2008 PLP (Trib (PTD)

ABDUS SALAM KHAWAR (MEMBER (JUDICIAL/CHAIRMAN).

Being aggrieved of the Order-in-Appeal No.42 of 2007, dated 2-3-2007 passed by the Collector, Customs, Sales Tax and Federal Excise. (Appeals), Lahore, this appeal has been preferred by Messrs D. D. F. C. (Pvt.) Limited.

2. Brief facts relevant of the disposal of this appeal are that it was reported by the Deputy Collector Sales Tax and Central Excise, Audit Division-I, Lahore that during audit or the period from July, 1999 to April, 2002 Messrs Design Development Fabrication Company (Pvt.) Ltd., 103-Small Industrial Estate, Kot Lakhpat, Lahore, (hereinafter called the `appellant') bearing Registration No. 03-7-7309-001-19, entered into agreements with its suppliers for the supply of goods and received part of the value of supply in advance, however, did not issue sales tax invoices at the time of receipt of these advances. It was maintained that in accordance with section 2(44) of the Sales Tax Act, 1990 time of supply is either the time of delivery of goods or receipt of payment which ever is earlier in respect of supply. Similarly section 23 of the Act provides that sales tax invoice is to be issued at the time of supply of goods. The appellant in contravention of both the provisions issued these invoices at the time of delivery of goods. Thus payment of sales tax to the extent of these advances was made after the due date. Therefore, the appellant was liable to pay additional tax in accordance with section 34 of the Sales Tax Act, 1990. It was calculated that as the appellant made supplies of vehicles, machinery and office equipments without charging and depositing sales tax leviable thereon, therefore, total sales tax amounting to Rs.19,67,303 was recoverable from the appellant along with additional tax in accordance with section 34 of the Sales Tax Act, 1990. The matter was reported for adjudication and as a consequence of adjudication, the appellants were directed to deposit an amount of Rs.20,10,652 as additional tax (recurring till the time of payment) under section 34 of the Sales Tax Act, 1990 along with out put tax on sale of machinery which was yet to be calculated by the Department. A penalty of Rs.5,000 was also imposed on the appellant under section 33(2)(cc) of the Sales Tax Act, .1990. The learned Collector seized of the matter vide the impugned order held that the appellant had entered into an agreement with the buyers for the supply of goods and received part of the value of the supply in advance and did not issue sales tax invoices at the time of receipt of these advances. The appellants did not deposit tax in the tax period in which these advances were received. The Collector seized of the matter was of the opinion that the judgment referred to by the learned counsel for the appellant were self-explanatory, however, each case to be decided on its merit and it was to be decided as to whether the evasion of payment of tax was wilful or mala fide. It was held that the appellant had failed to substantiate its arguments that the evasion of payment of tax was not willful, therefore, mala fide on the part of the appellant was established. As per provisions of section 2(44) of the Sales Tax Act, 1990, the sales tax was recoverable on money received as advance against supplies either at the time of delivery of the goods or at the time when payment is received by the supplier instead of that supply. According to respondent, it was established that the appellant had entered into proper sale agreement with the buyers in which date, price, quantity and specification of the goods etc were specified, therefore, he could not be escaped from the liability of additional tax. To substantiate his view point, reliance was placed by the Collector/respondent on 1999 PTD 3907.

3. Aggrieved of the same, this appeal has been preferred before this Tribunal by the appellant.

4. The learned counsel for the appellant has maintained that the. issue of payment of sales tax on advances received from the buyers against future supplies and additional tax and penalty, in consequence thereof has been settled by Supreme Court of Pakistan in its judgment titled "D.G. Khan Cement v. Federation, reported as 2004 PTD 1179". It was maintained that the ratio laid down by the Apex Court is binding on all the subordinate Courts and the executive officers of the country and thus the payment of additional tax is illegal in the light of the dictum laid down by the Hon'ble Supreme Court of Pakistan in its judgment referred above.

5. It was also submitted that relying on the above mentioned judgment of Supreme Court of Pakistan, the Sindh High Court in its ' judgment, , in the Re Ghandhara Nissan Diesel Ltd. v. Sales Tax Department reported as 2004 PTD 2771 has held the imposition of penalty or levy of additional tax as unjustified and the order of imposing the penalty and additional tax were set aside. Likewise reliance was also placed on the judgment passed by the Appellate Tribunal, Islamabad Bench in 2004 PTD (Trib.) 2539, and also unreported judgment titled as "Hilal Tanneries Gujrat v. Additional Collector Adjudication, Lahore" in S.T. Appeal No.21/LB/2003, wherein the imposition of additional tax was held to be unjustified. Thus, the impugned order was assailed on the above referred/mentioned grounds.

6. Contrary to this, the learned D.R. appearing on behalf of the respondent maintained that wilful default has been committed by the appellants and in view of the very clear wordings of the provisions of law, the appellant was liable to pay the additional tax as provided under the law. It was further maintained that the apex Court has also held that only the levy of additional tax and penalty was unjustified when it was not wilful or intentional but in the facts and the circumstances of the present case, it has been proved that the appellant did receive the amount prior to the delivery of goods, the date, the time and rate had already been fixed, therefore, he was under a legal obligation to deposit the sales tax at the time of receipt of consideration.

7. We have heard the learned counsel for the parties and perused the available record with their assistance and our findings are as under.

8. Admittedly during the audit of the period from July, 1999 to April, 2000, it was observed that the appellants had entered into the agreement with their suppliers for the supply of goods and received part of the value of supplies in advance, however, did not issue sales tax invoices at the time of receipt of these advances. The relevant provision of law in this connection is laid down in section 2(44) of the Sales Tax Act, 1990 which enumerates that the time of supply is either the time of delivery of goods or receipt of payment whichever is earlier in respect of supply. Similarly under section 23 of the Sales Tax Act, 1990, the sales tax invoice is to be issued at the time of supply of goods.

9. The Hon'ble Lahore High Court, Lahore in its judgment in Civil Appeals Nos. 1262 of 1999, 1293, 1294, 1296 and 1306 of 2001 was of the view that the sales tax was payable on the incident of sale of goods as envisaged by the Sales of Goods Act under which no sale of any goods could be completed till the stage the property in goods sold had passed to the buyer and it is with reference to the said date that the sales tax was payable on the 20th of the succeeding month thereof which would be the tax period, therefore, the interpretation made by the Board of Revenue in the said letter was declared to be without lawful authority and of no legal effect and constitutional petitions were accepted against which the said civil appeals by leave were directed.

10. Contrary to this view held by the Hon'ble Peshawar High Court was different. It was held that according to the relevant provisions of the Act, the taxable supply was deemed to have been made on the date when advance payment of the consideration was received and sales tax was liable to be paid till the 20th of the succeeding month of the said payment.

11. Ultimately this controversy was resolved by the apex Court of Pakistan in 2004 PTD 1179, wherein it was held "that according to the well-established principles of interpretation and construction of the statutes laid down by the superior Courts, harmonious construction is to be made keeping in view the different provisions of the statute after fully understanding the intention with which the same had been made and the object which was intended to be achieved. The intention behind the promulgation of relevant provisions of the Sales Tax Act as reproduced above is clearly manifest that the sales tax should go to the Government treasury within the tax period after the same having become due and should not be retained by the manufacturers. There is no hard and fast rule as to when and at what stage, the transaction shall be deemed to be the transaction of sales of the goods. Each case has to be decided according to the, facts and circumstances of the case, in particular the practice, usage of a particular nature of business or trade. In the case in hand, the manufacturers used to receive amount of consideration in advance for the supply of cement to be made later. It is clear from the provisions of section 2(22) and (3) of the Sales Tax Act that time of supply was deemed to be the date on which advance payment was received or the supply made whichever was earlier. There is no difficulty in holding that in such a case, the amount of consideration received in advance shall be deemed to be the price on that date of the proportionate quantity of cement and the sales tax should be deposited before 20th of the succeeding month in the Government treasury instead of the date of delivery of the goods at the subsequent stage. In other words, we in order to put the matter beyond any ambiguity, have no hesitation in holding that in such a situation, the date of receipt of amount of consideration in advance can well be construed to be the date of sale for the purpose of payment of sales tax. Learned counsel for the respondents-manufacturers submitted that in case subsequently on the date of supply of the cement, there is variation in the price of the goods on transaction is cancelled, the right and interest of the manufacturers should be protected. Learned counsel for the appellants however, submitted that there will be no inconvenience or difficulty in such a situation. He has filed a statement duly signed by Muhammad Wali Khan, Member (Sales Tax) which is reproduced below:

"C.B.R. understands that an advance in full or part payment received shall be treated as supply in terms of section 2(44) to the extent of quantity of goods based on the value prevailing on the date of receipt of the advance/part payment." The invoice under section 23 shall be issued at the time of receipt of the advance/part payment to the extent of the value/quantity of goods covered by the said advance. The delivery of said goods may be given at any subsequent time. However, in case of subsequent change in the value of goods or a change in rate of tax at the time of the actual delivery, the increased component of tax or value shall be accounted for by way of a debt/credit note and sales tax on the changed component only shall be paid with the sales tax return for that tax period. In the case the goods being supplied are not divisible (e.g. a car) then the advance payment received shall be treated as a complete supply to the extent of the payment and an invoice shall be issued accordingly, showing that it is a part payment. At the time of receipt of the remaining amount/delivery of goods, the same shall be treated a separate supply and an invoice will be issue covering the remaining payment. In our view, it is complete answer to the argument advanced by the learned counsel for the manufacturers. In our view, there is no such difficulty in adopting the construction of the relevant provisions as to date of sale of goods for the purpose of payment of sales tax.

12. In the present appeal, the learned counsel for the appellant has submitted that the late payment of sales tax by the appellant was not wilful but was result of the controversy arising of the decision of the superior Courts giving different interpretations of the payment, the time of supply given in section 2(44) of the Sales Tax Act, 1990, the imposition of additional tax and penalty was not justified.

13. As discussed above, there was a controversy during the period about the interpretation of the term of supply, time of supply which has ultimately is laid to rest by dictum laid down in 2004 PTD 1179.

14. There is no dispute in the payment of principal amount of sales tax. The only dispute is regarding the late payment as discussed above. Since the late payment of sales tax by the appellant was not wilful but was the result of the controversy arising out of the decision of the superior Courts giving different interpretations of the term `time of supply' as laid down in section 2(44) of the Sales Tax Act, 1990. In these circumstances, the imposition of additional tax and penalty were not justified. The appeal is, therefore, accepted and the impugned orders are hereby set aside. H.B.T./146/Tax (Trib.) Appeal Accepted.