UNITED SUGAR MILLS LTD. VS FEDERAL BOARD OF REVENUE
2015 P T D 152
[Lahore High Court]
Before Mrs. Ayesha A. Malik and Shezada Mazhar, JJ
UNITED SUGAR MILLS LTD. Through Executive Director Finance
Versus
FEDERAL BOARD OF REVENUE through Chairman and 5 others
S.T.R. No.5 of 2009, decided on 19/02/2014.
Sales Tax Act (VII of 1990)---
----Ss.2 (46)(e), 7 (1), 20, 34, 47 & 73---Taxable supplies---Proof of payment---Demand of additional tax---Penalty on advances---Assessee failed to provide proof of payment under S. 73 of Sales Tax Act, 1990 and adjudicating as well as appellate authorities passed order against assessee---Validity---Held, it was mandatory for a registered person to claim adjustment of input tax for which he had received payment in accordance with S. 73 of Sales Tax Act, 1990---In absence of proof of payment under S. 73 of Sales Tax Act, 1990, Appellate Tribunal rightly denied adjustment---It was required under S. 20 of Sales Tax Act, 1990, that a registered person was to inform Collector or Local Sales Tax Officer within 14 days, if he had changed any particular as stated in his registration application---Suppliers of assessee did hot make any application / intimation to Collector or local Sales Tax Officer---Authorities sought proof of supplies as well as payment which assessee failed to provide---In absence of proof of supplies as well as payment, Appellate Tribunal rightly considered supplies to un-registered person---Principal amount of sales tax already stood deposited at the time of taxable supply / delivery of goods made by assessee---Liability raised in show cause notice was with respect to additional tax and penalty-Neither adjudicating authority nor appellate authorities tried to ascertain whether non-payment of sales tax at the time of receipt of advance was wilfull act of assessee or was with mala fide intention by assessee---High Court remanded the matter to adjudication authority to the extent of demand of additional tax and penalty on advances received by assessee for redetermination of liability of assessee-HighCourt modified the order passed by Appellate Tribunal to such extent--Reference was allowed accordingly.
D.G. Khan Cement Company Ltd. and others v. Federation of Pakistan and others 2004 SCMR 456 and Maple Leaf Cement Factory
Limited v. The Federation of Pakistan and others 1999 PTD 3907 ref.
Ijaz Ahmad Awan for Petitioner.
Zahoor Ali Nasir for Respondents.
Date of hearing: 4th February, 2014.
JUDGMENT
SHEZADA MAZHAR, J.---The present Reference was filed against the judgment of the Customs, Excise and Sales Tax Appellate Tribunal, Special Bench, Lahore dated 26-11-2008 under Section 47 of the Sales Tax Act, 1990. Initially learned counsel framed as many as 38-questions of law and facts, therefore, this Court vide order dated 23-2-2009 allowed the petitioner to reframe the questions. Learned counsel filed C.M.No.98/2009 whereby framed 17-questions of law and facts. Vide order dated 29-1-2014 sought time to assist this Court to show that the questions raised in the instant S.T.R. are in fact the questions of law contemplated under section 47 of the Sales Tax Act, 1990.
2. Today learned counsel at the very outset submitted that he will press only the following questions of law from the questions he framed initially:--
(a)Whether electrical equipment/appliances and telephone exchange parts are covered under S.R.O. 578(1)/98 dated 12-6-1998?
(b)Whether the further tax was leviable on the taxable supplies involved?
(c)Whether the interpretations of law made by learned tribunal, enumerated in the impugned order are sustainable in the eyes of law and had the tribunal power to do so?
(d)Whether by law it is mandatory for the recipients/purchasers of sugar to deal solely in sugar and not to enter into any other business?
(e)Whether the remitted amounts of additional tax and penalty have been incorrectly adjudicated against the applicant? Reliance is placed on S.R.O. 463(I)/2007 dated 9-6-2007 and S.R.O. 511(I)/2008 dated 5-6-2008 read with S.R.O. 999(1)/2007 dated 29-9-2007?
(f)Whether the value of mud was not required to be ascertained as per law by procedure laid down in section 2(46)(e) of the Sales Tax Act, 1990?
(g)Whether FBR remitted amounts of additional tax and penalty have been incorrectly adjudged against the applicant?
3. The facts necessary for disposal of the present Reference are that a show-cause notice dated 1-3-2006 was issued to the petitioner wherein six charges of evasion of sales tax were levelled against the petitioner. The adjudicating auth6rity decided all the charges against the petitioner vide order in original dated 27-5-2006. Against which petitioner preferred an appeal which too was dismissed vide order-in appeal dated 4-12-2006. The petitioner approached the Customs, Excise and Sales Tax Tribunal (Appellate Tribunal) which too was dismissed vide order dated 20-11-2008. From the said order of the Appellate Tribunal dated 20-11-2008, the petitioner raised the above mentioned questions of law which we will deal one by one.
(a) Whether electrical equipment/appliances and telephone exchange parts are covered under S.R.O. 578(1)/98 dated 12-6-1998?
4. The learned counsel submits that mere reading of the S.R.O. 578(1)/98 dated 12-6-1998 along with the different judgments of the tribunal it becomes clear that the petitioner is entitled for the input tax adjustment on the items mentioned in the show-cause notice under charge-1.
5. Reading of the order of the Tribunal reveals that the Tribunal has remanded the matter to the respondent department with the observation that the input tax adjustment is allowed if the items used/consumed for taxable supplies and there; ,re, the petitioner is required to justify the consumption of the items mentioned in show-cause notice for the purpose of adjustment and a direction was also made to the respondent department that if the items have been used for taxable supplies then adjustment should be allowed.
6. In view of the above discussion, the question framed is of factual controversy which cannot be considered under reference filed under section 47 of the Sales Tax Act, 1990:--
(a)Whether the further tax was leviable on the taxable supplies involved?
(b)Whether the interpretations of law made by learned tribunal, enumerated in the impugned order are sustainable in the eyes of law and had the tribunal power to do so?
(c)Whether by law it mandatory for the recipients/purchasers of sugar to deal soirly in sugar and not to enter into any other business?
7. All these questions are interlinked and relate to the same charge, therefore, learned counsel made joint submissions and we are also dealing them jointly.
8. The learned counsel submits that nowhere in the Sales Tax Act, 1990 it is mentioned that a manufacturer cannot make supplies to any registered person who is not registered in that particular trade, therefore, Appellate Tribunal was wrong to hold that the supplies made to the registered person mentioned in the show-cause notice are liable to further tax of 3% by treating such supplies as supplies to un-registered person. Under law any supplies made to un-registered person is liable for further tax and not the supplies to registered person.
9. The perusal of the order of the Appellate Tribunal reveals that the tribunal has dealt the issue in the following words:-
"We have observed that at the adjudication as well as at the first appellate stage the appellant was directed to produce relevant evidence to prove that the supplies were actually made to the registered persons and the amount was also received from these persons in accordance with law but no such evidence was produced at the adjudication and appeal stages. The appellant has also failed to produce any evidence in support of his case before this Tribunal which proved the fact that no such physical delivery of taxable goods was made to the registered persons whose names are shown on the tax invoices and it is also evidence from the record that these persons were dealing with some other business. In the absence of evidence the charge against the appellant is upheld."
10. Section 7(1) of the Sales Tax Act, 1990, as it was at the relevant time, states as under:--
(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall it subject to the provisions of section 73,1 be entitled to deduct input tax 2[paid 3[during the tax period] for the purpose of taxable supplies made, or to be made, by him] from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9.
11. The petitioner has failed to provide proof of the payment under section 73 therefore, the adjudicating as well as appellate authorities passes the order against the petitioner. Under the above section it is mandatory for a registered person to claim adjustment of input tax for which he has received payment in accordance with section 73 of the Sales Tax Act, 1990. In absence of proof of payment under section 73, the tribunal rightly denied the adjustment. It is also relevant to mention here that under Section 20 of the Sales Tax Act, 1990, it is required for a registered person to inform the Collector or Local Sales Tax Office within 14-days if he changes any particulars as stated in his registration application. In the present case suppliers of petitioner had not made any application/intimation to the Collector or local Sales Tax Office. Therefore, the adjudicating authority as well as Appellate Authority below sought proof of supplies as well as payment which the petitioner failed to provide. In absence of the proof of supplies as well as the payment the tribunal rightly considered the supplies to un-registered person. Further the said facts make the above questions, questions of facts which cannot be considered under a reference filed under section 47 of the Sales Tax Act, 1990:-
(e) Whether the remitted amounts of additional tax and penalty have been incorrectly adjudicated against the applicant? Reliance is placed on S.R.O. 463(1)/2007 dated 9-6-2007 and S.R.O. 511(1)/2008 dated 5-6-2008 read with S.R.O. 999(1)/2007 dated 29-9-2007?
12. The learned counsel submits that under the S.R.O's if the principal amount has been paid by the petitioner, then the penalty and further tax will not be charged. In case of petitioner principal amount was paid before the cut off date mentioned in the S.R.O's, therefore, tribunal was required to grant the benefit of said S.R.O's. to the petitioner and demand of additional tax as well as penalty was to be waived.
13. The period involved in the show-cause notice was July, 2002 to September, 2003. During this period, the petitioner made monthly sales tax payments with the delay of certain days as mentioned in the show-cause notice. Under section 34 registered person was required to pay additional tax at the rate of 2% if not paid at the due date. Section 34 states:-
34. Additional Tax.----(2) Notwithstanding the provisions of section 11, if a registered person or enrolled person does not pay the tax due or any part thereof in time or in the manner specified under this Act, rules or notification issued thereunder or claims a tax credit, refund or makes an adjustment, which is not admissible to him, or incorrectly applies the rate of zero per cent to supplies made by him, he shall, in addition to the tax due, and the prescribed penalties, pay additional tax at the rate of 3[two] per cent of the tax due per month or any part thereof.
The S.R.O's relied upon by the petitioner states:
S.R.O. 463(1)/2007 dated 9'-6-2007--
"In exercise of the powers conferred by section 34A of the Sales Tax Act, 1990, the Federal Government is pleased to exempt whole of the amount of default surcharge and penalties payable by a person against whom an amount of sales tax is outstanding on account of any audit observation, audit report, show-cause notice or any adjudication order, or who has failed to pay any amount pf sales tax or claimed inadmissible input tax adjustment or refund due to any reason other than tax fraud, subject to the condition that the outstanding principal amount of sales tax is paid by the 30th June, 2007".
S.R.O. 999(1)/2007 dated 29-9-2007.-
"In exercise of the powers conferred by section 34A of the Sales Tax Act, 1990, the Federal Government is pleased to direct that in its Notification No.S.R.O. 463(1)/2007, dated the 6th June, 2007, the following amendments shall be made and shall be deemed always to have been so made, namely:--
In the aforesaid Notification, for the full stop, at the end, a comma shall be substituted and thereafter the following shall be added, namely:--
"or has already been paid at the time of issuance of this notification".
S.R.O. 511(1)/2008 dated 5-6-2008--
"In exercise of the powers conferred by section 34A of the Sales Tax Act, 1990 and subsection (4) of section 16 of the Federal Excise Act, 2005, the Federal Government is pleased to exempt whole of the amount of default surcharge and penalties payable by a person against whom an amount of sales tax or federal excise duty is outstanding on account of any audit observation, audit report, show-cause notice or any adjudication order, or who has failed to pay any amount of sales tax or federal excise duty or claimed inadmissible input tax adjustment or refund or drawback due to any reason, subject to the condition that the outstanding principal amount of sales tax or federal excise duty is paid by 30th June, 2008. It is clarified that exemption of default surcharge and penalties under this notification shall also apply in cases where principal amount of sales tax or federal excise duty has been deposited by the registered persons prior to issuance of this notification. However, tr., subject amnesty scheme does not apply to cases of fraudulent refunds or drawback and other tax frauds".
The perusal of the above S.R.O's reveals that none is applicable to the present case as the principal amount was paid in the year, 2002 and 2003 even before the issuance of show-cause notice and nothing was outstanding on account of principal amount at the date of issuance of the above said SRO's. Further no payment of principal amount was made by the petitioner on or before the date mentioned in the said SRO's. The benefit of said SRO's cannot be applied retrospectively and to the case in hand.
15. In view of above, the petitioner is liable to pay the tax as adjudged by the adjudicating authorities below.
(f) Whether the value of mud was not required to be ascertained as per law by procedure laid down in section 2(46)(e) of the Sales Tax Act, 1990?
16. The claim of the petitioner was that when the value of supply is not mentioned, then it is necessary to follow the procedure mentioned in section 2(46) (e) of the Sales Tax Act, 1990. Section 2(46) (e) states:--
(46) "value of supply" means
(e) In case where there is sufficient reasons to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Sales Tax Department constituted by the Collector
17. In the present case no value was declared rather the claim of the petitioner was that the mud was given free of cost, therefore, the clause 2(46)(c) was applicable and not 2(46) (e). Admittedly the case was not of value declared in the invoice but was a supply of special nature and therefore, clause (c) of section 2(46) was applicable which states:--
(c) in case where for any special nature of a transaction it is difficult to ascertain the value of a supply, the open market price;
Bare perusal of the record reveals that the market value was applied by the respondent department for ascertaining the amount of sales tax which is in accordance with law.
18. The petitioner is liable to pay tax as claimed by the department under the show cause notice and adjudged by forums below.
(g) Whether FBR remitted amounts of additional tax and penalty have been incorrectly adjudged against the applicant?
19. The learned counsel submits that the issue with regard to payment of sales tax on advance was finally settled by the Hon'ble Supreme Court vide judgment reported as D. G. Khan Cement CompanyLtd. and others v. Federation of Pakistan and others (2004 SCMR 456). The said judgment was given somewhere in January, 2004. The period involved in the present reference is July, 2002 Co September, 2003. Submits that the non-payment of sales tax at the time of receipt of advance was due to the judgment of the. Lahore High Court reported as Maple Leaf Cement Factory Limited v. The Federation of Pakistan and others (1999 PTD 3907) and was neither wilful nor mala fide.
20. It is not denied by the respondent department that the principal amount of sales tax already stand deposited at the time of taxable supply/delivery of goods made by the petitioner. However, the liability raised in the show cause notice was with respect to the additional tax and penalty.
21. We have noted that neither the adjudicating authority nor the appellate authorities have tried to ascertain whether the non-payment of the sales tax at the time of receipt of advance was wilful act of the petitioner or was wilful mala fide intention by the petitioner.
22. The Hon'ble Supreme Court of Pakistan in the judgment reported as D. G. Khan Cement Company Ltd. and others v. Federationof Pakistan and others (2004 SCMR 456) held that:-
"Each and every case has to be decided on its own merits as to whether the evasion or payment of tax was wilful or mala fide, decision on which would depend upon the question of recovery of additional tax. In the facts and circumstances of this case, we find that non-payment of the sales tax within tax period was neither wilful nor it could be construed to be mala fide evasion or payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law."
23. Therefore, it will be appropriate to remand the case to the extent of demand of additional tax and penalty on advances received by the petitioner to the adjudicating authority who shall re-determine the liability of the petitioner on advances received by the petitioner. The said exercise shall be done within a period of three (03) months from the date of receipt of certified copy of this Order.
24. In view of above, the order of the Appellate Tribunal dated 20-11 2008 is partly modified in above terms.
25. As required under section 47(5) of the Sales Tax Act, 1990, a copy of this judgment shall be sent to the Appellate Tribunal under seal of this Court.
MH/U-4/LOrder accordingly.