2007 PLP (Trib (PTD)

MUHAMMAD ANWAR ALI (MEMBER (TECHNICAL)/ CHAIRMAN)

This appeal has been filed against Order-in-Appeal No.248 of 2005, dated 13-10-2005 passed by Collector (Appeals), Collectorate of Customs, Sales Tax and Federal Excise, Islamabad and Order-in-Original No.132 of 2005, dated 30-7-2005 passed by Additional Collector, Collectorate of Customs, Sales Tax and Central Excise (Adjudication), Rawalpindi.

2. According to the facts of the case certain discrepancies leading to evasion of sales tax were discovered during the course of audit of the sales tax record of Messrs Ellahi Cotton Mills, Islamabad for the period July, 2001 to February, 2003. Accordingly a show-cause notice, dated 21-11-2003 was issued by the Additional Collector of Customs, Central Excise and Sales Tax (Adjudication), Rawalpindi. After conducting hearings and obtaining written response from both the parties, the case was adjudicated by the Additional Collector. Messrs Ellahi Cotton Mills filed appeal against this order and the Collector of Customs, Sales Tax and Federal Excise (Appeals), Rawalpindi decided the same vide the impugned sales tax Order-in-Appeal. Aggrieved by this decision, on 2-12-2005 Messrs Ellahi Cotton Mills, Islamabad filed appeal to this Tribunal under section 46 of the Sales Tax Act, 1990 praying that all the charges have been settled except the one as adjudged in para. 10 of the impugned Order-in-Appeal which is as under: "As regards adjustment of input tax on electricity, consumption of electricity in residential colony does not fall within the ambit of taxable activity, in terms of section 2(35) read with section 8(1)(a) of the Sales Tax Act, 1990, the appeal to the extent of adjustment of sales tax on consumption of electricity in residential colony is, therefore, rejected."

3. The appellants have raised the following points in their memo. of appeal:- (i) That the Adjudicating Officer issued order on 30-7-2005 when Notification S.R.O. 480(I)/2004, dated 12-6-2004 announcing the jurisdiction of the Adjudicating Collectors was not in existence and was rescinded vide S.R.O.514(I)/200.5, dated 6-6-2005. (ii) That the Adjudicating Officer violated the provision of section 36(3) of the Act by not giving the decision within stipulated time as the show-cause notice was issued on 21-11-2003 and the decision was given on 30-7-2005. (iii) That the input tax of Rs.160,639 against electricity consumed in the residential colony situated within the premises of the registered person producing taxable goods was correctly adjusted as per provision of section 7(1) of the Act. Further such adjustment has not been specifically excluded under section 8(1)(b) of the Act and Notification S.R.O. 490(I)/2004, dated 12-6-2004. Further that such inputs have been allowed by Peshawar Bench of the Appellate Tribunal in case GST 2005 CL-434 and Islamabad Bench in case Appeal No.29/ST/IB of 2005. Similarly the additional tax and penalty is unwarranted as held by the 'Supreme Court of Pakistan in case No. PTCL 2004 CL. 224.

4. As against the above arguments, the Department submitted the following replies: (i) The objection of the appellant regarding the jurisdiction of the Adjudicating Authority is not tenable, as the amendments made through Finance Act, 2005, affected only the powers and jurisdiction of Collector (Adjudication). These amendments have no impact on the jurisdiction and powers of other Adjudicating Officers of the former Adjudication Collectorates. These Collectorates were created through administrative orders of C.B.R. and were disbanded w.e.f. 1-8-2005 through administrative orders. (ii) The show-cause notice was disposed of well in time and as apparent from the first page of Order-in-Original No.132 of 2005, dated 30-7-2005 and the date of decision is 29-6-2005. (iii) The input tax adjusted by the appellant on electricity consumed in residential colony is inadmissible as the same is categorically disallowed by C.B.R. vide Sales Tax Clarification C. No. 1(3)/ STR/2000, dated 10-12-2002. The input tax adjustment is not admissible to the appellants under section 7(1) read with section 8(1) of the Sales Tax Act, 1990. The appellants claimed that electricity consumed in the residential colony is of manufacturing nature and is not tenable as the same is being used for domestic purposes. The electricity as commodity is not mentioned in the said S.R.O. but the electricity consumed in non-taxable activity such as supply of electricity to residential colony is not covered under section 8(1) of the Sales Tax Act, 1990 which is self-explanatory. (iv) The imposition of penalty and additional tax is in accordance with law and facts, therefore, the same may please be ordered.

5. The hearings were conducted on 17-1-2006 and 18-1-2006 on which dates Mr. Muhammad Rafiq Consultant appeared for appellants whereas Mr. Umar Sadiq, Senior Auditor defended the Department. Both the parties verbally reiterated their arguments as already given in writing reproduced above. After having gone through the records of the case and arguments made by the Consultant and the Senior Auditor, the same are discussed below:- (i) The learned Consultant of the appellants has made a plea that the order-in-original has been issued on 30-7-2005 by the Adjudicating Officer when Notification S.R.O. 480(I)/2004; dated 12-6-2004 announcing the jurisdiction of the Adjudicating Officers was rescinded by Notification S.R.O. 514(I)/2005, dated 6-6-2005. The Department has taken the plea that the amendments made through the Finance Act, 2005 affected only the powers and jurisdiction of Collector (Adjudication) and the amendments had no impact on the jurisdiction and powers of other Adjudicating Officers of the former Adjudication Collectorates. These Collectorates were created through administrative orders of C.B.R. and were disbanded w.e.f. 1-8-2005 through administrative orders. This Tribunal has noted that section 45 of the Sales Tax Act, 1990 has noted that section 45 of the Sales Tax Act, 1990 specifies the jurisdiction and powers of adjudication of the Sales Tax Officers. Clauses 1,2 and 3 of section 45 of the then existing section 15 were substituted vide Finance Act, 2005 w.e.f. 1-7-2005 enhancing the powers of Adjudicating Officers especially of the Additional Collector from a maximum limit of Rs.10 million to monetary limit without any restriction. In this case the Additional Collector decided the case on 29-6-2005 vide Order-in-Original No. 132 of 2005 and issued the same on 30-7-2005. It was, therefore, perfectly legal that the Additional Collector of Sales Tax having jurisdiction assigned by Board vide posting Notification No.148-M-I/2005, dated 2-3-2005 issued under section 30 of the Sales Tax Act, 1990 decided the case. Notification S.R.O. 480(I)/2004, dated 12-6-2004 only mentioned the jurisdiction of the various Collectors of Sales Tax (Adjudication) and this notification was specifically superseded vide Notification S.R.O. 780(I)/2004, dated 13-9-2004 which in turn was superseded vide S.R.O. 8(I)/2005, dated 1-1-2005. This was further superseded vide Notification S.R.O. 736(I)/2005, dated 12-6-2005 giving it effect from 1-8-2005. The rescinding of S.R.O. 480(I)/2004, dated 12-6-2004 vide Notification S.R.O. 514(I)/2005, dated 6-6-2005 apparently looks a prima facie mistake as it had already stood superseded vide S.R.O. 780(1)/2004, dated 13-9-2004. Hence this argument of the learned Consultant of the appellants is irrelevant and has no nexus with the case. (ii) The second argument of the learned Consultant that the Adjudicating Officer has not decided the case within the prescribed time limit given under section 36(3) of the Sales Tax Act, 1990 is also not tenable as the Central Board of Revenue in exercise of powers conferred under second ,proviso to section 45 of the Sales Tax Act, 1990 granted extension in the time limit vide its order contained in C. No. 5(10)CEJ/2000, dated 11-6-2005 stating that due to non-posting of Adjudicating Officers in the Adjudication Collectorates, the sales tax cases could not be decided. This kind of enabling powers have been assigned by the Legislature according to which the Board can regulate the system of adjudication including transfer of cases and extensions of time limit in exceptional circumstances. (iii) The learned Consultant of the appellants in his main argument has asserted that under the provision of section 7(1) of the Sales Tax Act, 1990 a registered person producing taxable goods has the inherent right to claim adjustment of input tax and the Adjudicating Officer is not justified to disallow the adjustment of input tax, of Rs.160,639 against electricity consumed in factory residential colony situated within the premises of the registered person producing taxable goods. He further argued that such adjustments have not been specifically included under section 8(1)(b) of' the Sales Tax Act, 1990 and the relevant Notification S.R.O. 490(1)/2004, dated 12-6-2004. He quoted the various judgments of the Appellate Tribunal wherein such adjustments have been allowed. This Tribunal has noticed that the Peshawar Bench of Appellate Tribunal in appeal case 783/PB/2002 of Messrs Premier Sugar Mills Ltd., Mardan v. Collector of Sales Tax, Peshawar, reported as GST 2005 CL-434 held as under: "The third point relates to the power bill for the employees colony. The appellants have claimed that the colony is situated within the premises of Mills and the houses of labour and personnel are directly involved in taxable activity and their electricity bills are directly borne by the Mills. Hence cost of production is increased by this amount. This is based on the fact that all expenses made on the salary and other expenses of the employees and perks are part of the value addition and part of taxable activity. Consequently, their input tax adjustment is justified. We intend to agree with this line of arguments because the salary and perks of labour are part of the cost of production which obviously is a taxable activity and therefore this input tax adjustment by the appellants is covered by the term "taxable activity". The input tax adjustment is, therefore, allowed. This is further supported by the fact that the WAPDA charges, industrial tariff on the labour domestic tariff." In view of the above decision, such adjustments were also allowed by the various Benches of this Tribunal in their following judgments:-- (i) Judgment dated 27-5-2005 of Peshawar Bench in Sales Tax Appeal No.ST/285/PB/2003 of Messrs Cherat Cement Co., Bowshera v. Collector Adjudication, Peshawar. (ii) Judgment, dated 22-10-2005 of Islamabad Bench-II in Sales Tax Appeal No. 29/ST/IB/2005 of Messrs Ganj Glass Works Ltd. v. Collector (Appeals), Rawalpindi.

6. The case records and arguments of both the sides have been examined in the light of their verbal and written arguments. In view of the divergent views of both the parties the matter has been considered and it is observed that the plain reading of the provisions of sections 7 and 8 of the Sales Tax Act, 1990 leads to the conclusion that under section 7(1) in juxtaposition to section 8(1)(a) a registered person shall be entitled to deduct input tax in the manner specified in section 7(1) paid on the goods used or to be used for any purpose for the manufacture or production of "taxable goods" or for "taxable supplies" made or to be made by him. Once a registered person establishes that the goods in question of which input tax has been paid were used for taxable supplies made or A to be made by him then subject to terms of section 7 he becomes entitled to the deduction of the said input tax paid by him for the said purpose from the output tax that is due from him in respect of the particular tax period as held by the Honourable Lahore High Court, Lahore in case of Messrs Sheikh Spinning Mills Ltd. v. Federation of Pakistan and others (2002 PTD 2959) (HC Lah.) Section. 7 of the Sales Tax Act, 1990 is a beneficial provision of law in nature providing a facility to a registered person to adjust input tax at the time of making payment of output sales tax as held by Honourable Supreme Court of Pakistan in case of A Sheikhoo Sugar Mills Ltd. v. Government of Pakistan and others (2001 PTD 2097 = 2001 SCMR 1376) (SC Pak.). Relevant portion of section 7 reads "A registered person shall be entitled to deduct input tax". The word used here is "entitled" which according to Jowitt's Dictionary of B English Law means , "to give a right to" as held by this Tribunal in reported case (2003 PTD (Trib.) 928) (CESTAT, Lah.) From the close security of provisions of section 7(1) of the Sales Tax Act, 1990 it reveals that a manufacturer of finished goods at the time of their sale has been given the right to adjust against the sales tax payable on such goods which has been described as output tax, the input tax already paid. These provisions of Sales Tax Act, 1990 were enacted with the subject of providing safeguard against double tax already c paid on the component and constituent part of the sales taxable supplies could be adjusted as held in law case (PTCL 1995 CL. 415) (H.C. Lah.). The provisions regarding "input" as well as "output tax" as defined in the definition clause of the Act read with , sections 7 and 8 thereof are only modalities prescribed to protect the interest of the exchequer against any pilferage, evasion or fraud as held in law case (PTCL 2002 CL. 115) (H.C. Lah.).

7. In the judgment, dated 14-2-2002 of Honourable Lahore High Court, Lahore in case of Messrs Sheikh Spinning Mills Ltd. v. Federation of Pakistan and others (2002 PTD 2959) (H.C. Lah.), it has been held as under:-- "A registered person shall be entitled to deduct input tax in the manner specified under section 7(1) paid on the goods used or to be used for any purpose for the manufacture or production of taxable goods or for taxable supplies made or to be made by him." The provisions of sections 7 and 8 of the Act are only machinery provisions to crystallize the liability to pay the sales tax as contemplated in charging provision of section 3 of the Sales Tax Act, 1990. The sales tax clarification C. No. 1(3) STR 2000, dated 10-12-2002 thus issued by the Board and also quoted by the Department is not in consonance with the, substantive provisions of the Act as already held by Special Bench of this Tribunal in its judgment reported as GST 2002 CL. 106.

8. In view of the above - stated position, the input adjustment of sales tax paid on the electricity bills consumed in the labour colony of the appellant's factory is allowed. The demand raised on this account in the impugned order is set aside. It was held by this Tribunal in the case of PTCL 2001 CL. 627 that where the controversy between the Department and the appellants related to interpretation of different legal provisions existed, the imposition of additional tax and penalty had no justification. In view of the above position, the additional tax and penalty adjudged is also unwarranted and is hereby remitted. H.B.T./180/Tax (Trib.)???????????????????????????????????????????????????????????? Appeal allowed.