(a) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 73 &, 7‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑Certain transactions not admissible‑‑‑Input tax credit‑‑‑Admissibility‑‑‑Under S.73 read with S.7 of the Sales Tax Act, 1990 any transaction/taxable supplies involving payment exceeding Rs.50,000 otherwise than by a crossed cheque or crossed Bank draft or pay order or any other banking instrument showing transfer of payment in favour of seller from the business account of the buyer was not admissible for purposes of input tax credit, adjustment or deduction, or refund, repayment or drawback or zero rating etc.

(b) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.73‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑Certain transactions not admissible‑‑‑Cash payments deposited in the account of seller by the purchaser‑‑‑Input tax credit‑‑ Requirement of law‑‑‑Payment was deposited in cash by the complainant in the account of seller whereas the legal requirement was the transfer of the payment in favour of the seller from the business account of the buyer ‑‑‑Complainant/assessee could not produce any evidence showing payment from their business account to that of the seller nor was it shown that the payment was made by crossed cheque, crossed draft, pay order or any other banking instrument‑‑‑Cash deposit receipts held did not serve he purpose of S.73 of the Sales Tax Act, 1990.  

(c) Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑S.2(46)(e)‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑Value of supply‑‑‑Value addition to cost of purchase for determining supply value according to the agreement with the trade association‑‑‑Validity‑‑‑Collector under S.2(46)(e) of the Sales Tax Act, 1990, for purposes of determining value of supply, could appoint a Valuation Committee comprising representative of trade and the Sales Tax Department if there was sufficient reason to believe that the value of supply was not being correctly declared‑‑‑Committee constituted by the Collector decided a value addition of 16% which value was accepted by the Trade Association and which decision was largely accepted by the dealers‑‑‑Value addition, in circumstances, was correctly applied‑‑‑No Maladministration had occurred and complaint was dismissed by the Federal Tax Ombudsman.

2002 PTCL 2 ref.

Muhammad Ashraf Hashmi and Ghaffar Hussain for the Complainant.

Fazal‑ur‑Rehman, A.C., Sales Tax, Multan for Respondent.

FINDINGS/ORDERS

The Deputy Collector (Adjudication), Multan by his Order‑in-Original 801 of 2002, dated 14‑9‑2002 has adjudged that the complainant should pay sales tax of Rs.83,780 together with further tax, additional tax and penalty imposed on account of suppression of sales by showing less value of supply i.e. 15% less than the cost and Rs.1,03,797 together with additional tax and penalty for violation of section 73 of the Sakes Tax Act, 1990 for failing to make payment through banking channels. The complainant, a registered person, has challenged both the show -cause notice as well as the Order‑in‑Original as being illegal on the ground that they purchased pesticides from Messrs Warble (Pvt.) Limited vide Demand Draft No.506950 in line with the provisions of section 73 of the Sales Tax Act. Similarly, purchases amounting to Rs.21,64,000 were made from Messrs Ali Akbar Enterprises either through cross‑cheques or by cash deposited in the account of Messrs Ali Akbar Enterprises, Lahore, which proves that the payment to the seller was made through the bank. There was no infringement of section 73 of the Act. It is also wrong that the total payment was made through cash. Input tax amounting to Rs.103797 has been disallowed without any reason. The allegation of suppression of sales by showing less value is also baseless. They were not confronted with any evidence proving that allegation. There was no agreement of their Association that there would be a value addition of 16% to the cost of purchase for determining supply value. The demand of taxes etc. is not maintainable on this count also.

2. In the written reply the respondents have stated that the purchase from Messrs Warble (Pvt.) Limited was not according to section 73 of the Sales Tax Act, 1990. Cash payment deposited in the collection account of the seller means deposit of cash payment, which is not covered under the aforesaid section. The complainant did not produce any demand draft. Even the payment through demand draft is not covered by section 73 of the Act unless the demand draft is made from the business account of the buyer. In terms of section 73 of the Act the cash flow must be from the business account of the buyer to the seller, as confirmed by C.B.R. ruling, dated 29‑1‑2002 to the effect that under section 73 of the Act only those banking instruments which show transfer of payment in favour of seller from the business account of the buyer are acceptable. The complainant did not submit his business account, bank statement indicating transfer of cash/payment from their account through banking instruments. In the case of purchases from Messrs Ali Akbar amounting to Rs.20,79,776 the payment was also made through cash, the fact admitted by the complainant. The Cash payments deposited in seller's account are not covered under section 73 of the Act. Out of total purchase of Rs.22,69,525 only purchase of Rs.7,95,775 was declared inadmissible because of lack of evidence regarding payment from their own business account. As to the alleged suppression of sales the complainant had paid tax on value 15% less than their purchase value despite the fact that the Committee constituted by the Collector had decided a value addition of 16% which decision was accepted by pesticides companies. The Collector had constituted the said Committee under section 2(46)(e) of the Sales Tax Act, 1990.

3. In the rejoinder submitted by the complainant, he reiterated the arguments earlier advanced in the written complaint. He added that certain amounts were deposited in the bank account of seller, which showed transfer of payment in favour of the seller. The complainant has paid sale tax i.e. at the rate of 18% which is higher by 20% as compared to tax rate 15 %.

4. During the hearing the complainant added that there was no dispute about the transactions with Messrs Warble (Pvt.) Limited. The real dispute is in regard to the mode of payment made to Ali Akbar Enterprises and about the valuation of supplies. The learned Advocate cited a decision of the Appellate Tribunal given in Appeal No.157/LB 2002 PTCL 2 given with reference to section 2(46) of the Sales Tax Act, 1990 wherein it was ruled that there was no provision in the law whereby the Revenue Authorities could legally fix percentage of value addition and compel the registered person to calculate and pay sales tax accordingly. The Tribunal also held that mere technicalities should not work to the disadvantage of the citizens. They had deposited cash in bank account of the seller and the receipts of deposit were banking instruments in proof of payment. The amount due on account of input tax adjustment should, therefore, be allowed.

5. The respon en contended that the total payment made to Messrs Ali Akbar was Rs.22,69,525 out of which Rs. 16,73,750 was through banking instruments and was, accepted by the department. The disputed amount is Rs.7,95,775, which was not made through any banking instrument. The Appellate Tribunal's decision referred to by the complainant related to imported goods whereas the instant case involves local supplies to which the provisions of section 2(46)(e) of the Sales Tax Act apply and not the provisions of section 2(46)(d). The Committee, duly constituted under this section, decided that a minimum of 16% value shall be added which was accepted. Under section 73 of the Act, the input tax, credit or adjustment or refund is not admissible if the payment exceeding Rs.50,000 is not made by a crossed cheque, crossed bank draft, pay order or any other bank instrument showing transfer of payment in favour of the seller from the business account of the buyer.

Thus the Tribunal's decision referred to by the complainant is not relevant to this case. The complainant, however, emphasized that the deposit of cash (deposit slip) in the account of Messrs Ali Akbar was done through a banking instrument, which was covered under section 73 of the Act. If there are two interpretations about it one which favours the taxpayers should be adopted.

6. The arguments of the parties to the dispute and the record of the case have been examined and considered. The case shows that a payment of Rs.7,95,775 was made not through crossed cheques or crossed drafts or pay orders but by cash which was deposited by the complainant in the supplier's account. Under section 73 read with section 7 of the Sales Tax Act, 1990 any transaction/taxable supplies involving payment exceeding Rs.50,000 otherwise than by a crossed cheque or crossed bank draft or pay order or any other banking instrument showing transfer of payment in favour of seller from the business account of the buyer is not admissible for purposes of input tax credit, adjustment or deduction, or refund, repayment or drawback or zero rating etc. In the instant case the payment was deposited in cash by the complainant in the account of seller whereas the legal requirement was the transfer of the payment in favour of the seller from the business account of the buyer. The complainant could not produce any evidence showing payment from their business account to that of the seller. Nor was it shown that the payment was made by crossed cheque, crossed draft, pay order or any other banking instrument. The cash deposit receipts do not serve the purpose of the relevant section of the Sates Tax Act, 1990. As to the question of valuation and the reference made by the complainant to the order of the Appellate Tribunal, it is observed that the order of the Appellate Tribunal relates to the value of imported goods. The instant case involves section 2(46)(e) of the Sales Tax Act, 1990 according to which the Collector, for purposes of determining value of supply, could appoint a Valuation Committee comprising representative of Trade and the Sales Tax Department if there was sufficient reason to believe that the value of supply was not being correctly declared. The Committee constituted by the Collector decided a value addition of 16% which value was accepted by the Association and which decision was largely accepted by the pesticide dealers. The value addition was, therefore, correctly applied.

7. Based on the above discussion, it is observed that no maladministration has occurred. The complaint lacks merit and .is accordingly dismissed.

M.B.A./607/FTOComplaint dismissed.