MAPLE LEAF CEMENT FACTORY LTD. VS ADDITIONAL. COLLECTOR, SALES TAX, FAISALABAD, 2000 PTD-LAHORE-HIGH-COURT-LAHORE 1296 (1999)

(a) Sales Tax Act (VII of 1990)---

----Ss.7 & 47---Non-adjustment of input tax paid by the assessees against output tax---Authorities issued notice for recovery of additional sales tax and refused to adjust input tax against output tax on the ground that the assessee had two separate cement factories and both the factories were separately registered---Validity---Authorities had completely omitted to notice that there was no second registered person in existence at the time when the input tax was paid or when the deduction out of the output tax was made---Effect-- Where import had been made by the assessees which had paid the input tax, assessee was entitled to deduct tax paid from the output tax payable on the cement produced by it---Subsequent registration of second factory (Phase II) was not of any significance---Orders passed by Authorities by not giving benefit of S.7, Sales Tax Act, 1990 to the assessee suffered from non -consideration of material facts---Orders of the Authorities for the recovery of additional sales tax were set aside in circumstances.

(b) Sales Tax Act (VII of 1990)---

----S.16---Second registration---Requirement---Under the provisions of S.16, Sales Tax Act 1990 and registration is only for those persons who are carrying on business in two are more Collectorates.

Salman Akram Raja for Petitioner.

A. Karim Malik for Respondents.

Date of hearing: 17th November, 1999.

JUDGMENT

MALIK MUHAMMAD QAYYUM, J.---This judgment shall dispose of Custom Appeal No.95 of 1999 and Custom Appeal No.96 of 1999, both of which are directed against the same judgment of the Customs, Excise and Sales Tax Appellate Tribunal, Lahore dated 26-10-1999.

2. Briefly stated, the facts are that while conducting the audit of the appellant, the staff of the Sales Tax Collectorate, Faisalabad pointed out that the appellant had wrongly adjusted input tax amounting to Rs.8,84,89,759 involved in the import of cement plant by M/s: Maple Leaf Cement Factory Ltd. Phase-II against the supply of cement manufactured by M/s. Maple Leaf Cement Factory Ltd. Phase-1. The Additional Collector of Sales Tax, Faisalabad while adjudicating the case directed the appellant to pay the aforesaid amount of Rs.8,84,89,759 as sales tax alongwith additional tax under section 34 of the Sales Tax Act, 1990, and a penalty of Rs.10 Million under section 33 of the Sales Tax Act, 1990. By the same order, the Additional Collector rejected the claim for refund of the appellant amounting to Rs.22,44,583. This order was challenged by the appellant by filing an appeal before the Collector of Appeals which was dismissed on 5-4-1999. The Collector came to the conclusion that Maple Leaf Cement Factory Ltd. and Male Leaf Cement Factory Ltd. Phase-11 were two distinct and separate registered persons under the Sales Tax Act, 1990 and the output tax paid by one person could not be adjusted against the output tax paid by the other person. The petitioner then took the matter in appeal to the Customs, Central Excise and Sales Tax Appellate Tribunal and upheld the findings of the two authorities below and dismissed the appellant's appeals on 26-10-1999, The appellant has now come to this Court by filing appeal under section' 47 of the Sales Tax Act, 1990.

3. The learned counsel for the appellant has contended that the appellant-company namely Maple Leaf Cement Factory Ltd., Iskandarabad, was a registered person and was engaged in the manufacture of cement. The appellant imported plant and machinery for errection of a new Cement factory on which they had to pay sales tax. Before errection and going into production of the phase-II of Cement plant the appellant adjusted the input tax of Rs.8,84,89,759 involved in the import of cement plant against the supply of cement manufactured by the appellant during the period of July, 1996 to June, 1997. He further stated that although the appellant-M/s. Maple Leaf Cement Factory Ltd. was registered under the Sales Tax Act at the time of its promulgation in 1990, the other plant namely M/s. Maple Leaf Cement Factory Phase-II was registered on 27-6-1998 and as at the time when the import was made, there was only one registered person namely M/s. Maple Leaf Cement Factory Ltd., it was entitled to claim adjustment of the input tax from the output tax.

4. The learned counsel argued that the Authorities below have failed to keep this distinction in mind and they acted under the assumption as if both the companies have been registered separately as two different persons before the import of machinery and production of cement. It was maintained by the learned counsel that under section 16 of the Sales Tax Act, 1990, it is only a person who carries on business in more than one Collectorates, who can obtain second registration but as in the present case, both the factories were situate in the same area, second registration was clearly violative of section 16 of the Sales Tax Act, 1990 and, therefore, nullity in the eyes of law.

5. Mr. A. Karim Malik, learned counsel for the respondents reiterated that M/s. Maple Leaf Cement Factory Phase-I and M/s. Maple Leaf Cement Factory Phase II were two distinct persons, registered under section 16 of the Act and the input tax paid by one company/registered person could not be adjusted against the output tax payable by another separately registered person.

6. We have considered the arguments of the learned counsel for the parties and have gone through the available record. There is not much dispute as regards the facts of the case which are that originally in 1990 Messrs Maple Leaf Cement Factory Limited was registered as a registered person in terms of section 16 of the Sales Tax Act, 1990. Separate registration for M/s. Maple Leaf Cement Factory Phase-II was obtained by it on 27th June, 1998, It is clear from the orders passed by the Authorities below including the Sales Tax Appellate Tribunal that the dispute relates to the period July, 1996 to June, 1997 i.e. much before the registration was granted to the other plant namely M/s. Maple Leaf Cement Factory Phase-II. There is, therefore, force in the contention raised by the learned counsel for the appellant that as at the time when the input tax was paid and was deducted out of the output tax, there was only one registered person namely M/s. Maple Leaf Cement Factory Ltd. Phase-1, the appellant was entitled to the benefit of section 7 of the Sales Tax Act, 1990, which ordains that for the purpose of determining his tax liability in respect of taxable supplies made during a tax period a registered person shall be entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made by him from output tax that is due from him in respect of that tax period. The Authorities, below have completely omitted to notice that there was no second registered person in existence at the time when the input tax was paid or when the deduction out of the output tax was made. The import had been made by the appellant-Company which had paid the input tax and it was consequently entitled to deduct tax paid from the output tax payable on the cement produced by it. The subsequent registration of M/s. Maple Leaf Cement Factory Ltd. Phase-II was not of any significance. The orders passed by the authorities below clearly suffer from non-consideration of material facts, on the basis of which the appellant could not have been denied the benefit of section 7 of the Sales Tax Act, 1990.

7. However, although, it is true that as both the plants were working in the area of the same `Collectorate, no separate registration could be obtained in view of section 16 of the Sales Tax Act, 1990, which permits second registration only for those persons which are carrying on business in two or more collectorates, but we think that the appellant is estopped from raising this plea as it was on the application made by it, that second registration was granted. This conclusion, however, does not, in any manner, advance the case of the respondents as the subsequent registration of M/s-. Maple Leaf Cement Factory Ltd. Phase-II did not denude the appellant of its right to claim adjustment of input tax from the output tax during the period when there was no separate entity registered.

In view of what has been said above, we allow both these appeals, set aside the orders of the Authorities below and quash the show-cause notice issued to the appellants.

Q.M.H./M.A.K./M-11/L Appeals allowed.