S.T.A. No.714/PB of 2002, decided on 7th January, 2005. VS S.T.A. No.714/PB of 2002, decided on 7th January, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 558 (2005)

(a) Sales Tax Act (VII of 1990)---

---Ss. 32-A & 30---Special Audit by Chartered Accounts or Cost Accountants---Territorial jurisdiction to conduct the audit---Cost Accountant who was posted at Collectorate of Sales Tax, Gujranwala and had supervised the audit team could not produce any notification under S.30 of the Sales Tax Act, 1990 with regard to extension of territorial jurisdiction to him to carry out audit at Peshawar---Letter issued by the Central Board of Revenue authorizing him to conduct the audit, was produced, besides him, the audit team consisted of local officers of sales tax under whose territorial jurisdiction the unit fell---Even if the Cost Accountant was not properly notified for conducting audit at Peshawar, it did not render the entire exercise of audit without jurisdiction---Since there were other local officers who were party to the audit report, same could not be ignored in toto and that no notification under S.32-A of the Sales Tax Act, 1990 was required since it was a routine audit conducted by the local officers.

(b) Sales Tax Act (VII of 1990)---

----Ss. 32-A, 22, 11 & 3---Central Excise Act (I of 1944), Preamble---Central Excise Rules, 1944, Preamble---Special Audit by Chartered Accountants or Cost Accountants---Mode of audit---Audit on the basis of consumption of raw material---Validity---Under S.22 of the Sales Tax Act, 1990, a registered person had to maintain certain record which was to be subjected to audit---Auditors, instead of focusing their attention on the prescribed record, had totally relied on presumptive and hypothetical consumption of single raw material for making assessment under S.11 of the Sales Tax Act, 1990---Although, S.11 of the Sales Tax Act, 1990 provided for tax due on supplies made but no such word was explicitly included in the said section to presume the quantity of supply---Unlike the Central Excise Act, 1944 read with Central Excise Rules, 1944, the Sales Tax Act, 1990 did not give power or envisage any procedure for determining the production on the basis of presumptive or hypothetical consumption of raw materials---Novel method adopted for determination of production on the basis of presumption and conjectures, despite being contrary to the provisions of Sales Tax Act, 1990, was discriminatory as well---Section 3 of the Sales Tax Act, 1990, which is charging section, also reflects the scope of charge and levy of sales tax on the value of taxable supply---Provisions of Sales Tax Act, 1990, being fiscal ones were to be interpreted and applied strictly---Charges upon any subject are to be imposed by clear and unambiguous words, there being no room for any intendment nor any equity or presumption as to tax---Department, in circumstances, failed to provide any evidence regarding supplies allegedly made by the taxpayer, to make them liable to tax.

1999 P T D 3907 ref.

Appeal No. 7(2383)ST/IB/2001(PB); Messrs Khyber Match Factory (Pvt.) Ltd. Peshawar v. The Collector of Sales Tax and Central Excise, Peshawar and others rel.

(c) Sales Tax Act (VII of 1990)---

----S. 32-A---Special Audit by Chartered Accountants or Cost Accountants---Match factory---Determination of consumption of Potassium Chlorate by auditor---Entire edifice was based on the presumption which had been derived from inconsistent data---Even the consumption of Potassium Chlorate, as determined by the Central Board of Revenue through I.O.C.O. vide its survey carried out, was on much higher side i.e. 552 grams per 50000 splints (inclusive of wastage) against 327 grams worked out by the auditors.

1988 PTD 535 ref.

(d) Sales Tax Act (VII of 1990)---

----S. 32-A---Special Audit by Chartered Accountants or Cost Accountants-Match factory---Mechanical application of consumption of one unit to all other units, having different capacities, make models of plant and machinery, production skills and environments, is not justified---No law requires the manufacturers to use or apply the same or any formula for its production particularly the Sales Tax Act, 1990, had not provided for any standard production for match units.

Appeal No. 7(2383)ST/IB/2001(PB); Messrs Khyber Match Factory (Pvt.) Ltd. Peshawar v. The Collector of Sales Tax and Central excise, Peshawar and others rel.

(e) Sales Tax Act (VII of 1990)---

---S. 32-A---Special Audit by Chartered Accountants or Cost Accountants---Any enquiry made at the back of any person against whom it is intended to be used, had no legal effect adverse to him---Even otherwise, an unsubstantiated data has no evidential value.

(f) Sales Tax Act (VII of 1990)---

----S. 32-A---Special Audit by Chartered Accountants or Cost Accountants---Match factory---Comparison of consumption of potassium chlorate---Information furnished to Department by Swedish Match, Sweden, its consumption of potassium chlorate was reported 415 gm for 50000 match splints which was based on a head size of 3.5 gm and 2 x 2 mm thickness of splints and it was also clarified that their calculations were based on physical account of match splints and did not include wastage that occurs during production process---Admittedly the head size of match splints manufactured in Pakistan was 5 to 6 mm---Information furnished by Swedish Match was not comparable due to different head size between the two countries.

(g) Sales Tax Act (VII of 1990)--

---S. 32-A---Special Audit by Chartered Accountants or Cost Accountants---Match factory---Consumption of potassium chlorate---Determination of production---Not only the Potassium Chlorate to exclusively determine the overall production of a unit, this was also besides other factors, which may affect the quantum of production from factory to factory---Auditors had not taken into consideration all such factors and the raw materials in arriving at the purported production in the taxpayer unit.

(h) Sales Tax Act (VII of 1990)---

---S. 32-A---Special Audit by Chartered Accountants or Cost Accountants---Match factory---Production---Report of laboratory test---Non-confrontation of---Validity---Results obtained from tests were not considered by the Department while making calculations and the percentages mentioned in the tests were ignored altogether---Laboratory report was silent as to whether the splints sent for the test had heads of the same size or were selected ones or otherwise---Neither the taxpayer was associated with these tests nor the reports of the laboratory were provided to them during the course of audit or thereafter---No reason had been assigned by the Department as to why the assessee was not confronted with the results of the laboratory tests---Laboratory reports, in circumstances, were not to adversely affect the assessee in any way.

(i) Sales Tax Act (VII of 1990)---

----S. 32-A---Special Audit by Chartered Accountants or Cost Accountants---Match factory---Auditors during the course of audit had carried out different physical inspections and examination of the process of manufacture of safety matches in the appellant unit and had prepared report to this effect---Perusal of certified copy of report negates the assertion regarding calculations made by the Department inasmuch as consumption of Potassium Chlorate found as per physical verification of the unit, tallied with actual production made during the audit period---Said report was not taken into consideration by the audit team since it would have resulted into falling of the entire case, made out by the auditors, to the ground---Presumptive consumption on the basis of Potassium Chlorate only, was not sustainable under the law.

(j) Sales Tax Act (VII of 1990)---

----S. 2(41) & Sixth Sched:---Taxable supply---Match Factory---Sale of wood wastage---Taxation---Validity---Wood being agricultural produce had been specified against Entry No.2 to Sixth Schedule of the Sales Tax Act, 1990---Appellant/taxpayer had not charged any sales tax on such supply nor the Department had ever made demand in this respect from the supplier of raw material wood to the appellant---Disposal of wood wastage did not fall within the purview of the taxable supply since the appellant/taxpayer was the manufacturer of safety matches and not of the sale of the wood wastage.

Appeal No. 7(2383)ST/IB/2001(PB); Messrs Khyber Match Factory (Pvt.) Ltd. Peshawar v. The Collector of Sales Tax and Central Excise, Peshawar and other rel.

(k) Sales Tax Act (VII of 1990)---

---Sixth Sched: Item No.2 & S.2(41)---Exemption---Taxable supply---Match Factory---Sale of wood wastage---Taxation---Validity---Disposal of wastage obtained from the goods specified in the Sixth Schedule to the Sales Tax Act, 1990, by a registered person not in the normal course of business, was not "taxable supply" within the meaning of S.2(41) of the Sales Tax Act, 1990 and so no sales tax was chargeable on that account---Wood logs were purchased for its conversion into finished goods in the shape of match splints---Splints so manufactured were taxable within the meaning of sales tax law but wastage obtained therefrom could not be transformed/converted for making it capable of being put to use, which still retained the status of agricultural produce and thus was exempted from sales tax.

Appeal No. K-193/2000 titled: Messrs Novartis, (Pakistan) Ltd. v. Collector (Adjudication, Karachi-III Appeals No.1264/2001 and STA.436/TRF/PB/2001 filed by Messrs Azeem Match (Pvt.) Ltd. and Messrs Khyber Match Factory (Pvt.) Ltd. ref.

(l) Sales Tax Act (VII of 1990)---

----Ss. 3(1)(a) & 2(41)---Scope of tax---Business activity---Match Factory---Sale of wastage obtained from paper board---Taxation---Validity---Wastage obtained from paper board was stated to be not capable of being put to use by the appellant/taxpayer and which was not his normal business activity and thus was not taxable under the Sales Tax Act, 1990.

Appeal No. K-193/2000; Novartis, (Pakistan) Ltd. v. Collector (Adjudication, Karachi-III; Appeals No. 1264 of 2001; S.T:A. 436/TRF/PB of 2001 filed by Azeem Match (Pvt.) Ltd. and Khyber Match Factory (Pvt.) Ltd.; Appeal No. 7(2268)ST/IB/2002(PB); Messrs Mohsin Match Factory (Pvt.) Ltd., Peshawar v. The Collector of Sales Tax and Central Excise (Adjudication), Peshawar and others rel.

(m) Sales Tax Act (VII of 1990)---

----Ss. 7, 3, 33 & 34---Determination of tax liability---Adjustment of input tax paid on electricity bills---Validity---Supply of electricity was a taxable supply and the electricity bill issued by WAPDA being registered person, shall be deemed as input tax invoice for the recipient of electricity supply and for the purposes of adjustment against output tax under S.7 of the Sales Tax Act, 1990---Tax charged by WAPDA and credited back to its consumers, could not be considered to be a lapse on the part of the recipient (appellant/taxpayer) of such supply---However, supply received by the appellant/taxpayer, being registered person, was liable to pay sales tax thereon-'--Sales tax on this score was recoverable from the appellant/taxpayer except additional tax and penalty since there was no fault or lapse on the part of the appellant/taxpayer in this regard.

(n) Sales Tax Act (VII of 1990)---

----S. 11(4), proviso---Assessment of tax---Limitation---Late passing of order---Effect---Proviso to S.11(4), Sales Tax Act, 1990 regarding time fixation for passing the assessment were although mandatory but did not specify consequence of the failure of the officer to pass the order within the given time---Provision remains as directive only and the late passing of the order will not adversely affect the case of the prosecution.

Aamer Amin, F.C.A. for Appellant.

Qurban Ali Khan, D.R., Ishtiaq Ahmad, Law Officer, Syed Phool Badshah, Najeeb Qadir, Cost Accountants, Shuaib Sultan and Inamul Haq, Senior Auditors for Respondents.

Date of hearing: 2nd October, 2004.

JUDGMENT

RAJ MUHAMMAD KHAN (MEMBER JUDICIAL).---This judgment disposes of the appeal filed by Messrs Al-Murtaza Match Factory (Pvt.) Ltd., Mardan (hereinafter referred to as the appellant), against the Order-in-Original No.7 of 2002 passed by the learned Additional Collector of Customs, Sales Tax and Central Excise (Adjudication), Rawalpindi, Regional Office, Peshawar on 6-3-2002 whereby he upheld certain charges levelled against the appellant in the show-cause notice C. No.ST(ADJ)C/7/2000/331 dated 22-2-2001, as were established.

2. Briefly, the facts of the case are that during the course of audit of the appellant unit for the period July, 1997 to June 30, 2000, it was observed by the Special Audit Team of the respondent Collectorate, as reflected in the show-cause notice bearing C. No. ST/Adj./Addl-C/7/2000/331, dated 22-1-2001 issued with detailed background of the case, to the appellant by the learned Additional Collector of Customs, Sales Tax and Central Excise (Adjudication), Rawalpindi, Regional Office, Peshawar (Respondent No.1 hereinafter called as the Adjudicating Officer) as under:--

"It has been reported to the undersigned by the Cost Accountant Sales Tax and Central Excise, Peshawar Supervising Officer Collectorate of Sales Tax and Central Excise, Peshawar. The special audit team was constituted by the Board vide its letter C. No.1(5) ST (I&P)/2000, dated 10th June, 2000 to conduct the audit of Match factories situated in the N.-W.F.P. In this connection the audit of the Messrs Al-Murtaza Match Factory (Pvt.) Ltd., 33-35, Small Industrial Estate, Mardan, was conducted for the period fruit, July, 1997 to June 30, 2000. After the start audit of Messrs Noor Match Factory Ltd. the company along with other match factories went on strike from August 1, 2000 against the Sales Tax Audit. During strike all the factories suspended production till 15th August, 2000. Apart from this, workers of all the match factories carried out congregation and agitated against the audit process. The selling rates of match in the past years have not varied drastically. The overall industry selling rates of Super, Regular, Slim and Kitchen sizes are almost the same with slight variation of Rs.10, Rs.20 per carton from one unit to other in the local market. The cartons (i.e. packing) of match boxes may vary in size according to the demand of the customer. However, generally super size comes in a packing of 500 match boxes per carton, regular and slim sizes in a packing of 1000 match boxes per carton.

(2) The Audit observations are as follows:--

Evasion Due to Under Declared Production

A study was carried out by Mr. S. Phool Badshah, Cost Accountant, Peshawar, at the factory of Messrs Pakistan Match Industry (Pvt.) Limited. Mr. Nasir Khattak, Director of Pakistan Match, assisted by the Cost Accountant to carry out this study. On the basis of this study and other information gathered by the audit team production reconciliation was made by audit team. This reconciliation revealed that the said factory has declared less production as it should have declared on the basis of consumption of a major chemical, i.e., Potassium Chlorate, used by the factory in the manufacturing of match box. The amount of evasion of sales tax from this under declared production comes to Rs.7,282,379. This evasion has been calculated by working back the production on the basis of number of match in each match box produced and then calculating the consumption of Potassium Chlorate and wood in each year. The consumption has been taken at 327 grams of Potassium Chlorate per carton of 50,000 matches. This consumption has been derived from the calculations of Messrs Noor Match Factory Limited and the relevant part of that report is reproduced below:--

"While calculating the consumption it was noticed that the consumption of Potassium Chlorate in the year, 1998-99 came to 311 grams approximately per carton of 50,000 matches per carton (Regular). This also agrees with the study, as mentioned above, as reflected at page 24 line 17 and page 25 line 18 when converted to 50,000 matches. This consumption is also in line with the information obtained from Swedish Match, one of the leading match manufacturers in the world. The information by Swedish Match reveals that they utilize 415 grams at 57% for a carton of 50,000 matches. When converted to 43% it comes to 313 grams per carton of 50,000 matches. A margin for wastage equal to 5% is given on consumption of Potassium Chlorate, which is also mentioned on page 22 line 11 of the study. However, considering the variation in formulation of different factories a 5% further margin is given on consumption and 327 grams per carton of 50,000 matches is finalized as a standard for calculation of production of match industry.

3. Wood and Paper Board Wastage Sold

The company has sold wood and paperboard wastage during the period for financial year, 1997-1998 and 1998-99 but which does not appear in the books of accounts and final accounts of the unit Sales Tax on these sales was not deposited by the company amounting to Rs.73,571.

4. Inadmissible Inputs

It is observed during audit that unit has claimed input adjustment which is inadmissible because Sales Tax on electricity bill credited in March, 2000 not adjusted. The total amount of Sales Tax adjusted during the period under audit is Rs.23,576.

5. Now, therefore, the said Messrs Al-Murtaza Match Factory (Pvt.) Ltd. 33-35, Small Industrial Estate, Mardan is hereby called upon to show-cause within 10 days of the date of receipt of this notice as to why penal action should not be taken against them under sections 2(44), 2(46), 3, 4, 6, 7 & 22 read with sections 33 and 34. They should produce all evidence documentary or otherwise in support of their defence within the specified (sic) above failing which the cases shall be decided on the basis of evidence on record.

6. They should also state in their written statement whether they would like to be heard in person or through their duly authorized representative or counsel, and if they so desire they or their duly authorized representative or counsel should appear before the undersigned for hearing on 14-2-2001 at 11-00 a.m.

3. The Adjudicating Officer through the aforesaid show-cause notice asked the appellant to show cause as to why the aforesaid penal action should not be taken against them under sections 2(44), 2(46), 3, 4, 6, 7 and 22 read with sections 33 and 34 of the Sales Tax Act, 1990 (hereinafter referred to as the Act).

4. After hearing Messrs Aamer Amin, FCA and Musarrat Hussain for the appellant and Mr. Inamul Haq, Senior Auditor for the respondents, the Adjudicating Officer passed the impugned Order-in-Original No.7 of 2002 wherein the Adjudicating Officer held that the charges levelled against the appellant were established.

5. The charges, which were established against the appellant as per Order-in-Original are as under:--

(a) Evasion of sales tax due to under-declared production;

(b) Wood and paperboard wastage sold;

(c) Inadmissible input tax.

6. The appellant unit, having been aggrieved of the impugned order-in-original has preferred this appeal to this Tribunal.

7. It is pleaded by the appellant in his memo. of the appeal, inter alia, that the impugned Order-in-Original is illegal, void and harsh and not maintainable at all as it is against the facts and merits of the case. That it is based on erroneous assumption of facts since the factual aspects of the manufacturing in process have not been considered by the Adjudicating Officer but has passed the order without applying his mind to the facts but relied upon the orders in similar cases passed by the Collector (Adjudication), Customs, Sales Tax and Central Excise, Peshawar. That the learned Adjudicating Officer has violated the provisions of section 11(4) of the Act by not making the order within the prescribed period of 45 days of the issuance of the show-cause notice because while the show-cause notice was issued on 22-1-2001, the impugned order was passed on 6-3-2002 i.e., after 408 days and thus is not maintainable under the law. That the purported audit was without jurisdiction because Mr. Najeeb Qadir, Cost Accountant (Respondent No.3) was not notified as Sales Tax Officer at the time of audit for the territorial jurisdiction of the Collectorate of Sales Tax, Peshawar as required under section 30 of the Act. That the purported audit was not an audit in terms of section 32-A or 32-AA of the Act because the appellant was not retailer and thus it was ultra vires and without lawful authority in the absence of any notification issued for it by the C.B.R. That the audit was not conducted inside the premises of the appellant unit but instead in the premises of Messrs Pakistan Match Industries (Pvt.) Ltd. under the supervision and guidance of a competitor in business and thus the findings of the auditors were based on the instigation of Messrs Pakistan Match which did not apply to the appellant unit. This could show the unjust and unfair attitude of the Department towards the appellant unit and that they did not apply their mind judiciously and independently. That the provisions of the Act being fiscal provisions were to be literally and strictly construed. That section 3 of the Act is a charging section which clearly provides that Sales Tax is a charge and levy on the value of taxable supply made in Pakistan by a registered person. He relied upon the decision of the Honourable Lahore High Court in Messrs Maple Leaf Cement Factory, reported in 1999 PTD 3907 wherein it is observed that the provisions of the Act would show that sales tax has been imposed on actual sale, lease or any other disposition of goods and if no such sale has taken place sales tax could not be charged thereon. That an Officer of Sales Tax has to make an assessment of sales tax actually payable by that person and the Act excludes levy or charge of tax on conjectures or presumptions. The determination of a presumed production would not invoke the charging section of the Act and so the mode of assessment adopted by respondents is ultra vires. That the auditors did not take into consideration various factors such as condition and origin of plant and machinery, technology, skill and efficiency of labour, weather condition and management capability which affect the production but instead have superimposed the study reportedly conducted in case of other units of N.-W.F.P. and Swedish Match on wrong basis. That the entire process of Potassium Chlorate is handled by unskilled labour and no industry can produce identical results due to various factors. That the audit team has ignored quality of Potassium Chlorate in comparison to the quality of Swedish potassium since the Swedish potassium cannot be considered equal to the Chinese potassium. That consumption ratio of Messrs Noor Match cannot be used against the appellant as evidence in one case cannot be read in another case. That the splint size and dip size of the appellant unit is larger than Swedish splints size. That the appellant unit had got old machine using Potassium Chlorate and producing head size of match between 5.5 to 6.5 mm because of tough competition and due to big size of match head his consumption of Potassium Chlorate increases from 40% to 90% than Swedish Matches. That the size of splints of the appellant unit is bigger and larger than Swedish. That the consumption of Potash of the appellant unit has not been determined by the auditors independently and instead the case has been based on surmises and conjectures which made the auditors to arrive at incorrect conclusion as they had adopted wrong facts and figures. That the appellant was not provided opportunity to present his case before the auditors since the audit team was working under the influence of an interested party, it was stated that during the year, 1998-99 and 1999-2000 fire was broken in the factory on 10-9-1998 and 4-4-2000 due to which potash particularly, was wasted. That 5% wastage of potash taken by the audit team is on very lower side since the actual percentage of wastage is more than 35% which further caused by onward handling by labour even to 50%. The China potash reaches the factory in hard shape instead of powder due to the sea moisture which requires beating and during this process a lot of quantity disappears in the shape of dust and waste while it is converted into powder. If the fires took place, Potassium Chlorate was lost and burnt and wasted also. That the wood wastage was exempted from sales tax. That the entire wastage that were produced and sold were duly accounted for in the books of accounts and due Sales Tax was paid but no credit of the paid challan was allowed to them by the auditors. That most of the wastage of wood was utilized to fill up the ditches in the factory premises or just lose its existence while lying on the ground. Regarding inadmissible input, it was asserted that due to error by the Accountant of the factory the inadmissible input was claimed. Rs.23576 as electricity bill as it was not cleared from the bill which was later on after the audit objection deposited in treasury on 17-1-2001. That as stated earlier, he had old and outdated machines and by using Chinese potassium chlorate, he had to maintain head size of match between 5.5 to 6.5 mm because of tough competition and due to big size of match head his consumption of potassium chlorate increased from 40% to 60% than Swedish match.

8. The respondents controverted the position taken by the appellant. They relied on the declaration of Pakistan Match Manufacturers Association (PMMA) and the sectorial audit of match industries for their allegations against the appellant. According to them, the maximum results of the sectorial audit had confirmed the consumption of Potassium Chlorate standards, which were very near to declaration by the PMMA, who had considered all the factors in arriving at their conclusions by declaring the consumption of Potassium Chlorate 60 gms for 100 match boxes.

9. Apropos of show-cause notice, the averments of the parties can be reduced to the following issues involved in the present case:--

(i) Whether the audit team had territorial jurisdiction to conduct the audit of the appellant unit?

(ii) Whether the mode of audit adopted and the assessment of tax made was in accordance with law and established practice or procedure?

(iii) Whether the determination of the production made on the basis of presumptive consumption of Potassium Chlorate only is sustainable?

(iv) Whether sales tax was due on sale of wood wastage?

(v) Whether sales tax was payable on sale of paperboard waste?

(vi) Whether sales tax of Rs.23,576 in the electricity bill of WAPDA in March, 2000 is payable by the appellant?

(vii) Whether the impugned Order-in-Original passed beyond the prescribed period of limitation provided under section 11(4) of the Act, if so, its effect?

10. We have heard the learned counsel for the appellant and the Departmental Representative of the respondents and have gone through the record of the case.

11. There were other cases of similar nature, which were heard along with this case in joint sessions and the one earlier decided was Appeal No. 7(2383)ST/IB/2001 (PB) titled: Messrs Khyber Match Factory (Pvt.) Limited, Peshawar v. The Collector of Sales Tax and Central Excise, Peshawar and others on 4-12-2004, copy of which is placed on file.

12. In the light of the arguments of the parties and the judgment delivered in the appeal referred to above, we take the aforementioned issues seriatim for our findings thereon, as under:--

13. Issue No. i

Whether the audit team had territorial jurisdiction to conduct the audit of the appellant unit?

It is pleaded by the appellant that the audit was undertaken and carried out by the respondent No.3 Mr. Najeeb Qadir who at the time of audit was posted as Cost Accountant in the Collectorate of Sales Tax, Gujranwala and either at the time of audit or prior thereto had not been notified as Sales Tax Officer for the territorial jurisdiction of the Collectorate of Sales Tax, Peshawar as required in terms of section 30 of the Act. He also alleged that the audit was not an audit in terms of section 32-A or 32-AA of the Act, since notification required under section 32-A was not published by the C.B.R. either prior to or at the time of the audit and that it is a settled law that any act or proceedings done or conducted without jurisdiction will be nullity in law. Section 30 of the Act, provides for appointment of officers by the Central Board of Revenue for carrying out the purposes of the Act. Such appointment is made through notification in the official Gazette and such Officers may be appointed in relation to any area, any case or class of cases specified in the notification. In this case, the Cost Accountant Mr. Najeeb Qadir (Respondent No.3) who was posted at Collectorate of Sales Tax, Gujranwala and had supervised the audit team could not produce any such notification under section 30 of the Act with regard to the extension of territorial jurisdiction to him to carry out audit at Peshawar. However, letter, dated 10-6-2000 issued by the C.B.R. authorising him to conduct the audit, was produced and placed on record. Besides him, the audit team consisted of local officers of sales tax also under whose territorial jurisdiction the unit fell. Thus even if the respondent No.3 was not properly notified for conducting audit at Peshawar, it does not render the entire exercise of the audit without jurisdiction. Since there were other local officers being party to the audit report, the whole report cannot be ignored in toto and that no notification under section 32-A of the Act was required since it was a routine audit conducted by the local officers.

14. Issue No. ii

Whether the mode of audit adopted and the assessment of tax made was in accordance with law and established practice or procedure?

We have already given findings on such issue in the judgment delivered on 4-12-2004 in Appeal No.7(2383)ST/IB/2001(PB) titled: Messrs Khyber Match Factory (Pvt.) Limited, Peshawar v. The Collector of Sales Tax and Central Excise, Peshawar and others which is reproduced as under:--

"(a) Under section 22 of the Act, a registered person has to maintain certain record which is to be subjected to audit. In the present case, it appears, that the auditors instead of focusing their attention on the prescribed record, have totally relied on presumptive and hypothetical consumption of single raw material i.e. Potassium Chlorate for making assessment under section 11 of the Act, although, the said section provides for tax due on supplies made. No such word is explicitly included in the said section to presume the quantity of supply. Unlike the Central Excise Act, 1944, read with Central Excise Rules, 1944, the Sales Tax Act, 1990 does not give power or envisage any procedure for determining the production on the basis of presumptive or hypothetical consumption of raw materials. The novel method adopted in this case for determination of production of the appellant on the basis of presumption and conjectures, despite being contrary to the provisions of the Act, is discriminatory as well, as the said method had not been adopted in case of manufacturers of other goods. Section 3 of the Act, which is charging section, also reflects the scope of the charge and levy of sales tax on the value taxable supply made in Pakistan. The provisions of the Act, being fiscal statute, are to be interpreted and applied strictly. The charges upon any subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to tax. The prosecution has failed to provide any evidence regarding the impugned supplies allegedly made by the appellant, to make them liable to tax.

(b) The entire edifice is based on the presumption which has been derived from inconsistent data. Even the consumption of Potassium Chlorate, as determined by the' C.B.R. through I.O.C.O. vide its survey carried out, is on much higher side i.e. 552 grams per 50,000 splints (Inclusive of wastage) against 327 grams worked out by the auditors. In this respect the appellant has relied upon the dictum of Honourable Supreme Court of Pakistan in a case reported as 1988 PTD 535 whereby the principles of interpretation of Statutes are set out and which have to be kept in view in resolving such controversies. The relevant portion from the said judgment is reproduced as below:--

"Statutes which impose pecuniary burdens are subject to the same rule of strict construction. It is a well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties; the subject is not to be taxed unless the language of the statute clearly imposes the obligation, and language must not be strained in order to tax a transaction which, had the legislative thought of it, would have been covered by appropriate words. "In a taxing Act" said Rawlatt J, "One has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look, fairly at the language used". But this strictness of interpretation may not always ensure to the subject's benefit, for "if the person sought to be taxed comes within the letter of the law he must be taxed, however, great the hardship may appear to the judicial mind to be".

The issue is decided in the negative in this case as well.

15. Issue No. iii

Whether the determination of the production made on the basis of presumptive consumption of Potassium Chlorate only is sustainable?

This issue has already been elaborately dealt with in the Appeal No.7(2383)-ST/IB/2001(PB) titled: Messrs Khyber Match Factory (Pvt.) Limited, Peshawar v. The Collector of Sales Tax and Central Excise, Peshawar and others, referred to above. The findings on this issue, as held in the said appeal, are reproduced as under:--

"(a) It was stated in the show-cause notice that the production/manufacturing was arrived at on the basis of (a) consumption of Potassium Chlorate of Messrs Noor Match Ltd., Peshawar during the year, 1998-99, (b) study carried out by Mr. Phool Badshah, Cost Accountant in the factory of Messrs Pakistan Match Industries (Pvt.) Ltd., and (c) information obtained from Swedish Match, Sweden which had utilized 415 gms at 57% per 50,000 splints. It was submitted by Mr. Najeeb Qadir (Respondent No.4) that letter PMMA/207 dated 22-3-1995 of Pakistan Match Manufacturers Association (PMMA) written to C.B.R. by them has supported the case of the prosecution inasmuch as they had declared the consumption of Potassium Chlorate 60 grams for 100 match boxes. It was also contended by the respondents that the samples drawn from two factories i.e., Messrs Noor Match Ltd. and Messrs Khyber Match Factory (Pvt.) Ltd. (appellant) were sent and got tested from Defence Science and Technology Organization (DESTO), Laboratories, Chaklala, Rawalpindi which according to the respondents had also supported their case to the extent that the consumption of Potassium Chlorate was determined approximately 327 gms per 50,000 splints. On these basis, the respondents were of the view that the consumption of Potassium Chlorate for 50,000 splints ought to be (sic) in the case of the appellant.

(b) As regards the basis (a) i.e., consumption of Potassium Chlorate of Messrs Noor Match Ltd., Peshawar @ 327 grams for 50,000 splints is concerned. It was observed that prior to the year, 1996-97 and after 1998-99, the consumption of Potassium Chlorate of Messrs Noor Match Ltd., Peshawar was admittedly higher than figure 327 gms which the auditors deliberately omitted to take into consideration and thus it was based on a selective one year consumption to suit their stance. The auditors could not assign reason as to why the three years i.e. 1996-97, 1997-98 and 1998-99 were selected as a benchmark for the assessment of consumption of Potassium Chlorate and omitting/ ignoring the past and succeeding years. The prosecution also could not explain as to why the data of only Messrs Noor Match Ltd. was applied to all other such units although, there are different factors due to which consumption may vary. The mechanical application of consumption of one unit to all other units, having different capacities, make models of plant and machinery, production skills and environments, is not justified. Moreover, no law requires the manufacturers to use or apply the same or any formula for its production particularly the Sales Tax Act, 1990, does not provide for any standard production for match units.

(c) So far study conducted by one Mr. Phool Badshah, Cost Accountant, it was conducted prior to commencement of the audit of the appellant unit in which the appellant was not associated but it was conducted at his 'back and with the assistance of his competitor Messrs Pakistan Match Industries (Pvt.) Ltd. The study reveals that no specific basis has been adopted for arriving at figure 43 % of Potassium Chlorate used in head of match splints since it does not tally with the figure reported by the laboratories and with the information supplied to the respondents by Messrs Swedish Match, Sweden which reflects higher percentage than that. It is settled law that any enquiry made at the back of any person against whom it is intended to be used, has got no legal effect adverse to him. Even otherwise, an unsubstantiated data has no evidential value. Mr. Phool Badsha, who also appeared and assisted the Tribunal, could not explain as to why the appellant had not been associated with his study.

(d) As regards the information, furnished to respondents by Messrs Swedish Match, Sweden, its consumption of potassium chlorate was reported 415gm for 50,000 match splints. It was based on a head size of 3.5 mm and 2x2 mm thickness of splints. It was also clarified by them that their calculations were based on physical account of match splints and did not include wastage that occurs during production process. It is an admitted position that the head size of match splints manufactured in Pakistan 5 to 6 mm. Thus the earlier information furnished by Swedish Match to the respondents was not comparable due to different head size between the two countries.

(e) Apart from that has been stated above, the letter, dated 22-3-1995 from Pakistan Match Manufacturers Association relied upon by the respondents, has not been made as part of the show-cause notice served on the appellant. It was produced by Mr. Najeeb Qadir, Respondent No.4 during the course of hearing and it was observed that its contents were misinterpreted by the prosecution as chemical consumption could be divided into two categories (i) The stage therein upto the manufacture of match splints with chemical head and (ii) the stage subsequent to the first stage including packing container such as match boxes. The letter, dated 22-3-1995 in question gives total quantity of chemicals used in both the stages whereas the audit has restricted its findings to the first stage only be ignoring wastage of chemicals in the second stage. It may be mentioned here that various raw materials such as Sulfur', Glue, Wax, Zinc Dioxide, Kessel, Potassium Bicarbonate, Tianiumm Dioxide, Ammonia Phosphate, Colour Dies, Wood and Paperboard are also used apart from Potassium Chlorate as raw materials in different quantities in the preparation of safety matches. Thus it is not only the Potassium Chlorate to exclusively determine the overall production of a unit. This is also besides other factors, which may affect the quantum of production from factory to factory. Unfortunately, the auditors have not taken into consideration all such factors and the raw materials in arriving at the purported production of the appellant unit.

(f) The other contention of the respondents is that the tests conducted at DESTO Laboratory had supported their allegation against the appellant. In fact, the laboratory reports reveal that in case of Messrs Noor Match, no sample of splints was sent to the laboratory but instead, chemical premix obtained from the said unit was sent for laboratory tests. Unfortunately, the results obtained from these tests were not considered even by the respondents while making calculations and thus the percentages mentioned in these tests were ignored altogether. Moreover, the head size of splints happen to be of different sizes. The laboratory report is silent as to whether the splints sent for the test had heads of the same size or were selected ones or otherwise. Surprisingly, neither Messrs Noor Match nor the appellant unit was associated with these tests nor the reports of the laboratory were provided to them during the course of audit or thereafter. No reason has been assigned by the respondents as to why the appellant was not confronted with the results of the laboratory tests. Consequently, these laboratory reports are not to adversely affect the appellant in any way.

(g) It was observed that during the course of audit, the auditors had carried out different physical inspections and examination of the process of manufacture of safety matches in the appellant unit and had prepared report to this effect. A certified copy of this report is placed on the appeal file, the perusal of which negates the assertion regarding calculations made by the respondents inasmuch as, consumption of Potassium Chlorate found as per physical verification of the unit, tallied with actual production made during the audit period. However, this report was not taken into consideration by the audit team since it would have resulted into falling of the entire case, made out by the auditors, to the ground.

(h) Thus, in view of the above, the presumptive consumption on the basis of Potassium Chlorate only, is not sustainable under the law. The issue is disposed of in the negative.

16. Issue No. iv

Whether sales tax was due on sale of wood wastage?

It is alleged that the appellant unit had sold wood wastage during the period for financial year, 1997-98 and 1998-99 but which did not appear in the books of accounts and final accounts of the unit. On the other hand, the appellant has contended that the entire wastage that were produced and sold were duly accounted for in the books of accounts and due sales tax was paid thereon. That the basis taken by the auditors is that since the size of splints of the appellant unit is bigger and larger than that of the Swedish Match, the wood consumption of the appellant unit may be more than what has been recorded by the unit in its books of account. It may be mentioned here that on such issue, we have already given finding in Appeal No. 7(2383)ST/IB/2001(PB) referred to above, decided earlier by this Bench, where our findings were as under:

"(a) Goods specified in the Sixth Schedule given under the Act-are exempted from the tax if imported or supplied in Pakistan. Wood being agricultural produce has been specified against Entry No.2 to the said Schedule. The appellant has not charged any sales tax on such supply nor the respondents have ever made demand in this respect from the supplier of raw material wood to the appellant. Keeping in view the definition of term "taxable supply" as defined in the Act, the disposal of wood wastage does not fall within the purview of the taxable supply since the appellant is the manufacturer of safety matches and not of the sale of the wood wastage. In this regard, the Ministry of Law has also clarified the legal position in their letter, dated 3-6-2000 addressed to Central Board of Revenue (Mr. Abdul Razzaq, Secretary (STP) Islamabad) as under:--

"The undersigned is directed to refer to Central Board of Revenue's Letter No.3(54)/STP/99, dated 24th May, 2000 on the above subject and to state that the sale auction or otherwise, disposal of goods, moveable/fixed assets including land, building, plant/machinery, equipment or vehicles by a registered person shall not be chargeable to sales tax if such disposal is beyond the normal and continuous "Supply" as a business activity of such person and more particularly when there was no value addition to the goods or for which the input tax was not allowed.

(2) This issue with the approval of the draftsman/Additional Secretary:

(Sd.)

Zafar Iqbal Gondal

Section Officer"

(b) Moreover, the Karachi Bench of this Tribunal in Appeal No.K-193 of 2000 titled Messrs Novartis, (Pakistan) Ltd. v. Collector (Adjudication), Karachi-III and in this Bench judgments in Appeals No.1264 of 2001 and S.T.A. 436/TRF/PB of 2001 filed by Messrs Azeem Match (Pvt.) Ltd., and Messrs Khyber Match Factory (Pvt.) Ltd., respectively against the Sales Tax Collectorate, Peshawar, it was declared that disposal of wastage obtained from the goods specified in the Sixth Schedule to the Act, by a registered person not in the normal course of business, was not "taxable supply" within the meaning of section 2(41) of the Act and so no Sales Tax was chargeable on that account. Obviously, wood logs are purchased for its conversion into finished goods in the shape of match splints. The splints so manufactured are taxable within the meaning of sales tax law but wastage obtained therefrom cannot be transformed/converted for making it capable of being put to use, which still retains the status of agricultural produce and so exempted from sales tax."

In view of the above narration, we also hold in this case the same view and the issue stands decided in negative.

17. Issue No. v

Whether sales tax was payable on sale of paperboard waste?

The allegations of the respondents in this respect are the same as on the issue of sale of wood wastage. This issue was common in the Appeal No. 7(2268)ST/IB/2002(PB) titled: Messrs Mohsin Match Factory (Pvt.) Ltd., Peshawar v. The Collector of Sales Tax and Central Excise (Adjudication), Peshawar and others decided by this Bench on 10-12-2004, where our observations were as under:--

"The wastage obtained from paperboard is stated to be not capable of being put to use by the appellant and which is not his normal business activity. Thus the same is not taxable under the Sales Tax Act, 1990. Reliance may be placed in this respect on the judgments delivered in Appeal No. K-193/2000 by the Karachi Bench of this Tribunal as well as by this Bench in Appeals No.1264 of 2001 and ST-436/TRF/PB/2001."

In the instant case, we are also of the same view as expressed above and decided the issue in the negative accordingly.

18. Issue No. vi

Whether sales tax of Rs.23,576 in the electricity bill of WAPDA in March, 2000 is payable by the appellant?

The supply of electricity is a taxable supply and the electricity bill issued by WAPDA being registered person, shall be deemed as input tax invoice for the recipient of electricity supply and for the purposes of adjustment against output tax under section 7 of the Act. The tax charged by WAPDA and credited back to its consumers, cannot be considered to be a lapse on the part of the recipient (appellant) of such supply. However the supply received by the appellant, being 'registered person, is liable to pay sales tax thereon. We are of the firm view that sales tax on this score is recoverable from the appellant except additional tax and penalty since we do not see any fault or lapse on the part of the appellant in this regard. The issue stands disposed of accordingly.

19. Issue No. vii

Whether the impugned Order-in-Original passed beyond the prescribed period of limitation provided under section 11(4) of the Act, if so, its effect?

It is contended by the appellant that the impugned Order-in-Original relating to assessment of tax, has not been passed within the specified period as laid down under proviso to section 11(4) of the Act which is reproduced as under:

[Provided that order under this section shall be made within forty-five days of issuance of show-cause notice or within such extended period as an officer of sales tax may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days.]

The appellant has explained that while the show-cause notice was issued on 22-1-2001, the impugned Order-in-Original was passed on 6-3-2002. The provisions regarding time fixation for passing the assessment are although mandatory but does not specify consequence of the failure of the officer to pass the order within the given time. Thus the provision remains as directive only. Hence the late passing of the impugned order will not adversely affect the case of the prosecution in the circumstances of the case. The issue is decided against the appellant.

20. In view of our findings under the above mentioned issues, we hold that the respondents could not establish the charges levelled against the appellant in the show-cause notice except the charge of liability of the appellant to pay Rs.23,576 as principal amount on account of input tax credited to him by the WAPDA in March, 2000 as discussed under issue No.(vi) above. Therefore, by accepting the present appeal we set aside the impugned Order-in-Original and direct the appellant to pay the aforesaid amount of Rs.23,576 to the respondents within a fortnight, if not deposited before, failing which the additional tax and penalty as imposed, would follow. The appeal stands disposed of accordingly.

21. Announced.

C. M. A. /527/Tax(Trib.)Order accordingly.