2004 PLP (Trib (PTD)

Ishtiaq Ahmad, Law Officer and Bakht-e-Dauran, Auditor for Respondents. Dates of hearing: 3rd July; 26th November, 2002 and 20th Augustm 2003. S.M. KAZIMI, MEMBER (TECHNICAL).

This judgment disposes of the appeal filed by Messrs Heavy Electrical Complex (Pvt.) Ltd., (hereinafter called the "HEC" or the "appellant") on 3-7-1999 against the Order-in-Appeal No.CE-ST/64/99 dated 22-5-1999 passed by the Collector (Appeals), Northern Zone, Rawalpindi. In their written application for condonation of delay, the appellant has stated that they received the impugned Order-in-Appeal after the expiry of 30 day's limitation as their project is situated in Hattar However, the photocopy of the impugned Order-in-Appeal (submitted with the written appeal) shows that one Suhail of the appellant comp y received that copy on 29-5-1999 and marked it to the G.M. (T) who further marked it to M(C) on 31-5-1999 With the remark "please discuss". This shows that the written plea for condonation of time-bar is of factually correct. On this pointation, the representatives of the appellant stated that the appellant company is a State enterprise and the delay infilling of appeal was due to procedural delays inherent in the system. They prayed that since it involves a delay of 5 days and also because the limitation for filing of appeal has now been prescribed, statutorily, as 60 days, their appeal may be decided on merits in relaxation of the time-bar (with reference to the then limitation of 30 days) with a view to determining the genuineness, merit and admissibility of their refund claim on goods supplied by them against international tender involving vested right of zero-rating of sales tax. They further prayed that dismissal of their appeal on ground of time- bar will create hardships to them and may deprive them of the money not received by them and also owed by the treasury. They apologized for an incorrect written plea taken by them for condonation of time-bar and promised that the appellant shall be careful in the future. In view of the apology offered, we are pleased to condone the delay of 5 days in filing of this plea with a stern warning to the appellant, in their own interest, to be careful in the future and to improve their system in a manner that such delays and irresponsible explanation for delays/defaults do not recur.

2. Briefly, the facts of the case are that the HEC claimed a refund of Rs.3,318,474, vide their Monthly Return-cum-Payment challan filed for the month of August 1997, on account of the input tax paid on materials in their supplies. Since the HEC did not furnish the relevant record and registers for verification of the Assistant Collector of Sales Tax (Audit), Peshawar, issued a notice C. No. 3052 dated 17-10-1997-requiring HEC to show cause why the claim should not be rejected as inadmissible. Later (as per paragraph 4 of the Order-in-Original No.4/98), HEC enhanced the refund claim to Rs.3,855,256, vide their Monthly Return-cum-Payment challan for February, 1998. After hearing HEC's representatives, the Assistant Collector of Sales Tax (Audit), Peshawar, passed Order-in-Original No.4/98 dated 30-3-1998, issued under his C.No. IV (ST)/Refund/HEC/97/133 dated 31-3-1998, holding that the supplies of the registered person (HEC) became a exempt under S.R.O. 230(I)/97 dated 29-3-1997 read with C.B.R's letter C.No.1/11-STT/97 dated 9-4-1997 and that HEC had not supplied any taxable goods i.e., "plant and machinery for the power transmission system project and grid station" of Sr.No.53 of the then Seventh Schedule till 28-3-1997. For this reason, he decided that balance of input tax credit could not be carried over to the period of exemption on supply of output after 29-3-1997. He, therefore, rejected the refund claim of Rs. 3,855,256 as inadmissible under section 8 of the Sales Tax Act, 1990, on account of taxable inputs having not been used in the manufacture of to taxable supply of goods. HEC's appeal has also been rejected by the Collector (Appeals), Rawalpindi; vide his Order-in-Appeal No.CE/ST-64/99 dated 5-5-1998. Hence this appeal.

3. During the course of hearing before us, the learned representatives of the appellants stated that they supplied zero-rated goods to WAPDA against international tenders and are, therefore, entitled to exemption/refund of sales tax on the taxable inputs used in the manufacture and supply of such zero-rated goods. They submitted a copy of their Offer No. HEC/E M/SM/006/96 dated 15-10-1996 addressed to WAPDA for Lot No. I & II (for supply of power transformers against Bill No.KF-532) indicating that customs duties, sales taxes, excise duties and other Government levies have not been considered in the tender price. They so submitted certain invoices to show that Contract No.KF-532 was against international tender involving IBRD/Kuwait Fund for Arab Economic Development and was invoiced in U.S. dollars. They prayed for sanction of refund.

4. The learned representatives from the Collectorate argued that the appellant can avail of exemption under S.R.O.230(I)/97 dated 29-3-1997 but zero-rating cannot be allowed simultaneously on exempt goods as this will amount to double benefit, not envisaged under the law. They prayed for dismissal of the appeal.

5. Having heard the parties and on perusal of record of the case, we find that the appellant are a typical example of an inefficient State -owned enterprise who are not aware of their rights and liabilities, who are shifting grounds of claim at every stage and who have not yet presented their record and registers before the Assistant Collector of Sales Tax, as was required of them in the notices dated 10-10-1997 and 17-10-1997. They have not yet supplied copies of all the invoices issued to WAPDA against the supply of goods against international tender and the verified/certified list and' details of taxable inputs (and their tax invoices) used in these supplies against international tenders. We are at a loss to correlate these HEC invoices of 1998 to their refund claim of 1997. We also have a feeling that there is a misunderstanding about the scope of exempt goods and zero-rated goods in the mind of both the appellant and the Collectorate. We clarify that "zero-rated supplies" are defined under section 2(48) of the Sales' Tax Act, 1990, read with section 4 and the Fifth Schedule thereof. There is no doubt or dispute that "supplies against international tenders" are zero-rated in terms of Sl. No.4 of the Fifth Schedule of the Act read with clause (a) of section 4 thereof "zero-rated supply" of section 2(48) of the Act are charged to sales tax at the rate of zero percent but section 2(41) includes such zero rated supply in the definition of "taxable supply" while it simultaneously excludes exempt goods (of section 13 of the Act) from the definition of taxable supply. Again, section 8(1)(a) of the Act allows input tax credit on taxable supplies (which includes zero-rated supply). Therefore, while no input tax credit is allowed in respect of goods used in exempt supplies A of section 13, full input tax credit is admissible in respect of goods used in zero-rated supplies, while, the output tax in both the cases remain not payable. A zero-rated supply can be made of even exempt goods and in such case, the input tax credit relating to the sales tax paid-on inputs used in such exempt goods, supplied as a zero-rated supply, shall still be admissible. However, the appellant should also understand that to claim refund of input tax on materials used in goods (e.g. transformers) supplied as zero-rated goods (against international tenders), they shall have to establish their claim by furnishing all prescribed records of section 22 of the Act besides copies of international tender notice, appellant's offer, terms of contract, proof that the price did not include element of sales tax (whether input tax or output tax), input tax invoices, invoices of zero-rated supplies, correlation between input and output, compliance of the procedure of the Refund Rules, etc., etc. We do not find reasons how a refund can be claimed by the appellant in 1997 for zero-rated supplied made in 1998 or later, as in the case here. However, while the appellant refund claim is vague, un-explained and unsubstantiated, the reasons for its rejection is also not convincing or lawful. We accordingly set aside the impugned Order-in-Appeal No.CE/ST-64/99 dated 5-5-1998 passed by the Collector (Appeals), Rawalpindi and also the Order-in-Original No.4/98 dated 30-3-1998 passed by the Assistant Collector (Audit), Peshawar, and remand the case to the jurisdiction of the Deputy/Assistant Collector of Sales Tax (Refund), Peshawar, for de novo consideration and decision afresh on merits. The appellants are directed to submit all requisite records, registers, documents (tender notice, bid offer, bid acceptance, input: Output ratio, tax invoices of zero-rated supplies, tax invoices of inputs used in zero-rated supplies, etc, etc.) to the said Deputy/Assistant Collector and the appellant should appear (through a well conversant duly-authorized representative) before him on such dates as are fixed by the said D.C./A.C., to explain their case and establish their claim. In case the appellant fails to submit/produce the requisite documents and/or fails to establish their claim, the said Deputy/Assistant Collector shall be at liberty to decide the claim as unsubstantiated, inadmissible or otherwise. The sanction of refund and the amount of refund shall be considered and allowed on merits subject to the conditions that it is due and admissible under the law/rules. The appeal stands disposed of accordingly as per the orders in this paragraph.

6. Inform all concerned.

7. Announced. C.M.A./942/Tax (Trib). Order accordingly.