2006 PLP (Trib (PTD)

SAEED AKHTAR, MEMBER (TECHNICAL).

This appeal is directed against Order-in-Original No.110 passed by the learned Collector of Customs, Sales Tax and Central Excise (Appeals), Faisalabad.

2. Brief facts of the case are that the audit of sales tax records of the appellant Messrs Pak Cotton Ginning; and Pressing Factory, Fortabbas was conduced by the special auditors Messrs Avais Haider Zaman, Chartered Accountants for the period 1998 to 2000. During the course of audit following observations were made by the special auditors:

(1) The appellant supplied Oil Cake weighing 103880 kgs. and charges sales tax @ 12.50% in the tax period November, 1998 but failed to charge 1% further tax on the said supply and evaded sales tax amounting to Rs.4,452 which was found recoverable along with additional tax. (2) During quantitative lot wise comparison for the period 1998-99, it was observed that in lot Nos. 82 and 84 excess quantity was supplied as compared to production which resulted in the concealment of production of cotton seed in February, 1999. The registered person, therefore, suppressed the supply of cotton weighing 52866 kgs. and evaded sales tax amounting to Rs.58,674 which was found recoverable along with additional tax. (3) During the tax period April, 2000 the appellant supplied Oil Cake weighing 5880 kgs. vide Invoice No. 100 but failed to deposit sales tax amounting to Rs.4,573 which was found recoverable along with additional tax. (4) During the tax period March, 2000 the appellant supllied 612027 kgs. of cotton lint and the registered person stated that this quantity relates to purchase and consumption of loose lint. However, the auditors observed that this quantity was produced and supplied out of raw cotton and thus evaded sales tax on cotton seed amounting to Rs.121,964. (5) In the tax period November, 1999 a quantity of 139821 kgs. of raw cotton was declared in excess on excise duty payment challan and was not taken in the purchase and issue record. The sales tax was thus evaded on cotton lint weighing 50335 kgs. valuing Rs.291,499 and cotton seed 81096 kgs. valuing Rs.95,819 which attracted additional tax on both. (6) During the year, 1999-2000 the registered person understated the production of cotton lint by 1.36% which quantified into 81678 kgs. sales tax amounting to Rs.623,680 was thus evaded which is recoverable along with additional tax. (7) During the period 1998-99 and 1999-2000 the registered person understand the production of Oil Cake involving sales tax amounting to Rs.48,609. (8) During the period 1998-99 and 1999-2000 the closing stock of cotton lint stated by the registered person was nil but on working it comes to 8481 kgs. and 7669 kgs. respectively involving evasion of sales tax amounting to Rs.81,802 and 72,041 which was found recoverable along with additional tax. (9) Sales tax record was not maintained properly and the registered person violated the provisions of section 22 of the Sales Tax Act, 1990.

3. Contravention case was made out against the registered person on the report of auditors and Deputy Collector adjudicated the case after issuance of show-cause notice. The Adjudicating Officer decided different audit observations as under: Charge No.1 The registered person was directed to pay further tax amounting to Rs.4,452 along with additional tax and penalty amounting to Rs.5,

000. Charge No.2 The registered person was directed to pay sales tax amounting to Rs.58,674 along with additional tax and penalty amounting to Rs.5,

000. Charge No.3 The registered person was directed to pay sales tax amounting to Rs.4,537 along with additional tax and penalty amounting to Rs.5,

000. Charge No.4 The registered person was directed to pay sales tax amounting to Rs.121,964 along with additional tax and penalty equivalent to 3% of the sales tax involved. Charge No.5 The registered person was directed to pay sales tax amounting to Rs.291,499 on cotton lint and Rs.95,819 on cotton seed along with additional tax and penalty equivalent to 3% of the tax involved. Charges Nos. 6 and 7 Dropped for issuance of fresh contravention case. Charge No.8 The registered person was directed to pay sales tax amounting to Rs.81,802 along with additional tax and penalty of Rs.5,

000. Charge No.9 Charge was settled by the Adjudicating Officer.

4. The registered person filed appeal before the Collector, Customs, Sales Tax and Central Excise (Appeals), Faisalabad against the adjudication order passed by the Deputy Collector. The Appellate Authority after hearing the parties concerned decided the issues as under:-- Charge No.1 The appellant contended that further tax of Rs.4,452 was not charged due to unawareness regarding this levy. 'The principal amount was deposited by the appellant. The Appellate Authority considering the contentions of appellant remitted the penalty but kept the order regarding payment of additional tax intact. Charge No.2 The contentions of the appellant were not found tenable and orders of Adjudicating Officer for payment of Rs.58,675 along with additional tax and penalty of Rs.5,000 were upheld. Charge No.3 The appellant had already deposited the adjudged amount of Rs.4,537 therefore, penalty of Rs.5,000 was remitted by the Appellate Authority. However, appellant was directed to deposit additional tax keeping the adjudication order regarding additional tax intact. Charge No.4 The contention of appellant was that they purchased loose cotton from open market and pressed it into bales. This contention was not found tenable as the appellant failed to inform the Sale Tax Department accordingly and no such entry was made in the sales tax record. The adjudication order for payment of Rs.121,964 along with additional tax and penalty at the rate of 3 per cent of the tax involved was upheld. Charge No.5 This charge was settled after verification of relevant record. Charge No.6 Dropped at the adjudication stage for issuance of fresh contravention case. Therefore not contested at appeal stage. Charge No.7 Dropped at the adjudication stage for issuance of fresh contravention case. This charge was not contested at the appeal stage. Charge No.8 The Adjudicating Officer directed the appellant to pay Rs.81,802 along with additional tax and penalty of Rs.5,

000. The charge was set aside by the Appellate Authority after hearing the contentions of parties concerned. Charge No.9 Charge regarding improper maintenance of record was settled by the Adjudicating Officer.

5. The learned consultant at the time of hearing contended that the record of appellant was not properly examined by the auditors and allegations were arbitrarily raised against the appellant. The learned consultant contended that arbitrariness of allegations is evident from the fact that 5 out of 9 charges were vacated at .the adjudication and first appellate stage. The learned consultant regarding Charge No.1 contended that the appellants failed to pay further tax amounting to Rs.4,452 due to their ignorance about the levy. This amount has already been deposited in. the Government Treasury. The learned consultant further contended that appellants plea regarding non-payment of further tax was accepted by the learned Collector (Appeals) and penalty of Rs.5,000 was remitted. In these circumstances there is no justification for imposition of additional tax as the default on the part of appellant was not wilful.

6. Regarding Charge No.3, the learned consultant contended that the non-payment of sales tax amounting to Rs.4,537 on supply of oil cake was due to miscalculation. The appellant paid the said amount as soon as he came to know of this omission. The learned consultant further contended that there was no deliberate attempt to evade sales tax and the learned Collector (Appeals) accepting the plea of appellant remitted the penalty of Rs.5,000 imposed by the Adjudicating Officer. The learned consultant contended that the default was not wilful and there is no justification for imposition of additional tax the learned consultant requested for waiver of additional tax.

7. The learned consultant further contended that the charge numbers 2 and 4 are based on presumption as there is no evidence to support the charges. The learned consultant contended that the appellant purchased loose lint from the local market and after further processing and packing they supplied the same on payment of sales tax. Moreover, the appellant did not buy cotton seed from the trader from whom they got the loose lint. The learned consultant further contended that there is 'sufficient evidence to establish this fact and the 'same can be verified from the record available with the appellant.

8. The learned DR who was assisted by the auditors of respondent Collectorate opposed the appeal and contended that the sales tax liability has been correctly adjudged and there is no infirmity in the charges raised against the appellant.

9. After hearing the arguments of concerned parties, it was deemed necessary to direct the Collector Customs, Sales Tax and Central Excise, Multan to constitute a reconciliation committee under the supervision of a Deputy Collector and comprising of representatives of both the parties to re-examine the sales tax record of the appellant to find out factual position regarding charges Nos. 2 and 4 and submit a report before this Tribunal. The Collector Customs, Sales Tax and Central Excise, Multan forwarded the report of reconciliation committee vide letter C. No. 33/Law/2003/ST/11810, dated 22-7-2004. The findings of the reconciliation committee regarding observations Nos. 2 and 4 are as under:-- Observation No.2 The records of the registered person for the audit period 1998-99 have been checked and it has been revealed that the contention of the registered person that the excess supply of lint i.e. Lot Nos.82 and 84 were produced from loose lint purchased by them from the farmers is not tenable under the law as no entry relating to loose lint has been mentioned in the sales tax record as well as in the other business records of the taxpayer. In this way, it is confirmed that the registered person excess sold Lot Nos.82 and 84 as compared to production. As a result, the registered person concealed the production of cotton seed weighing 52866 kgs. and hence evaded sales tax amounting to Rs.58,674 along with additional tax. The registered person admitted his fault at the time of verification as he failed to show the purchase of loose lint of verification in his records and he has also deposited the evaded amount of sales tax amounting to Rs.58,674 against observation No.2 along with additional tax and penalty. Copy of return-cum-payment challans are enclosed. Observation No.4 The sales tax records. as well as the other business records of the registered person were checked and following are the findings:-- The purchase records of sales lax (purchase register and ginning register) did not show any entry purchase of `loose lint' whereas supply register of the registered person showed excess supplies of cotton lint than production weighing 61027 kgs. Anyhow, the other business records of the registered person i.e. `Khata (ledger), Cash Rokar and Mall Rokar' showed the entries of purchase of `loose lint' weighing 61027 kgs. from farmers and commission. agent. In the light of above facts, it is clear that the contention of the registered person that he only purchased 61027 kgs. of loose lint and after pressing that into bales, supplied the same. This confirmed that, as far as the observation No.4 is concerned, the registered person has not made any evasion of sales tax.

10. According to the findings of the reconciliation committee the appellant admitted his fault regarding observation number 2 and deposited the evaded amount of sales tax amounting to Rs.58,674 along with additional tax and penalty. This observation was accordingly settled by the Department. Regarding observation number 4, the reconciliation committee reached the conclusion that the appellant has not committed and fault and accepted the contentions of the appellant that he only purchased 61027 kgs. of loose lint which was supplied after processing and there was no evasion of sales tax. This observation was settled by the Department after reconciliation of sales tax records of the appellant.

11. The learned consultant at the time of hearing contended that the superior Courts have repeatedly held that in case the evasion of duty was not wilful, the imposition of penalty and additional tax was not justified. In support of his contentions the learned counsel referred to a case reported as PTCL 1997 CL 415 where Honourable Lahore High Court held that where the petitioner did not act mala fide with the intention to evade the tax, the imposition of penalty, additional tax and surcharge was not justified. The learned consultant further contended that the Honourable Supreme Court in the case reported as PLD ,1991 SC 963 has held that the imposition of penalty was illegal where the evasion of duty was not wilful. The learned consultant contended that in case of Messrs D.G. Khan Cement Company v. Federation of Pakistan and a number of other cases 2004 SCMR 456 as 2004 PTD 1179 the Honourable Supreme Court has held that where non-payment of sales tax within tax period was neither wilful nor it could be construed to be mala fide evasion, the recovery of additional tax as penalty or otherwise was not justified in law. The learned consultant further contended that the learned Collector (Appeals) remitted penalty in respect of observation Nos. 1 and 3 on the ground ' that the party did not intend to evade tax. The learned consultant prayed that in view of findings of the Honourable Superior Courts and the Collector (Appeals), the imposition of additional tax in respect of observation Nos.l and 3 is not justified and the same may be waived.

12. We have heard the contentions of both the parties and perused the appeal file before us. Out of 9 observations raised by the auditors against the appellant, 5 were vacated at the adjudication and first appellate stage. The appellant accepted the charges in respect of observation No.2 and deposited the adjudged amount along with additional tax and penalty. Observation No.4 was dropped by the respondent Collectorate after reconciliation of records of the appellant on the directions of this Tribunal. The learned consultant has contended that the superior Courts in number of cases have waived additional tax and penalties where default was not wilful and intentional. The learned Collector (Appeals) has observed that the default in respect of observation Nos.1 and 3 was not wilful and remitted penalties imposed by the Adjudicating Officer. In view of above discussion we find no justification for imposition of additional tax in respect of observation Nos.1 and 3 and the same is remitted.

13. The appeal stands disposed of as above. C.M.A./498/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal accepted.