2010 PLP (Trib (PTD)

The captioned appeal has been filed by the taxpayer/appellant against Order-in-Appeal No.1313 of 2008, dated 14-7-2007, passed by the Collector of Customs, Sales Tax and Federal Excise (Appeals), Karachi.

2. The facts of the case are that the Deputy Collector PAC CELL, Collectorate of Sales Tax and Federal Excise (Enforcement), Sales Tax House-II, Karachi reported vide letter, C. No.5(30)PAC-CELL/PDP-3770/Ref/07/58; dated 5-11-2007, that the Audit of appellant was conducted for the period 2005-2006 by the Audit officer of P.R.A. Karachi, and two discrepancies were observed, (i) Sales Tax Refund claims to Rs.1,087,278 for the month of June, 2005, on the purchase of cotton yarn to suppliers where no proof of payment was provided. As such, payment was not made as required under section 73 of the Sales Tax Act, 1990, (ii) that the purchase invoice depicted the cotton yearn of counts 16/S and 201/D, whereas, the Shipping Bill bearing No.69, dated 7-6-2005, disclosed count 35 x 35 /76 x 52, hence discrepancy.

3. A show-cause notice was issued to the appellant vide their letter No, 01(47)Cont/DC/Adj/21/2007/49, dated 2-10-2008. Being dissatisfied with the reply to show-cause notice of the appellant, the case was adjudicated by the Deputy Collector (Adjudication), Collectorate of Sales Tax and FE(HQRS), Karachi vide Order-in-Original No.807 of 2008 dated 5-03-2008, in which he concluded as under:- "

09. I, am therefore, constrained to concluded that the respondent has nothing to offer in defence against the charges mentioned in show-cause notice hence the case is decided ex parte on the lads available on the record and I hold that the charges mentioned in the show-cause notice have been established." "

10. I, order to recover the amount of sales tax as mentioned in the show-cause notice under section 36(1) of the Sales Tax Act, 1990 along with default surcharge under section 34 of the Act, ibid, I also order to impose of a penalty of Rs.10,000 or 5% the amount of lax involved which ever is higher under section 33(5) of the Sales Tax Act, 1990".

4. Being aggrieved with the impugned Order-in-Original the appellant filed an appeal before the learned Collector or Customs Sales Tax and Federal Excise (Appeal) Karachi who vide his Order-in-Appeal No. 1313. of 2008 dated 14-7-2008, ordered as under:-- "I have examined the case record and given consideration to the submission of both he sides. During hearing proceedings appellant failed to produce proof of payments under section 73 of the Sales Tax Act, 1990. Also they failed to reconcile the serious difference or counts and description detected on the invoices and the shipping documents. The appellant's have accordingly not been able to point out flows and deficiencies in the impugned order nor have they succeeded in pleading any convincing ground to merit review of the order appeal is accordingly rejected."

5. Mr. Shafqat M. Sagar Advocate appeared on behalf of the appellant/taxpayer and Mr. Abdul Sattar Abbasi DR appeared on behalf of the department.

6. Mr. Shafqat M. Sagar, Advocate the learned AR of the appellant reiterated the arguments incorporated in the memo. of appeal and mainly argued on the following points:- (i) The appellants had exported the textile products in the month of June, 2006 which was purchased in May, 2005, from Messrs Al-Baseer Impex and their sales tax invoices were declared in the Sales Tax Return-cum-Payment Challan for the tax period of May, 2005 the yarn count was totally misunderstood by the department. (ii) It is understandable that the purchases of cotton yarn for the tax period of June, 2005, cannot be exported in the same month, because many process of manufacturing of cotton yarn i.e seizing, doubling, wrapping bleaching and dyeing take place for a period of 3 or 4 months. It means that purchases in June, 2005 shall be exported in about September and October, 2005. (iii) The appellant fulfilled the Compliance of section 73 of the Sales Tax Act, 1990. All the transactions/payments have been made through banking instruments within the prescribed manner. Copies of Cheques and Bank Statement were provided with the reply to show-cause notice and again the said evidence were provided before the Deputy Collector (Adjudication) Collectorate of (HQRS) Sale Tax House Karachi and Collector (Appeals), Karachi, but both the forum did not consider the evidence produced. (iv) That under the provision of sections 4 and 10(2) of the Sales Tax Act, 1990 the appellants had presented ORIGINAL export documents of zero-rating, to prove the genuineness of the Claim. STARR objections cannot deprive the registered manufacturer- cum-exporter to claim the refund owing, to technical plea. It is strongly opposed by the Hon'ble Supreme Court of Pakistan in case of Messrs Pfizer Laboratories Ltd: v. Federation of Pakistan and others vide Appeal No. 48 of 1993, decided on 28th November, 1997 as reported PLD 1998 SC 64. (v) The order-in-original is passed without legal jurisdiction just on the basis of Revenue Receipt Audit and show-cause issued and without looking into the evidence. As such the order passed is without jurisdiction as held by the Hon'ble Customs. Excise Appellate Tribunal on similar nature of case of Messrs Unitex Towel Factory v. The Collector of Customs (Appeals) and others and Messrs Silver Corporation v. The Additional Collector of Sales Tax (Adjudication) Karachi-III, vide Order-in-Appeals Nos. K-2352 of 1999 and L-106/03 dated 18-10-2001 and 20-8-2003 respectively and upheld by the Supreme Court of Pakistan vide Order-in-C.P.L.A. No. 409-K of 2003, as such the order passed by the Appellate Tribunal in the case of Unitex Towel Factory attained Finality as per laid clown interpretation of law by the Supreme Court of Pakistan. (vi) That the learned Deputy Collector (Adjudication), Karachi, has mis-interpreted the provisions of Sales Tax laws, while imposing the penalty. The nature of penalty provisions in tax statutes and the proceedings held to bring them home are criminal or at least quasi-criminal in nature. In the case of Additional Commissioner of Income Tax v. Narayandas Ramsishaw 1994 PTD 199, it was held:-- "Levy of penalty is a matter of discretion which must be exercised by the authorities judiciously on consideration of relevant circumstances penalty should be imposed merely because it is lawful to do so. If the offence is technical or venial in nature, the authorities will be justified in refusing to levy' penalty." (vii) The additional tax in terms of section 34 of the Sales Tax Act, 1990 cannot be imposed unless there is deliberate omission to pay the sales tax and finding to effect are records. Following citations are given:-- (a) Supreme Court of Pakistan in the case of Messrs D.G Khan Cement Company Ltd. v. Federation of Pakistan and others as reported 2004 SCMR 456 = 2004 PTD 1179. (b) Supreme Court of Pakistan 1999 PTD 1892 in the case of Messrs Attock Cement Pakistan Ltd. v. Collector of Customs, CE. Quetta and 4 others. (c) Lahore High Court in the case of Messrs Pioner Cement Ltd. v. Assistant Collector of Sales Tax as reported 2000 PTD 319. (d) Sindh High Court, in the case of Messrs Ideal Glass (Pvt.) Ltd. v. Federation of Pakistan is reported 1999 Tax 615. (e) Lahore High Court in the, case of Messrs Mamy Beverages as reported 1995 PTD 91.

7. The learned AR of the appellant further contended that Sales Tax Official (Deputy Collector (Adjudication) has no jurisdiction to re-open the past and closed transactions. It is further contended that the Appellant Tribunal, Karachi Bench in an identical case as reported in 2010 PTD (Trib.) 893, squarely applicable in the circumstances of present case held as under: "As regards issue No. (ii) that the act of issuance of show-cause notice was ab initio wrong in as much as the competent authority who passed the refund sanction order was satisfied in respect of appellant claims and so the concerned Collector of jurisdiction never filed an appeal under section 45-B of the Sales Tax Act, 1990. On the contrary the authority who issued the show-cause notice was not competent to re-open a past and closed transaction within the framework of Sales Tax Law. (i) The appellants have further presented a case-law of Hon'ble Supreme Court of Pakistan in the case of Federation of Pakistan through Secretary Federal Board of Revenue, Islamabad and others v. Messrs New Ammur Industries, Lahore as reported 2010 PTD 352, in the support his contention, in which the departmental petition was dismissed on the point of re-opening of ease. (ii) It was further pleaded by the learned AR that the reply to show-cause notice was given to state that conditions of section 73 of the Sales Tax Act, 1990 were fulfilled as all the payments were routed through banking instruments within the stipulated time the copies of the cheques were enclosed in the memo of appeal duly reflected in the bank statement. The AR also presented as case law of Hon'ble Appellate Tribunal, Islamabad Bench as reported 2010 PTD (Trib.) 975 in which held as under: "To my mind, the contravention of section 73 of the Sales Tax Act, 1990 does not absolutely debars the registered person to claim the input tax adjustment if there no allegation of fraud, cheating, collusion, fake and bogus invoices have been levelled against the registered person

(iii) At the last Advocate of the appellant raised a point that the show-cause notice was issued on the observation of Revenue Receipt Audit (RRA). The said audit is illegal and not maintainable. The Hon'ble Peshawar High Court in Sales Tax Reference No. 24 of 2008 dated 18-9-2008, held as under: "The Staff of DRRA is non-existent authority as for private registered units care concerned and they cannot have access to their books of account and other records under the Sales Tax/Central Excise Laws." (iv) That the Hon'ble Supreme Court or Pakistan in the Civil Petition No. 1580 of 2008 as filed by the Collector of Sales Tax and Central Excise Peshawar v. Messrs Maki Beverages and Mineral Water (Pvt.) Ltd., held "that the officials of the Directorate General of Revenue Receipt Audit (DRRA) have no legal authority to conduct audit of the registered tax payers at their business premises"

8. On the other side Departmental Representative appearing for the respondent department, contended that the audit of sales tax records of the appellants case carried out by the officers of the Directorate-General of Revenue Receipt Audit (DRRA), and on the basis of their observation the show cause notice was issued and no one appeared on behalf of the appellants before the Deputy Collector (Adjudication). Karachi and further he supported the order-in-original.

9. We have heard both the parties, simple issue involved in the appeal is the Compliance of the provisions of section 73 of the Sales Tax Act, 1990, on the purchases of June, 2005 was made or not. The provisions of section 73 is reproduced here for better understanding:

73. Certain Transactions not admissible.

(1) Notwithstanding anything contained in this Act of any other law for the time being in force, payment of the amount for a transaction exceeding value of fifty thousand rupee excluding payment against a utility bill, shall be made by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instruments showing transfer of the amount of the sales tax invoice in favour of the supplier from the business bank account of the buyer .. (2) The buyer shall not be entitled to claim input tax credit, adjustment or deduction of refund, repayment or draw-back or zero-rating of tax under this Act of payment for the amount is made otherwise than in the manner prescribed in subsection (1) Provided that payment in all of transaction on credit is so transferred within one hundred and eighty days of issuance of the tax invoices. "(1) ..

10. The said issue has been discussed by the Hon'ble Customs, Excise and sales Tax Appellate Tribunal Islamabad Bench, as reported 2010 PTD (Trib.) 975 Islamabad, v. The Collector, Customs Sales Tax (Appeals), Islamabad and others the relevant para. reproduced here under:- "

13. The spirit and objective of section 73 of the Sales Tax Act, 1990 is to streamline the transactions of registered person through banks and also to avoid the input tax adjustments from the fake and forged sales tax invoices. In the present case admittedly the respondents/department have verified all the invoices provided the appellants as sales tax returns purchases invoices, bill the entry and purchases register, which are declared genuine and no allegation of fraud or bogus invoices has been levelled. It is settled proposition that the registered person may not be deprived from his legal money due against the Government where there is particularly no mis-statement forgery collusion, cheating, fraudulent activity are alleged or any false claim is submitted by a registered person with the view to obtain the illegal gain or causing loss to the Government."

11. The above case-law is fully applicable in this appeal, as such we are of the considered opinion, by following the above dictum of Hon'ble Appellate Tribunal, Islamabad Bench that the recovery of sales tax refund claims of Rs.1,087,278 (which was already sanctioned by the Competent Authority) on the plea of non-Compliance of section 73 of the Sales Tax Act, 1990 "alone" is found illegal, arbitrary and against the natural justice. It seems the appellant was condemned unheard, as evidence produced was not considered at a later stage, whereas the claim was already sanctioned by the Competent Authority, earlier, on the basis of same evidence.

12. As regards the issue of jurisdiction and reopening of the issues on the basis of Revenue Receipt Audit, the case laws cited are found most relevant which clearly show that the order-in-original is without jurisdiction, hence illegal. The impugned orders as therefore, set aside and the appeal of the appellant/taxpayer is allowed accordingly.

13. The appeal is decided as indicated above. H.B.T./174/Tax(Trib.) Appeal allowed.