2003 PLP (Trib (PTD)

2. Briefly, the facts of the case are that during the audit of record of Messrs Muhammad Ali Industries (Pvt.) Ltd., it was observed that (a) the said registered person had adjusted inadmissible input tax amounting to Rs. 1,325,752 vide ex‑bond Bill of Entry No. 747/28/MA/98, dated 3‑12‑1998 in the month of 6/99 while the said raw material had burnt in a fire incident in the Customs bonded warehouse of the said registered person on 4‑12‑1998 and, therefore, the raw material of the said bill of entry was not used for consumption in the manufacture of taxable goods; (b) the said registered person also committed breach of the provisions of section 7 of the Sales Tax Act, 1990, by adjusting the input tax (paid against the above-said Bill of Entry in 12/98) in their return for 6/99, (c) the registered person had also wrongly claimed input tax of Rs.159, 351, relating to Bill of Entry No.1400/52/MA/99, dated 30‑4‑1999 in the return for 5/99; (d) the registered person committed a breach of the provisions of section 7(2)(ii) of the Act by wrongly claiming input tax credit of Rs.109,728 in 11/99; and (e) the registered person adjusted input tax of Rs.85,356 of electricity bill of 2/2000 while that bill does not bear the sales tax registration number of Messrs Muhammad Ali Industries (Pvt.) Ltd. The Additional Collector of Sales Tax & Central Excise, Peshawar, issued notice No. ST(ADC) Adj/41/2000/6021, dated 28‑6‑2000 requiring them to show cause why the aforesaid amounts, totalling Rs. 1,680,187alongwith the additional tax leviable under section 34, should not be recovered from them under section 36 and also why penalties should not be imposed upon them under section 33 of the Act. After hearing the counsel of Messrs Muhammad Ali Industries (Pvt.) Ltd., and the representative from the Collectorate, the learned Deputy Collector (Adjudication) passed the impugned order holding that (a) the input tax adjustment of Rs.1,325,752 against Bill of Entry No.1400/52/MA/99, dated 30‑4‑1999 was unauthorized and unlawful and should, therefore, be recovered along-with the additional tax due thereon; (b) the input tax adjustment of Rs.85,356 in terms of the electricity bill was not admissible and should, therefore, be recovered along-with the additional tax due; (c) the input tax adjustment of Rs.109,728 was also inadmissible and, therefore, is payable by Messrs Muhammad Ali Industries (Pvt.) Ltd. alongwith the amount of additional tax due; and (d) Messrs Muhammad Ali Industries (Pvt.) Ltd. should also pay penalty of an amount equivalent of 5 % of the taxes involved in terms of section 33 of the Act. Hence this appeal.

3. During the course of hearing before us, the learned counsel for the appellant argued that:‑‑‑ (a) and (b): the appellant paid sales tax of Rs.1,325,752 vide Challan No.21, dated 3‑12‑1998 against ex‑bond Bill of Entry No.747/28/ MA/98, dated 3‑12‑1998. Before the, goods could be out of customs charge, the warehouse caught fire on 4‑12‑1998 and the raw material, sought to be cleared against the aforesaid ex‑bond bill of entry, wars destroyed. The incident was immediately reported to all concerned including Customs and Adamjee Insurance Company. The said. Insurance Company reimbursed the whole amount and paid Rs.15,139,182 vide Cheque No.19676606, dated 8‑4‑1999 vide their Letter No.F‑173/732, dated 8‑4‑1999 addressed to the Collector of Customs, Peshawar. He stated that this amount included amount of Rs.2,478,629 on account of duty and tax inclusive of the sales tax of Rs.1,325,752: They invited attention to their Letter No. C and CE/MA/99, dated 2‑6‑1999 wherein they sought amendment in their ex‑bond 'Bill of Entry N6.747/28/MA/98, dated 3‑12‑1998 seeking adjustment of the amount of Rs.2,478,629, being the duty and sales tax against another bill of entry, dated 20‑5‑1999. He stated that this permission was allowed 2‑6‑1999, as is duly explained in Additional Collector of customs, Peshawar's Letter C. No. CUS‑11/2000/9003, dated 28‑6‑2000 addressed to the Collector of Sales Tax and Central Excise, Peshawar, and stating that the Deputy Collector, Customs, Gadoon allowed the said amendment of bill of entry under section 205 of the Customs Act, 1969, which did not cause any loss to the exchequer and simply rectified a situation created by the unforeseen fire incident. The Additional Collector of Customs, in the said letter requested the Collector of Sales Tax and Central Excise, Peshawar, to reconsider any contravention 'case, if made, against Messrs Muhammad Ali Industries (Pvt.) Ltd. The learned counsel argued that the insurance company had reimbursed the Collector of Customs of loss of Rs.1,325,752 as sales tax paid or payable on the goods lost in warehouse. Therefore, the said amount paid by the appellant vide T.C. No.21, dated 3‑12‑1998 became refundable which was allowed by the Customs on 2‑6‑1999 to be utilized for next clearance by amending the bill of entry, dated 3‑12‑1998 under section 205 of the Customs Act, 1969. He stated that since Customs permission was given on 2‑6‑1999, the sales tax adjustment could be made only in the return for June, 1999' and not earlier. He stated that input, tax adjustment, which was due and admissible, has been made only once and that too in accordance with the law and the Customs permission: (c) As regards Rs.159,351, he stated that although this sale tax was deposited vide challan No.36, dated 30‑4‑1999, but the ex- bond Bill of Entry No.1400/52/MA)99, dated 30‑4‑1999 was made out of customs charge on 17th May, 1999 after the re validation of the said bill of entry upto 22‑5‑1999. The learned counsel stated that since these goods were made out of Customs charge on 17th May, 1999, and received by the appellant in May, 1999, the input tax adjustment in the return for May, 1999, was lawful and proper; (d) As regards input tax credit of Rs.109,728 the learned counsel argued that this relates to the DG, ARR, Lahore's Audit Observation No.5‑AP‑II/DGARR, dated 24‑8‑1999 in settlement of which the appellant deposited regulatory duty of Rs.731,521 and consequential differential sales tax of Rs.109,728 vide T.C. Nos.7 and 8, respectively, dated 2‑11‑1999. He stated that Bills of Entry No, and dates are duly mentioned in the said Audit Observation No.5. He therefore, claimed that the input tax credit of Rs.109,728 was correctly, in their return for 11/99; and (e) As regards the input tax credit of Rs.85,356 on account of electricity bill of 2/2002, he stated that they had requested PESCO to indicate their S.T. Registration No.5‑6‑550‑001‑19 in the bills but they took sometime to change their computer input. He stated that their future bills indicate ST Registration No. for the same consumer at the same address with the same meter number. He pleaded that they may not be penalized for the genuine omission of PESCO.

4. The learned Departmental Representative opposed the appeal and stated that section 108 of the Customs Act, 1969, read with section 27 thereof, apply in such cases and there is no provision in the Customs Act, 1969, to allow amendment of old bill of entry of destroyed goods to clear goods of another into‑bonded bill of entry. He argued that customs officers cannot operate beyond the provisions of law and that the facility availed of by the appellant is inadmissible. As regards ex‑bond Bill of Entry No.1400/52/MA/99, dated 30‑4‑1999, he argued that the sales tax on this account was paid in 4/99 and therefore, irrespective of the date of its out of customs charge, the input tax credit should have been claimed and availed on in 4/99 and not in 5/99. As regards the input tax credit of Rs.109,728 the learned Departmental Representative agreed that this relates to the Audit Observation No.5/AP‑H/DARR, dated 24‑8‑1.999 and that the sales tax of Rs,109,728, so short paid by the appellant, was paid by them vide T.C. No.8 dated 2‑11‑1999. He emphasized that this is a case of short-assessment recovered in November, 1999. He admitted that the demand on this account does not appear to be justified. As regards, the input tax credit on account of sales tax paid in electricity bill for 2/2000, he stated that this has been correctly made as the registration number of the appellant does not find any mention in that bill .He concluded that except for the demand relating to sales tax of Rs.109,728, all other demands are lawful which may be confirmed and the appeal may be dismissed as without any merit.

5. Having heard the parties and on perusal of record of the case, we find that the Sales Tax Department wants to make the appellant a victim of the Customs Department's inappropriate disposal of their request regarding the ex‑bond Bill of Entry No.747/28/MA/98, dated 3‑12‑1998 against which sales tax amounting to Rs.1,325,752 was paid by the appellant on 3‑12‑1998 but the appellant's request to annul the said bill of entry to clear identical goods of another into‑bond bill of entry was improperly allowed on 2‑8‑1999 by officers of Peshawar Customs. We have no doubt that the Customs should have closed the said ex‑bond bill of entry after receiving re‑imbursement of the amount of duty and taxes from the insurance company and the duty and sales tax paid by the appellant on the fire‑destroyed goods should have been refunded to the appellant because they did not get the goods (on which they paid duty and taxes) from customs. For clearance of other identical goods, appellants should have been asked to file fresh ex‑bond bill of entry with reference to rate of duty and rate of exchange (applicable on the date of new‑ex‑bond bill of entry was filed) in' terms of section 30 and section 31‑A of the Act. However, the Customs adopted an improper short‑cut‑method of adjustment as they held that this did not cause any loss to the exchequer. We are of the view that the appellant cannot be made to suffer on ground of impropriety by the Customs Officers controlling assessment and out‑of‑charge of ex‑bond bills of entry. We, therefore, hold that in view of the Peshawar Customs Letter C. No. CUS‑II/2003/9003, dated 28‑6‑2000 addressed to the Collector of Central Excise and Sales Tax, Peshawar, the appellant's action of availing of input tax credit in their Return for 6/99 of Rs.1,325,752 paid on 3‑12‑1998 against ex‑bond Bill of Entry No.747/28/MA/98, dated 3‑12‑1998 but allowed by the Customs on 2‑6‑1999 to be amended under section 205 of the Customs Act, 1969, was not improper or unlawful. The Collector of Central Excise & Sales Tax, Peshawar, should have sorted out this issue with his counterpart in the Peshawar Customs Collectorate instead of punishing the appellant who acted bona fidely in, accordance with the permission by the said Collectorate of Customs, Peshawar. We, therefore, annul the portion of the judgment in the impugned order in this regard based on the allegations mentioned at (a) and (b) of paragraph 2 above.

6. As regards the allegation mentioned at (c) of paragraph 2 above, we find that this arises out due to an incorrect and inappropriate understanding of Customs Appraisement Procedure on the part of the Sales Tax Officer. The latter should bear in mind the provisions of section 6(1) of the Sales Tax Act, 1990, in relation to sales tax on imported goods. The later should also study and understand the provisions of Appraisers Manual which prescribes the First Appraisement System (where goods are examined and assessed first and thereafter the duty and taxes, so assessed are paid) and the Second Appraisement System (where duty and taxes, based on declarations in the bill of entry, are paid first and then the goods are sent for examination and clearance). Under the said Second Appraisement System (which 'is the most common system, and also the system adopted in this case under appeal before us), the payment of tax is bound to precede (by numerous days) the date the goods are made out of customs charge by the appropriate officers of customs and given in the custody of the importer for disposal/consumption by such importer. Under such a situation, the words "paid during the period" as used in section 7(1) of the Sales Tax Act, 1990, has to be interpreted accordingly in the light of section 6(1). Since "no specific provision exists in this Act" in terms of section 6(1) of the Sales Tax Act, 1990, the tax paid under the Second Appraisement System shall be deemed to have been paid in the exchequer in the tax period when the goods were made out of customs charge by the appropriate officers of customs, We have, therefore, no hesitation in accepting the appellants plea that their act of availing of input tax credit, in their Tax Return for 5/99, of Rs.159,351 deposited on 30‑4‑1999 against the ex‑bond bill of entry No.1400/52/MA/99, dated 30‑4‑1999, was not improper or inconsistent with law because the Customs made the said ex‑bond bill of entry out of customs charge on 17‑5‑1999 i.e. during the tax period of 5/99. We, therefore, annul this portion of the impugned order relating to the allegation (c) of paragraph 3 above.

7. As regards the portion of the impugned order based on allegation (d) paragraph 2 above, the Collectorate representative accepts that the differential amount of sales tax has since been paid by the appellant vide T.C. No.8, dated 2‑11‑1999. Accordingly, the portion of the impugned order in this regard (i.e. For Rs.109,728) also stands annulled.

8. As regards the last allegation i.e. (e) of paragraph 2, we are conscious of the fact that WAPDA and PESCO took a long‑time to include (in their programme for computerized billing) the sales tax registration number of the consumers. However, we are satisfied that WAPDA/PESCO's said omission did not cause supply of taxable electricity involved in this Bill (deemed to be a tax invoice) to any person other than the registered person of the appellant. The omission on the‑part of WAPDA/PESCO was beyond control of the appellant for which no mala fide has been attributed to the appellant. We, therefore, condone this bona fide omission in the electricity bill of the appellant for 2/2000 and, consequently, this portion of the impugned order relating to allegation (e) of the paragraph 2 is also annulled.

9. For reasons and decision given in paragraphs 5 to 8 above, we hereby set aside the impugned order and the appeal stands disposed of as accepted.

10. Inform all concerned accordingly.

11. Announced. C.M.A./623/Tax (Trib.) Appeal accepted.