2012 PLP (Trib (PTD)

This appeal has been filed by the registered person against the order of the Collector(Appeals) Faisalabad, dated 17-9-2008, whereby the Collector(Appeals) rejected its appeal against the Order in Original dated 24-11-2007 passed by the Assistant Collector (Refund).

2. Facts of the case, in brief, are that the registered person is engaged in the business of manufacturing and export of confectionery items. Through a show-cause notice dated 8-9-2007 the Assistant Collector Sales Tax and Federal Excise, Faisalabad, confronted the registered person with the disallowance of input tax of Rs.380,125 relating to the tax period February, 2007. The proposed disallowance included input tax on purchases made from various suppliers apart from an amount of Rs.124,170 on packing material being in excess of 20% value of the exported confectionery items. Reply submitted was found convincing partly by the learned adjudication officer who allowed, the claim of adjustment of input tax with the exception of input tax of Rs.10,761 attributable to the purchases made from N.K Traders. Further amount of Rs.124,170 was also disallowed being the input tax on packing material in excess of the 20% value of the exports. Being aggrieved the appellant filed appeal before the Collector(Appeals), Faisalabad, who vide his order dated 17-9-2008 maintained the order in original. Being still dis-satisfied the appellant has come up in further appeal before us agitating against the disallowance of input tax on packing material.

3. Initiating the arguments on appeal, the learned AR contended that the disallowance of input tax on the packing material in excess of 20% value of the exports on the basis of an agreement between the department and the Confectioners' Association was not justified because the said agreement did not have the force of law. In this context the learned AR referred to the judgment of the Lahore High Court, Lahore reported as 2005 PTD 72, wherein the honourable Court discarded the disallowance of input tax on the basis of such agreements with the following observation:-- "The appellants are correct in pointing out that mere minutes of meeting between the association and the Revenue were not enough to change the existing tax regime fully supported by the provisions of section 3(1) of the Sales Tax Act, 1990. The view of the Tribunal that the matter stood settled by way of an administrative arrangement cannot be/accepted as correct statement of-law. Not only the imposition of a tax but also any change even in its rate or process of collection cannot be made without there being a superior or subordinate legislation. The minutes of the meeting between the Revenue and the association of a class of taxpayers is neither a superior nor a subordinate legislation. In our taxation system, it is correct that legislature at time delegates its powers to the Revenue wing of the Government to make changes giving exemptions, or altering the rate of levy or the procedure to collect it. The exercise of such power by the executive however is certainly conditional to the existence of a delegation in the superior legislation i.e. an Act of the Parliament. In the case in hand, it may necessary to formally legalize the terms of the agreement either by an Act of the Parliament or if the existing law so permitted, by way of a subordinate legislation in the form of a notification. In absence of a delegated power and manifestation of that power through notification or an amendment in the rules, the agreement between the association and the Revenue was at best a promise to pay at certain rate on the part of one party and to refrain from conducting audit by the other. That set of promise could very well be a gentleman's promise. However, it was not enforceable in law; No levy against the express words of the statute can be made on the basis of such an agreement much less to say of imposition of additional tax or penalties in case of non-compliance with the terms of agreement." The learned AR further contended that this Tribunal had also recorded similar findings in the judgment reported as 2011 PTD (Trib.) 20 and 2010 PTD (Trib.) 2126. He prayed that in view of the settled legal position the entire claim of input tax on the packing material be allowed.

4. None appeared on behalf of the Revenue despite service of notice. We, therefore, decided to dispose of the appeal with the assistance of the learned AR by resorting to Rule 20(2) of I.T.A.T Rules, 2005.

5. We have given due consideration to the arguments advanced by the learned AR of the company and the case-law cited at the Bar. In view of the settled legal position as per reported judgments quoted supra we feel inclined to agree with the assertions made by the learned AR and hold that the agreement between the sales tax department and the confectioners' association does not have binding force because it has not been enacted as a piece of legislation and therefore, does not have the force of law. Accordingly we accept the appeal of the registered person and direct that the claim of input tax on packing material used in the manufacturing and export of products of the registered person be allowed.

6. The appeal filed by the registered person succeeds. H.B.T./259/Tax(Trib.) Appeal allowed.