2008 PLP (Trib (PTD)

ABDUS SALAM KHAWAR, MEMBER (JUDICIAL)/(CHAIRMAN).

Being aggrieved of the Order-in-Original No. 266 of 2002, dated 23-5-2002, this appeal has been preferred by Messrs Madina Enterprises Limited (hereinafter referred to as appellant).

2. Brief facts leading to this appeal are that the Assistant Collector, Sales Tax (H.Q.), Faisalabad reported that Messrs Akram and Company Chartered Accountants, Faisalabad audited the record of the appellant for the period January, 1999 to December, 2000 under section 32-A of the Sales Tax Act, 1990 and certain discrepancies were found. It was asserted that the appellant had claimed inadmissible input adjustments; secondly suppression of taxable supplies; thirdly suppression of other income and fourthly under valuation of supplies.

3. On the basis of this, the appellant were charged with a contravention of the relevant provisions of law and they were called upon to show cause as to why sales tax amounting to Rs.251,059 be not recovered from them along with additional tax under sections 34 and 36 of the Sales Tax Act, 1990 and also as to why the penal action be not taken against them under section 33 ibid.

4. The said show-cause notice was issued vide Endorsement C. No.11229, dated 27-11-2001. The appellant submitted written reply to the show-cause notice and controverted the allegation. The respondent, after hearing the appellant as well as the respondent, came to the conclusion that the charges enumerated in the show-cause notice was established and the respondents were directed to deposit Rs.76,865 along with additional tax under sections 36 and 34 of the Sales Tax Act, 1990 and also a penalty of Rs. 5,000 was imposed under section 33(2cc) ibid for violation of the above mentioned provisions of law.

5. Aggrieved of the same, this appeal has been preferred by the appellant. The learned counsel, appearing on behalf of the appellant, has urged that the impugned order is bad under law as well as against the facts of the case. Firstly; it was agitated that the impugned order is hit by the limitation specified under sections 11(4) and 36(3) of the Sales Tax Act, 1990 whereby it is provided that order under these sections is to be made within 45 days of issuance of show-cause notice or within , such extended period as [the Collector or, as the case may be, Collector (Adjudication) may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed 90 days. It was pointed out that in the instant case the show-cause notice was issued ' on 27-11-2001, whereas the order has been made on 23-5-2002 which on the face of it, is beyond the mandatory time limit provided by law. As such the tax demand was void. Secondly; it was asserted that the show-cause notice issued to the appellant was defective as specific provision, under which the appellant was being charged, not given therein which had made the same redundant. It was asserted that the show-cause notice should be detailed and give the relevant provision of law under which it was served because only then the appellant could reply the same. In support of his contention, reliance has been placed on 2006 SCMR 1519 and 2001 SCMR 838.

6. As regards to the factual position, it was pointed out that the appellant had supplied "A" quality and "B" quality of laundry soap in different packages under single brand name of Kisan Laundry Soap. The former quality of soap was produced from imported fatty material, whereas the latter was produced from self-manufactured soap. The quality of the soap, so supplied, demanded cost and quality of the raw material consumed. The price of the imported raw material was higher than that of local production or self-manufactured raw material. 'It was asserted that the respondent had not referred the matter to the "valuation committee" to assess the real value of the goods supplied. It was pleaded that since the value of supply determined by the audit is contrary to the provision of section 2(46)(e) of the Sales Tax Act, 1990 and without adhering to this provision of law the payment of sales tax of any presumptive value, was of no legal effect.

7. It was also agitated that after the normal audit, special audit could not be conducted and the discrepancies whichever brought into action through special audit were not taxable under the law. The special audit could not be conducted without permission of the Collector or the C.B.R. To support his contention, the reliance is placed on 2004 PTD 714; PTCL 199(sic) CL 803.

8. Contrary to this, the learned D.R. assisted by the Mr. Israr Khan, Senior Auditor submitted that admittedly the show-cause notice was issued on 27-11-2001 and order-in-original was passed on 23-5-2002, the question of limitation according to him is not fatal as the law laid down under section 36 of the Sales Tax Act, 1990 is not mandatory in nature, it is only directory. To support his contention reliance is placed on 200,6 SCMR 1519. Secondly; it was urged that it has been constantly held by this Tribunal that there is no specific requirement of law to specifically mention the provision of law in the show-cause notice. According to him the words of show-cause notice itself are specific, therefore, no detail or the mentioning of a specific provision of law was necessary.

9. On the factual side, it was maintained that the appellant had committed fraud and taken an absurd plea that he was producing the laundry soap of two different qualities. It was maintained that under the garb of one brand name there could not be two qualities and particularly when there is no mention as to which was of "A" quality or the other one is of "B" quality.

10. It was pointed out that special audit was conducted in the year 1999, whereas the bar to conduct special audit was inserted in law in the year, 2002. If was pointed out that the special audit was not conducted under section 38, but under section 32(A) of the Sales Tax Act, 1990 for which there is need of permission or direction by the concerned authorities.

11. It has been vehemently urged that the show-cause notice to the appellant was issued on 27-11-2001 and as per sections 11(4) and 36(3) of the Sales Tax Act, 1990, the final order should have been made within 45 days of the issuance of show-cause notice or within such extended period as the Collector or the case may be Collector (Adjudication) may for the reasons to be recorded in writing fix provided that such extended period in no case is to extend 90 days. It was maintained that in the present case this provision of law has been adhered to.

12. The perusal of the above quoted provision of law reveals that no consequence for non adherence of this provision has been prescribed meaning thereby that this provision is directory and not mandatory. Meaning thereby that tile: proceedings are not to be struck down only on account that these were not completed within 90 days. In Civil Appeal No. 2036 of 2004 in re: Assistant Collector Customs AFU Air Port, Lahore v. Messrs Tripple (Pvt.) Ltd. and others it was held by 'the Lordship Mr. Justice Javed Buttar "No order can be scraped or annulled or set aside, only on the ground that the same has been passed with unreasonable delay. There is no such concept attached to the judicial and quasi judicial proceedings, unless provided in the statute".

13. Furthermore it was advocated on behalf of the appellant that the specific provision of law has not been incorporated in the show-cause notice. Therefore, it cannot be termed as valid one and no action could be taken against the appellant on the basis of this faulty show-cause notice.

10. This contention too is devoid of any legal force. The object of notice including the- notice contemplated under section 36 of the Sales Tax Act, 1990.is to afford the opportunity of hearing and defence. So far as the form of notice is concerned, it has neither been prescribed under statute nor in the Rules thereof. Even otherwise, the substance is more important than form. Non mention or wrong mention of the section does not affect the nature of the documents which is determined on the basis of its contents. So was held in S.T.A. No.909/LB of 2005 in Sitara Textile Industries Limited v. Collector Sales Tax by Lahore Bench of this Tribunal. In C.P. No.702-L of 2003, in re: Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills etc., the Hon'ble Supreme Court of Pakistan has held that "We have heard learned counsel for both the sides and have gone through the contents of the show-cause notice carefully. In our considered opinion the substantial compliance has been made by making reference of the rules to identify the period of time during which tax has been allegedly evaded. Therefore, merely for the reason that sub-rules (2) and (3) of Rule 10 of the Central Excise Rules, 1944 have not been mentioned, it would have not been proper to declare the notice illegal. In this view of the matter, the judgment of the High Court is not sustainable. It is to be noted that instead of taking into consideration technicalities, the Court looks into the matter with different angles namely as to whether substantial compliance has been made or if any of the sub-rule has been omitted then what prejudice is likely to cause to the party to whom the show-cause notice is given. But in the instant case, we are of the opinion that no prejudice shall be caused to the respondents because the substantial compliance of the relevant rules has been made. Therefore, under the circumstances, the judgment which has been relied upon by the learned counsel is of no help to him."

15. The appellant was charged in the show-cause notice of several counts as inadmissible input adjustments suppression of taxable supplies, suppression of other income, under valuation of supplies etc. However, vide the impugned order, the appellant was absolved of all other charges except under valuation of the 'supply. It was observed that section 2(46) of the Sales Tax Act, 1990 read with section 3 of the Act ibid requires a registered person to charge sales tax on value as prescribed under the aforesaid legal provisions. In contravention of these provisions, the registered person charged sales tax on same of his taxable supplies on a value which was self-contradictory and itself a proof of under valuation e.g. the registered person charged sales tax at Rs.300 per pack of 18 Kg. of laundry soap production from soap stock and Rs.250 per pack of 18 Kg. produced from imported fatty acid but in the market a single brand of soap is supplied in the name of Kissan Laundry Soap. It was alleged that this practice also applied on the fabrication of plastic containers. In this way the under valuation of taxable supplies was made on which sales tax amounting to Rs.76,865 was evaded and which was recoverable under sections 11 and 36 of the Sales Tax Act, 1990. The plea raised by the appellant was that the rate of soap depends on the use of the raw materials and chemicals and on the quality of finishing and that could be different even for the same type of produce. The plea advanced by the appellant in this connection does not carry any weight. It could have been acceptable if the goods were marketed with two different brands names and in such circumstances, the difference of value could be explained but in the present case the issue of under valuation pertains to a single brand, therefore, could not be of different standards in the same brand and that too is a normal business practice. Thus the Deputy Collector (Adjudication), Faisalabad has rightly held that a sum of Rs.76,865 was recoverable from the appellant. However, in the circumstances of the case, the additional tax and penalty imposed is waived off.

16. Orders accordingly. H.B.T./145/Tax (Trib.) Order accordingly.