COLLECTOR OF SALES TAX AND CENTRAL EXCISE, LAHORE VS Messrs TREET CORPORATION LTD. through Chief Executive and 2 others, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 645 (2005)

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

---S.47---Appeal to High Court---Question of law not arising out of Tribunal's order---Non-formulation of any such question by Revenue---Effect---High Court declined to entertain appeal in circumstances.

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

---Ss.7 & 66 [as amended by Finance Ordinance (III of 1998)]---Adjustment of input tax out of tax period, claim for---Imposition of additional tax and penalty for finding such claim to be out of tax period---Validity---Provisions of S.7 of Sales Tax Act, 1990 earlier to insertion of words "during the tax period" by Finance Act, 1998 were somewhat ambiguous---Such procedural lapse would not entail imposition of additional tax and penalty---Assessee paying millions of rupees as tax could not be presumed to have made such error deliberately---Such error had not resulted in any direct loss to revenue or an immediate benefit to the assessee---Entitlement of assessee to claim input tax had not been challenged as a fact---High Court dismissed appeal in circumstances.

(c) Taxation---

----Penalty provisions in a fiscal statute---Such provisions should not be invoked against a taxpayer merely for the reason that doing so would be legal.

Waqar Azim for the Appellant.

Mian Sultan Tanvir for Respondent.

Date of hearing: 16th November, 2005.

JUDGMENT

NASIM SIKANDAR, J.---This appeal by the Revenue under section 47 [Appeal to High Court] of the Sales Tax Act, 1990 seeks to challenge an order of the Customs, Excise and Sales Tax Appellate Tribunal, Lahore dated 12-9-2002.

2. The Additional Collector-I, Collectorate of Sales Tax and Central Excise, Lahore on 30-6-2000 by way of a show-cause notice confronted the respondent, a registered person engaged in manufacturing and marketing of shaving blades with a number of charges including charge No.3 which reads as under:---

"The unit had claimed input tax adjustment to the tune of Rs.11,022,438 made during the tax period from 8/98 to 9/99 which was found "out of tax period". Thus the same is recoverable from them."

3. The respondent made the following reply to the charge:-

"(i) That section 66 of the Sales Tax Act, 1990, after amendment made vide Finance Act, 1998, w.e.f. 1-7-1998, provides expressly that in the cases where refund of input adjustment, if unclaimed within the relevant tax period, shall be allowed if claimed within a year of the date of the payment. Therefore, the amount that could not be adjusted during the relevant tax period due to some reason can be refunded within one year.

(ii) That the Respondent admits that he adjusted the alleged amount out of tax period, rather than claiming the refund under section 66. The same was due to bona fide mistake and did not cause any loss to the Government. The respondent also assures that they will be careful in future. Therefore, the said adjustment may very graciously be regularized/allowed."

4. The Revenue however was not satisfied. Accordingly the matter was referred for adjudication. The Collector (Adjudication), Lahore through order-in-original dated 11-2-2002 found the charge established against the registered person holding that the input tax was claimed by the manufacturer/respondent out of the tax period and, therefore, it was liable to pay Rs.11,022,438 along with additional tax (to be calculated at the time of deposit) and penalty of Rs.330,676 being 3% of the tax involved.

5. Earlier the Adjudicating Authority noted that the respondent/manufacturer had admitted the fact that input tax was claimed out of the tax period. By referring to the provisions of section 7 of the Act the Adjudicating Authority opined that the offence was established against the respondent/manufacturer.

6. On further appeal learned Tribunal by way of the impugned order set aside the order of the Adjudicating Authority. It was observed:---

"With regard to Charge No.3, provisions of section 7 of Sales Tax Act, 1990 are mandatory and input tax adjustment had to be availed during the relevant tax period. On their failure in having availed input tax adjustment in the relevant tax period, they were required to follow the recourse prescribed under section 66 of the Sales Tax Act, 1990. Procedural lapse has been accepted by the appellants themselves although actually it was non-observance of the mandatory provisions both of section 7 and section 66 of Sales Tax Act, 1990. However, there would be no justification in asking the appellants to pay the said amount of Rs.11,022,438 along with the additional tax and penalty. The appellants are directed to apply to the Collector Sales Tax, Lahore for refund under section 66 of Sales Tax Act, 1990 along with complete supporting documents. The Collector shall pass the refund order within 30 days from the date of receipt of the application along with complete documents and adjust the amount so sanctioned against the amount of Rs.11,022,438. Alternately he may allow the appellants to avail input adjustment in the tax period specified by him in exercise of his powers under the newly added proviso to section 66 vide Finance Ordinance, 2002. There will be no charge against the appellants of payment of additional tax and penalty and the impugned order to this extent is set aside."

7. Having heard the parties we will refuse to entertain this appeal for the reason that no question of law arises out of the impugned order of the Tribunal recorded in relation to the above Charge No. 3. As a matter of fact the Revenue has not formulated any question of law arising out of that portion of the order of the Tribunal for our consideration and reply. The respondent/registered person at the out set admitted the adjustment of input tax out of the tax period. Learned members of the Tribunal in the given facts concluded and we will agree that it was a procedural lapse which could not entail imposition of additional tax as well as the penalty. The two options given to both the taxpayer as well as the Revenue, as reproduced above in the operative part of the order of the Tribunal, do not appear to be unjust or unfair. It is an established proposition of law that penalty provisions should not be invoked against a tax payer merely for the reason that it was legal to do so. The entitlement of the manufacturer/registered person to claim input tax having not been challenged as a fact the insistence of the Revenue to burden the respondent with the aforesaid amounts of additional tax and penalty was totally out of context. We are also in agreement with the learned counsel representing the respondent that the provisions of section 7 of the Sales Tax Act, 1990 earlier to the insertion of the words "during the tax period" by Finance Act, 1998 were somewhat ambiguous. Therefore, the respondent a known and established manufacturer paying millions of rupees as tax could not be presumed to have made the error deliberately. All the moreso when that error did not result in any direct loss to the Revenue or an immediate benefit to the registered person.

8. That being so, as stated above no question of law arises out of the impugned order of the Tribunal.

9. Appeal rejected.

S.A.K./C-6/LAppeal rejected.