2004 PLP (Trib (PTD)

‑‑‑‑S. 34‑Additional tax‑‑‑Word "shall pay" and "shall be liable to"‑‑ Levy of additional tax represents the opportunity cost of money not paid into the exchequer by a taxpayer at. the prescribed time‑‑‑Payment of additional tax under S.34 of the Sales Tax Act, 1990, was compulsory in nature with the substitution of the word "shall pay" instead of "shall be liable to" in S.34 of the Sales Tax Act, 1990‑‑‑Appellate Tribunal directed that for the purposes of propriety, the existing rate of 2% of tax per month, as presently prescribed under S.34 of the Sales Tax Act, 1990, shall suffice for the total period of default, and the previous higher rates may not be insisted upon as there appears to be no mala fide or mens rea in non‑payment/default and the penalty imposed was remitted. 1995 PTD 91 ref. Mahmood Mirza, Isaac Ali Qazi and Muhammad Yunus for Appellant. Al‑Haj Gul, D.R., Hussain Muhammad and Bakht‑e‑Dauran, Sr. Auditors for Respondent. Dates of hearing: 23rd September, 16th, 29th October of 2002, 25th June, 18th, 24, 29th September, 6th .8th and 14th October, 2003. S. M. KAZIMI (MEMBER TECHNICAL).‑‑‑This judgment disposes of the appeal filed by Messrs Premier Sugar Mills and Distillery Co. Ltd., Mardan, against the Order‑in‑Original No.37 of 2000, dated 17‑5‑2000 (dispatched on 17‑5‑2000) passed by the learned Additional Collector of Sales Tax, Peshawar.

2. Briefly, the facts of the case are that the Audit Team of the Directorate General of Audit, Revenue Receipts (DG, ARR), Lahore, audited the record of registered person Messrs Premier Sugar Mills‑and Distillery Co. Ltd., and observed that they supplied a machinery (14000 KW Horizontal Multi‑stage Turbo Alternate Set complete with all equipments) on lease to Messrs Chashma Sugar Mills Ltd. (a subsidiary company separately registered under the Sales Tax Act, 1990) at prime cost of Rs.30 million at an annual lease rent of Rs.6 million for a period of 3 years vide the lease agreement, dated 20‑12‑1994 extended up to 31‑12‑1999. They also observed that as per note 12.2 at page 18 of, the Registered person' Annual Report for 1997, Book Value of the leased machinery as at 30‑9‑1997 was Rs.20,694 million (1996 Rs. 22.993 million) and the lease agreement was secured against a Demand Promissory Note of Rs. 18 million. They further observed that as per note 12.2 at page 19 of Registered person's Annual Report for 1998, the extension in, the lease agreement has been made in consideration of annual lease rent of Rs.5.2 million. The Audit Team detected that sales tax on this lease money has not been paid by Messrs Premier Sugar Mills and Distillery Co. Ltd. causing short levy of principal amount of sales tax of Rs.3,550,323 (besides the amount of Rs.4,312,498 of additional. tax payable up to 30‑9‑1999) for the lease rental received, for the lease period from 21‑12‑1994 to 30‑9‑1999. The Additional Collector of Sales Tax, Peshawar, vide his notice C. No. ST (DRRA) 160/99/9379, dated 17‑11‑1999, required Messrs Premier Sugar Mills and Distillery Co. Ltd. to 'show cause why the aforesaid amount should not be recovered from them and also why penal action should not be taken against them for evading the aforesaid levy. After taking into consideration the written reply to the show‑cause notice and also the oral arguments advanced by Mr. Mahmood Mirza, Advocate, and Mr. Aslam Malik, Finance Manager of Messrs Premier Sugar Mills, the learned Additional Collector decided the case vide his impugned Order‑in Original No.37 of 2000 wherein it was held that the charges levelled in the show‑cause notice were established and, therefore, he required Messrs Premier Sugar Mills and Distillery Co. Ltd., to pay the principal amount of sales tax of Rs.3,550,323 alongwith the additional tax due in terms of section 34 thereon. He also imposed a penalty equal to 5 % of the tax 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 stated that section 2(33) of the Sales Tax Act, 1990, as it existed prior to its amendment through the Finance Ordinance, 2000, defined that the term "supply" includes sale, lease or other disposition of goods in furtherance of business carried out for consideration. He argued that since the word "lease" inserted between the terms "sale" and "disposition" in the said section 2(33) and also because the said 2 terminologies "sale" and "disposition" essentially involve transfer of ownership, the term "lease" used in the said section 2(33) shall mean only such lease where the ownership or the title of the leased commodity is also transferred. He pointed out that since Article X of the Lease Agreement envisages return of the machinery after the lease period and, also because no transfer of title or ownership of the leased machinery is envisaged, this case cannot be construed to be covered by section 2(33) of the Act. He also argued that since "lease" of this machinery was not done by the appellant in furtherance of its business, this will not constitute a "supply" under section 2(33) of the Act. He clarified that the lease agreement between the appellant and Messrs Chashma Sugar Mills is in the nature of operating lease and it is not a financial lease, as the later (financial lease) involves transfer of the leased machinery to the lessee by the end of the lease term. He also pointed out that "financial lease" and "operating lease" have been excluded from the scope of definition of "supply" under section 2(33) of the Sales Tax Act, 1990, through the amendments made by the Finance Ordinance, 2000 and the Finance Ordinance, 2001, respectively. He argued that these amendments are "clarificatory" in nature and, should, therefore, operate retrospectively in terms of the Honourable Peshawar High Court's judgment, dated 14‑2‑2002 in T. Ref. No. 44 of 1997 of 2003 PTD

812. He prayed that the impugned order may be set aside and the appeal be accepted.

4. The learned D.R. opposed the appeal on the ground that this case relates to the period up to 30‑9‑1999 and, therefore, the benefits of legislative amendment made through the Finance Ordinance, 2000 and the Finance Ordinance, 2001 do not apply in this case as the relevant amendments in section 2(33) of the Sales Tax Act, 1990, have not been allowed any retrospection. He prayed for rejection of the appeal.

5. Having heard the parties and on perusal of record of the case, we find that the tern! "Supply" is defined under section 2(33) of the Sales Tax Act, 1990, as hereunder:‑‑ 2. "(33) "Supply" includes sale, lease (excluding financial or operating lease) or other disposition of goods in furtherance of business carried out for consideration and also includes‑‑‑ (a) putting to private, business or non‑business use of goods acquired, produced or manufactured in the course of business; (b) auction or disposal of goods to satisfy a debt owned by a person; (c) possession of taxable goods held immediately before a person ceases to be a registered person; and (d) such other transaction as the Federal Government may, by notification in the official Gazette, specify." Note:

1. Brackets and words "(excluding financial lease)" inserted through section 6(1)(ii) of the Finance Ordinance, 2000 (XXI of 2000), dated 19‑6‑2000. (2) words "or operating" inserted through section 6(1)(d) of the Finance Ordinance, 2001 (XXV of 2001), dated 18‑6‑2001.

6. We also find that section 2 of the aforesaid 2 Ordinances (i.e. F.O. 2000 and F.O., 2001) make it effective from the date of the respective Ordinance and no retrospection has been given to the aforesaid amendments of the provisions of section 2(33) of the Act, 1990. We do not agree with the learned counsel that these amendments are clarificatory amendments. We are of the opinion that these amendments show the legislative intent to exclude financial lease and operating lease from the definition and scope of the term "supply", for the purposes of levy and collection of sales tax, with effect from 19‑6‑2000 and 18‑6‑2001, respectively. The judgment 2003 PTD 812 cited as precedent does not apply to the said amendments made through the said Ordinances because the said judgment involved interpretation of application of a Notification. No.S.R.O. 1283(I)/90, dated 13‑12-1990 (a subordinate legislation) while the instant appeal, before us, involves interpretation of application of an Ordinance itself. Moreover acceptance of the counsel's viewpoint shall mean that all legislative amendments (not envisaging retrospection) favouring taxpayers shall invariably apply retrospectively, as pleaded for this case, where the tax has been adjusted (on 17‑5‑2000) before the said legislative amendment but an appeal is pending on the date of the legislative amendment take effect. We are afraid that we cannot accept such an interpretation which is transgressive of our jurisdiction and encroaches upon the powers (to allow retrospection) of the law‑makers (legislature/president). In its judgment, dated 16‑10‑2001 in C.A. No.4 of 1998 (2002 MLD 296), the Honourable Lahore High Court has held that "Although the appellate jurisdiction of the Tribunal under section 194‑A has been couched in all embracing terms and words, nevertheless, being a creature of statute it cannot travel beyond the statute to declare, directly or indirectly, any of the provisions to be illegal or inapplicable where these are clearly attracted". Based on this principle, we do not find any reason to allow' the amendments made in section 2(33) of the Sales Tax Act, 1990, and the Finance Ordinance, 2001 to apply retrospectively when there is no such express or apparent legislative intent to allow any such retrospection. We, therefore, hold that the amendment in the scope of the term "supply" as in section 2(33) of the Sales Tax Act, 1990, as enacted through the Finance Ordinance, 2000 and the Finance Ordinance, 2001, shall apply prospectively with reference to the respective amendments. As regards the learned counsel's argument that the word "lease" used in section 2(33) of the Act should be construed to mean only "financial lease" (because the said word "lease" is placed between the words "sale' and "other disposition" and the latter words essentially involve transfer of ownership), we find that the term used in the definition of "supply" under section 2(33) "includes" which cannot be construed to be restrictive in nature. Moreover, by excluding the term "operating lease" through the Finance Ordinance, 2001, the legislative intent becomes very clear that the said term "lease", as used in the un‑amended section 2(33) of the sales Tax Act, 1990, (as prior to 18‑6‑2001) included "operating lease". For the abovesaid reasons, we do not find any force in the arguments advanced by the learned counsel. The operating lease, extended lease, of the machinery in terms of the Lease Agreement attached with the MOU, dated 13‑7‑1994 signed between the appellant as a "Lessor" and Messrs Chashma Sugar Mills Ltd., D. I. Khan as a "Lessee" constitutes a taxable supply up to 17‑6‑2001 i.e. prior to F.O. 2001. We accordingly confirm the impugned order insofar as it relates to the levy of the principal amount of sales tax on the consideration (in terms of money) received by the appellant for the lease of the machinery. As regards additional tax, this represents the opportunity cost of money (principal amount of tax) not paid into the exchequer by a taxpayer at the prescribed time. The payment of additional tax, under section 34, is compulsory in nature with the substitution of the word "shall pay" instead of "shall be liable to" in that section. (1995 PTD 345 = 1995 PTD 91). However, we direct that for the purposes of propriety, the existing rate of 2% of tax per month, as presently prescribed under section 34, shall suffice for the total period of default, and the previous higher rates may not be insisted upon. Since there appears to be no mala fide or mens rea in non‑payment/default, the penalty imposed in this case is hereby remitted. The impugned order is modified to the extent stated in this paragraph and the appeal stands disposed of accordingly.

7. Inform all concerned.

8. Announced. C.M.A./36/Tax (Trib.) Order accordingly.