ASSISTANT COLLECTOR OF SALES TAX, ENFORCEMENT AND COLLECTION DIVISION, SIALKOT and another VS Messrs ADIL BEVERAGES CO. (PVT.) LTD., LAHORE, 2005 PTD-LAHORE-HIGH-COURT-LAHORE 1925 (2005)

Sales Tax Act (VII of 1990)---

---Ss. 34, 36 & 47---Short payment of Sales Tax---Appeal to High Court---Issue of sale of scrap was not considered by the Tribunal with seriousness it deserved---Issue of wastage of concentrate to calculate total production per unit was also intermingled with the issue of disposal of scrap---Mere fact that scrap comprised of material on which earlier sales tax had been paid, did not, by itself, exempt it from the levy of sales tax, if otherwise its disposal amounted to taxable activity and taxable supply in furtherance of business of registered person---Issue in hand only revolved around the disposal of scrap and levy of sales Tax thereon---Since issue of taxability of scrap was not looked into in the manner it required, impugned order of Tribunal to that extent was set aside---Tribunal would re-consider and rule upon the issue of levy of sales tax on the scrap disposed of by registered person during the year concerned---Tribunal, if so required by any of the parties, would rule upon admissibility of input tax in case they would approve of sales tax on it.

Collector of Customs, Central Excise and Sales Tax, Karachi (West) v. Novartis Pakistan Ltd. 2002 PTD 976 and Messrs Mayfair Spinning Mills Ltd. Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore and 2 others PTCL 2002 CL 115 ref.

Izhar-ul-Haq for Appellant.

Zaheer Ahmad Khan for Respondent.

Date of hearing: 28th March, 2005.

JUDGMENT

NASIM SIKANDAR, J.---This further appeal under section 47 of the Sales Tax Act, 1990 seeks to challenge an order of the Customs, Excise and Sales Tax Appellate Tribunal (for short "The Tribunal"), dated 15-11-2001.

2. On the basis of an audit report prepared by the Audit Wing of the Department, proceedings against the respondent, Messrs Adil Beverage Company (Pvt.) Limited, were started and a contravention report alleging short payment of sales tax for the three years involving an amount of Rs.32,72,051 was prepared. That amount was calculated with reference to and on the basis of difference of units of concentrate used for production of various brands of aerated beverages. Also it was found that the registered person had failed to pay sales tax to the tune of Rs.82,850 on disposal of scrap valued at Rs.460,281 removed/supplied during the year, 1996-97.

3. The Addl. Collector of Sales Tax, Gujranwala by way of an order-in-original, dated 7-6-1998 rejected the defence put forth by the registered person that the difference of units of concentrate was mainly due to wastage occurring in the manufacturing process of bottling of the beverages. However, since despite notice no one appeared for the registered person, by way of the order-in-original the Addl. Collector, Gujranwala held it liable to pay sales tax amounting to Rs.32,72,051 under section 36 of the Sales Tax Act, 1990 along with additional tax as due and payable under section 34 of that Act. The appellant/respondent failed before the Collector (Appeals), Gujranwala. After hearing the parties he observed that the registered person had failed to establish that 6% wastage was allowed to beverages manufactures through any official notification. Also that the value of scrap disposed of during the said period as reported by the Department was duly supported from the record.

4. On further appeal before the Tribunal after reproducing the submissions made in writing before them, the Division Bench of the Tribunal decided both issues in the following manner:--

"(6) We have heard both the parties, perused the record and facts of the case. We are of the considered opinion that learned Adjudicating Officer and the Collector appeals both have not applied their mind or taken into consideration the decision of the Federal Government or the pronouncement of the Court of Law on the wastage up to 6% on this issue. There is also no legal base of taxing scrap which had been generated from this already duty-paid raw materials and inputs. We, therefore, accept the appeal on merits. The Order-in-Original No.35 of 1998, dated 6-6-1998 is set side. The appeal is accepted."

5. According to the learned counsel for the Revenue-appellant as regards allowing of 6% wastage of concentrate in order to calculate the total number of bottles manufactured, the appellant-Revenue has no grievance. However, states that the levy of sales tax on scarp which included broken empty glass bottles, broken wooden cases, damaged crown cork and Polly bags of sugar, the learned Members of the Tribunal decided the issue in a cursory and slipshod manner. The last sentence of the order of the Tribunal as reproduced above is specifically mentioned to bring home the point. Also the learned counsel for the Revenue-appellant relies upon a judgment of Sindh High Court, Karachi in re: Collector of Customs, Central Excise and Sales Tax, Karachi (West) v. Novartis Pakistan Ltd. 2002 PTD 976 to contend that creation of the aforesaid scrap being an integral part of the manufacturing process of bottling, its disposal clearly amounts to taxable activity as well as taxable supply.

6. Learned counsel for the respondent, on the other hand, however, relies upon a judgment of this Court in re: Messrs Mayfair Spinning Mills Ltd. Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore and 2 others (PTCL 2002 CL 115).

7. Having heard the learned counsel for the parties, we will readily agree with the learned counsel for the appellant-Revenue that the issue of sale of scarp was not considered by the learned Members of the Tribunal with the seriousness its deserved. Also it appears that the issue of wastage of concentrate to calculate total production per unit was intermingled with the issue of disposal of scrap. Mere fact that the scrap comprised of the aforesaid material on which earlier sales tax had been v. paid did not by itself exempt it from the levy of sales tax if otherwise its disposal amounted to a taxable activity and taxable supply in furtherance of the business of the registered person. The submissions made at the bar for the Revenue are supported by the aforesaid judgment of the Hon'ble Sindh High Court while the reliance of the learned counsel for the respondent on the aforesaid said judgment of this Court is not relevant inasmuch as the real issue in that judgment only related to claim of input tax in cases where some of the raw material was damaged or was completely lost. On the other hand, as noted above, the issue in hand only revolves around the disposal of scrap and the levy of sales tax thereupon. Since the issue of taxability of scrap was not looked into the manner it required, the impugned order of the Tribunal to that extent is set aside. They will re-consider and rule upon the issue of levy of sales tax on the scrap disposed of by the registered person during the financial year, 1996-97. Also learned Members of the Tribunal, of so required by any of the parties will rule upon the admissibility of input tax in case they approve levy of sales tax on it.

8. Appeal partly accepted and the issue of levy of sales tax on

scrap remanded.

H.B.T./A-453/L?????????????????????????????????????????????????????????????????????????????????? Order accordingly.