Sales Tax Act (VII of 1990)---

----Ss. 3, 33, 34 & 2(33)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9---Demand of sales tax alongwith additional tax and penalty on cotton seed oil cake, despite the fact that assessee did not manufacture oil seed cake (Khal)---Validity-- Adjudicating Officer after listing out the manufacturing processes involved had given finding that oil cake was produced in the expeller by a mechanical process, which was liable to sales tax and did not accept the contention of the complainant/assessee that they did not manufacture oil cake---Other issues raised by the complainant/assessee before the Adjudicating Officer had been discussed and dealt with in the Order-in -Original---Proper Order-in-Original had been passed---No maladministration was involved ---Complainant/assessee had also filed an appeal before the Appellate Tribunal and he had right to defend his case before the Appellate Tribunal and may pursue it there---Complaint was filed by the Federal Tax Ombudsman.

Mujahid Eshai, FCA and Riaz Ahmad, Tax Consultant for the Complainant.

Dr. Muhammad Adnan Akram, D.C, (Adjudication) for Respondent.

FINDINGS/ORDERS

The complainant has alleged maladministration against the Additional Collector of Adjudication, Multan for initiating illegal proceedings by issuing show-cause notice, asking him to pay sales tax alongwith additional tax, penalty etc. on cotton seed oil cakes, despite the fact that he does not manufacture oil seed cake (khal). Relevant facts briefly stated by the complainant are that no oil cake (khal) is manufactured during the manufacturing processes of his solvent plant. The raw material is purchased from the market. During the process of production of delinted cotton and separation bran there remains only kernel of cotton seed (giri), which cannot produce khal because the bran separated in the process is a necessary ingredient for production of khal. For production of khal some percentage of oil is also required but in this process total oil is extracted and the balance residue is unable to produce khal. Despite the above mentioned processes he has been saddled with liability of sales tax alongwith additional tax etc. for oil cakes allegedly produced and consumed by him. The sales of his other products are duly verified and tax adjusted against input claim. Sales tax can be charged only on supplies as defined in section 2(33) of the Sales Tax Act, 1990. He has not made any supply. of oil cakes. The respondents have also ignored the procedure prescribed under Ginning Industry. Rules, 1996. The Order-in-Original No.883-884 of 2002, dated 2-10-2002 is illegal. The respondent has rejected his case relying on the decision in the case of Messrs Konya Industries, Multan. His case is different from that of Messrs Konya Industries. The Revenue Division may be directed to drop the illegal proceedings. The Order-in-Original may also be declared illegal. The complainant may also be given reasonable compensation as permitted under law.

2. In the written reply the respondents have pointed out that since the Order-in-Original has already been passed in the case and the complainant has legal remedy available to him under section 46 of the Sales Act, 1990, he may file an appeal before the Customs, Sales Tax and Central Excise, Appellate Tribunal. He has not exhausted the available remedy. In the manufacturing processes of the solvent plant cotton seed is processed in delinting section where cotton lint and hull is produced and the oil cake and oil are produced in the mechanical section by expellers. Thus oil cake is produced by mechanical process through expellers. The show-cause notice was legally issued. In an identical case namely Messrs Konya Industries, Multan, Order-in-Original was passed against Which the unit preferred an appeal before the Appellate Tribunal. The Tribunal rejected the appeal vide order S.T.A. 902/LB of 2000, dated 6-9-2001. . Later, the Lahore High . Court also rejected Messrs Konya Industries Multan's appeal vide order in Customs Appeal No.21 of 2001, dated 5-12-2001. Self-consumption of taxable goods falls within the definition of supply/sales under section 2(33) of the Sales Tax Act, 1990. Self-consumption of taxable goods is a 'supply' as already held by the Honourable Supreme Court in respect of Baggasse produced by the Sugar Mills and by the Lahore High Court in respect of oil cakes produced by Messrs Konya Industries. The complainant's unit and that of Messrs Konya Industries are solvent plants both having identical machinery, involving, similar manufacturing processes. The show-cause notice and the Order-in-Original were lawful. There is no maladministration. The complaint may be dismissed.

3. In his rejoinder filed by the complainant, he has pointed out that the respondents do not appreciate the difference between traditional oil extraction (kohlu) and integrated process known a solvent extraction. The dehulled and delinted cotton seed is subjected to high temperature during the process and it can neither' chemically nor physically assume the form of saleable oil cakes. As for the respondent's reliance on the decision passed in the case of Messrs Konya Industries and its confirmation by the Appellate Tribunal and the Lahore High Court, the FTO has already observed in decision given on Complaints No.639 and 865 of 2002 that findings in one case could not be used as a tool in another case: The Adjudication Officers, should have dealt with complainant's case on his own merits. By not doing so he has indulged in maladministration. As for respondent's argument that self-consumption of taxable goods falls in the definition of supply/sales under section 2(33) of the Sales Tax Act, 1990, it is submitted that unlike oil cakes produced by oil expellers and sold by him in the market, the material in process in the solvent plant is not independently marketable. The cotton seed is dehulled and delinted, and after extraction of oil the residue has no utility. It leads to production of poultry meal, which is exempt from sales tax. Raw material in process cannot be termed as a taxable intermediary. product. It is not useable. The literature on the subject spells out the processes involved showing that continuous oil. extraction is only capable of producing oil and poultry meal, but it does not produce oil cakes that can be sold in the market. No intermediary product is, therefore, obtained which is taxable and as such the question of levying tax on an imaginary product does not arise.

4. During the hearing the complainant reiterated the argument made in the complaint and the rejoinder emphasizing that raw material in process does not constitute a taxable activity. The respondents have not examined the actual processes involved in the extraction of oil. To constitute supply it must be in a marketable state. A. continuous manufacturing process is involved in the extraction of oil from which no such thing as oil cakes are produced. The oil cakes, which are saleable in the market., contain hulls and linters, which are. useful for cattle feed, whereas in the case of the complainant the seed is dehulled and delinted and the residue is not capable for use as cattle feed. It can only be used as poultry meal. The literature placed on record illustrates the statement. The respondents were also asked to physically check whether or not oil cakes were being manufactured but they ,did not do so. There is difference between the processes of oil expellers and' the complainant's plant. While oil expellers sell the byproducts and market them, the same cannot be equated with the oil solvent plant, which do not produce oil cake.

5. The representative of. the respondents stated that as discussed in the Order-in-Original and ,explained in the parawise comments the complainant does manufacture oil cakes. Self-consumption of taxable goods falls within the definition of supply. The Supreme Court of Pakistan has in the cases of 'Sugar Mills and the Lahore High Court, Multan Bench in an identical case of Messrs Konya Industries, Multan have decided the issue. The complainant, however, emphasized that Baggasse is byproduct of sugar and is/can be used as fuel. The complainant's case is not parallel. The respondents stated that the processes involved in the case of the complainant are the same are those of Messrs Konya Industries, Multan and the complainant's case is, therefore, identical. Intermediary products are taxable and , were accordingly deal with.

6. The arguments of the parties to the dispute and the record of the case have been examined and considered. It is observed that the complainant had delivered his written reply and argued the case before the Additional Collector (Adjudication). The main points made by him as narrated in the Order-in-Original were . that for levy of sales tax there must be a taxable supply. If a supply is not made to any other person it cannot be construed as taxable activity. The solvent extractors do not A manufacture oil cake. The Adjudicating Officer after listing out the manufacturing processes involved has given a finding that oil cake is produced in the expeller by a mechanical process, which is liable to sales tax and, therefore, did not accept the contention of the complainant that they do not manufacture oil cake. Similarly, other issues raised by the complainant before the Adjudicating Officer have been discussed and dealt with in the Order-in-Original passed in the case. Thus a proper Order-in-Original has been passed. No maladministration is involved. The complainant disclosed during the hearing that he has also filed an appeal before the Appellate Tribunal. He has the right to defend his case before the Appellate Tribunal and may pursue it there. The complaint is accordingly filed.

C.M.A./697/FTOOrder accordingly.