2007 PLP (Trib (PTD)

MRS. KHALIDA YASIN, MEMBER (JUDICIAL).

This appeal is directed against the Order-in-Original No.4 of 2000, dated 2-8-2000 passed by Additional Collector Customs, Sales Tax and Central Excise (Adjudication-III), Karachi.

2. The brief facts which gave rise to the above-said appeal are that appellant is registered company engaged in the manufacture of Sweet and Toffees in the brand name "Energies" and paying sales tax on its supplies. On 28-4-2000 a show-cause notice was received wherein it was alleged that receipt of payment of Rs.27,271,948.00 shown on the debit side of ledger in the statement of account, for the year, 1998-99 did not tally when compared with sales tax as per sales tax return of the same year. It was claimed that there was a discrepancy between ledger account and declared sales as per sales tax return. It was further alleged that on the basis of this excessive unexplained receipt, the appellant had evaded sales tax amount of Rs.4,363,512 and further additional tax of Rs.2,405,727 totalling Rs. 6,769,

239. It was also stated that the appellant had not paid sales tax on the amount of Rs.60,000 received from insurance Company in respect of lost Motor Cycle which sales tax comes to Rs.7,500 plus 8872 by way of additional tax totalling Rs.16,

372. It was further alleged that the total amount claimed by way of sales tax of Rs. 6, 785,671.00 wrongly calculated as Rs.6,785,611.00 inclusive of sales tax of additional tax claimed under the unexplained receipt of Rs.27,271,948.00 and Insurance claimed of Rs.60,000.

3. The appellant had received the show-cause notice in which it was denied the allegations of evasion of sales tax and pointed out that the un-explained receipt of Rs.27,271,948 does not relate to the purchase or payment receipt towards sale as they claimed sales tax refund, income tax refund, bank loan transactions which are not subject to sales tax and are excluded in the computation of sales tax return filed in the year, 1998-99. The details of different amounts received under unexplained receipts are as under:-- Sales tax refund??????????????????????????????????????????????? Rs.?????? 197,494.00 Income tax return????????????????????????????????????????????? Rs.?????? 4,630,39300 Loans from associated companies???????????????????? Rs.?????? 158,720,000.00 Loan transaction with associated companies????? Rs.?????? 1,050,988.00 Refund of deposits and charges???????????? Rs.?????? 1,952,549.00 Finance facility from BNFT's/Banks????????????????? Rs.?????? 13,422,669.00 Other income??????????????????????????????????????????????????? Rs.?????? 21,536.00 Rs.?????? 189,454,527.00

4. It was also claimed in the reply of the show-cause notice that the sales tax of amount of Rs.7,500.00 claimed on account of payment of Rs.60,000 as insurance of lost motor cycle' was not maintainable and cannot be treated as supply.

5. The leaned Additional Collector by his impugned order, dared 2-9-2000 had held that the appellant is liable to pay Rs. 19,23,032.00 pertaining to lease transaction plus Rs.26,92,001.00 towards additional tax and penalty to Rs.96,152.00. During hearing of the appeal a fresh point relating to lease between the appellant and Pak Saudi Leasing Company as per agreement, dated 28-10-1998 and 29-1-1999 by which the appellant sold one set of Diesel Generator and one set of packaging machine for consideration of Rs.89,83,725.00 and Rs.4,43,894.00 respectively and got leased the said machines as per the said agreements. The representative of the Department had argued that transaction of lease attracts sales tax and is covered under section 2(33) of the Sales Tax Act, 1990, therefore, a sum of Rs.1,212,803.00 and Rs.710,231.00 and Rs.7,10,231.00 was payable as sales tax.

6. It was claimed that the objection of transaction of lease was not mentioned in the show-cause notice, dated 18-4-2000 and was agitated during hearing, therefore, appellant is seriously prejudiced.

7. It was prayed that the order be set aside on the grounds that un?explained receipts of, Rs.2,72,71,948.00 comprises many items such as sales tax refund, income tax refund, bank loan transaction which do not attract sales tax. The show-cause notice, dated 18-4-2000 was mala fide and illegal. The learned respondent erred in law by treating lease transaction as supplies and cannot be treated as sale of supply within the meaning of section 2(33) of the Sales Tax Act, 1990, therefore, no sales tax is chargeable. The goods under section 2(32) means movable property and leasing of fixed machinery or equipment cannot be treated as goods, therefore, it cannot be covered as supplies. The lease is not defined as sales and does not constitute goods and does not fall under the purview of section 2(33) of the Sales Tax Act, 1990. No sales tax is attracted in the transaction of lease. At the end it was prayed to set aside the order, dated 2-8-2000.

8. Heard Mr. Abdul Ghaffar, Advocate for the appellant and Mr. Azam Nafees, Senior Auditor for the respondent and perused the case record.

9. The learned counsel for the appellant had argued that the respondent had levied sales tax and additional tax on the lease equipment which was packaging machine and generator which is against the law. The respondent had issued show-cause notice but had not remotely mentioned about levying of sales tax on the lease equipment. He urged that lease is distinguishable from the sale. The ownership of the lease equipment remains with the lessor whereas the lessee has the, possession and pay monthly rent for it. The lessor has option to seize the equipment, if the lessee does not pay the rent. In sale, the ownership and possession pass to the buyer and there is no contingency attached with sale. As such he urged that , lease equipment is not taxable. The transaction of lease cannot be treated as supplies, therefore, he prayed that the order be set aside. He stated that Bench-II had decided the issue on lease and had held that the goods leased are not taxable. He prayed that it is in the interest of justice that the principle of consistency be maintained and the Order-in-Original be set aside.

10. Mr. Azam Nafees, Senior Auditor for the respondent had argued that the lease is covered under section 2(33) on the definition of supplies. He urged that the lease is included under the definition of supplies, therefore, tax is payable on the goods.

11. The issue before the Court is whether sales tax is chargeable on the leased goods and whether the money received from Insurance Company for the loss of Motor Bike is taxable under the Sales Tax Act.

12. Section 2(12) defines the word goods. It says it includes every kind of movable property other than actionable claims, money, stock, share and securities.

13. Section 2(33) defines "supplies" it includes sale, lease (excluding "Financial Lease or Operating Lease").

14. Section 2(35) defines taxable activity and lays down the supply of the goods from one person to another person and is a condition precedent for the levy of sales tax.

15. In the instant ease the goods were leased out to the appellant by the lessor but the Tribunal has to see whether the goods passed on comes under definition of sale and are taxable. My learned colleague Bench-III in Appeal No.254/2001 had dealt in details with the terms of lease, sale; and agreement to sell and had concluded that the leased goods do not fall under the definition of sale but of a lease and after expiry of agreement, the goods do not transfer from one person to another but remains with lesser and that no sales tax is liable thereof. It is further pleaded by the Advocate that by virtue of amendment in the definition of supply, the transaction under finance lease, operating lease has been excluded, therefore, the lease of packaging machine and generator do not come under the purview of supply, liable to sales tax.

16. The amendment made in the definition of supply deleted finance or operating lease is a remedial statutes and does not affect the vested right, on the contrary facility is given to the public in general. The very purpose of law is not to oppress the taxpayers but to ease them out from the harsh attitude of the Department.

17. Hence it is concluded that when the ownership of the property in case is not transferred from one person to another person no sales tax is liable.

18. The other point raised by the Advocate of the appellant was that they are not liable to pay sales tax on the insurance amount received by them on the loss of motor cycle. The representative of the Department cannot explain under what section of sales tax insurance amount received on account of loss of motor cycle was liable to sales tax.

19. The money does not come under the definition of section 2(12) which deals with the definition of goods. It also does not fall under section 2(35) of the definition of taxable activity, therefore, the appellant is not liable to pay any sales tax on the amount received by them from the Insurance Company on account of the loss of motor cycle.

20. In view of the above discussion, I answer both the issues in favour of the appellant that no sales tax is chargeable on the leased goods and on the money received from the Insurance Company as such appeal is allowed and Order-in-Original is set-aside. H.B.T./195/Tax (Trib.)???????????????????????????????????????????????????????????? Appeal allowed.