VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 902 (2006)

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

----Ss.2(25), 2(37), 2(14), 7, 8, 10, 14, 22, 23, 26, 34 & 36---Registered person---Person liable to be registered---Adjustment of Input tax---Tax period 1-7-1998 to 27-7-1998---Adjustment of input tax was found recoverable along with additional tax on the ground that taxpayers were registered with the Sales Tax Collectorate on 28-7-1998 whereas they availed inadmissible input tax adjustment against sales tax invoices received during the period 1-7-1998 to 27-7-1998 when they were not registered as according to provisions of S.7 of the Sales Tax Act, 1990 an unregistered person was neither entitled to claim input tax adjustment nor authorized to issue sales tax invoices---Taxpayers contended that during the period July, 1998 the definition of registered person covered the person who was registered or was liable to be registered; as the persons liable to be registered were also covered under the definition of registered person and were entitled for all the benefits which were available to registered persons---Validity---Taxpayers during such period had verified the relevant invoices and confirmed sales tax payment against such invoices---Invoice had been found duly reflected in purchase register---Sales tax had also been paid against invoices issued during such period as well reflected in the monthly return---Such invoices had also been reflected in sales register of the party---Suppliers had verified issuance of invoices and also confirmed payment of sales tax---Application for registration indicated the date of commencement of business as 1-7-1998---During the period registered person was entitled under the law to claim/receive input tax credit on the supplies received as the definition of registered person also covered the persons who were liable to be registered---Taxpayers were allowed to issue tax invoices under the provisions of S. 23 of the Sales Tax Act, 1990 as they were covered under the definition of registered person under S.2(25) of the Sales Tax Act, 1990 in July, 1998---Departmental appeal was dismissed being devoid of merit by the Appellate Tribunal.

(b) Sales Tax---

----Show-cause notice---Scope---Neither charge of any fraudulent act was raised by the detecting agency against the registered person nor there was any allegation of tampering with documents against the registered person in the show-cause notice---Department could not go beyond the scope of charges raised in the show-cause notice.

Saleem Akhtar, Supdt. for Appellant.

Falak Sher, Consultant for Respondent.

Date of hearing: 30th November, 2005.

JUDGMENT

SAEED AKHTAR, MEMBER (TECHNICAL).---This appeal is directed against Order-in-Original No.1 of 2002 passed by the learned Additional Collector, Collectorate of Customs, Sales Tax & Central Excise (Adjudication), Faisalabad issued vide C. No.ADC/ADJ/STR/MISC 20/2001/399 dated 24-1-2002 whereunder the show-cause notice C. No. ADC/Adj/STR-20/2001/9956 dated 13-11-2001 issued to Messrs Chawla Yarn Traders, Faisalabad was held not sustainable and accordingly vacated.

2. Brief facts of the case as reported by the Collectorate of Sales Tax, Faisalabad to the learned Adjudicating Officer are that Messrs Chawala Yarn Traders, Faisalabad was registered with the Sales Tax Collectorate on 28-7-1998 whereas they availed inadmissible input tax adjustment amounting to Rs.41,65,409 against sales tax invoices received during the period 1-7-1998 to 27-7-1998 when they were not registered. According to the provisions of section 7 of the Sales Tax Act, 1990 an un-registered person is not entitled to claim input tax adjustment. Similarly they were not authorized to issue sales tax invoices during the period 1-7-1998 to 27-7-1998 as they were not registered during the said period. It was alleged that Messrs Chawala Yarn Traders, Faisalabad violated the provisions of section 2(37), 2(14), 7, 8, 10, 14, 22, 23 & 26 of the Sales Tax Act, 1990. The adjustment of input tax amounting to Rs.41,65,409 was found recoverable along with additional tax under sections 36 and 34 of the Sales Tax Act, 1990 and they were also held liable to penal action under section 33 ibid. On the basis of above charges Messrs Chawala Yarn Traders, Faisalabad were charged with the violation of above mentioned provisions of Sales Tax Act, 1990 and they were called upon to show cause as to why sales tax amounting to Rs.41,65,409 should not be recovered from them along with additional tax and as to why penal action should not be taken against them under the relevant provisions of Sales Tax Act, 1990. The learned Adjudicating Officer after hearing the parties concerned held the show-cause notice not sustainable and it was accordingly vacated. The present appellant (detecting agency) feeling aggrieved with the orders passed by the learned Adjudicating Officer filed appeal before this Tribunal under section 46 of the Sales Tax Act, 1990.

3. The main contentions of appellant were as under:--

(1) That Messrs Chawala Yarn Traders, Faisalabad applied for registration on 28-7-1999 and Sales Tax Registration No.8-80-5205036-19 was issued to them: The registered person issued sales tax invoices involving sales tax amounting to Rs.41,65,049 from 1-7-1998 to 27-7-1998 prior to the date of registration on which basis other registered persons filed and claim sales tax refund amounting to Rs.41,65,049.

(2) That section 59 of the Sales Tax Act, 1990 was omitted by Finance Bill, 1997 and the registered person was not entitled to claim input tax adjustment prior to its registration i.e. 1-7-1998 to 27-7-1998.

(3) That contrary to the provisions of section 14 read with section 59 and Sales Tax General Order No.2/1998 and 6/1999, the registered person issued sales tax invoices during the period 1-7-1998 to 27-7-1998 when they were neither registered nor have any registration number with them during the said period. Moreover, no input tax was admissible under section 59 as the same was deleted vide Finance Bill, 1997.

(4) That when Messrs Chawala Yarn Traders, Faisalabad realized that invoices issued by them during 1-7-1998 to 27-7-1998 were not covered under sections 14,7 & 8 of the Sales Tax Act, 1990, they filed another registered application dated nil on which the date of receipt was indicated as 1-7-1998 and registration certificate having sales tax registration No.8-8-5-5205-036-19 dated 4-8-1998 was issued to them. The registration branch have no record of receipt of registration application dated 1-7-1998 but certificate of registration was issued by the computer section.

(5) That the respondent acted in violation of sections 2(37), 7, 8, 10, 14, 22, 23 and 26 of the Sales Tax Act, 1990 punishable under section 33 of the Sales Tax Act ibid.

(6) That Additional Collectorate (Adjudication), Customs, Central Excise & Sales Tax, Faisalabad vide Order-in-Original No.1 of 2002 dated 24-1-2002 vacated the- show-cause notice ignoring the facts of the case. The order-in-original, therefore, is required to be set aside on the following grounds:--

(i) The inquiry reports held by the Collector Sales Tax, Faisalabad as well as C.B.R., Islamabad established beyond doubts that respondent managed sales tax registration certificate dated 4-8-1998 with the connivance of the computer section. A loss of sales tax amounting to Rs.41,65,409 was caused to the exchequer on the basis of registration certificate dated 4-8-1998 which was received by the exporters in the shape of refund.

(ii) The Adjudicating Authority admittedly concluded that second registration was bogus, yet show-cause notice was decided in favour of the party without any merit.

(iii) It is prayed that the impugned Order-in-Original No.1 of 2002 dated 24-1-2002 passed by the learned Additional Collector (Adjudication), Faisalabad may be set aside and demand of Rs.41,65,049 may be resorted in favour of the appellant.

(iv) The representative of the appellant during the course of hearing before this Tribunal contended that the respondent/ registered person tampered documents and managed second registration from the computer section as no record of filing of application prior to 28-7-1998 was available in the registration section. It was contended that the registered person was not entitled for claiming input tax adjustment on the invoices issued prior to the date of registration i.e. 28-7-1998 and also not competent to issue sales tax invoices prior to the date of registration for enabling its buyers to claim refund against such invoices.

4. The respondents were represented by the learned consultants Mr. Falak Sher who opposed the contentions of appellant and contended that during the period July, 1998 the definition of registered person under the provisions of subsection (25) of the section 2 of the Sales Tax Act, 1990 was a person who is registered or is liable to be registered under the Act. The learned consultant further contended that the persons who were liable to be registered were also covered under the definition of registered person. The learned consultant contended that a registered person was entitled to issue tax invoice under the provisions of section 23 of the Sales Tax Act, 1990. The learned consultant further contended that a person covered under the definition of registered person in July; 1998 was also entitled for adjustment of input tax on the basis of valid tax invoices. The learned consultant contended that no violation has been committed by his client as he acted perfectly in accordance with the law. Regarding the issue of tampering of documents raised by the appellant during the course of hearing, the learned consultant contended that there is no such allegation in the show-cause notice and the appellant cannot go beyond the scope of show-cause notice and any such charge raised at the appellate stage is not sustainable in the eyes of law. The learned consultant also submitted written comments during the course of hearing which are re-produced as under:--

(1) Apart from the allegation in the show-cause notice the learned departmental representative raised the following charges against the appellant:---

(a) Since Messrs Chawala Yarn Trader, Faisalabad were not registered with the concerned Collectorate from 1-7-1998 to 27-7-1998, therefore, they were not authorised to issue tax invoices in respect of sales made by them during this period.

(b) As a result of an inquiry held against them it was proved that while making application for registration they had tampered with certain documents.

(2) The objection raised by the learned departmental representative with regard to tax invoices issued by the respondents has no merit and substance. Since, Messrs Chawla Yarn Trader were liable to be registered and had made an application for registration, the tax invoices issued by them were legally admissible. This may be mentioned that this issue was earlier considered and settled by the Honourable Appellate Tribunal in the case of Messrs Ghazi Fabrics, Lahore who had purchased goods from certain units which were not yet registered. The honourable Appellate Tribunal held that since the suppliers were liable to be registered and had accounted for their business transactions, no exception could be taken to the tax invoices issued by them and the tax credit claimed by Messrs Ghazi Fabrics was in order.

(3) The allegation that the respondents had tampered with the documents and committed a tax fraud does not represent the factual position. The show-cause notice issued to Messrs Chawala Yarn Traders does not contain any such allegation. The Collector Sales Tax, Faisalabad in his report sent to C.B.R. vide C. No.3247 dated 6-8-1999 has mentioned that suitable penal action as warranted by section 33(3)(a) of the Sales Tax Act, 1990 has been taken against the party for not applying for registration in time and the case of party is not of tax fraud as reported earlier due to misunderstanding of the facts of the case. The said report negates the charge raised by the learned departmental representative.

(4) Messrs Chawala Yarn Traders carried on their business as wholesaler and were thus required to be registered under section 14 of the Sales Tax Act, 1990. In view of their liability to be registered they acquired the position and status of a registered person in terms of section 2(25) of the Sales Tax Act, 1990 and they were within their right to claim tax credit on the goods purchased by them. During the period in question a person liable to be registered was entitled to all the benefits which were available to a registered person under the law.

(5) Messrs Chawala Yarn Traders had purchased goods from different textile units. The invoices issued by these units were verified by the Collectorate and were found to be true and accurate. The Collector has made a mention of this fact in his report sent to the Board. The suppliers have issued certificates indicating that they had issued the said invoices and the amount of sales tax charged by them was taken into account in their tax return for the relevant tax period.

(6) In view of above submissions it is requested that the appeal preferred by the Collector Sales Tax & Central Excise, Faisalabad against Messrs Chawala Yarn Traders may kindly be dismissed.

5. We have heard the contentions of both the sides and perused the appeal file available before us. We have also carefully considered the contentions made by both the parties during hearing. The registered person Messrs Chawala Yarn Traders, Faisalabad was registered by the Collectorate of Sales Tax, Faisalabad on 28-7-1998. The registered person made input tax adjustment on the purchase invoices pertaining to the period 1-7-1998 to 27-7-1998. It was alleged that they were not entitled for input tax adjustment on the purchase invoices pertaining to the period 1-7-1998 to 27-7-1998 as they were not registered with the Sales Tax Collectorate during the period. It was alleged that Messrs Chawala Yarn Traders realized that invoices issued by them during the period 1-7-1998 to 27-7-1998 were not covered under sections 14, 7, 8 of the Sales Tax Act, 1990 and they filed another registration application dated nil on which the date of receipt was indicated as 1-7-1998 and registration No.8-8-5205-036-19 dated 4-8-1998 was issued to them. It was contended by the appellant that there is no record of receipt of registration application dated 1-7--1998 in the registration section of Collectorate and registration certificate was issued by the computer section. It was alleged that the registered person tampered with documents and managed issuance of registration certificate on the application dated 1-7-1998. The respondents/registered persons, however, denied all the charges and the learned consultant contended that during the period July, 1998 the definition of registered person covered the person who was registered or was liable to be registered under the Sales Tax Act, 1990. The learned consultant was of the view that as the persons liable to be registered were also covered under the definition of registered person, therefore, they were entitled for all the benefits which were available to registered persons under the Act. The learned consultant during the course of hearing referred to a letter of Collectorate Sales Tax issued under C. No. 3247 dated 6-8-1999 in response to C.B.R.'s letter C. No. 1(126) Int-Audit/1998 dated 8-2-1999 in which it was stated that the party/registered person has not committed tax fraud as reported earlier due to some misunderstanding of the facts of the case and it was further confirmed that all the invoices issued by them are valid, legal and not false and sales tax has been paid by the mills who have issued them. We have observed that the learned Adjudicating Officer in para. 8 of the impugned order-in-original has re-produced findings of the C.B.R. in the case of complaint against Messrs Chawala Yarn Traders. It was observed that Messrs Chawala Yarn Traders were already registered with the Faisalabad Collectorate before July, 1998 as Messrs Chawala Enterprises and Messrs Chawala Enterprises were filing monthly returns till June, 1998. Messrs Chawala Yarn Traders also filed monthly return for the month of July, 1998. Messrs Chawala Yarn Traders, therefore, have been regularly meeting their legal obligations with reference to sales tax without any break. The spinning units who supplied yarn to Messrs Chawala Yarn Traders during 1-7-1998 to 27-7-1998 have verified the relevant invoices and confirmed sales tax payment against such invoices. These invoices have been found duly reflected in the purchase register. Messrs Chawala Yarn Traders also paid sales tax against invoices issued by them during 1-7-1998 to 27-7-1998 as is reflect in the monthly return filed by them for the month of July, 1998. These invoices have also been reflected in the sale register of the party. The learned Appellate Tribunal Lahore, Bench-I in its order dated 15-10-1998 in another case allowed refund to Messrs Ghazi Fabrics International Ltd., Lahore against invoices received by them during the period when they were not registered subject to verification/confirmation of the fact that sales tax was paid against such invoices by the supplier. In the instant case the suppliers have verified issuance of invoices and also confirmed payment of sales tax by them.

Moreover all the applications of registration submitted by Messrs Chawala Yarn Traders for registration indicate the date of commencement of business as 1-7-1998. It was observed by the Board in) its letter dated 15-9-2001 that Messrs Chawala Yarn Traders, Faisalabad are one of the very few wholesalers of yarn in Faisalabad who were making value addition in their supplies as verbally confirmed by the Collector Sales Tax, Faisalabad to the Board during the course of investigation. The C.B.R. observed that there was no loss of revenue involved in the case and keeping in view the profile of Messrs Chawala Yarn Traders it was recommended to the Collector that the complaint against the charge may be filed.

6. After scrutiny of the case record and submissions made by the parties we have observed that no charge of any fraudulent act was raised by the appellant/detecting agency against the registered person in the show-cause notice. The learned consultant has, therefore, rightly pointed out that there was no allegation of tampering of documents against the respondents in show-cause notice and the appellant therefore cannot go beyond the scope of charges raised in the show-cause notice. The learned consultant contended that if there is any charge of tampering of documents, a fresh show-cause notice may be issued. We have observed that the learned Collector in his report sent to the C.B.R. vide C. No.3247 dated 6-8-1999 has confirmed that there was no case of tax fraud against the party. In view of above, the charge of tampering of document raised in the appeal is neither justified nor sustainable in the eyes of law. So far as the inadmissibility of input tax credit for the invoices issued during period 1-7-1998 to 27-7-1998 is concerned, we are convinced with the arguments of the learned consultant that during the period the respondent/registered person was entitled under the law to claim/receive input tax credit on the supplies received as the definition of registered person also covered the persons who were liable to be registered. The learned consultant has quoted a case law where the learned Appellate Tribunal in case of Messrs Ghazi Fabrics International has allowed input tax credit. Regarding the issue of issuance of sales tax invoices during the period under reference, the respondents were allowed to issue tax invoices under the provisions of section 23 of the Sales Tax Act, 1990 as they were covered under the definition of registered person under section 2 (25) of the Sales Tax get, 1990 in July, 1998. In view of facts of the case as discussed above we find no merit in the appeal and the same is dismissed.

7. The appeal stands disposed of as above.

C.M.A./37/Tax(Trib.)Appeal dismissed.