2011 PTD (Trib (PLP)

This appeal has been filed by the Revenue against the order of the Collector (Appeals) Faisalabad, dated 29-6-2009. The revenue feels aggrieved by the observation of the Collector (Appeals) to the effect that the Assistant Collector (Refund) Sales Tax and Federal Excise, Faisalabad was not justified to restrict the claim of input tax made by the registered person to the extent of 20% of the value of the exported goods and disallow the balance.

2. The facts of the case, in brief, are 'that the registered person, a private limited company is engaged in the business of manufacturing and export of confectionery items. Through a show-cause notice dated 26-5-2008 the Assistant Collector Sales Tax and Federal Excise, Faisalabad, confronted the registered person with the disallowance of input tax of Rs.11,02,405 claimed during the tax period October, 2007. The proposed disallowance included input tax on purchases made from various suppliers apart from an amount of Rs.177,272 on packing material being in excess of the 20% value of the exported confectionery items. At the adjudication stage, the registered person produced evidence regarding the admissibility of adjustment of input tax and on its basis the learned adjudicating officer, accepted the claim of the of the registered person excepting an amount of Rs.58,317 which was held to be inadmissible being in excess of the 20% of the input tax claimed on the value of the exports. For making the said disallowance the Adjudicating Officer relied upon an Agreement dated 6-4-2006 executed between the Collector of Sales Tax Faisalabad and Confectionery Exporters Association whereby it was agreed that the consumption of packing material would be restricted upto 20% .of total value of exports. Since the claim of input tax adjustment on the value of packing material to the extent of Rs.58,317 was in excess of the agreed limit, it was held to be inadmissible. Being aggrieved, the registered person preferred appeal before the Collector (Appeals) Faisalabad, who vide his Order No.652 of 2009 dated 29-6-2009 directed to allow the adjustment of input tax of Rs.58,317 as the claim of the registered person was based on consumption of packing material in exports. Now the Revenue feeling dissatisfied by the direction of the Collector(Appeals) has come up in appeal before us.

3. The thrust of the argument of the learned DR was on the agreement between the Collector of Sales Tax Faisalabad, and Association of Confectionery Exporters referred to above. He contended that the agreement was executed between the Collector and Association of Confectionery voluntarily and was binding upon the contracting parties. He argued that the claim of input adjustment, being in excess of the said 20% limit had been rightly disallowed by the Assistant Collector (Refund). The learned AR of the registered person, on the other hand, contended that the agreement relied upon by the Assistant Collector was not of binding nature because it was not reduced into a statutory instrument. To fortify his contention the learned AR of the registered person referred to the judgment of the Lahore High Court, Lahore in the case of Messrs Crescent Re-rolling Mills reported as GST 2005 CL 73 wherein the honourable High Court held: "There is no estoppel against law. The agreement between the parties having never been reduced in the form of a statutory instrument, any person affected by the same could very well refuse to abide by such agreement even after having initially accepted the same. An association of taxpayers is different from a collective bargaining agent which is authorized by law to negotiate and bargain on behalf of the labourers which it represents. An association of taxpayers has no role to play under the Sales Tax Act nor any of the rules framed thereunder." The learned representative also referred to the cases of Messrs Mehmood and Co. v. Assistant Collector Sales Tax Lahore and others reported as 2005 PTD 72 = 2007 PTD 47 wherein similar finding was recorded by the honourable Lahore High Court, Lahore.

4. In view of the settled legal position discussed in the above-quoted cases, we feel inclined to agree with the learned AR of the registered person and dismiss the appeal filed by the Revenue. Accordingly, we direct the concerned officer to allow the adjustment of input tax of Rs.58,317 to the registered person because the same cannot be denied on the basis of an agreement which is not enforceable under the law.

5. The departmental appeal fails. H.B.T./176/Tax(Trib.)????????????????????????????????????????????????????????????? Appeal dismissed.