2007 PLP (Trib (PTD)

ZAFAR UL MAJEED, MEMBER (TECHNICAL).

This appeal is directed against sales tax Order-in-Appeal No.120/2006 dated 21-8-2006 passed by Collector (Appeals), Faisalabad. By this order, learned Collector (Appeal) has upheld demands of sales tax on account of following charges adjudged against the appellant by the Additional Collector, Sales Tax (Adjudication), Faisalabad vide. Order-in-Original No.24/2006 dated 20-6-2006. (i) Demand of sales tax amounting to Rs.3,84,794 along with additional tax and penalty on account of inadmissible adjustment of input tax paid on purchase of Diesel Oil. (ii) Demand of sales tax to be re-determined on the basis of reduced value along with additional tax and penalty on account of sale of empty drums without payment of sales tax. (iii) Demand of sales tax amounting to Rs.2,28,250 along with additional tax and penalty on account of disposal of sludge (remains of fuel oil) without payment of sales tax.

2. The appellant has contested the demand at (i) above mainly on the ground -that the diesel was used for the production of taxable goods/supplies and, therefore, input tax paid thereon was admissible for adjustment as held by Lahore High Court in the case titled Messrs Sheikh Spinning Mills Ltd v. Federation of Pakistan (2002 PTD 2959). During the course of arguments learned counsel for the appellant further submitted that the diesel oil in question, being stock in trade was excluded from the purview of S.R.O.578(I)/98 dated 12-6-1998. Regarding sale/disposal of empty drums and sludge, the appellant's contention is that disposal of these items was not in furtherance of -its normal business activity and, as such the demand is not sustainable as held by Sindh High Court in the case titled Collector of Customs, Central Excise and Sales Tax Karachi (West) v. Novartis Pakistan Ltd. (2002 PTD 976). During the course of hearing, learned counsel also submitted that entire quantity of sludge generated during the production process was actually drained out and never sold in the market.

3. The department has, through paradise comments as well as orally. opposed the .appeal only with reference to charges relating to inadmissible input tax adjustment against diesel oil and disposal of empty drums, Learned D.R., when confronted with the appellant's contentions raised during the course of hearing, could not produce any evidence to prove that the appellant has sold sludge in the market.

4. Having given due consideration to the submissions made by the parties and the case-law referred to by them, we do not find any force in the appellant's contention that adjustment of input tax paid on purchase of diesel oil was lawful. Diesel oil having been .included in the list of items contained in S.R.O.578(I)98 dated 12-6-1998 issued under section 8(1)(b) of Sales Tax Act, 1990 is not entitled to input tax credit. The judgment of Lahore High Court relied upon by the appellant does not lend any support to its case as the issues involved have not been filially decided therein. Learned Counsel's argument that the diesel oil in question, being stock-in-trade was excluded from the purview of aforesaid S.R.O. is also not tenable as the appellant, admittedly, does not deal in the diesel oil purchase/supply trade. Findings of Collector (Appeals) on this point are, therefore; upheld. Similarly, the issue regarding chargeability of sales tax on fixed assets/scrap etc. has since been decided by the apex Court in favour of the department recently, findings of the Collector regarding sales of empty drums, as contained in the impugned order, are also upheld. Demand of sales tax and penalty on account of disposal of sludge is, however, set aside as the department has not been able to produce any evidence in support of the charge.

5. The appeal is disposed of in the above terms and the impugned order is modified accordingly. C.M.A./118/Tax(Trib.) Order accordingly.