2010 PLP (Trib (PTD)

DR. RIAZ MEHMOOD, MEMBER (JUDCIAL).

The appellant has assailed in this appeal the Order-in-Original No.248 of 2001, dated 3-8-2001, vide which a liability of sales tax of Rs.20,625,00 had been adjudged against the appellant which he had already deposited before conclusion of adjudication proceedings.

2. A Show-Cause Notice bearing No.6577, dated 7-7-2001, was served upon the appellant that a snap audit had been conducted and on the basis of which a contravention report had been prepared. A liability of Rs.20,62,500 as found recoverable against the appellant. The show-cause notice was contested to the following effect:

"We have Admitted that unit has not charged GST on processing receipts repeat processing receipts. However, the contention that the unit is involved in supplying of its own Cotton Lawn is not based on facts. The godown at Regal Chowk owned by the Unit. The records collected by the Department do not reflect supply of own Cotton Lawn. The stock at godown is related to various parties. The units has received only processing charges. Therefore, we request that objection of supply of Cotton Lawn be withdrawn and sales tax be calculated on the basis of processing. We would like to mention that the unit had already deposited Rs.20,62,500 in the Government exchequer".

3. Meanwhile, the appellant deposited the controversial amount. The learned Deputy Collector/Adjudication Authority enforced the show-cause notice that the amount has readily been deposited. Hence" this appeal.

4. It has been urged in the memo of appeal that Mosses Jubilee Textile Industries (Pvt.) Limited, had been registered as a manufacturer. The unregistered retailed, wholesalers and registered person, dealing in process of fabrics, supplied their grey cloth to the appellant for dyeing, bleach and printing on the basis of conversion charges. According, the appellant was engaged in making taxable supplies as a vendor in terms of Sales Tax General Order No. 1 of 1998. The staff of the Collectorate of Sales Tax, Faisalabad, made a surprise visit without any lawful authority to the factory premises as wall as godown of the appellant and stressed them to deposit sales tax on the goods lying in the godown, even before the time of supply. The learned Assistant Collector/ respondent No. 3, called the Director of the firm in his office and threatened him to deposit Rs. 20,62,500 otherwise prosecution proceedings under section 37(c) of the Sales Tax At, 1990 would be initiated against the Directors of the Company for huge evasion of sales tax by way of storing their textile products namely Shamaila, VIP and Kiran Lawn in their own godown. The Director tried his best to clarify the position that the supply of the subject goods .has not been made till then, therefore, no demand' of sales tax on those goods lying in the godown could ,be raised under sections 11 and 36 of the Sales Tax Act, 1990. Further stated that the aforesaid brand names had not been registered with the competent authority, thus any customer could request the manufacturer to print such brand name on their grey cloth supplied for dyeing. All the submission's of the appellant were turned down. The appellant was left with no alternative, but to deposit the demanded amount of sales tax and the respondent had acknowledged the same' in the impugned order. The appellant only provided processing/vending facility on the basis of conversion charges. The appellant was maintaining the book of accounts properly in accordance with law. It has been prayed that the impugned order be declared as null and void and either the amount be refunded or be allowed to be adjusted in the next returns.

5. The department furnished the comment. They have submitted that an information as received regarding the evasion of sale tax and the Assistant Collector, Sales Tax, Faisalabad Audit Division-II, marked the application to the audit team to get the computer profile of the unit and conduct snap audit. The appellant had not submitted any documentary proof to support his view point that he had shifted its finished goods to another place. The godown/store place had not been communicated to the department by the registered person, so it would be presumed that supply had been made. The appellant had not furnished the requisite books of account to support its view point, neither at audit stage nor at adjudication forum. The appellant has not submitted any comments before the Adjudicating Authority and deposited the evaded amount of sales tax in the national exchequer before adjudication proceeding. It showed that the appellant had admitted the evasion of sales tax and had deposited the same. The said amount was not contested by the registered person during adjudication proceeding. When the registered person was confronted with the points alleged in the contravention report, he voluntarily came forward and agreed to deposit the amount of sales tax as pointed out in the contravention report. The registered person promised to provide the record being maintained, but later on did not. The appellant was not pressurized or threatened to deposit the amount. The appellant, as a law-abiding citizen, had deposited the amount and now has changed his mind and stance. No formal audit report was prepared due to non-production of record.

6. Arguments were heard. The learned counsel argued that audit of any registered person could be conducted either under section 25 or 38 of the Sales Tax Act, 1990 and premises could be checked/searched either under section 40 or 40A ibid. The said section had not at all been followed. No audit report has been prepared. The "lawn", lying in the stock, could not be said as the brand lawn of the appellant. The learned counsel further argued that under section 2(46), of the Sales Tax Act, 1990 "the time of supply shall be deemed to have taken place either at the time of delivery of goods or the time when any payment was received by the supplier in respect of the supply". The condition was not met with in the case of the appellant, so the demand was contrary to law.' The learned counsel referred to an order of the Hon'ble Lahore High Court, Lahore dated 13-12-2005 passed in Writ Petition No.10909 of 2005 "Shafqat Hameed v. Federation of Pakistan" that where another Collectorate than within whose jurisdiction the unit was located, conducted the raid and compliance of sections 38, 40 and 40-A of the Sales Tax Act, 1990 had not been made, the raid was declared as without lawful authority.

7. The Auditor defended the impugned order. He contended that the appellant had voluntarily come forward to deposit the disputed sales tax when he was confronted with the contravention report and had no answer to the queries. Now, the appellant had changed his mind and had filed the appeal with mala fide intention and ulterior motives.

8. I have considered the matter carefully. The perusal of the record shown that an informer had informed that the appellant was evading sales tax and had shifted its Shamaila, VIP and Kiran Lawn to its godown in the city and had not paid the sales tax. The learned Assistant Collector raided the factory and godown. Under section 38 of the Sales Tax Act, 1990, an officer authorized by the Board or the Collector shall have free access of the manufacturing premises. In this case, the learned Assistant Collector, conducting the raid, had not obtained any permission of the Board or the Collector. A surprise raid can be conducted under section 40-A of the Sales Tax Act, 1990, if the learned Assistant Collector had reasons to believe that any document or thing, in his opinion, may be useful or relevant, had been concealed or there is a danger of its removal. The learned Assistant Collector had not recorded any such belief. There are so many infirmities apparent in the order-in-original. No record had been produced during the surprise raid, inasmuch as the concerned person was not available and could not be contacted. The record produced were rough chits. It has been observed in the impugned order that the supplies were "probably" not declared in the sales tax record. The copy of the contravention report indicated that it was an interim report. At the end of the contravention report, the words are written "interim report submitted". The person available in the factory, vide Annexure-C had written -in hand that purchase register, sales register, stock register, gate passes grey register, invoice book and folding and production register would be produced at the mills premises on 25-5-2001. In the contravention report, the date of detection is shown as 25-6-2001. It all shows that the contravention report and the adjudication proceedings had been conducted in a haphazard manner. The appellant had not been given reasonable opportunity of being heard or produce the record. However, it is clear from the impugned order that the appellant had voluntarily deposited Rs.20,62,500, albeit under tacit protest. In the interest of justice, the appellant should be given a reasonable opportunity to contest his liability. The demand of sales cannot be upheld on the basis that "probably" the sales tax had been evaded or that it was an "interim contravention report" based on "interim scrutiny" and no audit report had been prepared and the available record only comprised chits. This appeal is, therefore, accepted. The impugned order is set aside and the case is remanded to the learned Adjudicating Authority to afford the appellant a reasonable opportunity to be heard and produce the relevant record at will and determine the liability, it any, afresh in accordance with law. H.B.T./1/Tax(Trib.) Case remanded.