2007 PLP (Trib (PTD)

MEHMOOD ALAM MEMBER (TECHNICAL).

Brief facts giving rise to this appeal are that a special audit of Messrs Fecto Sugar for the period 01/99 to 12/2000 was conducted by Messrs Revenue Advisory Service under section 32-A of the Sales Tax Act, 1990. The auditing firm raised several audit objections against the appellants alleging inter alia the breach and infringement of several provisions of the sales tax statutes. Based on these audit objections, a show-cause notice was issued to the appellants and the matter was later on decided by the Collector of Customs, Sales Tax and Central Excise (Adjudication), Faisalabad vide his Order-in-Original No.4 of 2002 dated 27-3-2002. Consequently, the following amounts were adjudged against the appellants on account of the reasons as are indicated against each as follows:-- (i) An amount of Rs.283550 being the inadmissible (out of tax period) input tax adjustment relating to the period 1-9-2000 to 31-12-2000. (ii) An amount of Rs.120883 being the input tax that was adjusted by the appellants before issuance of invoices. (iii) An amount of Rs. 7034816 on account of sales of molasses on lower than actual prices. This amount, according to the learned adjudicating officer, was to be recovered subject to the findings/decision of the Valuation Committee constituted under section 2(46)(e) of the Sales Tax Act. (iv) An amount of Rs.348916 on account of the unrecorded sales of sugar, molasses, baggasse and mud etc. Total of the adjudged amounts shown at (i) to (iv) above worked out to Rs.7788165. Consequently, the consolidated amount of Rs.7788165 was held recoverable in the impugned judgment along with additional tax and 3 %penalty.

2. Learned counsel of Messrs Facto Sugar, however, challenged the impugned orders both on facts as well as on merits. His main contentions were that the impugned show-cause notice acid orders covered the period from 1/1999 to 12/2000 and it was based upon the audit report of Special Auditor appointed under section 32A of the Sales Tax Act, 1990. That, prior to the afore-mentioned special audit, another special audit under section 32A had also been conducted for the period from 9/1998 to 9/2000 and based thereon, the adjudication proceedings had been finalized vide Order-in-Original No.5 of 2001. As such there was a double special audit for the period from 1/1999 to 9/2000. That, the respondent Department had no jurisdiction to conduct double special audit and therefore, the second special audit under section 32A covering the period from 1/1999 to 9/2000 was without jurisdiction and of no legal effect.

3. Before proceeding ahead we like to examine the technical objection relating specifically to the question of jurisdiction. Section 32A was inserted 'auto the sales tax statutes by the Finance Act; 1998. Apparent objective of the legislation was to authorize the respective sales tax authority to order a special audit of a registered personas and when required. Subsection (1) of section 32A empowers the Central Board of Revenue to select and notify those audit firms which can be assigned the responsibility of a special audit. Subsection (2) of section 32A similarly empowers the C.B.R. as wellas the respective Collector of Sales Tax to depute one of the firms notified under subsection (1) to conduct special audit of a registered person with reference to a specific period. The purpose of this arrangement is to use professional expertise of the audit firms/auditors for scrutiny of sales tax records, particularly involving complex transactions. A double special audit of a registered person is not specifically barred or prohibited under the sales tax law although a single special audit should ordinary be considered sufficient. No case-law on this point was cited by the learned Advocate in support of his technical objection nor could we trace otherwise out any legal precedent in this behalf. In the absence of any bar of prohibition, we are of the view that no illegality can be attributed to the respondent-Department with reference to the double special audit of a largely overlapping period. The question of jurisdiction looses significance particularly in view of the fact that the amounts adjudged consequent to the first special audit were settled and scored out in the impugned orders thus nullifying the element of double jeopardy. As such the technical objection relating to the question of jurisdiction has no legal force and it is unsustainable.

4. As stated in para 1 of this judgment, different amounts of liability were adjudged against the appellants on account of three different issues which are:-- (i) Inadmissible adjustment of input tax; (ii) Sales of molasses at less than actual price; and (iii) Unrecorded sales. We respectively take up these .issues in the following paragraphs:-- INADMISSIBLE ADJUSMENT OF INPUT TAX

5. Perusal of the order impugned dated 27-3-2002 shows that part of the liability was adjudged on account of "out of tax period" adjustment whereas remaining part of liability was held recoverable because of the adjustment of input tax before issuance of invoices. Learned counsel of the appellants argues that in similar circumstances a favourable view was taken by the Appellate Tribunal while deciding Appeal No.746 of 2001 in its judgment dated 15-12-2001. That, a similar favourable treatment was extended by the Tribunal to several other appellants in the past. That, these instances were brought to the notice of the learned Adjudicating Officer during the course of proceedings but the case law and precedents were unduly ignored. Learned counsel of the appellants has further asserted that "out of the tax period" adjustment of input tax does not involve any .loss of Revenue to the Government exchequer. That, respective provisions of the Sales Tax Act were merely procedural in nature whereas the denial of input tax adjustment tantamounts to double taxation. That, logic of the aforesaid arguments has always been upheld by the Appellate Tribunal and the superior Courts and the present case being of a similar nature, merits a similar treatment.

6. We have looked into the merits of these arguments. It is correct that "out of the tax period" adjustments of input tax were allowed by the learned Appellate Tribunal and the other judicial forums in the past subject to the fulfilment of other mandatory conditions which are prescribed for the purpose. Our attention in this connection was also dawn to the first proviso of section 66 of the Sales Tax Act, 1990 which read as under: "Provided that in a case where a registered person did not deduct input tax within the relevant tax period, the Collector may, after satisfying himself that input tax adjustment is due and admissible, allow the registered person to take such adjustment in the tax period as specified by the Collector. " It was also brought to our knowledge that the Central Board of Revenue has already laid down a procedure for seeking the condonation of delay in similar cases vide Sales Tax General Order (STGO) No.2 of 2004 dated 27-6-2004. The mechanism prescribed in STGO No.2 of 2004 read) with the first proviso to section 66 of the Sales Tax Act empowers the Collector (Sales Tax) of respective jurisdiction to allow the out-of-tax-period adjustment of input tax subject to certain conditions. This is a special arrangement which has been devised by the Central Board of Revenue to dispose of the cases of similar nature. It. appears to us that the appellant have not so far availed the facility of first proviso to section 66 of the Sales Tax Act read with STGO No.2 of 2004 dated 27-5-2004 whereas the learned Adjudicating Officer has not taken due cognizance of the case-law as per judgments of the superior forums. We are therefore, inclined to advise the appellants to approach the respective Collector of Sales Tax and seek the needed relief vis-a-vis this part of the impugned order. SALE OF MOLASSES AT LESS THAN ACTUAL PRICES

7. Respective part of the impugned orders relating to the sale of molasses reads as under:- "I therefore, order that the alleged amount of Rs.7034813 may be recovered from the respondents along with additional tai subject to the findings/decision of a Valuation Committee constituted under section 2(46)(e) of the Sales Tax Act, 1990 for determination of the value of molasses in the instant case". Learned counsel for the appellants has drawn our attention to the inherent inconsistency of the order in addition to his other arguments. A bare reading of this portion of the impugned orders vividly shows that:-- (a) the impugned .amount of Rs.7034816 was specifically adjudged by the learned Adjudicating Officer; (b) simultaneously, the determination of liability, was left open to the Valuation Committee i.e. the Valuation Committee could give its own verdict with regard to the sale price of molasses.

8. These two propositions were obviously inconsistent with each other. The adjudicating officer cannot delegate his statutory functions to a committee for adjudging a liability although he could adopt or ignore the findings of such committee for the reasons to be recorded. Besides, there is nothing on the records of appeal to suggest as to whether a committee under section 2(46)(e) was subsequently constituted in pursuance of the aforesaid orders and whether or not this committee ever gave its findings. Therefore, in our considered opinion, thus part, of the impugned judgment is infirm. It lacks clarity; suffers from inconsistency and needs to be re-considered.

9. It was alleged that the appellants had not paid due amounts of sales tax on the unrecorded sales of sugar, molasses, baggasse and mud. An amount of Rs.343916 was consequently adjudged against them. Learned counsel of the appellants has argued that the allegation was factually incorrect and it was primarily based on miscalculation and misperception. That, request for reconciliation of figure with regard to this allegation was neither entertained nor the opportunity of reconciliation was ever allowed. We have perused the show-cause notice and the records of appeal to gauge the facts. The show-cause notice was issued on 19-11-2001 wherein the specific allegations of unrecorded sales of sugar molasses, baggasse and mud were levelled. The impugned order was finally passed on 27-3-2002 after several hearings. The learned Adjudicating Officer, has inter Kalia observed that "despite respondent's claim that the matter needs reconciliation, neither the matter was reconciled with the auditors, nor such a .report was provided."

10. Adjudication proceedings in the subject case continued over a period of four months or so. This time span was sufficient for appellants to reconcile the figure with the auditors. Alternatively they could put up other documentary evidence before the learned Adjudicating Officer in support of their contention. But no such efforts is visible from the records of appeal except for a plain and simple denial of the allegation. Under .these circumstances, the learned Adjudicating Officer was justified in adjudging the liability and this part of the impugned orders, in the basis of our judgment calls for no interference.

11. On the basis of these observations we agree to dispose of this appeal as follows:-- (i) Part of the impugned orders so far as it relates to the "inadmissible adjustment of input tax" is set aside and the issue in question is remanded back to the Collector of Sales Tax, Faisalabad for de novo consideration in terms of the first proviso to section 66 of the Sales Tax Act read with Sales Tax General Order No.2 of 2004 dated 27-5-2004. (ii) Part of the impugned orders relating to the "sales of molasses at less than average prices" is also set aside and to the extent the case is remanded to the. Collector of Sales Tax, Faisalabad with a specific direction that the value of supply of molasses be re-ascertained under section 2(46) of the Sales Tax Act and the amount of liability, if any, be adjudged on priority. (iii) Part of the impugned judgment relating to the unrecorded sales of sugar, molasses, baggasse and mud is upheld and the appellants are directed to pay the adjudged amount of Rs.348916 along with additional tax and 3 % penalty.

12. Order-in-Original No.04 of 2002 dated- 27-3-2002 stands modified to that extent and this appeal is accordingly disposed of. C.M.A./76/Tax (Trib.) Order accordingly.