2015 PLP (Trib (PTD)

The instant sales tax appeal has been filed by the Revenue/Department against the Order-in-Appeal No.518-A.II, dated 17-12-2012 passed by the learned CIR (Appeals-II), Lahore. The appellant/Department contested the order of the learned CIR(A) on the following grounds:-- (1) That the learned CIR(A) was not justified to reduce sales tax from Rs.13,118,000 to Rs.17,12,989 on account of inadmissible adjustment of input tax against violation of section 73 of the Sales Tax Act, 1990. (2) That the learned CIR(A) was not justified to allow relief on account of payments made beyond the statutory period of 180 days in violation of section 73 of the Sales Tax Act, 1990, by holding that it was only a procedural lapse which is condonable whereas procedural lapse not been defined in the Sales Tax Act, 1990, and that the registered person had failed to apply for condonation of delay in making the payments beyond 180 days. (3) That the learned CIR(A) was not justified to fix the penalty of Rs.15,080 on account of violation of provisions of section 73 of the Sales Tax Act, 1990. (4) That the learned CIR(A) was not justified to reduce the sales tax of Rs.40,738 for default of claim of excess input tax. (5) That the learned CIR(A) was not justified to delete the charge of "inadmissible input tax claimed against purchase of furnace oil and cement etc. in violation of section 8(1)(a) of the Sales Tax Act, 1990. (6) That the learned CIR (A) was not justified to delete the charge regarding suppression of sales involving sales tax of Rs.2,391,410 on account of difference of stock. (7) That the learned CIR(A) was not justified to allow the claim regarding adjustment of input tax on plant and machinery of Rs.7,976,317 which were not used for production of artificial leather. (8) That the learned CIR(A) was not justified to drop the charge on account of inadmissible input tax claimed by the registered person against purchase of diesel used against production of exempt supplies of electricity. (9) That the learned CIR(A) was not justified to allow relief in tax on account of fake supplies/un-verifiable supplies for the periods January 2011 to March 2011, April, 2011 to November 2011 and December 2011. (10) That the learned CIR(A) was not justified to delete the input tax on account of Rs.249,107,999 because it was inadmissible for the reason that payments were not received against supplies in violation of section 73 of the Sales Tax Act, 1990. (11) That the learned CIR(A) was not justified to delete the sales tax of Rs.48,131,613 which was levied due to reason there was a difference of stocks between the audited accounts and stock taking report. (12) That the learned CIR(A) entertained fresh evidences where were not produced at the assessment stage.

2. Briefly stated, the relevant facts are that the registered person in this case is engaged in the manufacturing and supplies of artificial leather. During the course of investigation proceedings under section 38 of the Sales Tax Act, 1990, the assessing authority observed certain violation of the provisions of law, as embodied in the body of the impugned assessment order. These discrepancies were confronted through show-cause notice as to why the evaded amount of sales tax amounting to Rs.733,568,925 should not be recovered under section 11 of the Sales Tax Act, 1990, along with default surcharge and penalty. In response to show-cause notice, the taxpayer duly responded and filed detailed explanation and rebutted the allegation levelled in the show-cause notice. However, the assessing authority after considering the explanation and after being not satisfied had rejected the same. As a consequence, the impugned assessment order was passed whereby the confronted amount of sales tax was ordered to be recovered along with default surcharge and penalty. Being aggrieved, the registered person went in appeal before the learned CIR(A) and assailed the impugned assessment order on a number of legal and factual grounds. The learned CIR(A) after detailed discussion in the impugned appellate order, had allowed substantial relief which was assailed by the department before this Tribunal through the above quoted grounds of appeals.

3. We have heard the arguments of the learned representatives of both the sides and have carefully gone through the available record. After giving due consideration to the submissions made at the bar, the department appeal is disposed of in the following manner:-- Violation of Section 73 of the Sales Tax Act, 1990.

4. During the course of assessment proceedings, the assessing authority had observed that the registered person had not made payments to the different supplier units, hence violated the provisions of section 73 of the Sales Tax Act, 1990. Therefore, the input tax of Rs.13,634,348 was ordered to be recovered along with default surcharge and penalty. Before the learned CIR(A), it was the contention of the learned AR that the registered person had not violated the provisions of section 73 as all the payments made were through normal banking channels, however, due to financial crises, the payments were not made to some suppliers in time. In support, the learned AR had submitted relevant record in the shape of crossed cheques, party ledger and banks statement to show transfer of amounts from the appellant's bank accounts to the supplier banks accounts. After taking into consideration all these aspects, the learned CIR(A) observed that the registered person had neither applied for wrong adjustment of input tax nor claimed input tax against fake/ flying invoices and nor caused any financial loss to the government exchequer. Therefore, denial of such input tax would tantamount to double taxation. Accordingly, the learned CIR(A) directed to allow the input tax adjustment and dropped the allegations after relying on the decision of this Tribunal reported as 2010 PTD (Trib.) 2345. However, the learned CIR(A) has ordered for imposition of penalty of Rs.15,080 under section 33 (16) of the Act.

5. We have looked into the matter and after due consideration, we are satisfied that the learned CIR(A) has rightly directed to allow input tax adjustment and drop the allegation of non-compliance to the provisions of section

73. The registered had duly provided the relevant record of transfer of payments from their accounts to the bank accounts of the supplier units which were duly reflected in the bank statements. In some cases, there is only a default of payment of amounts paid beyond 180-days which delay was condoned by the learned CIR(A) being procedural in nature after relying on the decision of this Tribunal cited supra. Under such circumstances, we find no reason to disturb the order of the learned CIR(A) which is hereby maintained. Inadmissible input tax claimed.

6. The assessing authority held in the impugned assessment order that the registered person had claimed inadmissible input tax on furnace oil and cement, hence, violated the provisions of section 8(1) of the Sales Tax Act, 1990. The tax charged against the said allegation was directed to be dropped by the learned CIR(A) in the light of provisions of section 7(1) of the Sales Tax Act, 1990. It is contended by the learned DR that the assessing authority has rightly denied input tax adjustment against furnace oil and cement as the same is not admissible in terms of section 8(1)(a) of the Act. On the contrary, the learned AR supported the order passed by the CIR(A) and reiterated the submissions as made before him.

7. We have looked into the matter and we find that such input tax adjustment on furnace oil and cement etc. is not disallowable under S.R.O. 490(I)/2004, therefore, there was no justification for denial of the input tax which is allowable in terms of section 8(1)(b) of the Sales Tax Act, 1990. Therefore, we find no reason to disturb the order of the learned CIR (A) which is hereby maintained. Difference of Stock

8. During the course of investigation, the assessing authority detected that there is difference of stocks as per inventory and annual audited accounts for the tax year, 2011. Accordingly, sales tax amounting to Rs.2,391,410 was found recoverable along with default surcharge and penalty. However, the learned CIR(A) deleted the said addition. It is explained by the learned AR that in the audited accounts of the taxpayer, raw material, work-in-process and finished goods collectively represents the stock in trade, so there is no difference of stock rather it is only the methodology or audit parameters adopted by the auditors for Understanding fair and true picture of the audited accounts. After due consideration of the matter, we find that no exception can be taken to the treatment as accorded by the learned CIR(A) who after taking into consideration all aspects of the case had directed to drop the allegation and deleted the sales tax. Therefore, order of the learned CIR(A) is maintained being in accordance with law and facts of the case. Inadmissible input tax claimed on plant and machinery

9. During the period under consideration, the registered person-company imported machinery for the business purposes and sales tax paid at import stage at Rs.7,976,317 was claimed as input tax which was subsequently disallowed by the assessing authority on the plea that the plant and machinery was not used for the purpose of manufacturing of artificial leather which is principle activity. However, the learned CIR(A) vacated the order of the assessing authority in this regard. The learned CIR (A) while vacating the order of the assessing authority in this behalf has observed that the machinery imported was duly installed at the business premises of the registered person and machinery so installed is directly producing goods for taxable supplies as per the provisions of section 8 of the Act. The said finding of the learned CIR(A) is also supported by the reported judgment in the case re: Messrs Sheikh Spinning Mills Ltd., cited as 2002 PTD (Trib.)

111. After due consideration, we find no reason to disturb the order of the learned CIR(A) which is found to be in accordance with law and also supported by the above referred judgment. Therefore, the order of the learned CIR(A) in this regard is maintained. Supplies not verified

10. The assessing authority observed that the registered person has not provided the complete addresses, contract numbers and payment proofs of its buyers to whom the supplies have been made to get the benefit of refund. Accordingly, output tax of Rs.394,009,783 which was not charged on the supplies made by the registered person was found recoverable along with default surcharge and penalty. The learned CIR(A) deleted the demand which was assailed by the department as contrary to law and facts of the case.

11. It is explained by the learned AR that all the supplies declared by the registered person are genuine and fulfill the requirement of sections 22, 23, 26 and 73 of the Sales Tax Act, 1990. It is contended that since the supplies have been zero rated as declared by the FBR vide S.R.O. 509(I)/2007 dated 9-6-2007 but the department charged sales tax @ 16%.

12. We have looked into the matter, and after due consideration, we find that no exception can be taken to the treatment as accorded by the learned CIR(A) which is found to be in accordance with law and also consistent with the different SROs issued by the FBR in this regard. Since, the order of the learned CIR(A) needs no further alteration/modification, the same is accordingly maintained in this behalf. Payments not received against supplies.

13. During the period under consideration, it was observed that the registered person has not provided proofs of receipts against their supplies. Furthermore, as per audited accounts the debtor and creditors have been increased so it was inferred that certain payments were not received or paid against the supplies. Accordingly, input tax adjustment of Rs.249,107,999 was disallowed and found recoverable from the registered person. However, the learned CIR(A) observed that section 73 of the Act and FBR's letter C. No.3 (36) dated 14-7-2004, provide that section 73 does not apply on the imports and exports, purchases and sales to unregistered person. Therefore, the inference draw merely on the basis that creditors and debaters were increase is unlawful and against the spirit of the Sales Tax Act. Accordingly, the liability credited under this account was deleted by the learned CIR(A).

14. We have carefully gone through the observations made by the learned CIR (A) and we are satisfied that the first appellate authority has acted, in accordance with law. The tax charged on the basis that creditors and debtors were increased is unlawful and against the facts of the case. The learned DR in this behalf has failed to make out a case that the order of the learned CIR (A) needs modification, therefore, the same is maintained. Difference of Stocks

15. During the period under consideration, the assessing authority observed that as per audited account the taxpayer declared closing stock at Rs.283,127,137 whereas on physical verification there was no stock found at the premises. Accordingly, sales tax amounting to Rs.48,131,613 was found recoverable along with default surcharge and penalty. The learned CIR(A) observed that no evidence was brought on record in terms of section 38 to substantiate the claim that there is no stock available at the premises. It is also observed by the learned CIR(A) that the department visited the premises of the registered person without complying with the provisions of sections 38 and 40 of the Sales Tax Act, 1990, hence, they acted beyond their jurisdiction. Accordingly, the learned CIR(A) deleted the tax demand in this regard.

16. We have perused the available record and after due consideration, we find that the department while taking alleged stocktaking had not acted in accordance with the provisions of sections 38 and 40 of the Act, therefore, the learned CIR(A) was justified to observe that the staff acted beyond jurisdiction. While deciding the issue, the learned CIR(A) has also relied upon the decision reported as PTCL 1999 CL 803 which is found relevant and applicable in the instant issue. Under such circumstances, we find no reason to disturb the order of the learned CIR(A) which is hereby maintained.

17. Resultantly, the departmental appeal being filed without any merit or substance is hereby rejected. HBT/42/Tax(Trib.) Appeal rejected.