2002 PLP 2451 (PTD)

7. Mr. Tahir Razzaque, F.C.A. appeared to represent the complainant company while Mr. Abdul Rasheed Sheikh, Additional Collector Sales Tax, Faisalabad represented the department. The learned A.R. raised a preliminary legal objection regarding proceedings initiated under section 36 of the Act. He submitted that section 36(3) of the Act enjoins upon the officer of sales tax. that the order for recovery of erroneously refunded amount must necessarily to be passed within 45 days of the issuance. of the show‑cause notice or within such extended period as may for reasons to be recorded in writing be fixed by the Assessing Officer of sales tax, provided that such extended period shall not exceed 90 days. In this case the show‑cause notice was issued on 23‑7‑2001 and the order was passed on 5‑12‑2001. which was after all most 4‑1/2 months. This order should have been passed within 45 days i.e. by 6‑9‑2001. Even if the period may be considered to have been extended for which no reasons have been recorded in writing, permit the officer of sales tax to pass an order up to 90 days from the date of issuance of show‑cause notice. The order should have therefore been passed if not by 6‑9‑2001, at least by 21‑10‑2001 which was not done. The case was fixed on 7 different dates after issuance of a show‑cause notice on 23‑7‑2001, but was not finalized. In fact the prescribed period of 45 days had already elapsed before the complaint was filed on 12‑9‑2001. This is a typical example of maladministration.

8. Continuing further the learned A.R. submitted that as tar as the .complainant‑company is concerned, its record clearly shows that its purchases from these three parties included the element of sales tax as borne out by sales tax invoices. The fact remains that the raw material utilized in the exported goods was physically purchased and is fully supported by the documentary evidence right from the gate passes up to various stags of manufacture and final disposal. Yarn was purchased from these very three parties among others in the past years also and the Department had never raised any objection to refund the input tax. In the instant case also refund was issued after proper verification in the light of Sales Tax Refund Rules, 1996, which were applicable at the material time. As far as the complainant‑company is concerned it is not involved in any erroneous claim of refund given by the‑department and proceedings initiated are not called for both in law and on facts.

9. The learned A.R. relied upon the provisions of section 3 of the Act, which read as under: Section 3 of the Act provides that:‑‑‑ "Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax @ 15% of the value of‑‑ (a) taxable supplies made in Pakistan by a registered person in the course or furtherance of any taxable activity carried on by him and (b) goods imported into Pakistan."

10. The A.R. submitted that the Department, therefore, should pursue the recovery from the three companies on which legal responsibility lay for deposit of sales tax, as they were the suppliers of raw material. As far as the complainant‑company is concerned its responsibility is confined only to provide the identity of the parties from whom the yarn was purchased and that the sales tax invoices received from them should show that sales tax had indeed been charged from the complainant company.

11. Mr. Abdul Rasheed Sheikh, Additional Collector Sales Tax, Faisalabad recounted the facts as stated in the Departmental reply.

12. The learned D.R. referred to section 11(2) of the Act where it is laid down that:‑‑‑ Where a person had not paid the tax due on supply made or had made, short input tax credit or refund which is not admissible for reasons other than: those specified in subsection (1); an officer of sales tax shall make an assessment of tax actually payable or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge additional tax in accordance with sections 33 and

34. Concluding his arguments the learned D.R. submitted that the matter being sub judice before the Additional Collector Sales Tax and Central Excise (Adjudication), Faisalabad, the complainant should defend its case there.

13. After perusal of the record and hearing the arguments advanced by both the representatives of the parties to the dispute it is evident that the Department has given two reasons for issuing the show‑cause notice under section 11 read with section 36 of the Act. The first is that the supplier companies namely Messrs Nusrat Textile Mills Limited, Messrs A.R.R. Corporation, Lahore and Messrs Mutakabbir Textile, Lahore have not physically supplied the raw material to the complainant and secondly the three registered persons who made supplies to the complainant did not deposit the sales tax payable thereon, and since sales tax on the raw material had not been deposited into the treasury, its adjustment against the final tax liability was not permissible in view of section 7 of Act. The record produced by the complainant showed that it had been maintained right from the stage of gate passes showing arrival of raw material, its entry in the stock register, various stages of consumption of raw material up to the finished goods stage and the goods exported were reconcilable with these finished goods. Therefore it takes the bottom out of the claim of the Department that yarn had not been supplied to the complainant company. The second reason assigned for the action initiated was that sales tax had not been deposited on the supplies made to the complainant by the suppliers. Sales tax invoice produced showed element of sales tax having been separately charged from the complainant by supplier. This further shows that it is the supplier registered persons who have played fraud not only with the complainant but with the Government treasury as well. The complainant had discharged its duty by paying sales tax to the supplier, credit for which was claimed in the monthly sales tax returns and allowed by the Sales Tax Department. It was the suppliers of yarn who had failed to meet their legal responsibility, by not depositing the sales tax recovered from the complainant. After all section 3 of the Act clearly places the responsibility for payment of sales tax at the prescribed rate on the registered suppliers. The next logical question is as to why did the functionaries in the Collectorate of Sales Tax Lahore fail to detect the payment of sales tax by the three suppliers registered persons? The plausible reason that comes to mind is that the sales tax returns filed monthly give particulars indicating the total tax deposited, without given the details of the sales transactions party‑wise with names and addresses, tax invoices numbers, value of goods sold and the output tax. It is only after audit is carried out when the records/account books of the parties are physically checked that such evasion comes to light. This appears to be a lacuna in the procedure laid down by the Board which requires to be rectified. As far as the complainant, company is concerned it does not appear to be at fault.

14. In view of the above facts and circumstances, it is recommended that:‑‑‑ (i) The Collectorate of Sales Tax, Lahore should pursue recovery of sales tax from three companies on which legal responsibility lay under section 3 of the Act being suppliers of yarn. (ii) The Additional Collector (Adjudication), Faisalabad may examine reconciliation between the ‑yarn consumed and the quantity of goods exported to satisfy himself that yarn was physically transferred from the suppliers account to the complainant account. (iii) The lacuna‑identified in paragraph 13 in the procedure prescribed for payment of sales tax and claim of adjustment in the monthly sales tax returns be rectified. (iv) Compliance be reported within 60 days. C.M.A./M.A.K./332/FTO Order accordingly.