2004 PLP (Trib (PTD)

Hussain Muhammad, Senior Auditor, Bakth-e-Dauran, Senior Auditor, Inamul Haq, Senior Auditor and Al-Haj Gul, D.R. for Respondents. Dates of hearing: 18th December, 2002; 28th January, 2003, 18th February, 2003 and 29th April, 2003. S. M. KAZIMI, MEMBER (TECHNICAL).

This judgment disposes of the appeal filed by Messrs Gadoon Plastic Co. Gadoon Amazai, against Order-in-Original No.4 of 1999 dated 8-7-1999 (dispatched on 17-8-1999) passed by the Deputy Collector of Sales Tax, Peshawar.

2. Briefly, the facts of the case are that while auditing the record of Messrs Gadoon Plastic, it was observed that the said registered person had made certain taxable supplies during the period from December, 1997 to March, 1999 without payment of sales tax. Messrs Gadoon Plastic had produced 336,106 kgs of taxable goods but recorded production of only 232,150 kgs in their production record for sales tax purposes. Thus, they had suppressed production of 103,956 kgs of taxable goods which they obviously supplied without payment of the sales tax of Rs.733,189 which is recoverable alongwith the additional tax due thereon; and (ii) the said registered person made short-payment of Rs.10,655 by applying incorrect rate of sales tax for the period from December, 1998 to February, 1999, which too is recoverable alongwith the additional tax thereon. The Assistant Collector Sales Tax, Peshawar, issued a notice C.No. ST (Contr) GPI/99/347 dated 30-5-1999 requiring Messrs Gadoon Plastic to show cause why sales tax totalling at Rs.744,844 should "not be recovered from them alongwith the additional tax thereon and also why penal action should not be taken under section 33 of the Sales Tax Act, 1990. After hearing the representatives from the registered person (who simply sought adjournments and even did not submit written reply to the show-cause notice) and after hearing the representatives from the Collectorate, the Deputy Collector of Sales Tax, Peshawar decided the case vide his impugned Order-in -Original No.4/99 and held that sales tax amounting to Rs.744,844 (Rs.733,189 + 10,655) is payable by the registered person alongwith the additional tax due thereon and also imposed penalty equal to 50% of the amount of tax under section 33(4) on the registered person and another penalty of Rs.50,000 under section 33(6) on the Chief Executive of the company. The party filed an appeal with the Collector (Appeals), Northern Zone, Rawalpindi, which could not be decided by the said Collector. (Appeals) and got transferred to this Bench of the Tribunal for disposal in terms of subsection (7) of section 194-A of the Customs Act, 1969 read with section 2(1) of the Sales Tax Act, 1990.

3. During the course of hearing before us, the learned counsel for the appellant stated that the appellant manufactures "Hawai Chappals" on which sales tax was imposed in 1997. He also stated that sales tax is paid on the basis of value (on weight basis and not per chappal) and that they manufacture 6 sizes of 46 varieties of chappals, which have varying consumption of inputs and quantities of wastages. The learned counsel argued that input: output formula adopted by the Auditors is presumptive and neither actual/factual nor a verified one. He further revealed that they have been manu facturing on the formula of D.O.P. 48%, P.V.C. Resin 50%, Lead 2.5% and Pigments 2.5%. He further revealed that the formula slightly varies during winters. He pleaded that the prescribed record maintained by the appellant have not been challenged and no physical verification has been made about the manufacture and/or input-output proportions. He prayed for setting aside of the impugned order, as it is arbitrary.

4. The learned representatives from the Collectorate stated that the input: output ratio is based on the unit of measurement (weight basis) both at the stages of the import of raw materials and local supply of the manufactured/finished taxable goods. They further revealed that there is no difference (P.V.C. resin 50%) in the formula whether adopted by the Department or the appellant. He further revealed that the Collectorate even allowed 5% wastage although the wastage is recyclable and is actually recycled and' re-used. The learned representatives from the Collectorate explained that the appellant enjoyed conditional concession of customs-duty on raw materials (P.V.C. Resins) under S.R.O. 508(I)/95, dated 14-6-1995 read with C.B.R.'s Final Certificate No. 1(62) S&R/2/92 dated 26-11-1995. The copy of the Customs Survey Report was also 'presented which showed that the, appellant were equipped with 3 sets each of (i) computerized fully-automatic rotary-type injection moulded machine; (ii) semi-automatic rotary type injection molded machine and; (iii) manually-operated injection moulding machine besides 2 sets of P.V.C. compound injection machine. The said survey report also indicated that a batch of 212 kgs of inputs (100 kgs of P.V.C. resin + 100 kgs of D.O.P. + 25 kgs of stearic acid + 2.5 kgs of calcium stearate + 6 kgs of lead/stabilizer pigment) is brought periodically for use in these machines. The input: output ratio was determined as (i) 60 kgs of input producing 57,250 kgs (68 pairs) of chappals with 2.750 kgs (4.58 %) wastage on the fully-automatic rotary type machine in 25 minutes; (ii) 37 kgs of input producing 35.44 kgs (or 40 pairs) of chappals with 1.6 kgs (4.33%) wastage on the semi automatic rotary type machine in 15 minutes and (iii) 22 kgs of inputs producing 20 kgs (or 37 pairs) of chappals with 2 kgs (or 9%) wastage on the manually-operated injection moulding machine. They stated that for the P.V.C. resin imported under concessionary regime, the appellant had obtained the requisite L-1 licence and maintained the prescribed records e.g. R.G.-2 Registers, R.G.-1 Registers and submitted R.T.-1 Returns. They stated that the case has been made on the basis of these registers and returns which show that the quantity (even on weight basis) of output (Hawai chappals) produced by the appellant was not comparable with the quantity of input (PVC) imported under concessionary regime and used by the appellant and thus corroborate the detection/observation made by Sales Tax Audit. At this stage, the learned counsel for the appellant argued that the appellant's unit was audited several times by the Collectorate after this audit observation but no such audit objections/observations were made in these subsequent audits. He further stated that the customs control the import and clearance of imports from the warehouse/R.G.-2 Register and that they check the goods as per the determined input: output ratio. The representatives from the Collectorate denied this statement of the appellant's counsel and stated that customs do not have any control on output whatsoever and also do not have any control on the inputs after its ex-bonding from warehouse and/or entry in R.G.-2 Register. They argued that the audit observation is even corroborated by the survey report and there is no merit in the appeal. They prayed for dismissal of the appeal.

5. Having heard the parties and on perusal of record of the case we find that there is force in the arguments advanced by the Departmental representatives. Any audit observation/objection/detection cannot be summarily dismissed on the ground that no such observation/ was made in subsequent audits. A lawful and proper go in waste and the demand for that period (as detected) extinguish only because the subsequent auditors committed ignorance, laxity, in-efficiency in discharging their duties. The appellants have been availing of conditional tax benefits (concession) on the import of their inputs (PVC) and were required to obtain L-1 licence, maintain R.G,-l and R.G.-2 Register and submit R.T.-1 Returns for the obvious purpose to check the production by comparing input: output ratio as determined/reported in the survey conducted in the appellant's presence and for the appellant's benefit. A prudent auditor; as in this case, will always check, correlate and corroborate his findings on the basis of such relevant survey reports and its accompanying records and registers. The survey report shows that the input: output ratio is not disturbed due to sizes or varieties and that both inputs and outputs are determined on weight basis (as has also been recorded in the R.G.-1, R.G.-2 and R.T.1). The appellants have failed to show why the use of 100 kgs of the imported concessionary input (PVC resin) in a batch (212 kgs) of inputs will not produce 201.4 kgs (212 kgs minus wastage of 10.6 kgs) of output (Hawai chappal). The detection/ observation made in the audit is correct on fact arid correct in law. The sales tax production records have not been maintained correctly and the production and taxable 'supply have been concealed; as alleged in the show-cause notice. The appellant have not shown sufficient cause why the same should not be accepted. As regards the demand of sales tax of Rs.10,655 the appellant has not advanced any arguments to contest the same. For reasons given in this paragraph, we confirm the demand of sales tax as in the impugned Order-in-Original No. 04/99 dated 8-7-1999. As regards additional tax, we direct that if the appellant pays the principal amount of sales tax to the satisfaction of the Collector of Sales Tax, Peshawar, by the 27th day of September, 2003, 50% of the amount of additional tax shall stand remitted as a special case. However, if the appellant fails to deposit the full of principal amount of sales tax and 50% of the additional tax thereon, to the satisfaction of the above said Collector, by the 27th September, 2003, the appellant shall be liable to pay the full amount of sales tax and additional tax. As regards the penalty of Rs. 50,000 on the Chief Executive of the appellant company, the same is hereby remitted. The other penalty of 50% of the amount of tax due is also reduced to an amount equivalent to 5% of the amount of sales tax involved. Save for the modifications as ordered above, we confirm the impugned Order-in-Original No.04 of 1,999 and the appeal stand disposed' of accordingly.

6. Inform all concerned.

7. Announced. C.M.A./943/Tax (Trib) Order accordingly.