2011 PLP (Trib (PTD)

Titled appeals have been filed at the instance of the taxpayer against the consolidated impugned Order-in-Appeal Nos.257 to 259/ST/ 2007 dated 1-12-2007, passed by Collector (Appeal), Lahore. The facts and circumstances of the case are identical in all the appeals, therefore, these are disposed of through this consolidated order.

2. Briefly stated, the relevant facts leading to the filing of instant appeals are that the taxpayer in this case is a private limited company, engaged in the business of manufacturing of paper and paper products. During the course of audit proceedings, it transpired that the taxpayer neither had tax invoices nor bills of entries on the basis of which they had claimed input tax adjustment amounting to Rs.3,074,381 during the tax periods relevant to November, December, 1990 and January, 1991. It was the departmental view that the deduction of input tax relating to raw materials was not permissible as prior to 1-11-1990, the credit of sales tax adjustment was subject to the procedures under section 27 read with section 3(4) of the Sales Tax Act, 1951. Based upon the above irregularity, a contravention report was made out and the adjudication proceedings culminated in the aforementioned order-in-original, wherein the taxpayer was directed to pay sales tax amounting to Rs.3,074,381 along with additional tax and surcharge. A penalty amounting to Rs.5,000 was also imposed. The taxpayer contested the action of the department in a number of times in appeal. Finally, the case has come up before this tribunal for adjudication.

3. The learned AR of the appellant vehemently argued before us that the authorities below failed to apply correct law on the subject since they misconceived the facts and exercised jurisdiction vested in them illegally and with material irregularity. It is contended by the learned AR that Deputy Collector has no power to issue show-cause notice in the subject case under the Sales Tax Act, 1951, therefore, the proceedings initiated by the Deputy Collector were completely, illegal and without jurisdiction. It is asserted by the AR that in the instant case, show-cause notice was issued by Deputy Collector which was beyond his pecuniary jurisdiction as laid down in S.R.O. 994(I)/92 dated 8-10-1992, issued under section 43 of the Sales Tax 1990. In this behalf, the learned AR also relied on the case-law reported as 2010 PTD (Trib.) 1636 and 2006 PTD 219.

4. It is further submitted by the learned AR of the appellant that the taxpayer has rightly claimed input tax adjustment under section 7 of the Sales Tax Act, 1990. It is contended by the AR that Sales Tax Act, 1990 was made part of the Finance Act, 1990 and Chapter-I-XVI of the Sales Tax Act, 1951, were substituted by the Chapters set out in the Third Schedule of the Finance Act, 1990 and even most of the departmental officers were not aware of its enactment, therefore, its enforcement was deferred and it became operational w.e.f. 1-11-1990. It is submitted by the AR that under these circumstances, the taxpayer was under the impression that he was governed by the new Sales Tax Act, 1990 after 1-11-1990, hence, adjustment of the arrears of input tax was made after 1-11-1990 in accordance with the provisions of section 7 of the Sales Tax Act, 1990. It is submitted by the AR of the appellant that adjustment of input tax is a substantive right and it cannot be withheld on mere technical grounds. In this regard, the learned AR of the appellant placed reliance on the reported judgment cited as 2007 PTD (Trib.) 728.

5. It is also submitted by the AR that present case is essentially a case of no record as it relates to the years 1990-1991 and after its second remand in 1996, it remained in oblivion for almost 10 years when it surfaced again in 2006 and in spite of repeated requests, copies of the relevant record including show-cause notice have not been provided to the appellant.

6. On the contrary, it is submitted by the learned DR that the taxpayer has rightly been denied adjustment of input tax claim as the claim of adjustment under section 7 of the Sales Tax Act, 1990, was not in accordance with law, whereas they were required to make the same as per procedure provided under the Sales Tax Act, 1950. As regards taxpayer's objection regarding pecuniary jurisdiction, it is asserted by the learned DR that the said objection was not raised before the authorities below and the taxpayer has duly joined in the adjudication proceedings.

7. We have heard both the sides and carefully gone through the available record and case-law cited at bar. After having given due consideration, we feel persuaded the arguments put-forth by the learned AR of the appellant supported with statutory provisions of law and case law cited. It has already been settled by the higher appellate fora that adjustment of input tax is a substantive right of a taxpayer and it cannot be withheld on mere technical grounds. The period involved in the instant case is relevant to November, 1990 to June 1991, during this period section 7 of the Sales Tax Act, 1990, though enacted on 1-7-1990, but enforced w.e.f. 1-11-1990, reads as under:-- Section

7. Determination of tax liability.

(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deduct input tax from the out put tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9.

8. The department has not objected to the authenticity of input tax of the claim rather it was conceded before the Collector that the subject raw materials were consumed in the manufacturing of taxable supplies. It is the only departmental objection that the claim was not in accordance with the procedure prescribed under the Sales Tax Act, 1950. If the departmental view is taken to be correct even then it is merely a procedural lapse on the part of the taxpayer. We are of the firm opinion that denial of input tax adjustment merely on technical plea amounts to burdening the taxpayer with the sales tax which is not only contrary to the statutory provisions but also against the norms of justice. Adjustment of input tax is a substantive right of a registered person, consciously created by the legislation, which cannot be taken away merely on some technicalities and procedural lapses. Reliance in this behalf is placed on judgment reported as PLD 1998 SC 64 in which it was held by the Full Bench as under:-- "Latest judicial trend is to deprecate and to discourage withholding of a citizen's money by a public functionary on the plea of limitation or on any other technical plea if it was not legally payable by him"

9. Also, we find ourselves in full agreement with the arguments of the learned AR that the show-cause notice issued by the Deputy Collector was beyond his pecuniary jurisdiction. The main case of the taxpayer was decided by the learned Collector (Appeals) relating to the Order-in-Original No.37 of 1995, which involves goods valuing Rs.13,059,960 and the show-cause notice was issued on 2-12-1992, when the adjudication powers were conferred by S.R.O. 994(I)/92 dated 8-10-1992, issued under section 43 of the Sales Tax Act, 1990. The said S.R.O. provides that:-- "In exercise of the powers conferred by section 43 of the Sales Tax Act, 1990, read with section 31 thereof, and in supersession of its Notification No. S.R.O. 1135(I)/90, dated the 1st November, 1990, the Central Board of Revenue is pleased to authorise officers specified in column (2) of the table below to impose penalty prescribed under the said Act and Rules made there-under and to adjudicate cases relating to confiscation of goods subject to the limitations and conditions specified against each in column (3) of the said table:-- S.No. Designation of Officer Limitations and conditions (1) (2) (3)

1. Collector Confiscation of goods without any limit as to the value thereof

2. Deputy Collector Confiscation of goods the value of which does not exceed fifty lac rupees excluding therefrom the value of non-taxable goods involved in the case

10. From the above, it is clearly evident that the impugned show-cause notice was issued beyond pecuniary jurisdiction of the Deputy Collector. It is a settled principle of law that a notice issued without jurisdiction is illegal and unlawful and no action can be taken against a citizen in pursuance thereof. It was held in the case reported as 2006 PTD 219 that an order without jurisdiction is a fraud on the law and can never be assumed to have been passed under the particular statute.

11. We have also noted that the impugned order-in-original is hopelessly time barred. In the instant case show-cause notice upon which the proceedings were based issued on 2-12-1992 and the case was decided vide order-in-original dated 3-5-1995. On appeal, the case was remanded back by the Collector and again the case was decided vide Order-in-Original No.34 of 1995 which was again remanded back by the Collector vide Order-in-Appeals Nos.419-424 of 1995 dated 15-1-1996. Additional Collector again decided the case vide Order-in-Original No.58 of 2006 which is after lapse of 10 years. The Sales Tax Act, 1990, was amended in 2000 and period of limitation to decide a case was fixed as 45-days which was further extendable by another 45-days under sections 11 and 36 of the Act. Since, there is a gap of almost 6 years between 2000 and 2006 when this case was decided, hence, the impugned Order-in-Original No.58 of 2006, is hopelessly time barred and not tenable in the eye of law. Reliance in this behalf is placed on the reported judgments cited 2008 PTD 60, 2009 PTD 1978, PTCL 2010 1134 and 2011 PTD (Trib.)

619. At this juncture, we deem it necessary to reproduce the relevant portion of the judgment cited as 2008 PTD 60 (Lah. H.C), for ease of ready reference:-- "(7) After the decision by the honourable Supreme Court, on 15-7-2006 a notice of hearing was issued by the Collector of Sales Tax and Federal Excise, Gujranwala, for 25-7-2006. The notice contained a reference to the earlier/first show-cause dated 6-4-1998. By way of the present petition the above notice for hearing dated 15-7-2006 is sought to be challenged on the grounds that after the decision of the said constitutional petition on 16-1-2002 setting aside the order of the adjudicating authority the matter came to an end; that even if the interpretation of the order of this Court by the revenue is accepted, the time for finalization of adjudicating proceedings provided in proviso to subsection (2) of section 36 started and after passing of 45 days of the limitation no notice of hearing for completion of proceedings could legally be issued; that even after the' decision made by the honourable Supreme Court which was received by the department on 7-3-2006 the period for framing of assessment or to complete adjudication proceedings expired after passing of the 90 days of limitation (extended from 45 days in the meanwhile through Finance Act, 2006); that the prescribed limitation having already expired on 30-6-2006 after the passing of order by the High Court and 90 days from the date of receipt of the order of the apex court the revenue could not take benefit of the amendment made by Finance Act, 2006 extending the period in pending cases upto 31-12-2006 ..

12. In view of what has been stated/discussed above, particularly in the light of law and judgments cited supra, we are inclined to accept the appeals filed by the taxpayer. Resultantly, the findings recorded by both the authorities below are declared not tenable in the eye of law. Hence, the impugned show-cause notice as well as consequent orders of authorities below being illegal, void and without lawful authority, are accordingly set aside. Appeals of the registered taxpayer succeed. C.M.A./184/Tax(Trib.) Appeal accepted.