2007 PLP (Trib (PTD)

ZAFAR UL MAJEED, MEMBER (TECHNICAL).

The facts giving rise to this appeal are that during the year 1988-89, the appellant, Messrs Mitchell's Fruit Farms Ltd., imported unprinted viscous film and aluminum foil meant for packing/wrapping of its products on payment of sales tax amounting to Rs.9,03,169 and claimed adjustment thereof against output tax on the finished product. The officials of DRRA raised an audit observation that such adjustment was not admissible in terms of section 27 of the Sales Tax Act, 1951 as the goods in question were not raw materials of the taxable finished product. The case was adjudicated by the Deputy Collector Central Excise and .Sales Tax, Lahore vide Order-in-Original No.352 of 1992 dated 6-10-1992 whereby the appellant was directed to pay aforesaid amount of sales tax besides penalty of Rs.18,06,338, being 200% of the principal amount of tax. On an appeal filed by the appellant, Collector (Appeals) Lahore observed that part of the amount of tax relating to aluminum foil statedly subjected to tax at the stage of its clearance from Messrs Packages Ltd., Lahore had not been scrutinized at the original stage and, therefore, the order-in-original suffered from legal and factual infirmities, Collector (Appeals) accordingly remanded the case to the Adjudicating Officer for de novo consideration vide order-in-appeal dated 3-4-1993. On fresh proceedings, Deputy Collector (Adjudication) LTU, Lahore decided the case vide Order-in-Original No. 5 of 2005 dated 10-9-2005 whereby demand of Rs.18,06,338 as principal amount of tax and a penalty equal to 5% of the amount of tax was adjudged against the appellant mainly on the ground that the appellant expressed its liability to produce the record which was 17 years old then. Appeal filed by the appellant against this order was elected by Collector (Appeals), Lahore vide Order-in-Appeal No.175/ST/200 dated 6-2-2006 which has been impugned before us.

2. The appellant's main contentions raised in the instant appeal are:

(1) That the order-in-original rated 11-9-2005 is badly barred by time in that the case was remanded by Collector (Appear) in April, 1993 while the Adjudicating Officer decided the case after over 12 years. Although there is no express provision in the law to provide limitation in case of remanded cases, the Department, should have finalized the matter within reasonable time. Learned counsel placed on record copies of few judgments of the Income Tax Appellate Tribunal in support of iris contention and stressed that the impugned order should be declared void on this ground alone specially when there is a time limitation of five years far maintenance of record. (2) That the respondent ignored the fart that Order-in-Original No.5 of 2005 was erroneous as the penalty of Rs.18,06,338 levied earlier was incorrectly declared- as principal sales tax liability and that the said order was passed without any application of mind. (3) That without prejudice to the aforesaid contentions, the respondent has erred in law by upholding decision of the Adjudicating Officer as to the levy of additional tax and penalty. The refund/adjustment of amount in question in the ACL register was in the knowledge of the staff posted in the manufacturing unit who never objected to it. Levy of additional tax and penalty was, as such, not attracted as there was no element of mens rea. Learned counsel referred to various judgments of Supreme Court and this Tribunal in support of his contention.

3. Learned D.R. however opposed the appeal pleading that there was no time limitation provided under the law tar disposal in respect of cases remanded by the Appellate Authorities and that input tax adjustment availed by the appellant was not in accordance with the provisions of section 27 of the Sales Tax Act, 191 read with Saps Tax Circular No.2 of 1990.

4. We have carefully considered the submissions made by the parties and the case-law referred to by the learned counsel during the course of arguments. Admittedly, the proceedings concluded vide Order- in-Original No. 5 of 2005 were badly delayed but this, in our views, did not vitiate the proceedings, as there is no express provision in the Sales Tax Act providing any limitation in such cases. Similarly, contention of the appellant that the period provided for maintenance of record is five years and therefore, they were unable to produce it before the Adjudicating Officer, is also not tenable as the matter being in dispute, they were required to maintain the record until the issue was finally resolved.

5. On merits, however, we find that the case was remanded by Collector (Appeals) for de novo consideration in merit, after thorough scrutiny of relevant record and addressing the provisions of law as were in vogue at the relevant time, but the Adjudicating Officer passed Order -in-Original No.5 of 2005 in a cursory manner without addressing the points of law raised by the appellant on the excuse that relevant record was not produced. Same was the position at the appellate stage although the Adjudicating/Appellate Officers could have called for departmental record/audit observation and given their decision in the light of relevant provisions of the Sales Tax Act. The careless and slipshod manner, in which the Adjudicating Officer dealt with the matter is apparent from the fact that the amount of tax involved in this case was Rs.9,03,169 as per first order-in-original but in the second order-in-original dated 10-9-2005, the amount of penalty i.e., Rs.18,06,338 was converted into principal amount of sales tax and a further penalty @ 5 % imposed in addition to that. The case relates to the period when Sales Tax Act, 1951 was in the field but demand of totally incorrect amount of tax, additional tax and penalty has been adjudged under the provisions of Sales Tax Act, 1990. Collector (Appeals) too, upheld the order-in-original in a mechanical way without applying his mind. Both the order-in-original as well as order-in-appeal are erroneous/defective and, .therefore, not sustainable in law.

6. Another aspect of the case which needs to be mentioned is that the DRRA, according to the contents of first order-in-original dated 6-10-1992, objected that adjustment of input tax paid on goods used for packing/wrapping was not admissible because wrapping material did not constitute raw material of the finished, product. The Adjudicating Officer while deciding the case relied upon Sales Tax Circular No.2 of 1990 in which three situations have been discussed i.e.: (i) If a manufacturer imports or purchases raw materials which are chargeable to tax and employs the same in the manufacture of an exempt item and that item is further consumed in the same unit in the production of taxable goods he is entitled to seek refund/adjustment of tax paid on the materials to the extent that the same have been used in the .production of taxable goods. (ii) If he makes a supply of goods which are exempt from payment of sales tax he cannot claim refund/adjustment on tax paid on raw materials used in the production of those exempt goods. (iii) If a manufacturer purchases exempt goods which have been produced out of tax paid raw materials and consumes .those exempt goods in the production of taxable products he cannot claim adjustment of tax paid at some previous stage on the import or purchase of raw materials.

7. It has been observed that the .situation at hand i.e., import of plastic film and aluminum foil by the appellant on payment of tax, its further processing (printing) from outside while it remained the property of the appellant, and the claim for adjustment of tax paid thereon, is not covered by any of the aforementioned three situations: The case, therefore, needs to be examined in the light of relevant provision of law i.e., section 27 of the Sales Tax Act, 1951.

8. In view of-what is stated in paras.5 to 7 above, we find that the matter needs to be examined afresh in the light ref relevant record/provisions of the Sales Tax Act; 1951. The impugned order is, therefore, set aside and the case is remanded to the Collector (Appeals) for a fresh decision on merit and in accordance with law after giving the parties proper opportunity of hearing and allowing them to bring up any fresh evidence that they may wish to add. As the matter has been inordinately delayed, learned Collector (Appeals) is directed to decide the case at an early date but within the period of two months hereof. C.M.A./94/Tax(Trib.) Case remanded.