2010 PLP (Trib (PTD)

MEHR MUHAMMAD ARIF SARGANA, MEMBER (JUDICIAL).

This appeal has been directed against Order-in-Appeal No.396 of 2006, dated 31-8-2006, whereby the learned Collector (Appeals), has upheld the Order-in-Original No. 14 of 2006, dated 28-1-2006, passed by the learned Additional Collector (Adjudication); Multan.

2. The facts, giving rise to this appeal, are that during the course of audit of the appellant, certain discrepancies were found and based on those discrepancies a show-cause notice was issued proposing recovery of sales tax under section 36(1) along with additional tax under section

34. The adjudication proceedings culminated in passing of Order-in-Original directing the appellant to pay sales tax on different charges. Being aggrieved, the appellant went up in appeal before the learned Collector (Appeals), who vide impugned Order-in-Appeal No.396 of 2006, dated 31-8-2006 and upheld the" Order-in-Original No.14 of 2006, dated 28-1-2006. Hence, this, appeal.

3. The main grounds, as urged in the memo of appeal, are:

(1) That the order passed by the learned Collector Customs, Sales Tax and Central Excise (Appeals), Multan is bad in law and contrary to the facts of the case. (2) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of the Additional Collector (Adjudication) which he has wrongly passed on 5-1-2006 (dispatched on 28-1-2006) on a case which was instituted on 14-6-2003 for which show-cause notice was issued on 17-6-2004. This order was without jurisdiction accordingly to the proviso to section 36(3) as he had to pass the order within 90 days and if reason of delay is given within further extended period of 90 days i.e. within total 180 days which expired on 16-3-2005. (3) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of the Additional Collector (Adjudication) although he has mentioned our clarification/explanation and case laws referred in his judgment but passed order without considering/discussing these explanation/case-laws making the order illegal by not making compliance of section 36(3) which requires that "the officer of Sales Tax empowered in this behalf shall, after considering the objection of the person served with a notice to show-cause under subsection (1) or subsection (2) determined the amount of tax or charged payable by him and such person shall pay the amount so determined." (4) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of the Additional Collector (Adjudication) which he has wrongly passed without considering that there were contradictions of (sic) in referring section 36 in the contravention report, audit report under section 32-A and in the show-cause notice ignoring the judgments of Supreme Court of Pakistan, High Court of Pakistan Appellate Tribunal referred, by the appellant whereby the courts had declared the orders invalid as it was not specified whether section 36(1) is applicable or 36(2). (5) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of the Additional Collector (Adjudication) in which has not considered our explanation that the show-cause notice was not valid as it did not meet the requirements of proper show-cause notice which required that (a) it must state brief facts of the case (b) the offence committed and the evidence on the presumption of which the offence is based and in case it is issued under section 36(1) it must contain the allegation of collusiveness and notice under section 36(2) should speak of inadvertence, error or misconstruction. (6) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) which was passed without considering that under section 2(43) of the Sales Tax Act the sales tax was payable in respect of a tax period which was a month and Collector of Customs, Sales Tax and Central Excise (Adjudication) had to work out default on monthly basis while he has worked out the default consolidated on the basis of twelve month which was against the provisions of Sales Tax Act. (7) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) by which he has wrongly imposed penalty of Rs.20,000 for non-maintenance of record without considering out explanation which was also mentioned in the . order (i) that proper record had been maintained where from the auditor appointed under section 32-A prepared various statements and enclosed in their audit report (ii) the auditor in its report had not specified which record had not been maintained by the appellant and (iii) charged for non maintenance of record which is not required to be maintained under the law. (8) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) by which he has wrongly passed order confirming the levy of sales tax of Rs.3,40,800 along with penalty @ 3% and additional tax on account of low yield of oil cake without considering our explanations although recorded in the order. (9) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) which he has wrongly passed order confirming the levy of sales tax of Rs.33,709 along with penalty of Rs.10,000 and additional tax on account of low yield of oil dirt without considering our explanations although recorded in the order. (10) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) which he has wrongly passed order levying penalty of Rs.5,000 for non-declaration on the exempt supplies without considering that the unit had declared exempt supplies wherefrom the auditor in its report under section 32-A had worked out proportionate input tax. (11) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) which he has wrongly passed order by disallowing input tax of Rs.2,84,813 and requiring us to pay additional tax and penalty of Rs.5,000 allegedly claimed against exempt supplies in 8/2000 along with additional tax and penalty of Rs.5,000 without considering that cotton seasons started from 8/2000 and it was the first month of the season in which cotton seed was purchased which was used for crushing in the subsequent period. Therefore; in the first month no supply even taxable or exempt was made. (12) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) which he has wrongly passed order for making payment of Rs.17,500 along with penalty of Rs.10,000 additional tax for claim of input tax on electricity in violation of section 7 and S.R.O. 698 without considering our explanation that it had duly been apportioned in audit report under section 32-A. Moreover, it was also time barred proceedings under section 36(2). (13) That the Collector Customs, Sales Tax and Central Excise (Appeals) was not justified to uphold the order of Additional Collector (Adjudication) which he has wrongly passed order for making payment of Rs.54,43,859 along with penalty of 3% of tax involved and additional tax for claiming input tax in violation of section 7 and S.R.O. 698 dated 22-8-1996 without considering explanation of the appellant referred at page 25 of the order under paragraph G (para No.7) of the order which is reproduced as under:-- "(Appointment of input tax on cotton seed Rs.54,43,859). The auditor has not given any comments on our explanation: (i) According to clause 40 of the sixth schedule the (i) supply of cotton seed which is (ii) used in the manufacturing of cotton seed oil (iii) by the registered person is exempt from sales tax. (ii) Accordingly when the cotton seed was purchased it was taxable and on the moment it is used in the manufacturing of cotton seed oil it became exempt. As there is no dispute regarding its use for manufacturing of cotton seed oil, therefore, the sale tax paid at the time of purchase became refundable to the unit. (iii) The other condition that it is used by a registered person is also being fulfilled as the unit is registered person. (iv) Under S.R.O. 698 the input tax paid by the unit is only to be apportioned if the unit is liable to sales tax on its purchases. As the tax paid on purchase of oil is exempt from sales tax, therefore, entire tax paid on purchase of cotton seed is refundable to the unit. As clarified above when the cotton seed is crushed it became exempt and sales tax paid on exempt purchase is refundable to the unit. This procedure is also clarified by the C.B.R. vide Circular No.8 of 1999 regarding "procedure to regulate exemption of sales tax on supply of cotton seed which is used in the manufacture of cotton seed oil by the registered person." It is further pointed that during the adjudication proceedings by your predecessor "Mr. Ijaz Jaffery" he has called Rana Shabbir, Assistant Collector for his expert opinion and Rana Shabbir clarified that when the cotton seed is crushed it became exempt and sales tax paid on purchase of cotton seed is refunded to the oil mills without any apportionment. According to Rana Shabbir this treatment was given in all the cases of oil mills and sales tax paid on purchase of cotton seed was not apportioned in any single case as 100% sales tax was refunded to the oil mills.

4. On 19-8-2009, the case was first presented before the Division Bench, when Mr. Amjad Javed Advocate, counsel for the appellant appeared, but none appeared on behalf of the respondent. It was ordered that the notice to the respondent be sent through TCS for 27-8-2009, but again none attended on 27-8-2009 on the behalf of the respondent in spite of the fact that notice was sent through TCS. A perusal of the record reveals that this appeal was admitted for regular hearing on 22-11-2007 and notice was sent to the respondent, but since then none appeared on behalf of the respondent except on 2/3 dates of hearing the learned D.R. Mr. Imran Tariq was present. In these circumstances, we left with no other alternative but to proceed ex parte against the respondent and decide the case on merits on the basis of available record.

5. Arguments were heard. The learned counsel for the appellant argued on the lines of submissions made in the memo of appeal. He re-iterated all the grounds one by one, as urged in the memo of appeal. The learned counsel for the appellant in addition to grounds urged in the memo of appeal, further argued that the impugned order has been passed after the limitation period of ninety days as required under section 36(3) of the Sales Tax Act, 1990, and as such liable to set aside on this ground only.

6. We have carefully gone through the arguments advanced by both the sides and perused the available record. The plea of the learned counsel for the appellant is that the learned Adjudicating Officer has not adhered to the mandatory legal provision of section 36(3) of the Sales Tax Act, 1990 in which it has specifically and categorically been laid down that the cases would be decided within 90 days of the issuance of the show-cause notice. In this case, as per record placed before us, the show-cause notice was issued on 17-6-2004 and the impugned order was issued on 28-1-2006. When limitation period of 90 days, as has been laid down under section 36(3) ibid, is computed, it goes squarely beyond the prescribed limit of 90 days. In this respect, the stance of the respondents is that delay in deciding a case has no legal. consequence and the Honourable Appellate Tribunal, while relying on a judgment of the Honourable Lahore High Court, Rawalpindi Bench in Sales Tax Appeal No.17 of 2004 of Messrs Kohinor Textile Mills, Rawalpindi, had held in S.T.A. No.1229/LB/05 that "no order can be scrapped or set aside on the ground that the same was passed with delay." However, the appellant have placed before us a number of latest authorities holding that orders passed after limitation period are void and liable to be set aside. The learned counsel for the appellant placed reliance on a judgment of the Honourable Lahore High Court, Lahore reported as 2008 PTD 60, wherein his Lordship has held as under:-- "The claim of the revenue that the prescribed limitation of 45 days for completion of adjudication proceedings, as provided through Finance Ordinance, 2000 and enhanced to 90 days by Finance Act, 2003, is merely directory cannot be accepted. It is a settled law that where any action on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen, the prescription of time is deemed directory. However, where a public functionary is. empowered to create liability against a citizen only within the prescribed time, it is mandatory. The acceptance of contention of the revenue in that regard will make a provision of law redundant and nugatory. Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted. All the more so. When the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty that after its expiry even if there was a good case for creation of liability he will not be dragged in."

7. Thus, the principle in the field of taxation was laid down that provision of law prescribing time limit for revenue to create liability against taxpayer would be deemed mandatory.

8. Apart from above, the learned counsel for the appellant, has referred to a number of decisions of the Honourable FTO on the issue, wherein while considering the limitation period as mandatory, he has set aside a number of cases. The Honourable FTO, in a case reported as 2008 PTD 1844, has held that Order-in-Original was passed after the expiry of mandatory period of 90 days as prescribed in section 36(3) of the Sales Tax Act, 1990 and was hit by time as provided. in law and was liable to be cancelled.... First appellate Authority ignored complainant's plea that Order-in-Original was hit by time limitation...Order-in-Appeal was also not legally sustainable as the same failed to hold the order-in-Original as barred by time despite complainants pleas on the account and to provide justice to the complainant. The learned counsel for the appellant has also stated that when the Honourable FTO asked the competent authority to cancel an order which was passed after the limitation period, the department filed a representation before the President of Pakistan which was rejected as under:-- "It appears that the adjudicating officer was not aware of the legal position that he could not pass order after the expiry of the limitation unless the time is extended. This depicts his ignorance of law. The department's argument that since time expired on account of granting adjournments on the complainant's request, therefore, time limitation would not apply, is not supported by any authority. The legal consequence cannot be avoided by the consent of the parties. The FTO's decision thus, must be sustained. Accordingly, the President has been pleased to reject the representation of the department".

9. The Federal Board of Revenue circulated this decision to the department for compliance, guidance and future reference in such cases on 16-8-2006.

10. Without going into the details of the facts and merits of the charges and reply thereto by the appellants, the appeal is taken up only on issue which is on law, because law point precedes the facts. While going through the contentions of the appellant that the impugned order has been passed after the limitation period, we find the view of the appellant correct. Documentary evidence, as produced before us shoed that the show-cause notice was issued on 17-6-2004 and the impugned order was passed on 28-1-2006. The limitation period provided in section 36(3) of the Sales Tax Act, 1990 expired on 17-9-2004, as such the impugned order was passed after expiry of the limitation period of 90 days. There is no evidence to show that this period was extended by the Collector. The learned (Appeals), has mentioned in the impugned Order -in-Appeal No.396 of 2006 dated 31-8-2006 that "the adjudicating officer sought extension for finalization of the case from the Central Board of Revenue which was granted on 1-2-2006 and the impugned orders issued on 28-1-2006, thus impugned orders: have been issued within extended period and is not time barred". Show-cause notice was issued in this case on 17-6-2004, the limitation period of 90 days expired on 17-9-2004 and the Collector or the Board could extend the period for further 90 days for reasons to be recorded in writing, meaning thereby the adjudicating officer at most could pass the impugned order by 17-12-2004, whereas the order has been issued on 28-1-2006. If, the Central Board of Revenue granted extension on 1-2-2006, it was beyond its jurisdiction, as the extended period of 90 days had already expired. It being so, it remains to answer as to why the Government is revising the limitation period from 45 days to 90 days and then from 90 days to 120 days, if this limitation had no legal consequences. -However, while going through the latest legal authorities as discussed above, we find the plea of the appellant correct. Consequently, the appeal is accepted, the impugned orders-in-original as well as Order-in-Appeal are set aside and the show-cause notice is vacated. C.M.A./127/Tax(Trib.) Appeal accepted.