1981 PLP (Trib (PTD)

MUHAMMAD MAZHAR ALI (PRESIDENT).‑

These four appeals at the instance of the assessee have been brought against the combined order of the Appellate Assistant Commissioner of Sales Tax, B‑Range, Karachi, dated 1‑10‑1979, whereby he has rejected the assessee's appeals and confirmed the order of the Sales Tax Officer, passed under section 27 (2) of the Sales Tax Act. The assessment years involved are 1968‑69, 1970‑71, 1971‑72 and 1972‑73.

2. The facts giving rise to these appeals are these. The appellant company is one of the suppliers of mild steel products to Tarbela Dam, a project of Indus Basin Scheme. The appellant‑Company prior to its being taken over by the Government under Economic Reforms Order, 1972 on 2nd January, 1972, was doing the business under the name and style of General Iron & Steel Works Limited, Karachi". During the years under appeal, it imported raw material, namely billets, and paid sales tax at the import stage. Being entitled to get refund of the sales tax so paid vide Notification No. S. R. O. 245 (1)/69, dated 22nd November, 1969 it made application for refund under section 27 (2) of the Sales Tax Act, 1951, as detailed below : Amount of refund claim Dale of refund application Rs. 1,15.344.00 05‑12‑1970 11,262.54 13‑08‑1971 4,863.17 26‑08‑1971 2,081.88 27‑09‑1971 91,678,85 28‑09‑1971 1,12,034.36 19‑10‑1971 22,040,51 18‑11‑1971. 35,190.17 08‑03‑1972 51,606.69 08‑03‑1972 86,282.06 08‑03‑1972 1,51,837.00 27‑04‑1973 The Sales Tax Officer by separate orders, but all dated 10‑6‑1978, allowed the refund of tax as claimed in each year under appeal. He did not however, allow any additional payment for delayed refunds as contemplated by section 27‑B of the Sales Tax Act. The assessee, therefore on 11‑7‑1978 instituted appeals against the orders of the Sales Tax Officer for all these years before the Appellate Assistant Commissioner, Sales Tax B‑Range, Karachi. His grievance, before the first appellate authority was that the applications for sales‑tax refunds were made, from time to time, between 5‑12‑1970 and 27‑4‑1973, which were duly supported by necessary documentation sufficient to establish the claims under section 27 (2) of the Sales Tax Act. The assess ment orders under section 10 (3) of the Sales Tax Act, in respect of all the four years under appeal, were passed on 19‑3‑1974 but the applications for refund were not disposed of till 12tb June, 1978. It was according to the assessee, 'he duty of the Sale; Tax Officer to satisfy himself with regard to the admissibility of the refund of tax claimed within the reasonable time and not to keep the matter un-disposed of for an unduly long period ranging from four years, ten months to seven years, three months. The Income‑tax Officer had during this period levied penal interest and additional tax for defaults under sections 18‑A and 45‑A of the Income‑tax Act, for the assessment years 1969‑70 to 1975‑

76. The penal interest levied under section 18‑A finally worked out at Rs. 3,26,753 and the additional tax under section 45‑A at Rs. 2,72,585 aggregating to Rs. 5,99,

338. In short it was pleaded on behalf of the appellant before the Appellate Assistant Commissioner that it was entitled in addition to amount of refund due to it a further sum equal to 5 % per annum of the amount of refund from the date next following the expiration of three months from the making of respective applications for refund to the date on which the refund was made. The learned Appellate Assistant Commissioner repelled the assessee's contentions with the following observations :-- "I am afraid that this plea of the A. R. of the appellant is misconstrued. It is a well settled (rule of) interpretation that financial statutes are to be strictly interpreted. There is no room for equity. In the circum stances, the interest on refund due shall be calculated from the date of the order of the Sales Tax Officer passed under section 27 (2) of the Act. In these circumstances, the plea of the appellant has no merit and is, therefore, rejected."

4. Mr. A. G. M., the learned authorised Representative of the appellant, re‑iterated the same contentions before us which were made before first appellate authority. He vociferously argued that the Sales Tax Officer while passing the assessment orders for the assessment years in question, all dated 19th March, 1974, categorically stated orders under section 27 of the Sales Tax Act on refund applications were being separately passed, thus acknowledging the fact that claims for refund were duly lodged before him. The Sales Tax Officer, however, without any justifiable cause and without any fault on the part of the assessee, passed the impugned orders under section 27 (2) on 10‑6‑1978, thereby accepting the claims of the appellant in toto in respect of each year under appeal. He also submitted that, during all this long period of 5 years to 8 years, the assessee‑Company had borrowed loans from banks, from time to time, on payment of interest thereon at the rates ranging from 9 % to 14 %. Besides, the assessee was also made to pay penal interest under section 18‑A and 45‑A of the Income‑tax Act. Relying upon the provisions of section 27‑B of the Sales Tax Act, he Vehemently urged that by having made the applications for refund duly supported by documentary evidence, the assessee had placed before the S. T. O. all the relevant materials which were sufficient to satisfy him that the amount of tax paid by it was to be refunded to it. The assessee was entitled to refund of tax paid by it within three months of the date of the making of the respective applications and the failure on the part of the Sales Tax Officer to do so further entitled it to the payment of the additional amount equal to 5% of the amount of refund from the date next following the expiration of three months from the date of making of each application. The period of three months, according to him, starts from the date of making of the application for refund and if the Sales Tax Officer does not pass the order and allow the refund within a period of three months, the assessee thereby becomes entitled to claim the additional payment for delayed refunds as laid down by section 27‑B of the Sales Tax Act. Thus, its his submission, the total sum of Rs. 2,09,502 as detailed below is payable to the assessee :‑‑ Amount of Refund claimed Addl. amount due Rs. Rs. 1. 1,15,344 41,956 2. 11,262.54 3,709 3. 4,863.17 1,593 4. 2.081.88 673 5, 91,678.85 29,617 6. 1,12,034.36 35,867 7. 22,040.51 6,967 8. 35,190.17 9. 51,606.69 10. 86,282.06 52,068.00 11. 1351,837.00 6,84,229 2,09,502 Alternatively, the learned authorised representative for the assessee submitted that even otherwise the assessee is entitled to get the said sum of Rs. 2,09,502 by way of compensation and that the Appellate Tribunal is competent to award the same. He sought to support his contention by the following authorities: (1) P L D 1977 B J 15, (2) 1980 T L R 2279, (3) (1954) 26 I T R 570 and (1974) 94 I T R 187.

5. The learned Departmental Representative, on the other hand, submitted that unless order of refund is passed by the Sales Tax Officer, amount of refund does not becomes due. In his submission, therefore, the time to claim the additional payment for delayed refunds in terms of section 27‑B would start running from the date the order of refund is passed and not from the date of the making of the application. The learned Departmental Representative submitted that the amount in question became due only upon the passing of the refund order by the Sales Tax Officer.

6. In reply, the learned authorised representative submitted that if the arguments of the learned Departmental Representative were accepted, it would frustrate the whole scheme of the Sales Tax Act in regard to the payment of additional tax contemplated by section 27‑B.

7. It is an undisputed fact that the assessee was entitled to the refund of the sales tax paid on raw materials at the Custom stage, vide S. R. O: 245 (1)/69 dated 22nd November, 1969. It is also clearly borne out from the impugned orders passed by the Sales Tax Officer under section 27 (2) of the Sales Tax Act that the conditions laid down by the Central Board of Revenue vide their Letters No. 22 (4) Misc/ST/69 dated 23rd October, 1970 and 1st November, 1971 etc. had been duly complied with by the assessee and that the claims of refund as made for the years under appeal were ultimately accepted as such. Now therefore, the only question that falls for our determination is as to from which date the assessee is entitled to tile additional payment equal to 5 %, per annum of the amount of the refund on account of delayed payments. In order to appreciate the rival contentions raised by the learned Representative, it will be proper to reproduce the relevant provision of section 27‑B of the Sales Tax Act. It runs as under :‑‑ "27‑B. Additional payment for delayed refund.‑Where a refund due to an assessee is not made within three months of the date on which it became due (hereinafter referred to as the said date) there shall be paid to him, in addition to the amount of refund due to him, a further sum equal to five per cent. annum of the amount of the refund from the date next following the expiration of three months from the said date of the date on which the refund is made.

8. A reference may also, at the outset, be made to subsection (2) of section 27 of the Sales Tax Act, which is equally pertinent for the decision of the issue in hand. It is extracted below :‑-- "Section

27. Refunds.‑‑‑(2) If any person satisfies the Sales Tax Officer that the amount of tax paid by him exceeds the amount with which he is properly chargeable under this act, he shall be entitled to a refund of such excess, and the provisions of this Act in respect of appeal and revision shall apply to an order passed by the Sales Tax Officer under this subsection as they apply to an assessment."

9. Rule 31 of the Sales Tax Rules, 1951, lays down that a claim of refund of tax under subsection (1) or subsection (2) of section 27 shall be made to the Sales Tax Officer in form SST‑

10. The claim shall he supported by a statement showing the description, quantity and value of tile goods and the tax paid in respect of them together with proof of payment of tax. The Central Board of Revenue issued instructions to the Sales Tax Officer to the effect that it has been decided by the Board that refund in pursuance of S. R. O. 245 (1) dated 22nd November, 1969, should be issued by the Sales Fax Officers under section 27 (2) of the Sales Tax Act, 1951. The Board further laid down the procedure in this subsection which, inter alia, prescribes that the quantum of refund will be determined by the Sales Tax Officer in case of each claim, after actually referring to the purchase/import documents and books of accounts etc. maintained by the manufacturer. The manufac turers/suppliers are required to submit an application for refund of Sales Tax paid in respect of supplies made to the Indus Basin Project to the Sales Tax Officer concerned along with the following documents‑‑‑- (1) A certificate from an officer of the Indus Basin Project, or as the case may be the Tarbela Dam Project, duly authorised in this behalf by the West Pakistan, WAPDA to the effect that the goods had been supplied for use in the Indus Basin Project, or as the case may be, the Tarbela Dam Project. (2) A certificate from a scheduled bank, in the prescribed form, verified by an officer of the State Bank of Pakistan authorised in this behalf, to the effect that the foreign exchange received in respect of goods in question has been surrendered to the Central Government.

10. The Sales Tax Officer passed the orders under section 27 (2) separately for the four years under consideration and allowed the respective claim of refund as made, as already stated, "Being in order and intact", pro vides that an application pursuant to subsection (1) and subsection (2) may be made in the prescribed manner within four years of the end of the year in which the tax in respect of which the refund is claimed, was paid". As per procedure of refund of sales tax, under S. R. O. 245 (1)/69, laid down by Board's Circular No. 6 of 1970 (Sales Tax) as amended by Board's Circular No. 3 of 1971 (Sales‑tax) dated 23rd October, 1970, the manufactures/ suppliers are required to submit an application for the refund of sales tax paid in respect of supplies made to the Indus Basin Project, duly supported by the two certificates referred to above, the Sales Tax Officer, in them charged with a duty to determine the quantum of refund in case of each claim after actually referring to purchase/import documents and books of accounts etc., maintained by the manufacturer/supplier.

11. The pertinent question which emerges for determination in these appeals, therefore, is as to when a refund becomes due to an assessee who has paid sales tax on such raw material as has been used in the manufacture or production of goods supplied against payment in foreign exchange surren dered to the Central Government, the contractors engaged in the construction of the Indus Basin Project (including the Tarbela Dam Project) for use in the construction of the Project. In terms of subsection (2) of section 27 an assessee becomes entitled to a refund upon his sati6iying the Sales Tax Officer that the amount of tax paid by him exceeds the amount with which be is properly chargeable under the Sales Tax Act. Now one may reasonably think there by making an application for refund within the statutory period on the prescribed form and after due compliance of all the conditions enumerated in the Board's Circular referred to above in assessee does every thing which he is supposed to do to satisfy the Sales Tax Officer that the amount of tax paid by him is refundable to him. Upon receipt of the application it remains up to the Sales Tax Officer to dispose it of in accordance with law, either by accepting the assessee's claim or rejecting it, or curtailing it to the amount of refund found due. If the Sales Tax Officer fails to take action on the application and does not pass an order for acceptance within period of three months of the making of the application for refund, the assessee cannot be said to be at fault in satisfying the Sales Tax Officer that he was entitled to the amount of refund of tax. We do not propose to give any verdict on the issue as to what would happen if the assessee does not make an application for refund as contemplated by subsection (3) of section 27, within four years of the year in which the tax in respect of which the refund is claimed was paid, as it is not directly involved in these appeals. The crucial word in section 27‑B is "due". It has different meanings. Our function is to put that meaning on it which fits well in the contest and helps in achieving the purpose of legislation. The fundamental rule of construction of a taxing statute, apart from the emphasis on the letter of the law is not different from that of any other statute and that rule as enunciated by Lord Rules of Killoven, C. J. in Attorney‑General v Carlton Bank ((1899) 2 Q B 158) thus :‑-- "The duty of the Court is, in my opinion, in all cases the same whether the Act to be construed relates to taxation or to any other subject, viz. to give effect to the intention of the Legislature, as that intention is to be gathered from the language employed having regard to the Context in connection with which it is employed."

12. To The instant case, it is patently the general rule of construction of fiscal statute which would apply. It is also admittedly a fundamental rule of construction that a statue is to be expounded "according to the intent of them that made it." See page 1 of Maxwell on Interpretation of Statutes, 12th Edition. Therefore, with a view to ascertain the intention of the Legislature, we first of all refer to the Budget Speech of the Finance Minister for the fiscal year 1964‑

65. The portion of speech, which is relevant for our purpose, is extracted below :‑‑ It has been expressed that whereas the Government charges 6 % interest on the tax outstanding against a tax‑payer after the due date for this payment the tax‑payer whose refund has been delayed by the Income -tax Department gets on interest. I now propose that where there is delay of more than three months in making a refund due to a tax payer under the law, he will also be entitled to interest from Govern ment at the prevailing bank rates.'' At this stage, it seems appropriate to refer back to subsection (2) of section 27 (already reproduced above), which specifically provides that if any person satisfied the Sales Tax Officer that the amount of tax paid by him exceeds the amount which he is properly chargeable under this Act, he shall be entitled to a refund of such excess. The assessee in the present case did make applications on the prescribed form SST‑10 for the refund of the amounts of tax as detailed in paragraph 2 above. It is not disputed by the tax authorities that the assessee did not make the applications to the Sales Tax Officer concerned or that the applications made by it were not complete in all respects. The claims for refund have as already stated, been allowed in tots by the Sales Tax Officer. It thus stands proved on record that the appellant tax‑payer was entitled to the refund as claimed and the failure on the part of Income‑tax Officer to make a formal order of refunds, within three months of the making of the respective application for refund, would not result in desentitling the tax‑payer to get the additional payment for delayed refunds in terms of section 27‑B of the Act. We, do not therefore, entertain any doubt that the intention of the entire Legislature was to allow the additional payment for delayed refunds for the period after the expiry of three months from the making of the applications in the prescribed manner to the date on which refund was made. We, therefore, agree with the contention of the learned counsel for the appellant that once the tax‑payer make an application for refund to the Sales Tax Officer concerned within time and complete in all respects, the refund becomes due immediately on the making of due application (hereinafter referred to as the "said date") and that if the Sales Tax Officer fails to make refund due within three months of the said date, then the assessee, in our opinion, becomes legally entitled to get the amount of refund due to him together with a further sum equal to 5 ` per annum of the amount of refunds, from the date next following the expiration of the three months from the said date to the date on which the refund is made. If the word "due" is not interpreted and understood in this manner, then the very purpose for providing the additional payment for delayed refunds would be frustrated inasmuch as the assessee despite being entitled to the refund may be deprived of it simply because of the negligency or failure of the Sales Tax Officer to record his satisfaction respect of the claim for refund made under section 27 (2) of the Act. If the revenue therefore, wants to save itself from being burdened with the additional payment for delayed refunds as provided for under section 27‑B of the Act, then it has to be vigilant in disposing of the application for refund made by an assessee. If the application is disposed of and the refund is made within three months of the said date the provisions of section 27‑B of the Act, would not come into play. No doubt, one may think that if the Legislature wanted the additional payment to be made from the date next following the expiry of three months from the making of the application for refund, then it could have specifically said so. It is definitely a pertinent aspect to be kept in view for interpreting the word `due'. But it cannot at the same time, be ignored that if the Legislature intended to make the additional payment for delayed refund payable from the date next following the expiration of three months from the date the order of refund was passed by Sales Tax Officer concerned, then it could have so specifically provided. It is again a well‑known principle of construction of fiscal statutes that if two interpretations of a certain provisions of law are possible‑one should favouring the assessee and the ether review then the one favourable to the tax‑payer should be adopted. There can as no denying the fact that the word 'due' is not free from ambiguity and hence we have preferred to interpret it in the manner which is favourable to the tax‑payer.

15. In view of the discussion heretofore, we hold that the appellant is entitled to the additional payment for delayed refund as laid down by' section 27‑B of the Sales Tax Act, and direct the Sales Tax Officer to allow him the said benefit for the entire period commencing from the said date, in respect of each individual items as set out in para. 2 above up to the date on which the refund is made. Appeal accepted.