2003 PLP (Trib (PTD)

(v) The registered person received advances on various dates but did not deposit the tax in terms of the "time of supply" as defined under section 2(44) of the Act, and rather paid it late in terms of date of actual supplies and not in terms of actual date of receipt of advances in. such cases. This caused loss of sales tax and additional tax of Rs.340,141 on account of advances received in such payments.

3. The Additional Collector (Adjudication) issued a Notice C: No.ST(Adj)Addl: C/19/2002/1570, dated 11-6-2002 requiring Messrs Tri-Pack Film Ltd. to show cause why sales tax amounting to Rs.7,942,717 should not be recovered from them alongwith the additional tax due in terms of section 34 and also why penalties should not be imposed under section 33(2)(cc) of the Act for the breach of sections 2(44), 3, 6, 7, 33 and 260 of the Sales Tax Act, 1990. After hearing Mr. Asim Zulfiqar Ali, ACA, on -behalf of Messrs Tri-Pack Film, and Mr. Phool Badshah, Cost Accountant, on behalf of the Collectorate, the learned Additional Collector (Adjudication), passed the impugned Order-in-Original No.39 of 2002 directing that (i) while payment of sales tax and additional tax on stocks held on the eve of expiry of,exemption is not pressed, the party should pay penalty equal to 30% of the tax involved under section 33(4) of the Act; (ii) Party should pay the tax, further tax and additional on sales from its Karachi godown; (iii) the tax on sale of fixed assets (motor vehicles in this case) should be paid alongwith the additional tax due; (iv) the tax on the sale of wastes/scraps should be paid alongwith the additional tax due; (v) the liability on the amount of advance received by the registered person should be paid by that person and (vi) evaded amount of Sales Tax, alongwith the amounts of additional tax and penalty equal to 3% of the tax involved in terms of section 33(2)(cc) and 33(CC)(B) of the Act should be paid. Hence this appeal.

4. During the, course of hearing before us, the learned representative of the appellant argued that:-- (i) They are not a new registered person in year 2000. They hold S.T. Registration No.5-7-3705-001-82 issued in 1994 and valid as yet. Provisions of section 59 of the Sales Tax Act, 1990, and of section 3(3) of the Registration, Voluntary Registration and De-registration Rules, 1996, do not apply to their case being persons already registered before the date they completed the period of their area-related exemption. He cited Tribunal's judgment, dated 16-5-2002 in Appeal No.994/2001(GST 2002 CL 94) where the Islamabad Bench accepted an appeal on this issue. To show his bona fide, he invited attention to the appellant's letter, dated 1-2-2000 addressed to the Superintendent of Sales Tax, Hattar, seeking confirmation that they are entitled to input tax on their opening stocks of tax paid Imports (on the expiry of exemption from 17-1-2000) and the said Superintendent, Sales Tax, Hattar's confirmation C. No. Nil, dated 3-2-2.002 in this regard. He argued that had they been informed of the requirement to submit a statement under rule 3(3) of the Registration. Voluntary Registration and De registration Rules, 1996, the appellant would have complied with such requirement. The representative also argued that show-cause notice proposed imposition of penalty at 3% of the tax, involved but the learned Additional Collector (Adjudication) imposed penalty equal to 30% of tax involved which is not lawful. He also stated that when the Additional Collector did not demand the tax involved, how could he impose penalty relatable to the tax involved; (ii) As regards supplies from Karachi godown, they invited attention to paragraph 13(b) of the impugned order where the departmental representative had informed the Adjudicating Officer that there was no bar on such exempt units to restrict their supplies to such exempt areas. They argued that strangely enough, the learned Additional Collector (Adjudication) has given no reasons, in paragraph 16 of the impugned order, for not accepting the appellants submission; (iii) As regards sales tax on the sale of fixed assets (motor vehicles), he invited attention to judgments contained in 2002 PTD 976, 2002 PTD (Trib.) 1455 and the judgment, dated 1-10-2002 passed by Lahore Bench of the Tribunal in STA-2495/LB/2001. He prayed that their appeal on this issue may be accepted as it is a well-settled by now; (iv) As regards tax on wastes & scraps, the representatives of appellant stated that although they have deposited the tax, additional tax and penalty on 15-10-2001, yet they cite the judgment, dated 4-3-2002 passed by the Lahore Bench-I in Appeal Case No. 183/LB/2001 (Hussain Sugar Mills v. Collector of Sales Tax, Faisalabad) where the appeal on identical issue was accepted. They prayed that even if the sales tax is held to be payable, the amount of additional tax and penalty may be remitted, as the case-law is not yet well-settled; (v) As regards the tax on advances, they cited the judgments in 1999 PTD 3907 (Maple Leaf Case), 2002 PTD 2440 (Pak Suzuki case) and 2002 PTD (Trib.) 2241 where such an issue has been decided. The representatives from the appellant admitted that judgments in both the cases 2002 PTD 2241 and 2002 PTD 2440 are based on the earlier judgment 1999 PTD 3907 in Maple Leaf Case which is presently under appeal in the Honourable Supreme Court of Pakistan. They, however, stated that the Hopourable Supreme Court has not suspended the operation of that judgment of Maple Leaf Case. He argued that the money received is not in the nature of an advance and no sale or agreement to sell is concluded at the time the said money (called advance) is transacted; and (vi) The impugned order is liable to be set aside and the appeal may be accepted.

5. The learned representatives from the Collectorate opposed the appeal. They cited the Central Board of Revenue's Letter C. No.2(2)STP/99, dated 10-8-2001 (PTCL 2002 ST. 1) saying that a person already registered under tote Sales Tax Act, 1999, is not entitled to avail benefit under section 59 of the Sales Tax Act, 1995. They, however, had no answer that the Additional Collector (Adjudication) had himself not demanded, in the impugned order, the principal amount of tax or additional tax and that the respondent-Collectorate has not filed any appeal against that part of the order. The learned representatives also did not have any Answer as to how the Additional Collector (Adjudication) could impose penalty equal to 3% of tax involved when, firstly, the tax involved was not determined/pressed and, secondly, the show-cause notice itself limited the proposal to impose penalty equal to 30% of tax involved. Similarly, they had no justification or explanation for the Additional Collector (Adjudication) raising demand on supplies from Karachi Godown of the appellant during the exemption period. As regards tax on the sale of fixed assets (motor vehicles), they again argued that the Central Board of Revenue has instructed that tax on sale of motor vehicles (fixed assets) is payable and recoverable. As regards sales tax on wastes and scraps, they argued that there are several judgments by this Bench and the Lahore Bench of the Tribunal holding that tax on waster and scraps are payable unless exempted under section 13 of the Sales Tax Act, 1990. They argued that one single judgment, dated 1-10-2002 will not override or alter the several judgments passed by the Tribunal in this regard and no benefit can be extended on this solitary precedent which too has been appealed against by the department. As regards sales tax on advances, they argued that this concept is adopted world-wide where the tax is collected in VAT-mode. They stated that the judgments cited have not attained finality and have rather been challenged in Superior Courts. They concluded that, for the reasons advanced by them, the appeal may be dismissed.

6. Having heard the parties and on perusal of record of the case, we observe and hold as follows:-- (i) Applicability of section 59:-- Section 59 of the Sales Tax Act, 1990, reads as hereunder:

"(59). Tax paid on stocks acquired before registration.

The tax, other than the turnover tax, paid on goods purchased by a person who is subsequently required to be registered under section 14 due to new liabilities or levies or gets voluntary registration under section 18, shall be treated as input tax, provided that such goods were purchased by him from a registered person against an invoice issued under section 23 during a period of thirty days before making an application for registration and constitute his verifiable unsold stock on the date of compulsory registration or on the date of application for registration or for voluntary registration: Provided that where a person imports goods, the tax paid by him thereon during a period of ninety days before making an application for registration shall be treated as an Input tax subject to the condition that he holds the bill of entry relating to such goods and also that these are verifiable unsold or un consumed stocks on the date of compulsory registration or on the date of application for registration or for voluntary registration. " Similarly rule 1(2) rule 3(3) of the Registration, Voluntary Registration and De-registration Rules, 1996, provide as hereunder:-- "(2) These shall apply to all persons who:-- (a) are required to be registered under section 14 of the Act: (b) opt for voluntary registration; (c) opt for separate registration of branches, divisions, manufacturing units; or (d) are liable to be de-registered under section 21 of the Act." 3(3) Where an applicant has unsold or un-used stock of tax-paid inputs on which he desires to claim the benefits in accordance with section 59 of the Act, he shall declare such stock to the Collector in a statement in the form set out at annex-C, to be appended to his application for registration"." Having perused the aforesaid provisions of law, we find that the appellants (already a registered person since 1994) were not required to be registered again on the expiry of the exemption period in January, 2000. In fact such a second registration would be contrary to the requirements of law. We do not agree with the prosecution that the registration granted in 1994 became infructuous as the appellants were located in exempt area. Firstly, the area-wise exemption scheme existed even in 1994 when the Collectorate issued them a registration certificate. Secondly, the Collectorate did not bother to de-register the appellant during the period from 1994 to 2000 and the appellant still continue operation against the registration number given by the Collectorate in 1994. If the Collectorate committed some serious unpardonable mistake, some head should roll over there rather than punishing the appellant. Even in tile Superintendent of Sales Tax. Hattar's reply, dated 3-2-2000 in response to the appellant's letter, dated 1-2-2000, the Collectorate did not bother to tell them of inadmissibility or input tax adjustment under section 59 of the Act or the requirement to make at declaration in terms of rule 3(3) of the aforesaid 1996-Rules. The bona fide of the appellant is established. While we agree with the Central Board of Revenue's ruling in C. No.2(2)STP/99, dated 10-8-2002 (FTCL 2002 St. 1), we do not agree with the argument that a registered person (like the appellant in this case) making exempt supplies can be made a subject of section 59 of the Sales Tax Act, 1990 or rule 1(2) and rule 3(3) of the aforesaid 1996-Rules to disallow input tax adjustment on all the stocks of tax-paid inputs held by him on the close of the date that the exemption provisions ceased to apply or to exist. While the provisions of section 59 of the Sales Tax Act, 1990, are a relaxation to newly-registered persons, the persons already registered have an inherent right under the VAT scheme to claim input tax adjustment on the stocks of tax-paid inputs held at the close of the day on which the exemption on their output expired or ceased. Notwithstanding the above findings, we find that the Adjudicating. Officer has himself, in paragraph 15 of the impugned order, not demanded any tax or additional tax on this account and there is no appeal from the Collectorate in this regard. That being so, the levy of penalty at 30% of the tax involved is not valid in law. We, accordingly, remit the penalty imposed on this account as not warranted, not justified and not based on a quantified/determined amount of tax besides being excess of the limit proposed in the show-cause notice, dated 11-6-2002. For the reasons aforesaid, the portion of the impugned order imposing this penalty is hereby annulled. (ii) Tax on supplies by Karachi Godown of the appellant's during exemption period:

There is no doubt or dispute that the Karachi's Godown of the appellant was not a -separately or independently registered person, independent of the appellant, in terms of section 16 of the Act. The appellant is a limited company and, therefore, a legal person. The registration of the appellant covers the activities of all branches, divisions, units of this limited company (a registered company) irrespective of its location. Notification No. S.R.O. 561(I)/94, dated 9-6-1994 exempted "supplies" made by manufacturers and producers of industrial units set up in N.W.F.P. and it did not restrict the exemption to supplies only in N.W.F.P. The supplies made by the appellant, itself through its own branches and godowns, anywhere in the country, are not denied of exemption. Since it is not contested by the prosecution that the Karachi Godown (involved in this case) belonged to the appellant itself, no tax could be levied on such supplies of the appellant during the period of exemption. We, accordingly, annul the portion of the impugned order relating to this issue also. (iii) Tax on sale of fixed assets (motor vehicles):

For the reasons given in the judgments in 2002 PTD 976, 2002 PTD (Trib.) 1455 and several other judgments by various Benches (including this Bench) of this Tribunal, we hold that the appellant is not liable to pay sales tax on the sale of such fixed assets (e.g. motor vehicles) which are not admissible to input tax adjustment under section 8 of the Sales Tax Act, 1998 read with S.R.O. 578(I)/98, dated 12-6-1998. As a result, the portion of the impugned order relating to this issue is also annulled. (iv) Tax on sale of scraps & wastes:

While we find that the appellant themselves are shaky in arguing their case on this issue, they cite, as precedent, a solitary judgment, dated 4-3-2002 passed in Appeal Case No, STA-183/LB/2001 by the Lahore Bench of this Tribunal in their defence. Wastes and scraps, obtained in a registered unit, are the by products or residual products of that unit. For example, molasses or spirit or bagasse or press-mud may be obtained or sold in the furtherance of their taxable activity of production of sugar. Even under the Harmonized System of Commodities Description and Coding (commonly known as the H.S. Code and adopted in the First Schedule to the Customs Act, 1969 which is referred to in the Sixth Schedule to the Sales Act, 1990) the wastes and scraps are classified, described and coded separately and independent of the main product of which these are wastes and scraps. We do not agree with our learned brothers of Lahore Bench deciding the case No.STA-183/LB/2001 as it seems an incorrect appreciation of the law, the tariff and the Sindh High Court's Judgment, dated 25-9-2001 in S.T. Appeals No.52-63 of 2001. These scraps and wastes are obtained in the process of production/manufacture/supply of taxable goods by the registered person and such wastes and scraps shall be classified under the H.S. Code (PCT Heading) appropriate to it and shall be liable to sales tax unless these scraps and wastes of appropriate PCT heading are exempt under section 13 of the Act read with the Sixth Schedule thereof or a notification issued thereunder. There as several judgments by this Tribunal in this regard, which describe the correct and legal position. We are, therefore, not guided by the judgment, dated 4-3-2002 given by our learned brothers of Lahore Bench in STA No. 183/LB/2001 and we confirm the determination and demand of sales tax and additional tax on such wastes and scraps as involved in this case. However, we remit the penalty imposed on this account as there was no intent on the part of the appellant to evade this levy. (v) Tax on advances received:--The cited judgments are yet to attain finality because the matter is pending in appeal before the Honourable Supreme Court of Pakistan. During hearing before us, the learned representative of the appellant admitted that they are aware of the fact that this issue is pending in appeal in the Honourable Supreme Court. As regards merits, they have argued that these advances from their customers were not against firm/ irrevocable contracts and that the goods were not identified with reference to quality and quantity nor the title was passed on to the buyers while receiving these advances. They also argued that no sale or agreement to sell was made while receiving these advances and, therefore, the stage of receipts of these advances were not the stages covered by the definition of "time of supply" under section 2(44) of the Sales Tax Act, 1990. After giving due and careful thought to the plea and arguments of the appellant and the respondent Collectorate, we find that despite the appellants' statement that the receipts of these money are not "advances", they have not been able to conclusively explain as to how and why these (advances) money were received by them from their customers and whether these were not finally settled against some supply of taxable goods by the appellant delivered to the advance-maker. The appellant have not been able to explain the nature of receipt of these money (called "advances") from their customers as is apparent in their record and banks statements, a document which is also a prescribed record under section 22(d) of the Sales Tax Act, 1990. If these were loans to help or to stabilize the appellant, the agreement in this regard and the terms and conditions thereof should have been shown by the appellant with the evidence of debt repayments made by the appellant. We are conscious of the fact that in the present day state of a free open market economy, no buyer is benevolent enough to provide advance money to the seller unless the seller is a monopoly or oligopoly for such goods and the buyer cannot obtain the goods at the listed price save by tendering the advance compulsorily, or (ii) the goods are in high demand and low supply and confirmation of sale (future delivery/supply) can only be secured by making such advances; or (iii) the supplier has a trade practice of preferring customers who buy against advances; or (iv) the buyer has a bad reputation in the market and. commitment to sell/supply goods to the buyer generally results in payment defaults; or (v) the, goods to be supplied or manufactured have low demand but high cost of inputs and the supplier is shy of manufacturing or supply if without receiving advance payment as it may be threatened with cancellation of a supply order without earnest money or advance payment, or (vi) where the buyer desires to avail of through advance payment, benefits like "discounts" in prices or urgent/fast track supplies of high-demand goods by making such advance payments; or (vii) various other explainable reasons exist for making such advance payments by the customers and these reasons or explanations are to the satisfaction of everyone. Unfortunately, the appellant has not been able to show such plausible reason to determine the exact nature of the receipt of this money which is otherwise termed an "advance" by everyone including the appellant and against which taxable goods were supplied on a date subsequent to such receipt of advances. The advances attract the term "time of supply" in terms of section 2(44) of the Act and the tax on these receipts of advances have to be paid accordingly and not as per the period of actual supply of the goods. Accordingly, the additional sales tax on these advances (if not paid through the return for the tax period in which such advance money was received) get accrued from the tax period that these were received by the appellant to the tax period that these were paid in the shape of tax on the total value of supply at the time of actual delivery to the customers, We have no doubt that the appellant have no explainable case and are liable to additional tax under section 34 and penalty under section 33(2)(cc) of the Act on account of these tax payments delayed as against the statutory requirements of section 6(2) read with 2(44) of the Sales Tax Act, 1944. However, as a special case we remit the imposition of penalty on this account and let-off the appellant with a stern warning to be careful in the future. They shall (sic) portion of the impugned order in this regard is confirmed to this extent only.

7. The impugned order is modified in terms of and to the extent of our observations, findings, directives and decision contained in the foregoing paragraph and the appeal stands disposed of accordingly.

8. Inform all the concerned accordingly.

9. Announced. C.M.A./770/Tax (Trib.) Order accordingly.