2003 PLP (Trib (PTD)

3. The Deputy Collector (Adjudication), Peshawar, issued a notice C. No.ST DC (Adj: 103/AO/2001/835, dated 20-11-2001 requiring Messrs Alpha Vinyl Industries (Pvt.) Ltd. to show-cause why the aforesaid amount of sales tax totalling at Rs. 1,451,571 should not be recovered alongwith the additional tax due thereon and also why penal action should not be taken. After hearing, Mr. Issac Ali Qazi, Advocate on behalf of Messrs Alpha Vinyl Industries (Pvt.) Ltd., the learned Deputy Collector (Adjudication) decided the case vide the impugned Order-in-Original No.31 of 2002 where he found that the party did not dispute allegations No.(ii), (iii) and (iv) of paragraph 2 above and claimed to have paid/settled the same alongwith the additional tax. As regards the amount of Rs.1,279,306 of extra tax, he found that an amount of Rs.10,62,911 remained payable alongwith the additional tax due which he confirmed as payable by the party. He also imposed penalty equal to 3% of the tax involved on Messrs Alpha Vinyl Industries (Pvt.) Ltd., Hence this appeal.

4. During the course of hearing before us, the counsel for the appellant invited attention to the various Tax Return-cum-Payment challans for. 3 of 2000 and 4 of 2000 which shows "Output Tax" on taxable goods supplied during each tax period as 15% sales tax and 5% extra tax under Column (6) and "Input Tax" on taxable goods purchased during the tax period at 15% under column (7) and the amount they still had to claim of sales tax (whether for refund or for carry forward) under column (9) of those challans. He stated that there would be no difference whether they pay extra tax in cash separately or they deduct it from the amount the Tax Department owes to them (as balance to be refunded or carried forward) on account of input purchases. He pleaded that the Auditor have wrongly interpreted the provisions of the Levy and Collection of Extra Tax Rules, 1999, as notified under S.R.O. 795(I)/99, dated 30-6-1999. He cited judgments in PLD 1989 SC 222 holding that the principle of substantive compliance, particularly with regard to requirement of statutory rules has always been accepted by the superior Courts. He claimed that even if so directed in the Rules, these provisions shall not act against the appellant because extra tax has been duly paid by the appellant through the prescribed Tax-Return-cum-Payment challan. He prayed for acceptance of the appeal.

5. The learned representative from the Collectorate opposed the appeal and invited specific attention to rule 5 of the Levy and Collection of Extra Tax Rules, 1999, which states that " No manufacturer or producer, of the goods specified in rule 3 shall be entitled to deduct any input tax towards payment of extra tax paid or payable under the rules". He argued that the method adopted is in breach of the said Rule 5 and the extra tax ought to have been paid separately in cash. In reply to a query, he admitted that as of net there would have been no addition to the exchequer or burden on the taxpayer had the extra tax been paid in cash separately, by the due date as against the manner -that the appellant has paid the tax due by the due date. He, however, reiterated that since the extra tax has been paid in manner in violation of and in breach of rule 5 of the Levy and Collection of Extra Tax Rules, 1999; the demand of extra tax, to be paid separately is correct, and the appellant could consider claiming refund of excess payment on the said Tax Returns -cum-Payment challans under, conditions and limitations of section 66 of the Sales Tax Act, 1990. He prayed for dismissal of the appeal.

6. Having heard the parties and' on perusal of record of the case, we find that the Levy and Collection of Extra Tax Rules, 1999 has been made in exercise of the powers conferred by section 3(5) and 8(1) of the Sales Tax Act, 1990, read with section 71 thereof. The said provisions of the Act are reproduced as hereunder:-- "3(5) The Federal Government may, in addition to the tax levied under subsections (1) and (1A), subsection (2) and subsection (4), levy and collect such extra amount of tax not exceeding fifteen percent. of the value of such goods or class of goods and on such persons or class of persons, in such mode, manner and at time, and subject to such conditions and limitations as it may, by rules, prescribe." "8(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduction input tax paid on-- (a) the goods used or to be used for any purpose other than for the manufacture or production of taxable supplies made or to be made by him; (b) any other goods which the Federal Government may, by a notification in the official Gazette, specify; and (c) on the goods under subsection (1A) anti (5) of section 3." "

71. Special Procedure.

( 1) Notwithstanding anything contained in this Act, the Federal Government may be notification in the official Gazette, prescribe special procedure for scope and payment of tax, registration, book keeping an invoicing requirements and returns, etc; in respect of such supplies as may be specified therein. (2)

(3) Notwithstanding anything contained in this Act or any other law for the time being in force or any decision of any Court the trade enrolment Certificate schemes immediately in force before the commencement of the Finance Act, 1999, shall be deemed to be validly made under this Act."

7. We find that while the provisions of rule 4 of the aforesaid Rules, are in accordance with the powers vested under section 8(1) of the Act, the provisions of rule 5 thereof are neither clearly and un ambiguously worded nor in accordance with any power -vested whether under section 3(5) or section 8(1) or section 71 of the Act. On the contrary, rule 7 of the said Rues specifically states that "All provisions of the Act including those relating to the change, levy, assessment, collection, payment, recovery, invoice, records and returns, shall mutatis-mutandis, apply for the purposes of these rules." The deduction of input tax (being not the extra tax on input) from the output tax is not disallowed under section 7 and to carry forward of such balance is also not disallowed under section

10. The Monthly Tax Return has been made in accordance with section 26 of the Act read with the Filing of Monthly Return Rules, 1996, notified under S.R.O. 551(I)/96, dated 1-7-1996. We take special note of the fact, as also admitted by the representatives of the respondent, that payment of extra tax of 5% on output separately and distinctly from, the output tax of 15% for the same tax period by the due date would not have made any material difference (whether in accountal or in monetary terms). Moreover, there is no provision in the Sales Tax Act, 1990, which authorized Federal Government/Central Board of Revenue to make subordinate Legislation to negate the adjustment of extra tax of 5% on output (in addition to the output tax of 15%) from the input tax 15% (there being no extra tax on input). There is no loss to the exchequer and no undue benefit to the registered person in the lawful procedure adopted by the said registered person in terms of the Sales Tax Act, 1990. We have no doubt in our mind that the said rule 5 transgresses the authorizations vested by the relevant provisions of the Sales Tax Act, 1990. The requirement, of filing of return and payment of tax (including the extra tax) by the due date has been complied with substantively by the taxpayer in a bona fide manner. The non-compliance of the requirement of the unnecessary and superfluous rule 5 of the Levy and Collection of Extra Tax Rules, 1999, has not caused any breach of law or loss to the exchequer or undue benefit to the appellant. Even if the procedure outlined in the said rule 5 were literally adhered to the net result would not have been any different. Since the amount of tax due has been paid by the due date, nothing extra can be demanded from the appellant. We accordingly set aside the impugned order to the extent of the liability to extra amount of tax in terms or section 3(5) of the Act and the appeal, to the same extent, stands disposed of as accepted accordingly.

8. Inform all the concerned accordingly.

9. Announced. C.M.A./772/Tax (Trib.) Order accordingly.