Appeal No.S.T.A. 2201/LB of 2001, decided on 8th March, 2002. VS Appeal No.S.T.A. 2201/LB of 2001, decided on 8th March, 2002., 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2500 (2002)

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.7 & 8(i)(b)‑‑‑S.R.O. 1307(I)/97 dated 20‑12‑1997‑‑‑Determination of tax liability‑‑‑Adjustment of input tax in violation of the provisions of S.R.O. 1307(I)/97 dated 20‑12‑1997 on the ground that same was bad in law being in violation of S.8(i)(b) of the Sales Tax Act, 1990‑‑‑Validity‑ Appellate Tribunal observed that notification in dispute had been validly issued by the Federal Government and was not in violation of the substantive provisions of the Sales Tax Act, 1990, when examined with reference to Ss.7 & 8(i)(b) of the Sales Tax Act, 1990.

2001 SCMR 838 and C.A. No.66‑S of 1999 ref.

Muhammad Nasar for Appellant.

Imran Tahir, D. R. for Respondent.

Date of hearing: 24th January, 2002.

JUDGMENT

MIAN ABDUL MAJEED, MEMBER (JUDICIAL).‑‑‑This is directed against the Sales Tax Order‑in‑Original No. 146 of 2001 dated 16‑8‑2001 despatched on 20‑8‑2001) passed by the learned Additional Collector (Adjudication), Lahore.

2. For the caustic soda supplied to the appellant during the months of December, 1997 to June, 1998 by Messrs Sitara Chemical Industries Limited, the appellant adjusted input tax amounting to Rs.4,,83,898 which it was not entitled according to the detecting agency being in violation of the provisions of S.R.O. 1307(1)/97, dated 20‑12‑1997 in respect .of which a contravention Case No. 3069 dated 8‑7‑1999 was prepared which led to the issuance of show‑cause notice on 14‑6‑2001 requiring the appellant to explain its position as to why the evaded sales tax amounting to Rs.4,83,898 be not recovered from it alongwith additional tax and penalty.

3. The appellant contested the show‑cause notice and urged the following grounds during the adjudication proceedings:‑‑

(i) The show‑cause notice was time‑barred in view of 2001 SCMR 838.

(ii) The Notification S.R.O. 1307(1)/97, dated 20‑12‑1997 was bad in law being in violation of section 8(i)(b) of the Sales Tax Act, 1990.

4. The learned Adjudicating Officer after hearing the parties and examining the record and following the law laid down in 2001 SCMR 838 held through the impugned order that the show‑cause notice was barred by time for the period from December, 1997 to April, 1998 but was within the period of three years in respect of the period for May and June, 1998 which involved evaded sales tax of Rs.80,304 and Rs.1,05,732 respectively totalling Rs.1,86,036 which the appellant was to pay alongwith the additional tax besides penalty of Rs.14,517 @ 3% of the tax involved.

5. The second contention of the appellant that S.R.O. 1307(I)/97 dated 20‑12‑1997 was in violation of section 8(i)(b) of the Act (ibid) was rejected by the learned Adjudicating Officer.

6. The learned counsel for the appellant during the course of arguments relied on para. 23 of judgment, dated 4‑12‑2001 passed in C.A. No.66‑S of 1999 by the Hon'ble Lahore High Court, Lahore and submitted that since S.R.O. 1307(I)/97 has been held to the totally illegal and devoid of any legal consequences, therefore, the impugned order may be set aside and the appeal may be accepted.

7. The learned D.R. has rejected the appeal.

8. Para. 23 relied upon by the learned counsel reads as under:‑‑

"For these reasons I am of the view that Notification S.R.O. No.1307(I)/97, dated 20th December, 1997 disentitling a person to claim adjustment or refund of input tax on somewhat similar interpretation as made by the departmental authorities in this case is totally illegal and devoid of an legal consequence."

9. This S.R.O. was assailed on the ground that it was ultra vires of the provisions of the Sales Tax Act through Writ Petition Nos.9272 of 1998, 7122 of 1998, 10221 of 1998, 9389 of 1998, 9526 of 1998, 9955 of 1998, 10679 of 1998 and 11968 of 1998, which were allowed on 2‑10‑1988 by the Hon'ble Judge Lahore High Court, Lahore with the following observations:‑‑

Keeping in view both the notifications and reading with section 8(1)(b) of Act of 1990 it is crystal clear that the respondent has authority only to collect sales tax qua the goods specified in the notification issued under section 8(1)(b) as reproduced above. It is fiscal matter, therefore, to be interpreted strictly. The second notification did not specify the goods, which is a condition precedent to collect the tax, therefore, the same is valid to the extent the goods specified in the first notification as the second notification was in continuation of it.

The upshot of the above discussion is that the second notification is held valid to the extent of the goods specified in the first notification dated 1‑7‑1996. The petitioner is disposed of in the above terms."

10. The controversy, however, did not end there and the matter was taken to the Hon'ble Supreme Court by the C.B.R. through several civil petitions for leave to appeal which have since been decided on 24‑12‑1998 with the following order:‑‑

"For the reasons to be recorded later on, the above petitions are converted into appeals and are disposed of in the terms that it will be open to the respondents to file appeals even now before the forum provided under the Sales Tax Act, 1990 to agitate the question that they are entitled to the deduction of input tax in terms of section 7 of Sales Tax Act, 1990 in respect of the goods which have been used for manufacturing of taxable goods but they have not become integral .part of the same. The forums provide under the Act will decide the controversy at issue with reference to the substantive provisions of the Act and S.R.O. No.1307(I)/97, dated 20‑12‑1997 and in case of any conflict between the two, the substantive provisions of the Act will prevail "

11. After having considered judgments by the Hon'ble High Court, Lahore and Hon'ble Supreme Court referred to above, it cannot by any stretch of imagination or on any hypothesis be said that the observation contained in para. 23 of the judgment in C.A No.66‑S of 1999 re produced above has the effect of declaring the said Notification No.1307 as illegal. These observations as is obvious from the main judgment and the judgment by the Hon'ble Supreme Court, are in respect of the facts involved in the appeal which has been disposed of vide judgment dated 4‑12‑2001. These observations can neither be made applicable generally nor applied to the facts of this appeal. It has to be independently examined with reference to the facts of this appeal as to whether this notification militates against the substantive provisions of sections 7 and 8(i)(b) of the Act (ibid). These provisions are as under:‑‑

"7. Determination of tax liability. ‑‑‑(I) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, subject to the provisions of section 73, be entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9.

8. Tax credit not allowed.‑‑‑(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled or reclaim or deduct input tax paid on ‑‑‑‑‑‑

(a) ‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑‑

(b) any other goods which the Federal Government may, by a notification in the official Gazette, specify; and."

12. S.R.O. 1307(I)/97 dated 20‑12‑1997 has been issued by the Federal Government in exercise of powers conferred under clause (B) of subsection (1) of section 8 of the Sales Tax Act, 1990. Clauses (a) and (b) of section 8 deal with different situations and are separate provisions of law which are independent of each other. Caustic soda is not the integral and constituted part of the beverages which is manufactured by the appellant. When examined with reference to section 7 and section 8(i)(b) of the Act (ibid), we find that the notification in dispute has been validly issued by the Federal Government and is not in violation of the substantive provision of the Act. This is the view which we have already recorded in Appeal Nos.2241 and 2242 of 2001, decided on 6‑2‑2002.

13. The result of the above discussion is that there is no merit in the appeal, which is dismissed.

C.M.A./305/Tax(Trib.)

Appeal dismissed.