2016 PLP (Trib (PTD)

The instant appeal has been filed by the taxpayer against Sales Tax Order-in-Appeal No. 193 of 2014 dated 20.06.2014. The appellant has raised rather lengthy grounds which can be summarized as under:-- (i) The appellant has lawfully claimed part of sales tax collected from the Steel Melters. Vide SRO No.678(I)/2007 dated 06.07.2007 the Steel Melters have to pay two types of sales tax, namely;- (a) Sales Tax payable on purchase of electricity. (b) Sales Tax payable on supply of taxable goods. The appellant has validity claimed output tax relating to 'a 'above. (ii) The appellant has paid sales tax on purchase of electricity. In case adjustment of output tax is not allowed it will tantamount to double taxation. (iii) The imposition of default surcharge and penalty is not justified because no mens rea has been established by Taxation Officer.

2. Brief fact of the case are that the Assessing Officer had observed that the appellant had short paid the sale tax for the period under reference. The appellant was confronted and its reply was not found satisfactory, therefore, a sales tax demand of Rs. 16,302,530/- was raised along with penalty and default surcharge. The appellant filed appeal before learned CIR(A) who upheld the order of the Assessing Officer, hence the present appeal.

3. On behalf of the appellant, the L/AR through written arguments has pleaded that the Commissioner (Appeal) has erroneously confused the subject case with the concept of input tax adjustment while in fact this case relates to claim of output tax partially from the sales tax collected @ Rs.4 per KMWH form the Steel Melters. In order to substantiate this point the appellant has submitted detailed calculations relating to electricity bills in respect of Messrs Frontier Foundry for the month of August 2013 as follows: Price of electricity Rs.3,770,720/- + 552,140/- =Rs.4,322,860/- Excise duty =Rs. 27,994/-. Meter rent =Rs. 158/- Value of Supply Rs.4,351,012/- Sales Tax @ 17% Rs. 739,672/- Number of units 484000 KwH Sales Tax liability @ Rs.4/- per unit consumed Rs.1,936,000/- Sales Tax paid under Rule 58H Rs.1,196,328/- Sales Tax claimed as output tax Rs. 739,672/- That Chapter XI relating to special procedure of fixed tax by Steel Melters was inserted in the Sales Tax Special Procedure Rules 2007 vide SRO No.678(I)/2007 dated 06-07-2007 to cover:-- i. Sales tax payable by Steel Melters on purchase of electricity. ii. Sales tax payable by Steel Melters on the supply of taxable goods manufactured by them with the aforesaid electricity. That vide clarification issued by CBR (now FBR) vide C. No. 3/ 13-STB/98 dated 28.07-2007 whereby it has been said that this levy is inclusive of sales tax liability of the Steel Melters and Re-Rollers on electricity. It has been argued that the word 'inclusive' has been defined in the Advanced Law Lexicon as "Embracing: comprehensive" and thus, the sales tax paid by Steel Melters includes their sales tax liability on electricity supplied by PESCO also and hence PESCO has validly claimed output tax relating to the sales tax payable by the Steel Melters under section 3 of the Sales Tax Act, 1990. The appellant has also explained rules 13b, 14 and 15 and has claimed that these rules read with sections 3, 6, 7, 8, 8b, fully justify the partial adjustment of the consolidated fixed sales tax collected from the Steel Melters by PESCO in its output tax. It has been further pleaded that the appellant has paid sales tax on the purchase of electricity. However, if the appellant is not allowed output tax collected on the supply of the same electricity - then it will be a clear case of double taxation not envisaged by the law. It may be added that the concept of sales tax in Pakistan is based on Value Added Tax (VAT) philosophy and the entire burden of Sales Tax paid at different stages has to be passed on to the ultimate consumer of the goods under VAT. The appellant has emphasized that it is settled law, that no one should be prejudiced by the act of the state functionaries and the appellant has acted on the aforementioned FBR's clarification dated 28-07-2010. Reliance in this regard has been placed on:-- (i) 1997 SCMR 209

The State v. Asif Adil. (ii) 2002 SCMR 134

Sajawl Khan v. Wali Muhammad and others. That Rule 58H is applicable to Steel Melters and its scope cannot extend to PESCO. Such amounts collected from consumers including Steel Melters are to be considered output tax adjustable under section 7 ibid. The term 'output tax' has been defined in Section 2(20) ibid as: "Output tax" in relation to a registered person means- (a) tax levied under this Act on a supply of goods, made by the person; " The appellant has also pleaded that section 2(20) read with Section 7 ibid justifies the admissibility of claim of subject output tax. The appellant has referred to the settled law that a statutory rule cannot enlarge the section; if a rule goes beyond what the section contemplates, the rule must yield to the statute. Where the words of a section are plain in their meaning, it is not possible to rely upon inferences derived from the matters contained in or omitted from the rules and forms, for the purpose of defeating the clear intention of the legislature expressed in the main statue. Reliance has been placed on: AIR 1960 SC 12; PLD 1959 SC

296. On account of imposition of default surcharge and penalty it has been explained on the ground of absence of mens rea that the concept of guilty intention is alien to a government organization as its functionaries do not gain even a single penny by non-payment of taxes. Reliance has been placed on the judgments of the Superior Courts whereunder mens rea or willful default has been held to be essential ingredient for imposing punitive provisions of the Sales Tax Act, 1990 as follows: 2004 PTD 1179 (S.C.)/2004 SCMR 456 = 2004 PTD 1179, D.G. Khan Cement Company Ltd. v. Federation of Pakistan, 2009 PTD (Trib.) 500--Messrs Shahmurad Sugar Mills v. The Collector of Customs, Sales Tax and Federal Excise, Hyderabad, 2002 PTD (Trib.) 300

Nestle Milk Pak Ltd. v. Addl. Coll. (Adj.), Multan, 2006 PTD (Trib.) 195

Messrs Cherat Cement v. Collector of Customs, Sales Tax and Central Excise (Adjudication) Rawalpindi PTCL 1995 CL 415

Messrs Lone China (Pvt.) Ltd. v. Additional Secretary, Ministry of Finance, C.B.R., Karachi. It has also been submitted that a fiscal provision of a statute is to be construed liberally in favour of the taxpayer and in case of any doubt; the same is to be resolved in favour of the taxpayer/registered person. Reliance has been placed on: (1992) 66 Tax 246 SC Pak.

Mehran Associates Limited v. CIT, Karachi, 2003 PTD 760/2004 STR 369

Messrs Hinopak Motors Limited v. Federation of Pakistan, 1996 PTD 489

Rijaz (Pvt.) Ltd. v. Wealth Tax Officer, Lahore, 2003 PTD (Trib.) 2525

Appeal No. 1600/LB/2001.

4. On behalf of the department, emphasis has been laid on rule 58H of the Special Procedure Rules, 2007 as reproduced below:- "(58H. Payment of tax.

(1) Every steel-melter, steel re-roller composite unit of melting, re-rolling and MS cold drawing and composite unit of steel and re-rolling (having a single electricity meter), shall pay sales tax at rate of (four) rupees per unit of electricity consumed for the production of steel billets, ingots and mild steel (MS) products excluding stainless steel which will be considered as their final discharge of sales tax liability." It has been pleaded that Messrs PESCO charged and collected sales tax from Steel Melters under rule 58H of Chapter XI titled "Special Procedure For Payment of Sales Tax By Steel Melters, Re-rollers". notified vide SRO 480(I)/2007 dated 09-06-2007 but failed to deposit the same into the government treasury in clear violation of law as this levy is the final discharge of sales tax liability of the Steel Melters. The D.R. also asserted that reliance on FBR's letter dated 28-07-2007 is also not tenable in view of the self-explanatory language of rule 58H. During the course of arguments before this tribunal, the D.R referred to a previous decision by this tribunal whereunder claim of output tax in the case of Steel Melters by PESCO has been disallowed by this tribunal. The counsel for the appellant explained that the previous judgment by this tribunal in another case of Steel Melters was given in the light of the decision given by the Lahore High Court in Reference No. STR 105/2011 dated 06-10-2011. The advocate for the appellant emphasized that the facts of the subject case of PESCO and Lahore High Court case are distinguishable and hence that judgment of Lahore High Court is not applicable to the facts of this case. He read the relevant portions of the judgment given by the Lahore High Court wherein, LESCO has charged (i) sales tax at 17% from Steel Melters under section 3(1)(a) for the supply of electricity made to the Steel Melters and (ii) the other sales tax at fixed rate on behalf of the F.B.R. as final discharge of Sales Tax liability of the Steel Melters payable by Steel Melters for their subsequent supplies. The Lahore High Court has disallowed adjustment of input of the second collection. However, LESCO has been allowed adjustment of the Sales Tax under section 3(1)(a). He pleaded that PESCO has not collected the aforementioned two types of Sales Tax from the Steel Melters and has ONLY collected Sales Tax @ Rs. 4 per unit. Thus facts of this case are different from the case decided by the Lahore High Court. He also submitted that the CBR's clarification dated 28-07-2007 (Annex VII) was not brought to the notice of the High Court. When confronted, the D.R did not offer any comments/ explanation to rebut the contention made by the counsel for the appellant.

5. We have given careful consideration to the rival points of view. Ordinarily sales tax is levied at the rate of 17% of the value of taxable supplies made by a registered person in the course of any taxable activity carried on by him under section 3(1) ibid. This amount is termed as output tax which has been defined as tax levied under the Sales Tax Act, 1990 on a supply of goods made by that person. Section 7 ibid provides that the tax liability of a registered person shall be determined after deducting the input tax paid by the registered person from the output tax collected by such person on the taxable supplies made by him. Resultantly it is abundantly clear that claim of the aforesaid output tax is statutory right of a registered person under section 7 ibid. According to the principles laid down by the superior courts, the provision of Sales Tax Act, 1990 showed that it was a value added tax, which was levied at every stage, the value addition took place at the time of supply. It was, therefore, no more a one point levy and the ultimate burden is passed on to the consumer. A reference may be made in this regard to; M/s. Usmani Associates Sub Proprietary Firm v. Central Board of Revenue and another 2001 PTD 1982

M/s. Sarwar & Co. (Pvt.) Ltd. Lahore v. The Collector of Sales Tax, Multan and others 2006 CLD 162, Messrs Pakistan Beverage Limited, Karachi v. Large Taxpayer Unit (L.T.U.) thorough Chief Commissioner Inland Revenue, Karachi (PTCL 2001 CL 235) (H. C. Kar.)

6. The fact of the matter is that Messrs PESCO is entitled to claim adjustment of input tax to the extent of Sales Tax collected from all consumers, including the steel melters and Re-rollers. However, it is not entitled to claim any input tax adjustment in respect of Sales Tax collected from aforementioned class of taxpayer under Rule 58H. The appellant's assertion that it has collected only the fixed Sales Tax from steel melters is not understandable, because it was obliged to collect both the taxes. In any case this fact can be ascertained by obtaining data from PESCO and the steel melters and Re-rollers.

7. In order to workout exact quantum of the two types of Sales Tax collected by the appellant, we deem it appropriate to provide another opportunity to the rival parties. We therefore vacate the orders of both the authorities below and remand the case back to the assessing officer.

8. The appeal is disposed off in the manner hereinabove. HBT/29/Tax(Trib.) Case remanded.