units of electricity respectively which is equal to make mockery of facts and law.

6. On the basis of above premises, it was submitted that whole observation was framed on presumptions, surmises and intendment of the audit without any legal as well as factual worth and ought to be dropped on merit.

(ii) Short realization of sales tax

(a) The observation is again presumptive in material and imaginative in character as it is based on misconstruction of facts and figures by the audit as evident from the vide infra facts.

115. Position of yarn

116. As per observation (bags)

117. As per record (bags)

118. Opening balance of finished goods

119. 1250

120. 630

121. Produced during the period

122. 24530

123. 24590

124. Return from customers

125. 400

126. 400

127. Purchases

128. 130

129. 130

130. Available for sale

131. 26310

132. 25750

133. Sold during period upto 13-5-01

134. 25376

135. 25376

136. Finished goods stock

137. 357

138. 374

139. Difference of finished goods

140. 577

NIL

7. It is crystal clear from the above date that the audit had taken opening balance of finished goods as 1250 bags instead of 630 bags available as per record in opening balance of finished goods as on 1-1-2000. It is pertinent to mention here that previously the audit of the record of the respondent was conducted for the period from 1-12-1997 to 31-12-1999 and a contravention report was issued which provided that closing balance of finished goods as on 31-12-1999 was 630 bags i.e. opening balance of finished goods as on 1-1-2000. It can be verified from the previous contravention report.

8. The adjudication was conducted. During adjudication, every effort was made that the parties may reconcile. The learned Adjudicating Authority observed that at long last the appellant had agreed that the assessment be made at the production level of per frame per month. The learned adjudicating authority concluded that the assessment be made at 300 bags per frame per month and that the Senior Auditor had taken the opening balance of finished goods as 1250 bags instead of 630 bags ignoring the fact that this balance was available on the sales tax record and that previous departmental report for the period 1997 to 1999 had showed it as the same. The learned adjudicating authority also observed that opening balance of raw material should have been taken as the one adjudged in the previous audit report and the Order-in-Original No.11/00 i.e. 146332 kgs. (136852 kg in stock + 9680 kgs shortage). The learned adjudicating authority furthermore observed that the assessee had admitted its liability regarding Rs.95,571 in respect of the electricity charges, so the said recovery be made along with additional tax under sections 34 and 36 of the Sales Tax Act, 1990. The learned adjudicating authority furthermore observed that the electricity used in office could not be adjusted towards input tax and Rs.16,630 was recoverable along with additional tax under sections 34 and 36 of the Sales Tax Act, 1990. Hence, this appeal.

9. Arguments were heard. The learned counsel for the appellant argued that consumption of electricity was by no means yardstick to assess the production. He contended that there were so many factors to be considered in assessing the production like the model of the machinery, the condition of the machinery, its maintenance, its supervision, its management, the skill of the labour, the willingness of the labour and the condition of the raw-material etc. He furthermore submitted that the learned adjudicating authority had assessed the production of 2062 bags in all 16 months each regardless of different units consumed each month. For example, the Auditor had assessed 2062 bags in February, 2000 against electricity units numbering 13820 and again 2062 in February, 2001 against units numbering 220128. It was a mockery of assessment. The learned counsel furthermore submitted that it was admitted during discussion that other units of similar nature were giving a wide range of production from 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per month. The production of Messrs Ittehad Textile Industries was just 135 bags per frame per month. It was also admitted during discussion in adjudication that their could not be any hard and fast standardized production/ electricity consumption ratio because it varied widely from unit to unit. The learned counsel read paragraph No.6 of the impugned judgment. The learned counsel vehemently contended that the appellant had-never conceded that its production level be considered as 300 bags per frame per month.

10. The learned Auditor defended the impugned order. He submitted that the impugned order was quite in accordance with facts and law. He furthermore submitted that the appellant had admitted its liability amounting to Rs.95,571.

11. We have carefully gone through the record and have considered the arguments advanced at the bar and find that the assessment on the basis of consumption of electricity was hardly a safe rule and yardstick to assess the production. There are different apartments of a textile mills and the electricity is variedly utilized in each of them. The audit report and the show cause notice have absolutely not mentioned as to how many spindles were there in the relevant mills. It was also silent about the type of frame as to whether it was auto coro frame or ring frame. Sometimes there are 7 and sometimes there are 8 machines in a frame. Similarly, the machines were having 60 spindles and now there are machines even having upto 1000 spindles. It was also silent about the count of the yarn. Normally, the production was 10 ounce in 8 hours per spindle. The audit report is very much flimsy in respect of assessment viz the units in January, 2000 the bags were shown as 2062 against 180928 units. In February, 2000 the bags were shown as 2062 against 138520 units and in March, 2000, 2062 bags were shown against 159248 units and so on so forth. It was - definitely a self-style assessment. Further, it had been admitted that the production of different units was 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per frame per month which appeared to be quite reasonable. There is nothing on record to show that the appellant had made any admission. The copy of the previous Order-in-Original No.11/2000 (Annexure-B) is on record. The Auditor had wrongly showed the number of finished goods and the quantity of raw material in the light of the previous audit report. The use of electricity in the office 'is definitely meant for furtherance of taxable activity. The management of the mills is intended for the reasonable or' optimum if not highest production. However, the appellant during the comments had admitted its liability towards the electricity charges amounting to Rs.95,571. It was not definitely a wilful default, so there was no occasion to charge additional tax or impose-penalty. In fact the tenor of the concluding part of the judgment is against the levy of additional tax or imposition of penalty. With this discussion, leaving the liability of Rs.95,571, regarding electricity charges, the impugned order is set aside on the remaining counts.

141. H.B.T./200/Tax (Trib.) Appeal allowed.