2010 PTD 2126

ORDER

1. KHAWAJA FAROOQ SAEED (CHAIRPERSON).- The appeal in this case has been filed by the assessee. A number of grounds and the legal issues have been taken up but at the time of hearing only one issue has been argued which is as follows:

2. "Whether an agreement made by local Confectioners Association of Faisalabad on the directions of the Collector, Sales Tax, Faisalabad is binding on the two parties i.e. confectioners Association (supra) and the revenue authorities."

3. As is evident from the above question that it is a case of an agreement arrived at between the Collector Sales Tax, Faisalabad through a Committee formed by him with the Confectioners Association of Faisalabad. The agreement is regarding the deduction of tax on packing material that it shall not be claimed beyond the limit of 20% of the total value of the exported goods. The system worked for sometimes but later when the amount of deduction exceeded than the limit of 20% of the total value of export, the department started disallowing the additional amount. This was challenged by various taxpayers. The matter went up to the High Court and the High Court decided the same in favour of the taxpayers by holding that the agreement does not have any sanctity of law and that the agreement made by it or in pursuance to the order of the Collector could only have sanctity if the same is approved by the Federal Board of Revenue. The Authority to make such an agreement or issue circulars or notifications is vested with the Board only. If some subordinate authority other than the Board exercises the said powers it can either be under delegated powers from the Board or otherwise would require its approval. The High Court, therefore, ultimately held that such an agreement does not have any support of law; hence was void. Reliance is on 2005 PTD 72 re: Messrs Mehmood and Company v. Assistant Collector, Sales Tax, Lahore and others which has subsequently been followed by this Court in S.T.A. No.100/LB/2009. Incidentally, the judgment of this Tribunal (supra) is in the case of the present taxpayer.

4. The learned DR pointed out that the taxpayer so long as the agreement remains in his favour continued following the same but as soon as the deduction became more than the threshold they started challenging its legality. On one hand they enjoyed the benefits of said agreement while, on the other hand, they started approaching the higher courts when same proved adverse to their benefits. The agreement was arrived at by exercising their inalienable right to have a contract freely, independently and without any pressure, the learned D.R. finally concluded.

5. It is true that whosoever makes an agreement binds itself to the extent of said agreement under the law of Contract. However, if an agreement is otherwise void, its application cannot be enforced. In this regard section 24 of the Contract Act can be referred. In any case, since the higher courts as well as this Tribunal have already held the agreement under discussion to be as against the law of Sales Tax, no exception can be made.

6. The result is obvious. This appeal filed by the taxpayer is allowed with the direction that the agreement is illegal and the assessee matter of refund should be processed following the law and rules within one month of the receipt of this order.

7. H.B.T./142/Tax(Trib.) Appeal allowed.