2004 PLP (Trib (PTD)

S. M. KAZIMI, MEMBER (TECHNICAL).

This judgment disposes of 2 appeals, one filed by Messrs Rehmat Din Rookan Din against the Order-in-Original No.15/2000, dated 3-4-2000 passed by the respondent No. 1 i.e. the Assistant Controller of Sales Tax, Peshawar, and the other filed by Messrs Sarhad Chemical Industry against the Order-in-Original No.56/98, dated 7-12-1998 passed by the respondent No.2 i.e. the Additional Collector of Sales Tax, Peshawar.

2. Briefly, the facts of the cases in the 2 appeals are as hereunder:-- On receipt of an information that Messrs Rahmat Din Rookan Din (S. T. Registration No.05-O1-2836-001-82) issued various invoices during 11/96 to 03/97 wherein they charged sales tax of Rs.415,788 on the supplies of Soda Ash to Messrs Sarhad Chemical Industry but did not deposit the said tax amount in the treasury; the Assistant Collector of Sales Tax, Peshawar, issued a notice C.No. STVER/23/2000/021, dated 22-1-2000 requiring the said Messrs Rahmat Din Rookan Din to show-cause why the aforesaid amount, alongwith the additional tax due, should not be recovered from them and also why penal action under section 33 should not be taken. After hearing Qazi Waheeduddin, Advocate the learned Assistant Collector decided the case vide his impugned Order-in-Original No.15/2000 and held that an amount of Rs.415,788, alongwith the additional tax due, is payable by Messrs Rehmat Din Rookan Din and he also imposed penalty of Rs.10,000 under section 33(2) on the said registered person. Hence this appeal. Messrs Sarhad Chemical Industry purchased Soda Ash (used for further manufacture of Sodium Silicate) from Messrs Rahmat Din Rookan Din of Peshawar (a Distributor of Messrs I.C.I. Pakistan Ltd.) against various cash memos. issued by the said Messrs Rahmat Din Rookan Din during the year 1996-97. During audit of the record of Messrs Sarhad Chemical Industry for the period 1996-97, it was observed that these cash memos. were not the proper sales tax invoices in terms of the format prescribed under section 23 of the Sales Tax Act, 1990, nor were these the prescribed replacement invoices. However, Messrs Sarhad Chemical Industry used these cash memos. of Messrs Rahmat Din Rookan Din and made input tax credit of sales tax causing loss of Rs.492,364 to the exchequer which is recoverable alongwith the additional tax due thereon. A notice C.No.IV-ST(Audit)26/97/3255, dated 10-11-1997 was issued by the Assistant Collector of Sales Tax, Peshawar, which was later superseded vide notice C.No.IV-ST(Audit)/ 26/97/326, dated 21-2-1998 issued by the Deputy Collector of Sales Tax and required Messrs Sarhad Chemical Industry to show cause why the aforesaid amount of sales tax should not be recovered, alongwith the amount of additional tax due thereon, and also why penal action should not be taken under section 33 of the Act. After hearing Mr. Bashir Ahmad Paracha, Consultant, on behalf of Messrs Sarhad Chemical Industry, the learned Additional Collector of Sales Tax passed the impugned Order-in-Original No.56/98 and found the offence to be established. He ordered the recovery of Rs.492,364, alongwith the additional tax due thereon, and also imposed a penalty of Rs.5,000 on Messrs Sarhad Chemical Industry. Hence, this appeal.

3. During the course of hearing before us, the learned counsel for appellant No.1 argued that appellant No.1 is a distributor of I.C.I. for Soda Ash and during the period involved (i.e. before the amendments made through the Finance Act, 1998), the supplies by persons other than importer, manufacturers and producers were not liable to sales tax or to sales tax registration, as per item No.33 of the Sixth Schedule to the Sales Tax Act, 1990. He claimed that the appellant No.1 trade "taxed supply", as defined in section 2(44) of the Act, until it was omitted by the Finance Act, 1997, and, therefore, taxed supply Would not be levied to tax again on its supply by distributors'. He also stated that the show cause notice dated 22-1-2000 is time-bared tender section 36(2) of the Act read with the Honourable Supreme Court's judgment (PTCL 1993 CLS 32) and Lahore Bench of the Tribunal's judgment dated 28-11-2001 in Appeal Case No.STA-1999/LB/2001 [Vol. No.5 Issue .No.12 Tax Forum 14]. He prayed for acceptance of appeal of appellant No.1 both on grounds of liability and time limitation. The learned counsel for appellant No.2 presented copies of I.C.I. Tax Invoice No.63069 dated 26-3-1997 for 20 tonnes of Soda Ash and accompanying Cash Memo., No.734 dated.26-3-1997 issued by Messrs Rahmat Din Rookan Din for sale of 10 tonnes of Soda Ash to appellant No.2 and Bilty No,. 179 dated 26-3-1997 for transportation of 10 tonnes of Soda Ash directly from I.C.I. to appellant duly supported by Octroi Receipt No. 3334490, dated 28-7-1997. On the basis of these documents, he claimed that I.C.I. were the actual suppliers of Soda Ash through the said Rahmat Din Rookandin. He claimed that such input tax adjustment against cash memos. issued by authorized dealers of manufacturers/importers was allowed under Adjustment of Input Tax Rules, 1992, as issued under S.R.O. 851(1)/92, dated 22-8-1992. He prayed for condonation of procedural omissions and acceptance of appeal of appellant No.2.

4. The learned representatives from the Collectorate opposed the 2 appeals on the ground that the case relates to 1996-97 when sales tax invoice/replacement invoice were issued by registered suppliers or registered distributors or registered importers. They stated that no input tax adjustment is possible against cash memos. issued by distributors even in case of "taxed supply". They prayed for rejection of the 2 appeals.

5. Having heard the parties and on perusal of record of the case, we find that:-- (1) The appellant No.1 had obtained Sales Tax Registration No.05 -01-2836-001-82 on 7-10-1997 and are paying net sales tax on their supplies after adjusting, input tax since then. The appellant No.1, thus, became entitled to input tax adjustment, to issue prescribed tax invoices and to file prescribed tax returns for the tax period from 10/97 onwards only; (2) While the term "taxed supply" was defined under section 2(44) of the Sales Tax Act, 1990, until omitted through the Finance Act, 1997 to mean "a supply of goods by a registered importer, distributor, or wholesaler, on which tax has been paid 'at the stage of import or supply by manufacturer-and no further output tax is payable thereon at the time of supply thereof by such importer, distributor or wholesaler". The provisions of section 6(2) of the said Act disallowed input tax adjustment on goods specified in clause (iv) thereof (a clause omitted by the. Finance Act, 1997) which read that "(iv) in case of taxed supply of goods by a registered importer, distributor or whole saler not charging output tax on the supply of such goods to another registered person who holds a replacement invoice indicating the amount of tax paid at the stage of import or supply by manufacturer.". The aforesaid provisions were in addition to the condition in clause-(i) of section 6(2) of the Sales Tax Act , 1990 which requires a tax invoice, as defined in section 2(40) read with section 23 thereof, for the purposes of input tax adjustment. (3) The provisions of "voluntary registration" had always been there for such distributors under section 18 of. the Sales Tax Act, 1990 and the then subsection (3) of the said section, until substituted by the Finance Act, 1997 had prescribed that "(3) The importers, distributors or wholesalers making taxed supply of goods may, on their own accord, apply for registration in accordance with subsection (i): Provided that on registration, such importers, distributors and wholesalers, shall not charge output tax on the supplies made by them, but they shall issue replacement invoices in respect of such supplies. " (4) The adjustment of Input Tax Rules, 1992; issued under S.R.O. 857(I)/92, dated 2-7-1992, as cited by the appellant, was superseded by S.R.O. 512(I)/95, dated 14-6-1995 which in turn was rescinded vide S.R.O. 483(I)/96 bringing an end to the erstwhile cash memo. system from 1-7-1996 onwards; (5) An invoice, not issued in the manner and form prescribed under section 23 of the Sales Tax Act, 1990, is not a valid tax invoice and cannot form basis for allowing the 'claim of deduction/adjustment/refund of tax as it will constitute a clear violation of the provisions of section 7(2) thereof (2002 PTD 2457 Karachi); and (6) The demand is not barred by the limitation of section 36(2) as it is a case of deliberate act on the part of both the appellants in causing loss to the exchequer.

6. For the reasons given in paragraph 5 above, we hold that appellant No.1 is not responsible for any output tax until the date he was registered (voluntarily or otherwise) with the Sales Tax Department provided that he did not charge or collect any sales tax from appellant No.2 in excess of what he had actually paid to the I.C.I. and provided further that appellant NO. I did not avail of any input tax adjustment before the date of such registration: We, therefore, set aside the impugned Order-in-Original No.15/2000 in case of appellant No. 1 and remand the case of appellant No. 1 to the jurisdiction of the Deputy Collector of Sales Tax (Adjudication), Customs House, Peshawar, for de novo decision afresh after examining record and also after giving due hearing to the representatives of Messrs Rahmat Din Rookan Din and of the Sales Tax Collectorate of Peshawar to argue their respective case and to present such document as they may produce in, their defence. However, appellant No.2 have no case in view of the reasons given in the foregoing paragraph number

5. The appellant No.2 had an option whether to buy the Soda Ash from unregistered suppliers or direct from the registered suppliers against the prescribed tax invoices of such registered suppliers. We, therefore, confirm the impugned Order-in-Original No.56/98 in the case of appellant No.2 insofar as it relates to the recovery of the amount of tax involved. However, as a special case, we, direct remission of the whole of penalty imposed under section 33 1 and also the so much of additional tax as is in excess of 25% of the amount of additional tax due under section 34 subject to the condition that the appellant No.2 pays the determined amount of sales tax and the amount equal to 25 % of the amount of additional tax due in the treasure by the 29th May, 2003, to the satisfaction of the Collector of Sales Tax, Peshawar. In case of any delay or default on the part of appellant, No.2, for whatever reasons, the said special order of total remission of penalty and partial remission (in excess of 25 % of 'the amount due) of additional tax shall abate automatically and appellant No.2 shall pay the full liability of tax, additional tax and penalty. The impugned order in case of appellant No.2 is modified accordingly in terms of paragraphs 5 and 6 of this judgment and the appeal of appellant No.2 stands disposed of II accordingly. 6-A. Announced.

7. Inform all the concerned accordingly. C.M.A./771/Tax (Trib.) Order accordingly.