2003 PLP (Trib (PTD)

(c) in case where for any special nature of transaction it is difficult to ascertain the value of a supply, the open market price; (d) in case of imported goods, the value determined under section 25 or 25B of the Customs Act, including the amount of customs duties and central excise duty levied thereon; [***] (e) in case where there is sufficient reason to believe that the value of supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Sales Tax Department constituted by the Collector [; and] (f) in case the goods other than taxable goods are supplied to a registered person for processing, the value of supply of such processed goods shall mean the price excluding the amount of sales tax, which such goods will fetch on sale in the market; (g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which a supplier will charge at the time of making‑fax able supply by him, or such other price as the Board may, by a notification in the Official Gazette, specify: Provided that, where the Central Board of Revenue deems it necessary, it may, by notification in the Official Gazette, fix the value of any taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of supplies: Provided further that where the value at which the supply is made is higher than the value Axed by the Central Board of Revenue, the value of goods shall [. Unless other wise directed by the Board,] be value at which the supply is made;"

12. A perusal of the said section indicates that the definition has provided various options and appropriate occasions for determining the value of goods. As regards the imported goods, their value of supply would be the value as defined in clause (d) of subsection (46) of section 2 of the Act. As per said provision, the value of supply will be the value determined under section 25 or 25B of the Customs Act, 1969 including the amount of customs duties and central excise duty leviable thereon. Thus the Legislature has given a specialty to the value of the imported goods. So, in our opinion it will be the value as determined under section 25 or 25B plus the customs duty and central excise duty levied thereon. However, there is no other provision in the Act, whereby a value can be determined other than by an objective method. Hence, for the purpose of determining value of supply in this case, the governing conditions are given in clause (d) of subsection (46) of section 2 of the Act. And to our understanding, we do not find any provision in the law whereby the Revenue Authorities are legally competent to fix percentage of value addition and compel the registered person to calculate and pay sales tax accordingly.

13. As regards the third question, the appellants in this case have made certain input adjustments from July, 1998 to November, 1998 which, according to Revenue Authorities, are inadmissible as these were made after the passage of the claimable period i.e. one month. We observe that there is no other objection regarding the admissibility of the claim except that the adjustments have been made after the prescribed period of one month as provided in section 7 of the Act. Section 7 of the Act is reproduced hereunder:‑‑ "

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 [subject to provisions of section 73], be entitled to deduct input tax [paid during the tax period] for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9. (2) A registered person shall not be entitled to deduct input tax from output tax unless;‑‑‑ (i) in case of a claim for input tax in respect of a taxable supply made in Pakistan, he holds a tax invoice in respect of such supply for which a return is furnished; (ii) in case of goods imported into Pakistan, he holds the bill of entry duly cleared by the customs under section 79 or section 104 of the Customs Act, 1969 (IV of 1969); (iii) * * * (iv) *** "

14. The above section determines liability to pay sales tax. This also entitles the registered person to deduct input tax from the output tax for the purpose of payment of the sales tax. We observe that there was no restriction as to the tax period for deduction of input tax paid by the registered person prior to the Finance Act 1998. The change in the statute was made thereafter. In the present case adjustment relates to July, 1998 to November, 1998. Therefore, regarding the adjustment claimed by the appellant, the following points need consideration:‑‑‑ (a) whether this entitlement can be claimed after the passage of the stipulated period? (b) whether availing of this "entitlement" after the prescribed time can be subjected to penalty? The relevant portion of section 7 reads: "a registered person shall be entitled to deduct input tax". The word used here is `entitled' which according to Jowitt's Dictionary of English Law means "to give a right to". The law is thus giving a right to the appellants and availing of this right later than stipulated period, in our view, should not attract penal provision.

15. We are strengthened in our view by the judgment of Honourable Supreme Court of Pakistan in PLD 1998 at page 64 in case of Messrs Pfizer Laboratories Ltd. v. Federation of Pakistan and others. It has been observed by their lordships at pages 88 and 89 as follows:‑‑‑ "...that there may not be legal liability on the part of Government to refund any amount received by it as a tax or other levy by virtue of certain special provisions under the special law but keeping in view that we are living in a democratic society governed by the rule of law and every Government, which claims to have ethical and moral values, must do what is fair and just to the citizens regardless of legal technicalities.. "

16. We also observe that, in the case under discussion, the appellants had paid sales tax at the import stage and there is no dispute about this fact. Now refusing the input tax adjustment, because it was claimed a few months later, would obviously result in double taxation. The goods have been cleared earlier and the burden of this double taxation will have to be borne by the appellants. We observe that this is not only against the scheme of value added tax as embodied in the Sales Tax Act but also against the basic tenets of taxation. In this view, we are again strengthened by the judgment of Honourable Supreme Court of Pakistan in case of Pakistan Industrial Development Corporation v. The Federation of Pakistan as reported in 1992 PTD at page

593. It was observed that:‑‑‑ " .any construction of a taxing Estate a which results in taxation of the same property two is to be avoided if possible, or if the statute is ambiguous, uncertain of its construction, doubtful, or if it may be reasonably interpreted so as to avert that result, or if the intent to impose double taxation is not clearly expressed and such construction should never be adopted unless necessary to effect the manifest intent of the Legislature. Doubts as to where double taxation has been imposed should be resolved in favour of the taxpayers ...."

17. We also observe that the entire sales tax regime is a value added tax system leviable on value addition with the respective seller of each stage‑passing burden to buyer. Thus the demand of sales tax in the impugned order amounts to double taxation, which is ultra virtue of the Act. The law laid down by the Honourable Supreme Court of Pakistan in the above two cited cases is binding by virtue of the Article 189 of Constitution of Islamic Republic of Pakistan, 1973. The deduction of input tax is.allowed under subsection (1) of section 7 of the Act. The goods on which no input tax can be claimed are specified in section 8 of the Act. Admittedly, the goods imported by the appellants do not fall in the category of the goods specified in section

8. It is also admitted that the appellants have paid sales tax at the import stage. Under the Act, the tax early paid termed as "input tax" is adjustable against the output taxi payable by the appellants for which various procedures remained in operation from time to time but the statutory provision of law 'conferring the right remained intact. Observed in the light of this, in the instant case, there may be divergence in procedure adopted but there was no evasion of Government Revenue and thus the claim which is backed by statutory right, cannot be defeated. The statutory right of a party to claim input tax or adjustment against the output tax is further supported by the provision of section 10 of the Act which permits the excess amount of input tax to be carried forward to the next tax period and the excess amount if it is not fully covered by the tax payable during the period of one year, has to be refunded to the registered person under section 66 of the Act which, besides prescribing period of limitation, also allows the refund on account of input adjustment not claimed within the relevant tax period. Therefore, the adjustment of input tax by the appellants from the output tax beyond the tax period was, at the most, a procedural lapse on the part of the appellants, which was condonable to maintain the right and to facilitate its exercise instead of forcing it to avail of cumbersome remedy of resorting to section 66 ibid which involves multi‑staged protracted adjudication, invariably resulting in unnecessary hardship and despondency to the taxpayers for being taxes twice. The famous `Pfizer case' decided by the Honourable Supreme Court of Pakistan has, no doubt, mitigated the rigorous of sections 7 and 66 of the Act to save the right of the taxpayers to claim and get input tax refund or adjustment from output tax but still it leaves much to be desired by the process of legislation to discourage wayward attitude of the adjudicators like the one whose order is under challenge. Ignoring the dictum of the Honourable apex Court, he unjustifiably burdened the appellants with the payment of huge amount of sale ax alongwith additional tax and penalty.

18. We further observe that imposition of additional tax, which is punitive in nature as held by superior Courts in various judgments, is unwarranted in this case. We are strengthened in this by the judgment of Honourable Supreme Court of Pakistan in the case of Messrs Humayyun Ltd. v. Pakistan and others as reported in PLD 1991 SC 963, wherein it is held that where the evasion of duty is not wilful, the imposition of penalty is illegal. Not to speak of any wilful evasion, in the instant case, there is no evasion of tax or loss of Revenue at all. We, therefore, set aside the imposition of additional tax and penalties imposed on account of alleged wrong adjustment.

19. In the light of what has been stated above, the impugned order is set aside and the appeal is allowed except that department will be within rights to collect sales tax on the value of supply in respect of imported goods under clause (d) of subsection (46) of section 2 of the Act. (Sd.) (Sd.) (Sd.) (Sd.) Zafar Iqbal Member (Tech) Raj M. Khan Member (Judi) Justice (R) Abdul Majeed Tiwana Chairman/Member (Judi) Safdar Ali Member (Tech.) SARFRAZ AHMAD KHAN, MEMBER (TECHNICAL).‑‑‑

20. With due deference to my learned brother I respectfully differ with the foregoing judgment and pass the following order:‑‑ (i) The question of determination of value of tams made by the appellants in Pakistan was involved in the case. The taxable goods had earlier been imported by the appellants on payment of duty/taxes in terms of section 3(1)(b) read with section 6(1) of Sales Tax Act, 1990 and the value of supply in terms of section 2(46)(d) (ibid) was determined and applied by the concerned Customs authorities at that point of time. Supply of these taxable goods in Pakistan was covered, under section 3(1)(a) of Sales Tax Act, 1990 and in case of doubt regarding their correct value the provision of clause (e) of subsection (46) of section 2 (ibid) was to be invoked. The department could not fix 10% value addition and orders for payment of Rs.7,88,123 as sales tax alongwith additional tax and penalty are set aside. However, the case is remanded to the Adjudicating Officer with the direction to Collector Sales Tax Lahore to constitute a Valuation Committee in terms of section 2(46)(e) of Sales Tax Act; 1990 and thereafter indicate its findings to the Adjudicating Officer, who shall decide the issue after hearing both the sides. (ii) The provisions of section 7 of Sales Tax Act, 1990 are mandatory. Input tax adjustment could be claimed during the same tax period to which it related and thereafter the registered person is not disentitled from getting back money paid as input tax but he is required to claim refund in terms of section 66 of Sales Tax Act, 1990. As held by the Hon'ble Supreme Court of Pakistan, when law requires an action to be done in particular manner, it is legal only when it is done accordingly. No re‑adjudication is involved under section 66 of Sales Tax Act, 1990. Therefore, appellants are directed to apply for refund to Collector Sales Tax, Lahore with complete supporting documents who shall sanction their claim within 30 days from the date of receipt of application with complete documents and then adjust the amount of Rs.17,14,076 due from the appellants on account of inadmissible input tax adjustment for the period 1998 to November, 1998 or, alternatively, he may allow them adjustment in the tax period specified by him in exercise of his power vide the newly added proviso to section 66 of Sales Tax Act, 1990 vide the Finance Ordinance, 2002. Here no double taxation is involved and the appellant is simply being required to follow the law in letter and spirit so that new system of VAT mode sales tax can work successfully on the basis of voluntary compliance. Keeping in view of the case the amount of additional tax and penalty is remitted.

21. The appeal is disposed of as above. C.M.A./590/Tax (Trib.) Appeal accepted.