2007 PLP (Trib (PTD)

ZAFAR UL MAJEED, MEMBER (TECHNICAL).

The facts giving rise to this appeal are that the appellant's sales tax record for the year 2003-2004 was audited by the internal audit staff of the Collectorate of Sales Tax, Lahore and an amount of Rs.6,53,309 was detected to be recoverable. The audit staff adjusted total amount of Rs.7,27,720 (sales tax Rs.6,53,309 + additional tax. Rs.74,411) against the available input tax credit of Rs. 14,55,081 Vide Audit Report No.1228/ST/Audit/IV/2003/1011 dated 29-9-2003 and settled the matter. Subsequently, however, a team of DRRA audited the record and vide audit observation No.14 dated 30-9-2005 pointed out that the adjustment of arrear against carry-forward was not admissible under the provisions of the Sales Tax Law and that the said amount had to be deposited separately by the appellant. The case was adjudicated by the Deputy Collector (Adjudication), Lahore vide Order-in-Original No. 69 of 2006 dated 21-2-2006 whereby the appellant were directed to pay the sales tax amounting to Rs.7,27,720 along with additional tax and penalty of Rs.21,831 under section 33(2)(cc) of the Sales Tax Act, 1990. The appellant filed appeal against this order, which was decided by Collector (Appeals), Lahore vide Order-in-Appeal No.206/5T/2006 dated 12-10-2006 whereby demand of sales tax was upheld but additional tax and penalty imposed by the Adjudicating Officer were remitted. Hence this second appeal.

2. Through the present appeal, the appellant have argued that the Collectorate of Sales Tax had rightly adjusted the amount of sales tax due along with additional tax from the carry-forward input tax credit available with them. While section 7 of the Act entitles a registered person to avail input tax adjustment .against the output tax liability, section 10 gives right of carry-forward or refund in case input tax exceeds the final tax liability. C.B.R.'s Letter No.2(1)STP/97 dated 3-10-2002 relied upon by the departmental Adjudicating Officers cannot supersede the substantive provisions of law and it does not mean that adjustment cannot be made from the verified amount of carry-forward.

3. The Superintendent representing the department conceded that the adjustment of arrears recoverable from the appellant along with additional tax involved was made from verified amount of carry-forward input tax credit. According to him this fact was brought up before the Adjudicating Officers but the demand in question was adjudged against the appellant on the basis of C.B.R.'s Letter C. No.2(1)STP/97 dated 3-10-2002 whereby the Collectorates have been directed to discontinue the practice of adjustment of arrears against the amount carry-forward.

4. I have given careful consideration to the submissions made by both sides. Admittedly, adjustment of sales tax amounting to Rs.7,27,720 (inclusive of additional tax) was allowed by the Sales Tax Collectorate vide audit report dated 29-9-2003 against verified amount of input tax carried forward. Deposit of this amount separately and then claiming refund of the some as carry forward would be an exercise in futility as the Government will not stand to gain anything. The department has conceded that there is no loss of revenue involved and that the demand has been raised only in the light of C.B.R.'s instructions contained in its letter dated 3-10-2002. I do not find any restriction in the law prohibiting adjustment of arrears against an amount due to the appellant. However, even if there is some irregularity involved in the light of C.B.R.'s instructions, the same is condoned being a procedural lapse as no loss of revenue is involved.

5. The appeal is accordingly accepted and the impugned order is set aside. C.M.A./95/Tax(Trib.) Appeal accepted.