C.I.R., L.T.U., ISLAMABAD Versus MIA CORPORATION (PVT.) LTD., ISLAMABAD

ORDER

CH. ANWAAR UL HAQ (JUDICIAL MEMBER).--- The titled appeal has been preferred at the instance of Revenue, calling in question the impugned Order-in-Appeal No.163/2011 dated 23-6-2011, passed by the learned CIR (A), Islamabad.

2. The facts leading to the filing of present appeal are that during the course of audit of the sales tax affairs of the taxpayer for the periods relevant to July 2008 to June 2009, the department observed following discrepancies: -

(i) The taxpayer violated the provisions of section 73 of the Sales Tax Act, 1990.

(ii) Non payment of extra tax by the taxpayer on supply of electric appliances/air conditioners.

(iii) Inadmissible adjustments of input tax claimed by the taxpayer on purchase of motor cycle.

(iv) Suppression of sales by the taxpayer (difference between sales tax returns and financial statements/audited accounts).

(v) Late filing of monthly sales tax and federal excise return.

(vi) Violation of Section 8B of the Sales Tax Act, 1990.

(vii) Short payment of special excise duty on sales.

On the basis of these irregularities, the proceedings were initiated under the provisions of sections 36(1) and 11(2) of the Sales Tax Act, 1990, and under section 14(1) of the Federal Excise Act, 2005 Show-cause notice was issued wherein the taxpayer was called upon to show cause as to why sales tax amounting to Rs.4,543,284 and Federal Excise Duty amounting to Rs.2,082,280 may not recovered along with default surcharge and penalty under sections 34, 33(1) and 33 (5) of the Sales Tax Act, 1990 and under sections 8 and 19(1) of the Federal Excise Act, 2005. The adjudication proceedings were culminated in passing the impugned order-in-original, wherein charges levelled in the show-cause notice were mainly upheld by the assessing authority.

3. Being aggrieved, the taxpayer went in appeal before the learned CIR(A) who vide impugned order upheld the action of the assessing authority with regard to, (i) violation of section 73 of the Act (partial relief accorded), (ii) Non-payment of extra tax, (iii) In admissible claim of input tax on motor-cycle, (iv) Suppression of sales. As regards the issue of violation of section 8 (B) (1) of the Sales Tax Act, 1990 and Short of SED, the taxpayer being convinced with the submission made before has ordered for deletion of tax demand under these heads while observing as under:--

"As regards the issue of violation of section 8(B)(1) of the Sales Tax Act, 1990, the department treated the appellant as "Manufacturer" and they were not allowed to adjust input tax in excess of ninety percent of the output tax. Contrary to this, the appellant adjusted excessive input tax on the plea that the registered person is a commercial importer and not a manufacturer. They only imports units and supply the same. The related parts of the units were also imported for "after sale warranty" purposes etc and no facility of manufacturing available at the unit's premises.

Perusal of web portal of FBR confirms that the appellant is registered as "Service provider/importer/exporter" and contention of appellant seems to be correct. Moreover, section 8B(1) restricts input adjustments up to ninety percent of out put tax and commercial importers are excluded from it. Hence, demand on this charge is vacated.

As regards the issue of short payment of SED, the same is only payable on the goods produced or manufactured in Pakistan. The appellants are not registered as manufacturers nor the department registered them as Manufacturer. In case of importer, the SED shall be paid at import stage. The department has made out case in violation of section 3A(1)(a), which relates to "goods produced or manufactured in Pakistan". As the appellants does not fall in this category, hence, demand of SED is not justified and the same is also vacated."

4. The learned DR on behalf of Revenue assailed the above finding of the learned CIR(A) as contrary to law and facts of the case. It is submitted by the DR that the taxpayer engaged in the business of manufacturing/assembling of electric appliances by way of importing different parts from abroad and as per provisions of section 8B(1) of the Sales Tax Act, 1990, the taxpayer was under legal obligation to only adjust input tax to the extent of ninety percent of output tax. It is contended by the learned DR that taxpayer has illegally considered him as commercial importer and unlawfully claimed hundred percent of input tax during the period under consideration which resulted in revenue loss of Rs.3,027,386. It is contended that the said amount is liable to recover along with default surcharge and penalty but the learned CIR (A) has unjustifiably and illegally treated the taxpayer as commercial importer and ordered deletion of the said sales tax demand. It is further submitted by the learned DR that the taxpayer has also deposited short payment of Special Excise Duty on sales whereas in terms of S.R.O. 655(I)/2007 dated 29-6-2011, all manufactures are under legal obligation to deposit Special Excise Duty @ 1% of their total sales. Action of the learned CIR(A) in this regard is assailed by the learned DR as against the law and facts of the case. On the contrary, the learned AR supported the orders passed by the learned CIR(A) and reiterated the submissions as made before him.

5. We have heard the arguments put forth by the learned representatives of both the sides and have carefully gone through the available record. After due consideration, we are convinced with the submissions made by the learned DR at the bar. The learned DR produced before us a copy of the certificate issued by Central Registration Office where the taxpayer's status appears as "Manufacturer/Importer/Exporter". The learned DR also produced before us a screen shot of status of application appearing on Registration Management System filed by the taxpayer and perusal of the same reveals that the taxpayer intends to drop its manufacturing category and department required some physical verification. All these prove contrary to the taxpayer's stance that they are commercial importer. Furthermore, perusal of the record shows that the taxpayer is engaged in the import of air- conditioner parts such as compressor, expansion vales and communication cables and also purchased locally manufactured products like PVC cables, flexible duct, strap rolls, filling gas, cylinder, temperature controller, gate valve, ball valve, M.S. seam less pipes. All such parts are obviously used in manufacturing of an air conditioner. Here, we deem it expedient to reproduce section 2(17)(a) of the Sales Tax Act, 1990, which reads as under:--

2. Definitions.---In this Act, unless there is anything repugnant in the subject or context,--

(17) "manufacturer" or "producer" means a person who engages, whether exclusively or not, in the production or manufacturers of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include--

(a) a person who by an process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner:

6. From the perusal of above definition of "manufacturer" or "producer" provided in law and in view of the above observation made by us, it is clear that the taxpayer's business activity falls in the definition of "manufacturer", hence, the taxpayer is under legal obligation to only adjust input tax to the extent of ninety percent of the output tax. Here, we reproduce the relevant section 8B of the Sales Tax Act, 1990, which reads as under:--

8B. Adjustable input tax.---(1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period:

7. In view of the clear-cut statutory stipulation, the taxpayer being a manufacturer shall not be allowed to adjust input tax in excess of ninety percent of the output tax for the period under consideration. Since, the taxpayer contravened the said provision of law, the assessing authority has rightly ordered recovery of sales tax amount of Rs.3,207,386 along with default surcharge and penalty which is hereby upheld. The order of the learned CIR (A) is accordingly vacated to that extent.

8. As regards short payment of SED on total sales, we have already confirmed the status of the taxpayer as "manufacturer", therefore, they are under legal obligation to pay SED @ 1% of their total sales in terms of S.R.O.655(I)/2007 dated 29-6-2007. Order of the assessing authority for recovery of SED from the, taxpayer is hereby maintained. Order of the learned CIR(A) in this regard is accordingly vacated.

9. Resultantly, the appeal of the department succeeds in the above manner.

CMA/107/Tax(Trib.) Appeal accepted.