Versus Asim Zulfiqar Ali , Aftab Ali Bhatti

ORDER

1. In these appeals filed by the assessee the main issues are common. The appeals are against the order of the Collector (Appeals) No.86 dated 5-8-2009.

2. First issue is disallowance of input tax by holding that the items mentioned in the list were not directly consumed in the production by the assessee.

3. The case of the Revenue Department is that the provision of section 8(1)(b) which is negative list in addition to section 8(1)(a) obtains some of the items disallowed by the concerned officer. Besides said items were used in production is not verifiable from the produced documents. Even from the list provided it is not clear that the items mentioned therein which are admittedly not the raw-material have 'direct nexus with the production.

4. The assessee's claim, however, remains that the higher courts have in a number of cases allowed items which may not be a raw-material but have nexus with the production hence exception in the case of this taxpayer is not justified.

5. The learned counsel relied upon many judgments but his main emphasis was on 2007 PTD 413, 1999 PTD 1892 and 2006 PTD 1456. In the last referred judgment the honourable Court allowed input tax claimed by the said assessee on a fork-lifter which was used for transportation within the factory as a part and parcel of production therein. It is, therefore, urged that the input of all the items the total of which even otherwise is not much in ratio to the entire supply should be allowed in full. It was commented that among other items the consumption of tissue papers and such other items used by the staff and officers during production shall not have been disallowed. Further, the use of diesel, by no stretch of imagination can be called as not a requirement of production of the product of this assessee which is fertilizers. The A.R. admitted that diesel has been added in the negative list i.e. section 8 (1)(b) through S.R.O. No.578 dated May, 2006, however, he commented that it does not apply on the impugned period which is July, 2005. ????????

6. From the above discussion it is apparent that the Court has already held the mentioning of the diesel in the negative list to be as confiscatory, while the amendment even otherwise was not in field for the dates applicable in this case.

7. The other issue is the disallowance of input tax on the electricity utilized by the company in labour colony. Relying upon 2006 PTD 196 the A.R. has claimed that the labourers being integral part of the manufacturing process of the production the input tax paid on their electricity bills is fully allowable. It is said that the legislature in its wisdom has ultimately disallowed the input tax on use of electricity for the labour colony vide S.R.O. No.464 dated 9-6-2007. However, again the disallowance of the same applies from the period on and after 9-6-2007. The period under discussion being July, 2005 it cannot apply on it.

8. The 3rd issue is with regard to disallowance of the input tax on liquidated damages. The taxpayer had to reduce the value of its product at the time of payment by the supplier by some margin for the reason that the goods were substandard or supply was late. It formed on an average almost 15% of the said supply. The input tax paid on the said amount has not been adjusted against the supply by holding that it is not covered within definition of the supply.

9. The other issue is receipt of rent on pipeline through which oxygen and ammonia produced as a byproduct in the factory is supplied. It is claimed that the department in another year has accepted this rental as not covered within the definition of section 246. Thus has ceased to have the right to charge tax on the same for another year. Referring 2006 PTD 76 it is claimed that the department had no jurisdiction to decide one issue in two ways and to have contradiction within it on the same issue.

10. The next issue is with regard to the charge of Sales Tax on fixed assets. It is informed that the department wanted to charge tax on the other items also but later was impressed that the item on which no input was claimed cannot subsequently be charged to tax on its sale being a part of fixed assets. It is informed that the only item left now is a cooking range which was sold. However, on its purchase no input having been claimed it should not have been brought to charge.

11. This leaves us to the last issue which only is in respect of 2nd appeal which is S.T.A. No.707/LB of 2009 only. The claim of the assessee is that the accounts having been settled through a consideration other than cash i.e. in kind the provisions of section 73 are not applicable. It is argued that the FBR's clarification with regard thereto dated 17-9-2009 being in favour of the taxpayer needs appreciation by this Court also.

12. Both the parties have been heard and record has been perused.

13. The first issue is with regard to utilization of diesel. The honourable Supreme Court of Pakistan has already held putting of the diesel in the negative list of section 8 (1)(b) to be as confiscatory in the judgment 2007 PTD 413 and some others supra; hence taking an exception obviously is not open. Even if the claim of the learned DR that it could be used for personal purposes is considered as valid its mentioning in the negative list is after the period under discussion. This Court in principle disagrees with the departmental claim though more for the reason of the judgments of the Superior Courts of Pakistan, that for the presumption or the possibility of the use of certain goods otherwise than the production can be a good ground for disallowance. The disallowance of the input tax on such a product which has direct nexus with the production can only be approved if there is some valid proof giving reasons to believe that the same has been used otherwise than the production. In any case, both the arguments of the learned counsel in this case are direct and valid.

14. The above action as confirmed by the learned CIT (A) is, therefore, reversed with the direction to allow the same.

15. It is fact that the labourers are integral part of production. Salaries and perquisites given to them have direct nexus with the manufacturing process. This issue has also been duly decided in cases reported as 2006 PTD 196 as well as 2000 PTD 473. Further, the disallowance through legislation vide S.R.O. No.464 dated 9-4-2007 also create the impression that the same earlier was allowable. However, more for the reason of our reliance on the judgments referred supra, it is held that the input tax on the electric supply of the labour colony prior to 3-6-2007 is entitled to input tax and the concerned officer is directed to allow the same for the period under discussion.

16. Regarding disallowance of the input tax on liquidated damages the action of the authorities of the Sales Tax is surprising. If the feeling of the Revenue authorities is that the same is not practically related to the supply it even otherwise becomes a surplus deduction being over and above the quantum of supply. However, the supply of goods in weight and measures being the same as contracted between this supplier and the buyer, the reduction of the value in terms of amount receivable for the reason of some deficiency, quality or delay, does not exclude the reduced amount farm value of supply. The total quantity of the product remains the same but the value is reduced as per earlier contract. To say that this is not in relation to supply is quite surprising; hence disallowance thereon is held to be as improper.

17. So far as the deduction of tax on rent of pipeline through which Oxygen and Ammonia is supplied is concerned. The said pipeline remains ownership of the taxpayer. It is, therefore, not covered within the expression "supply". The allowance of the input tax deduction in one year does not debar the department for not taking a legal action in another year. It is a settled principle of law that there is no estoppel in tax. The action of the subordinate Courts to the said extent is confirmed.

18. The issue of charge of tax on sale of Cooking Range is a factual controversy. At this stage of the proceedings we cannot verify as to whether there was a claim of input or not. The action of the two officers below to the said extent, therefore, needs no exception.

19. The last issue which is in respect of the assessee's claim that the provisions of section 73 does not apply again appears to be as a result of misunderstanding of the law by the Revenue authorities. The learned DR with all his emphasis tried to support the claim. He said that payment of the amount for a transaction exceeding value of Rs.50,000 is required to be made by a cross cheque. The assessee having failed to comply with the legal requirements disentitles itself from the claim of any input as well as output adjustment.

20. Before giving our finding on the issue reference to the relevant section shall of help. The same reads as follows:-

21. "73. 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 supplies from the business bank account of the buyer."

22. As is evident from the above provision it applies on "payment of the amount": Book transaction does not involve any `payment of the amount'. The purpose for this provision, in fact, is documentation of economy and the book adjustment by all means covers this situation. The exception provided by section 73 by declaring certain transactions as inadmissible is controlled by the above phrase clearly, elaborately and un-equivocally. It refers to `payment of amount' only and this does not apply on any other mode of payment. This Court does not need any detailed discussion to express that amount means a consideration in cash as defined in various law dictionaries. Reference in this regard may be made to The Concise Oxford Dictionary Ninth Edition which explains this word as under:-

23. "Amount."

24. A quantity, esp. the total of a thing or things in number, size, value, extent, etc. (a large amount of money; came to a considerable amount).- Be equivalent to in number, size, significance, etc."

25. Above definition apply on all fours on the facts and circumstances of this case.

26. In this case there is no payment of the amount of the transactions between two sister concerns and the entire supply and adjustment is through books as claimed by the learned counsel and confirmed by the learned DR. On such transactions the provisions of section 73 would not apply. Consequently, the assessing officer was not justified in denying the benefit of the said transactions to the taxpayer under the garb of the claim that the same required payment through cross cheque hence the assessee appeal is accepted on this issue.

27. This obviously means that the denying of the benefits on the transactions made through books by applying section 73, is illegal. The concerned departmental official shall allow the same after fulfilment of the formalities.

28. This obviously decides the assessee's appeals in the manner and to the extent mentioned hereinabove.

29. C.M.A./113/Tax(Trib.) ???????????????????????????????????????????????????????????? Order accordingly.