VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1515 (2010)

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

----Ss.73, 7, 8, 33, 34 & 36(1)---Certain transaction not admissible---Procedural lapse condonable---Disallowance of input tax alleging that the taxpayer violated S.73 of the Sales Tax Act, 1990 as such was subject to penal action under S.33, with additional tax/default surcharge under S.34 and recovery of tax under S.36 of the Sales Tax Act, 1990---Validity---No loss to the national exchequer had been complained for and the allegation was that of procedural lapse which was condonable---No mens rea was alleged or warranted and apparently no tax evasion on the part of taxpayer was found particularly when he had deposited the tax in the national exchequer and no evidence was available on record that mode of collection of tax by the taxpayer was not in line with law---Double taxation was not authorized under the law---Sections 33(2)(cc) and 36(1) of the Sales Tax Act, 1990 dealt with the payment but did not cater the mode of collection of tax---No allegation on the part of taxpayer for violation of S.7 or S.8 of the Sales Tax Act, 1990 or incorrect input tax adjust ment---Finding on facts and law made by the First Appellate Authority were correct and there was no reason to interfere into the same---Order of First Appellate Authority was confirmed by the Appellate Tribunal in the circumstances.

2002 PTD (Trib.) 1455 rel.

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

----S. 33(2)(cc)---Offences and penalties---Procedural lapse, if any, was not culpable under S.33(2)(cc) of the Sales Tax Act, 1990.

Farasat Rizvi, Senior Auditor for Appellant.

Muhammad Afzal Awan for Respondent.

ORDER

This appeal was transferred by the Customs Excise and Sales Tax Appellate Tribunal Karachi Bench-III at Karachi under the new arrangement of Inland Revenue System and came up for hearing. The appeal was filed by the department being dissatisfied with the Order-in-Appeal bearing No. 192 of 2006, dated 28-8-2006 passed by the Respondent No.2, by which the appeal of the respondent No.1 was allowed by holding that the appellant complied with all the conditions of section 73 of the Sales Tax Act, 1990, which were relevant to him. The Order-in-Original was set aside being neither correct in law nor on facts.

2. Brief facts of the case are that it was reported by the Deputy Collector (Audit Group-V), Sales Tax House Karachi, that during the course of audit for the period July, 2003 to June, 2004 of the registered person in the respondent No.1, following discrepancies were found:

(i) "That total supplies valuing Rs.27,299,325 were made to the Registered Customers, involving output tax of Rs.4,094,897 attracting the provisions of section 73 of the Sales Tax Act, 1990 but no proof of such receipts through banking channel were provided, which is a violation of section 73 of the Act.

(ii) The value addition was of 2% of assessed value, therefore, input tax of Rs.40,14,607 may be disallowed and recoverable from them along with additional tax amounting to Rs.642,337 (calculated upto October, 2002 and to be recalculated at the time of actual payment)."

3. As alleged by the department the respondent No.1 violated section 73 of the Sales Tax Act, 1990 as such subjected to penal action under section 33, with additional tax/default surcharge under section 34 and recovery of tax under section 36 of the Sales Tax Act, 1990. The respondent No.1 was served with show-cause notice under section 36(1) ibid, which was rebutted by the respondent No.1. The Additional Collector Sales Tax and Federal Excise (Adjudication) Karachi passed the order-in-original bearing No.43 of 2006 by holding:

"Since the case cannot be kept pending for indefinite period, in view of statutory limit in this regard, the same has to be decided on the basis of available record. After scrutiny of record it is clear that no bank statement showing transfer of amount into the seller's account is on record or has been provided by the respondents as proof of payment, therefore, charges levelled in the show-cause notice are established. I, therefore, order for recovery of Rs.4,014,607 along with additional tax/default surcharge (to be calculated at the time of final payment) under sections 36(1) and 34 of the Sales Tax Act, 1990 from Messrs Aman Enterprises, Karachi. They shall also pay a penalty of three per cent (3%) of the tax involved under section 33(2)(cc) of Sales Tax, 1990."

4. Learned DR pressed all the averments set in the memo. of appeal and requested for setting aside the impugned order-in-appeal. The counsel for the respondent No.2 argued his case on existence of fact leading to alleged violation and application of law both. As argued that the functionaries of the appellant are under obligation of law to carry on the annual audit under section 25(2) of the Sales Tax Act, 1990. In case of any discrepancy if found the department was under obligation of law contained under section 25(3) ibid to issue audit observation. No such audit observation was ever issued to the registered person pointing out the contravention of Act or Rule during the crucial period.

5. That during the hearing at the original stage the department submitted its comments to the Adjudication Officer, which is part of the order-in-original, and worth consideration and reads as under:--

"Answering to the question please refer to the letter, dated 18-6-2005, in which the departmental Representatives have submitted evidence regarding two cases against Messrs Jangda Agencies (one of the buyer of the respondent) in which reverse situation is there that Messrs Jangda Agencies has failed to provide proof of payments regarding purchase from Messrs Aman Enterprise. (respondent)."

This abundantly proves that (i) there was no violation on part of the Messrs Aman Enterprises; rather violation was by one of the customer of Messrs Aman Enterprises (ii) moreover there was only one buyer who defaulted and did not provide proof of payments regarding purchases from Messrs Aman Enterprises through banking channel (iii) the case was nothing except based on surmises, and conjectures.

6. Moreover, the appellant, during the course of hearing of appeal before the respondent No.2, supplied a statement prepared by its Auditor in evidence to the violation on part of the respondent No.1, which statement shows almost Seventy-Three(73) transactions of supplies made by the respondent No.1, to his Four (4) customers/registered persons. The statement of the Auditor of the appellant as referred itself rebuts the allegations set against the respondent No.1, which appears to be base-less and misconceived on existence of stated facts. Moreover, there is no allegation against the respondent for loss to the national exchequer, as the tax leviable was collected and paid in the national exchequer there was no evasion. As alleged by the department there was only a procedural lapse/discrepancy in collection of tax only but no mens-rea approved on part of the respondent No.1 or his collusion with the department. In these circumstances, invocation of section 36(1) is unwarranted under the circumstances of the case.

7. As argued by the learned counsel for the respondent that the said provision of law caters the situation, which is non-existent in the facts of the present case. The law contained in section 36(1) of Sales Tax Act, 1990 needs careful consideration on each and every word contained therein, and reads:--

"Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice."

8. There is no such situation mandated in section 36(1) ibid is warranted under the circumstances of the case as to authorize the appellant to demand money from the registered person/respondent No.1 because the out-put tax was deposited into the national exchequer at the crucial time. We agree with the assertion of learned A.R. that it is unjustified to demand the tax (twice) already paid into the national exchequer. The Sales Tax Act, 1990 does not authorize double taxation on a single transaction and it is mockery to demand money already paid by the registered person. The application of section 36(1) and notice there under is unwarranted and not maintainable in the circumstances of the case. The counsel for the respondent No.1 further argued that the law contained under section 34 is not applicable under the circumstances of the case, which reads:

"(1) Notwithstanding the provisions of section 11, if registered persons does not pay the tax or part thereof in time or in the manner specified under this Act .."

9. Whereas the demand of money under the authority of section 34 ibid in the circumstances of the present case is unwarranted by fact or any violation made by the respondent No.1. Department conceded that the principal amounts of sales tax was paid by the taxpayer into the national exchequer at the crucial period. However, payment or its procedure of payment is not impugned in the present case against the respondent No.1. Only impugned in this case is that of mode of collection of out-put tax which was not as per procedure prescribed under section 73 of the Sales Tax Act, 1990. On reading of law the collection of out-put tax or its procedure is not covered under the umbrella of section 34 ibid, hence, allegation and application of section 34 against the respondent No.1 is unwarranted under the facts of the case. It is pertinent to note that no allegation set against the respondent vide show-cause notice, dated 11-5-2005, for violation of section 7 or 8 of the, Sales Tax Act, 1990 for impugning that due to negligence' of the buyer the seller/respondent No.1 was not entitled to claim input tax credit, adjustment or deduction, or refund, repayment or draw-back or zero rating of tax under the Act. Moreover, the obligation under section 34 ibid does not operates in the present case as no default was ever made by the respondent No.1 in payment of tax collected by him under section 3 of the Sales Tax Act, 1990. It is sell settled law that procedural lapse if any is not culpable under section 33(2)(cc) of the Sales Tax Act, 1990 (as prevailing at the crucial time). Section 33(2)(cc) reads that:--

"Any person who fails to deposit the amount of tax due or any part thereof in the time and manner laid down under this Act or Rules or orders made there under."

The mentioned provision of law does not deal with the collection of tax by the registered person, therefore, no penal action warrants in the circumstances of the present case.

10. It is further argued by the learned counsel representing the respondent No.1 that section 33(2)(cc) ibid deals with the payment of tax like mandated in sections 36(1) and 34(1) and does not deal with the collection of tax by any stretch of imagination. Thus impugned sections i.e. 33(2)(cc) 34(1) or 36(1) ibid have no application in the facts and circumstances of the present case. The show-cause notice and Order-in-Original in the present case was unwarranted by facts and law of the case and were rightly annulled in the impugned judgment passed by the respondent No.2 in the Order-in-Appeal No.192 of 2006, dated 28-8-2006.

11. The arguments advanced by the learned counsel of the respondent No.1, on points of law were confronted to the Appellant's representative, who acknowledged that there was a procedural lapse only in collection of tax by the respondent No.1 from his customers. However the respondent No.1 is under obligation of law to deposit the tax a fresh and take refund of tax already deposited at the crucial time was not collected as per procedure of section 73 ibid. The DR was asked to show the provision of law, which required double payment of a single tax, which he could not show. On other side, learned counsel for the respondent No.1 referred to a judgment passed by the Customs, Federal Excise and Sales Tax Appellate Tribunal in Sales Tax Appeal No.748/LB of 2001 cited as 2002 PTD (Tribunal) 1455. The cited judgment deals with the incorrect input tax adjustment, the judgment further clarifies that the alleged default do not fall within the definition of `evasion' and is, therefore, ousted the ambit of recovery under section 36 of the Sales Tax Act, 1990 and the appeal of the registered person Messrs Coca Cola Export Corporation was accepted.

12. We have given consideration to arguments advanced by the appellant as well as counsel for the respondent No.1. It appears that no loss to the national exchequer has been complained for in the present case and the allegation in the present case is that of procedural lapse which is condonable. Furthermore, no mens-rea alleges or warrants in the circumstances of the present case and apparently no tax evasion on the part of the respondent No.1 was found particularly he deposited the tax in the national exchequer and no evidence is available on the record that the mode of collection of tax by the respondent No.1 was not in line with law and admittedly by the double taxation is not authorized under the law. Sections 33(2)(cc), 34(1) and 36(1) ibid deals with the payment but do not cater the mode of collection of tax. There is no allegation on the part of respondent No.1 for violation of section 7 or 8 ibid or incorrect input tax adjustment.

13. In the light of above inferences/findings, we are of the irresistible view that the findings on facts and law made by the Collector appeals (the respondent No.2) are correct and there is no reason to interfere into the same. In view of the aforementioned, we have no other alternate but to confirm the impugned order of learned Collectors Appeals-II. Resultantly the departmental appeal fails.

C.M.A./66/Tax (Trib.)Appeal dismissed.