2017 PLP (Trib (PTD)

CH. SHAHID IQBAL DHILLON, (JUDICIAL MEMBER).

The titled appeal has been filed under section 46 of the Sales Tax Act, 1990 at instance of the assessee calling in question the impugned Order-in-Appeal No. 879/2014 dated 09-12-2014 passed by the learned CIR (Appeals), Faisalabad.

2. Brief facts of the case as emanating from the case record are that an audit of the assessee records for the periods from July 2007 to June 2013 was conducted under sections 25 and 38 of the Act and it was observed that the assessee declared variation in production/sales in different months with comparison of electricity units and found involved in suppression of sales. Based on the said omission/irregularities, adjudication proceedings were initiated by the taxation officer by way of issuance of show cause notice dated 15-09-2014 under section 11(2) of the Sales Tax Act, 1990 and under section 14 subsection (3A) of the Federal Excise Act, 2005 for recovery of sales tax and special excise duty worth Rs. 879,725/- illegally adjusted. Resultantly, adjudication proceedings were culminated in passing of an order dated 27-10-2014 which was challenged before the learned CIR(A) who also upheld the liability against the assessee despite submission of supportive documents. The assessee being discontented with treatment met out by both the authorities below, has filed the second appeal before this Tribunal assailing the treatment accorded by both the lower fora.

3. Learned counsel appearing on behalf of assessee has vehemently contested that demand of sales tax and special excise duty created on the basis of consumption of electricity units is without lawful authority as the Sales Tax Act, 1990 did not prescribe any procedure or formulae to calculate liability of tax on its basis without proving supply of goods. Learned counsel further argued that consumption of electricity was by no means yard stick to assess the production as under section 3(1)(a) of the Act, sales tax is always levied and charged on supply of goods and not on the basis of production. On the other hand, when departmental representative confronted with the tax situation cited supra, in counter arguments, he has assailed the case on similar grounds and charges as leveled earlier in impugned show cause notice as well as adjudged in consequent orders and nothing newel, except to reiterate earlier set of contentions, has been put forth by him and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.

4. We have heard arguments of both the rival parties and also carefully examined the relevant provisions of law as well as the case law cited at the bar.

5. The whole contravention case has been made out against the assessee by calculating sales tax on the basis of consumption of electricity and not on the basis of the actual supply. The departmental presumption was that since the assessee was in a position to producing more for which certain formula was adopted on the basis of consumption of energy; hence, the supply also should have been on the basis thereof. The case of the department remains that the assessee has not shown its complete supplies while he has the capacity to produce more which he has not declared in his statement and suppressed its actual supplies. The learned tax functionaries have compared consumption of electricity units vis- -vis production of paper board products worked out on its basis vis- -vis sales and supply thereof which has no legal as well as factual effect because there could not be any co-relation between sales and consumption of electricity. Both the variables are completely independent to each other and as such no functional relationship could be so established. Under section 3(1)(a) of the Act, sales tax is on sale and supply of goods which necessarily entails 'delivery of goods' or 'receipt of money consideration' and no corroborating evidence for any clandestine removal of goods or for receipts of money consideration has been provided by the department without which whole exercise for creating huge liability of sales tax remains in thin air and thus of no legal effect. Assessment of sales tax on the basis of consumption of electricity units is hardly a safe rule and yard stick to assess the production. The so-called standard ratio is defective in itself therefore, any assertion made therefrom has no legal worth and consequences. Apparently production is not covered within the definition of supply as given under section 2(33) of the Act. Reliance is placed on the judgment of Hon'ble Lahore High Court in case of "Messrs Avari Hotel Ltd. v. The Collector of Sales Tax and 3 others" reported as 2000 PTD 3765 wherein it was laid down that a person must be taxed only if he comes within the letter of law otherwise, he is free even though his case falls within the spirit of law. Fiscal statutes should be strictly construed, as for as liability to tax is concerned. In fiscal statutes, only the letter of law is to be looked into and there is no room for any intendment, equity and presumption. Conversely, department has raised exorbitant demand of sales tax merely on assumptions and presumptions without any tangible basis. Under section 2(35) of Sales Tax Act, 1990, the yard stick to charge and levy sales tax is the sale constituting a taxable activity for a taxable supply. This fact clearly indicates that the whole adjudication proceedings are based on mere presumption of fact. It is well-settled law that an adjudication based on mere presumption of fact is not sustainable under Article 117 read with Article 118 of the Qanun-e-Shahadat Order, 1984.

6. Be that as it may, provisions of section 3 of the Act would not cover levy of sales tax on the basis of consumption of electricity and the capacity to produce and the supply as defined in aforementioned sections. The dispossession and actual transfer of goods by the manufacturer to the other party is a basic requirement to bring the goods within the charge. Unless, the department is in a position to establish that the assessee did more production and same has been transferred to another party, sales tax cannot be charged. The estimate, however, strong it may be, unless is based upon some corroborating and solid evidences and reasons to believe cannot lead to creation of huge demand of sales tax. The departmental case is totally based upon hypothetical calculations without any proof which established beyond any shadow of doubt that impugned liability of sales tax and special excise duty is based on the figures and calculations, which are imaginary and presumptive without any logical and legal basis and no tax could be levied on the basis of assumption and presumption. It is now well-settled law that sales tax imposed on the basis of some assumption and presumption not warranted in law shall always be struck down.

7. In view of what has been discussed hereinabove, particularly in the light of law, the impugned show cause notice as well as consequent orders of both the authorities below are declared to be illegal, ab initio void and are thus hereby set aside.

8. Appeal filed by the assessee is accepted as indicated above. HBT/83/Tax(Trib.) Appeal accepted.