Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.7, 47 & 59‑‑‑Input tax adjustment on raw material/goods‑‑‑Claim for‑‑‑Appeal to High Court‑‑‑Sugar was exempt from sales tax till 31‑3‑1998 and raw material/goods were purchased by appellant prior to 1‑4‑1988 during exemption‑‑‑Such material was consumed in manufacture stocks of sugar sold during April, 1998 after 1‑4‑1998 when exemption from sales tax on sugar was withdrawn‑‑‑Appellant claimed input tax adjustment on raw material so consumed in the manufacture of taxable supplies on ground that stocks produced up to 31‑3‑1998 during exemption period were partly sold only and unsold stocks of sugar held by appellant and further production made in April, 1998, were sold during April 1998‑‑‑Appellant claimed that as on such sales appellant was liable to pay sales tax, he had the right to claim input tax adjustment‑‑‑Tribunal held in impugned order that as sugar was exempt from sales tax till 31‑3‑1998, appellant was entitled to adjust input tax paid on raw material purchased prior to 1‑4‑1998, even if supplies of sugar were made after withdrawal of exemption because S.59 of Sales Tax Act, 1990 had been omitted in 1997‑‑‑Validity‑‑‑Principles as contained in S.59, prior to its deletion in 1997, catered for some situations of the nature arising in case‑‑‑After omission of S.59 by Finance Act, 1997, a substituted S.59 was re‑introduced through Finance Act, 1999‑‑‑Intervening period of 1998, was thus the uncatered for period and led to a void and anomalous situation affecting taxpayers like appellant‑‑‑During interregnum of 1998, the void, anomalous and ambiguous situation could not be used against fundamental interest of taxpayers‑‑‑In order to avoid double taxation, vacuum during 1998 was to be provided for by applying principle of S.59 of Sales Tat .pct as nearly as possible to case like that of appellant‑‑:‑ Appellant could not be made to pay sales tax on raw material twice‑‑‑ Appellant, in circumstances, was entitled to‑input tax adjustment as claimed in the return of April, 1998.

M.M. Akram for Appellant.

A. Karim Malik for Respondent.

Date of hearing: 22nd December, 2003.

JUDGMENT

This further appeal under section 47 of the Sales Tax Act has been filed to assail order, dated 24‑5‑2001 of the Customs Excise and Sales Tax Appellate Tribunal, Lahore.

2. Through the impugned order the learned Tribunal held that as sugar was exempt from sales tax till 31‑3‑1998, the appellant therefore, was entitled to adjust input tax paid on the raw material purchased prior to 1‑4‑1998, even if supplies of the sugar were made after withdrawal of the exemption because section 59 of the Sales Tax Act, 1990 had been omitted in 1997.

3. Messrs Fauji Sugar Mills, Sangla Hill, i.e. the appellant, filed monthly sales tax returnfor the tax period of April, 1998 showing input tax adjustment of Rs.25,51,000. On 6‑6‑1998, Additional Collector‑II, served a show‑cause notice on the ground that input tax adjustment of Rs.25,44,318 as claimed was not admissible because the purchase of the raw material etc. were made prior to 1‑4‑1998 during the period of exemption of sugar from payment of the sales tax. Reply thereto was filed by the appellant. By order, dated 24‑8‑2000 respondent No.2, rejecting appellant's reply held that when sugar was brought into tax net, section 59 of the Sales Tax Act (hereinafter referred to as the Act) stood omitted. The appellant was directed to pay sales tax amounting to Rs.25,44,318 along with Additional Tax and the penalty of Rs.1,27,216. The appeal filed thereagainst by the appellant was also rejected by the learned Appellate Tribunal.

4. Having heard the learned counsel for the parties, we are of the opinion that under peculiar circumstances of the case, the appellant cannot be denied claim for input tax adjustment even if provisions in the nature of section 59 were not on the statute book during the period in question. Supply of sugar remained exempt from payment of the sale tax till 1‑4‑1998 from which date exemption was withdrawn. The appellant thus filed sale tax return for tax period of April, 1998, showing input tax adjustment of Rs. 25,51,000. The appellant was served above referred notice against claiming input tax adjustment on the ground that input tax of Rs.25,44,318 was admissible as the raw material had been purchased during the period‑of exemption of sugar from payment of the sales tax. The view of the department was also upheld by the learned Tribunal through the impugned order, hence this appeal.

5. Under the provisions of section 7 of the Act deduction of input tax paid during the tax period from the output tax, can be made by a registered person to determine the sales tax liability of taxable supplies made during the tax period. In the present case, peculiarity of circumstances lead to a controversy. The raw materials/goods were admittedly purchased by the appellant prior to 1‑4‑1998, when the sugar was exempt from the payment of sales Tax. This raw material was consumed to manufacture stocks of sugar sold during April, 1998 after 1‑4‑1998 when exemption from sales tax on sugar was withdrawn. The appellant claimed input tax adjustment on the raw material so consumed in the manufacture of the taxable supplies. The ground was that stocks produced up to 31st March, 1998 were partly sold only. The unsold stocks of sugar held by the appellant and further production made in April, 1998, were sold during. April, 1998. And that as on such sales the appellant was liable to pay sales tax, it had the corresponding right to claim input tax adjustment.

The principles as contained in section 59, prior to its deletion in 1997, catered for some situations of the nature arising in the present case. It provided that "the tax paid on purchases, by a person required to be registered, shall be treated as the input, tax if 'such goods were purchased during a period of 30 days or imported during a period of 90 days before the application for registration.

Section 59 was omitted by the Finance Act, 1.996. However, a substituted section 59 was reintroduced through the Finance Act of 1999. The intervening period of 1998 was thus the uncatered for period and led to a void and anomalous situation affecting the, taxpayers like the appellant.

We are of the opinion that during the interregnum period of 1998, the void, anomalous and ambiguous situation cannot be used against the fundamental interest of the taxpayers. In order to avoid double taxation, the vacuum during 1998 is to be provided for by applying the principles of section 59 as nearly as possible to the case like that of the appellant. The appellant cannot be made to pay the sales tax on the raw material twice. The appellant, is therefore, held entitled to input tax adjustment as claimed in the return of April, 1998. Also because anomaly/ambiguity cannot be employed to the detriment of the taxpayers.

6. This appeal is thus accepted and the impugned orders, dated 24‑8‑2000 and 24‑5‑2001 respectively passed by the Additional Collector‑II and the Customs, Excise and Sales Tax Appellate Tribunal are set aside.

H.B.T./F‑72/L Appeal accepted.