2008 PLP (Trib (PTD)

ZAFAR UL MAJEED, MEMBER (TECHNICAL).

This appeal is directed against Order- in-Original No.119 of 2005, dated 29-6-2005 passed by the Additional Collector (Adjudication), Lahore. By this order, the Adjudicating Officer has adjudged demand of sales tax, additional tax and penalties imposed under different provisions of the Sales Tax Act, 1990 (hereinafter referred to as "the Act") on account of various irregularities committed by the appellant as detailed below:-- (1) Imposition of penalty of Rs.5,000 under section 33(1) of the Act on account of late filing of sales tax return for the month of 6 of 2001. (2) Imposition of penalty of 3% of the amount of tax involved under 'section 33(7) of the Act on account of wrong filing of monthly sales tax returns in that the appellant did not record exempt purchases (purchase of cane) and export of molasses valuing Rs:34,54,50,234 therein. (3) Demand of sales tax amounting to Rs.26,291 along with additional tax and penalty of Rs.2500 under section 33(7) of the Act for claiming inadmissible input tax adjustment against purchase of cash safe and split type air-conditioners. (4) Demand of sales tax amounting to Rs.42,93,991 along with additional tax and penalty equal to 3% of the amount of tax involved under section 33(2)(cc) of the Act on account of the charge that the appellant applied lower value for supply of sugar to un-registered buyers as compared to the value of supplies made to registered persons although the supplies were made on the same dates. Detail of supplies made during the period under audit has been given on pages 3 and 4 of the impugned order. Similarly, the appellant under-valued local supplies of molasses during the months of 10-11-2001 made to unregistered persons and evaded sales tax amounting to Rs.4,71,

774. The appellant has been directed to pay this amount along with additional tax and penalty equal to 3% of the amount of tax involved under section 33(2)(cc) of the Act. (5) Demand of sales tax amounting to Rs.87,61,197 along with additional tax and penalty equal to 3% of the amount of tax involved under section 33(2)(cc) of the Act on account of sale of plant/machinery and machinery parts without payment of sales tax.

2. Through the instant appeal, the appellant has contested the demand raised vide impugned order mainly on the following grounds:-- (1) That the appellant deposited its liabilities within time the period extended by the C.B.R. vide its letter C. No.3(9)ST'-L&P/2001, dated 16-7-2001 whereby date for filing of return for the month of 6 of 2001 was extended upto 20-7-2001. Learned counsel for the appellant placed a copy of this letter on record during the course of arguments. (2) That it was not possible for the appellant to record purchases of sugar cane (exempt purchases) in the monthly sales tax returns because of the awkward practice whereby no invoice was being provided by the growers. As such, maintenance of record of such purchases was beyond the control of the appellant for which it could not be penalized. Similarly, the exports being zero-rated, non-mention of the figures of export in the returns did not make any difference. (3) That the inadmissible input tax adjustment to the extent of Rs.26,291 is admitted but the demand was settled by the appellant by availing amnesty granted by the {government. (4) That the appellant declared actual value of supply of sugar in the invoices to the registered as well as un-registered persons. Since the supplies made to un-registered persons were in larger quantities, the price charged was comparatively lower. The law does not authorize the auditors to determine the price of goods, as it is the prerogative of the supplier to price its product according to the market conditions. According to section 2(46)(e) of the Act, in case of dispute, value of goods could be determined by constituting Valuation Committee, which was not done by the Department and the demand was raised by the respondent arbitrarily. The demand on this account is, therefore, liable to be set aside. In the case of molasses, the entire quantity was exported to foreign countries and 100% refund of sales tax paid thereon was claimed. As the entire amount of sales tax paid on molasses was subsequently refunded, there was no loss to the national exchequer on this account. However, the respondent rejected the appellant's contention and adjudged the demand, which may be set aside. (5) That during the period under audit, the appellant sold out dated and useless machinery and certain machinery parts to its sister concern which did not constitute taxable supplies as the same were not in furtherance of its business as provided under section 2(35) of the Act. Regarding plant/machinery it has been submitted that the same was not sold but leased out by the appellant to its sister concern for financial purposes. The demand on this account is, therefore, liable to be set aside.

3. The case was heard on 8-3-2007. Learned D.R., opposed the appeal. Learned counsel, while elaborating appellant's contention regarding charge of under-valuation of supplies, maintained that the lower value applied on supplies to unregistered persons was primarily because of large quantities of sugar involved and some other factors like advance payments etc. However, to a question whether grant of discounts on account of such factors was recorded in the relevant tax invoices or not, learned counsel's answer was evasive. Similarly, in the case of sale of plant/machinery and parts, he did not give categorical reply to the statement made by the 'DR that the appellant had claimed input tax adjustment against these items at the time of their acquisition.

4. We have carefully examined the record and given due consideration to the submissions made by both sides. Our findings on the issues involved are as follows:-- (1) The appellant filed sales tax return for the month of 6/2001 on 19-7-2001, which was well within the time extended by the C.B.R. vide its letter C. No.3(9)ST-L&P/2001, dated 16-7-2001 upto 20-7-2001. Penalty of Rs.5,000 imposed on this account is, therefore, remitted. (2) The appellant's contention that the growers, as per practice, did not provide invoices against sale of sugarcane and, therefore, it was not possible to maintain its record and reflect it in the monthly sales tax returns, carries weight. Similarly, the omission to record figures of export of molasses in the monthly sales tax return had no revenue implications. The aforesaid lapses are, therefore, condoned and the penalty imposed under section 33(7) of the Act on this account is remitted. (3) Learned counsel, during the course of arguments, did not contest the demand of Rs.26,291 on account of inadmissible tax adjustment. The demand of Rs.26,291 along with additional tax and penalty of Rs.2500 imposed vide impugned order is, therefore, upheld, which the appellant's directed to pay. Regarding charge of under-valuation of supplies, it is admitted that supply of sugar was made to a category of purchasers; i.e. un-registered persons at a lower value while supplies to' registered persons were made at a higher value on the same dates. When confronted with this discrepancy, learned counsel pleaded that low value 'supplies were made in case of contracts involving large quantities. Section 2(46)(b) of the Act does allow discount in the value of supply provided discounted price and related tax is indicated in the invoices and the discount allowed is in conformity with the normal business practices. However, when asked:

Whether this aspect was reflected in the invoices by indicating the element of discount, learned counsel did not give a definite answer, which renders this argument untenable. There is no force either in the appellant's argument that value of supply could only be determined by the Valuation Committee constituted under section 2(46)(e) of the Act, as in this case, the appellant itself had supplied sugar at a higher value on the same dates and, therefore, there was no justification for the appellant to make supplies to certain purchasers at lower value. The short payment of sales tax on this account is, therefore, established and the demand of Rs.42,93,991 raised vide impugned order along with additional tax and penalty is upheld. Similarly, there is no force in the argument that in case of molasses, there was no loss to the exchequer because entire quantity was exported and that any amount of tax paid thereon was refundable. The Department's case is that the difference in value of supply and the resultant short payment of sales tax reported by it was only in respect of local supplies. Learned counsel could not produce any evidence to the effect that entire quantity of molasses produced by the appellant was exported and that there was no supply in the local market. Demand of sales tax amounting to Rs.4,71,774 along with additional tax and penalty imposed on this account is also upheld. (5) It is also admitted that the appellant disposed of old and used plant, machinery, and machinery parts without payment of sales tax. The appellant's contention that the disposal did not constitute taxable supply as it did not conform to the definition of taxable activity provided in section 2(33) of the Act is not tenable. The appellant is engaged in the production and supply of sugar. The machinery and parts had been acquired by it for the production of sugar and making taxable supplies and the appellant, according to the Department's contention, which was not denied by learned counsel during the course of hearing, had claimed adjustment of input tax paid therein at the time of their acquisition. Under the circumstances, it will be only logical to conclude that the law that entitles a manufacture/supplies to claim adjustment of tax paid on purchase of an item also makes it obligatory for him to pay tax on its subsequent disposal, of course on a value reduced with the passage of time. The argument' that such disposal, being not in line with the declared business of the taxpayer, does not constitute a taxable supply, is not well-founded and not in line with the scheme of value added tax. We are, therefore, of the considered view that the supply in question was chargeable to tax. The demand of sales tax amounting to Rs.87,61,197 is, accordingly upheld which the appellant is directed to pay. However, as there has been a controversy going on about chargeability of tax on such transactions, non-payment of tax is not considered willful and, therefore, additional tax and penalty imposed vide impugned order under section 33(2)(cc) of the Act are remitted.

5. The appeal is disposed of in the above terms and the impugned order is modified accordingly. H.B.T./162/Tax (Trib.) Order accordingly.