2004 PLP 1506 (PTD)

(a) Taxable supplies made in Pakistan by a Registered person in the course of furtherance of any taxable activity carried on by him; (b) "goods imported into Pakistan".

12. The counsel submitted that though the word "supply" was used in section 3(1) as well as in section 65 of the Act, sales tax was chargeable under section 3(1) both on supply and import but "exemption of tax not levied or short levied as a result of general practice" was allowable only in respect of supply and not in respect of import. Further, according to section 3(1) of the Act, as existed prior to 30th June, 1996, the Sales Tax was payable on "supply" made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him or by an importer at import stage who was not required to be a registered person. On the contrary exemption under section 65 was allowable only to the register person section 65, as such, dealt only with registered persons in respect of any supply;" it did not relate to tax levied at "import stage".

13. The respondents in their written comments on the complaint submitted that the complainant besides manufacturing the ignition switches was also involved in manufacturing different locks used in motorcycles and fell under the separate PCT heading of 8301.2000. The expression, "parts and accessories" do not apply to the said item i.e. locks for motor vehicles under PCT and its Explanatory Notes as per section XVII (chapter 86‑89). The exemption, therefore, was not available to this item on the basis of S.R.O. 555(1)/94, dated 9‑6‑1994. It was further pleaded that the survey report forwarded to C.B.R. clearly mentioned that they were engaged in manufacturing of ignition lock, steering lock, fuel filler cap lock, and two sides cover locks.

14. Regarding the delay in deciding the application under section 65 of Sales Tax Act, 1990 it is submitted that delay occurred due to the fact that the address of the Collectorate was wrongly shown as Collector Sales Tax (West Zone) Customs House, Karachi. However, the said decision is in accordance with law. It was rejected by the competent authority after discussing the issue in detail and after giving the opportunity of hearing to the applicant. The respondent is not bound to provide each and every copy of the correspondence made to high ups.

15. It is further submitted in the context of Messrs Javed Metal Industries (Pvt.) Limited that the complainant is trying to twist the matter by suggesting that there was difference between locks of motorcycles and locks of motor cars. The fact remains that tax was charged on locks of motor vehicles and the classification of the item in question was already decided by the Appellate Tribunal Customs, Excise and Sales Tax in their decision. The whole issue had been discussed at different forums i.e. adjudication stage, appellate stage (Collector appeal), higher appellate forum (Customs sales tax and Central Excise Appellate Tribunal) and the departmental stand had been upheld at all these forums. Moreover the department has filed appeal before the Honourable High Court of Sindh against the relief allowed by the Customs, Excise and Sales Tax Appellate Tribunal in Penalty and Additional Tax. Complainant's Appeal No. 97 of 2000 too is pending with Honourable High Court of Sindh against the order of Customs, Sales Tax and Central Excise Appellate Tribunal.

16. According to the respondent it was felt necessary by the competent authority to find out if the sales tax was being paid on ignition switches/locks by anyone other than Messrs General Locks (Pvt.) Limited the complainant which claimed to be the sole manufacturer and supplier of ignition switches and locks of motorcycles in Pakistan. Resultantly it was found that sales tax had been paid .on ignition switches at import stage during the period in question. The exemption application was rejected, according to the respondent, by the competent authority after giving the applicant opportunity of hearing on following points: (i) Sales Tax has been paid on ignition switches at import stage during the period in question. (ii) Messrs Javed Metal Industries (Pvt.) Ltd. Karachi have paid sales tax on door locks classifiable under the same PCT heading 83.01 during the period in question. (iii) Messrs General Locks (Pvt.) Ltd., Karachi are not the sole manufacturers of ignition switches/fuel locks, as claimed by them. They, therefore, did not fulfil the condition ' of non payment of sales tax inadvertently as a general practice laid down in section 65 of the Sales Tax Act, 1990 cannot be applied on them. (iv) Sales tax law obliges suppliers at all the stages of manufacturing to pay the tax due if otherwise not exempt on any part of, value addition. The plea that there was no loss to Government exchequer due to inadvertent failure of complainant to charge sales tax because Messrs Atlas Honda Pakistan Limited Karachi had not claimed the input tax negates the spirit of Sales Tax Act, 1990. Moreover had the unit paid sales tax there would have been added advantage that the Messrs Atlas Honda would have paid sales tax on value addition after adjusting the input tax?

17. It is found on the foregoing investigations that the reliance placed by Member (Sales Tax) C.B.R. on the cases of Messrs Ghulam Dastgir Company and Messrs Brother Autos` was totally unwarranted because charging of sales tax on imports of ignition switch sets does not amount to general practice in the context of a claim of exemption said to be allowed to the supply of the said item by a manufacturer in Pakistan. Admittedly, there was no exemption on commercial import of ignition switch sets. Admittedly, the component being manufactured by the complainant as certified by the Chief of Survey, C.B.R. is "Ignition Switch Set of Motorcycle"; it was not identified as lock. Considering the decisions of judicial forums about the classification of the product supplied by the complainant, there could be no explanation for the omission of the word "lock" except inadvertence. Admittedly, the complainant claimed exemption and did not pay Sales Tax on the supply of ignition switch sets manufactured by them. Admittedly, no contravention report was prepared during the entire period exemption was being claimed. Reference to Ghulam Dastgir Company and Brother Autos was thus irrelevant and their cases were clearly distinguishable.

18. Besides, no example had been quoted by the respondents to show that any, Sales Tax was paid by any other person on supply (Sales) of the ignition switches made in Pakistan. The fact that Messrs Javed Metal Industries (Pvt.) Limited charged and paid sales tax during the same period on supply of door locks of motor cars did not prove that ignition switch sets and door locks of motor cars were inadvertently differentiated.

19. The condition laid down under section 65 to qualify for seeking, exemption of tax not levied or short levied is that it should be as a result of inadvertence and general practice. Further it is a non‑obstante provision. The law intends to extend the benefit notwithstanding anything contained in the Act. It only requires the satisfaction of the Federal Government regarding the fact that inadvertently and as a general practice tax has not been charged in arty area on any supply which was otherwise taxable. Following undisputed facts are enough for the satisfaction of the Federal Government that the tax not levied or short levied is as a result of inadvertence and general practice:‑‑ (a) Complainant was registered with the Sales Tax Department and was filing monthly statutory Sales Tax Returns claiming exemption from Sales Tax under S.R.O. 555(1)(94), dated 9‑6‑1994 on their supplies for the period from June, 1995 to (b) The registered person started paying the tax from July 1, 1996 when S.R.O. 555(1)/94, dated 9‑6‑1994 was rescinded and the supply was chargeable to tax. (c) The respondent did not point out any contravention or pass any adverse order under of Sales Tax Act till the Collectorate issued show‑cause notice bearing No. 16/36/Sales Tax/w/Tech/97/1412 as late as on 15‑10‑1997 alleging that expression "parts and accessories" did not apply to the ignition switches/ignition locks for motor vehicles and demanded Sales Tax with additional Tax amounting to Rs.20,622,703. (d) The complainant applied to the Central Board of Revenue for the survey of the factory premises to claim custom/sales tax concessions available vide S.R.O. 503(1)/94, dated 9‑4‑1996 on prescribed Form‑"S". (e) The Collectorate of Central Excise, Karachi vide Survey Report, dated 17‑10‑1995 has certified that the importers of sub components are manufacturers of "automotive vehicle parts" as per "approved deletion programme" and the Chief of Survey, Central Board of Revenue noted in his Final Certificate, dated 25‑10‑1995 that the article manufactured as shown in the Statement of Imported Raw material/Components, dated 25‑10‑1995 in terms of S.R.O. 503 is "ignition switch sets of motor cycles." The word "lock" was not used. (f) Messrs Javed Metal Industries (Pvt.) Limited charged and paid sales tax on the supply of door locks of motor cars which in any case were different from ignition switch set of motorcycle. There is no finding in the decision of C.B.R. that Messrs Javed Metal Industries (Pvt.) Limited was manufacturing and supplying ignition switch sets of motor cars and that they were charging and paying sales tax thereon. Ignition switch sets are definitely distinguishable from door locks of vehicles or for that matter from any other lock installed in any kind of vehicle.

20. The alleged maladministration on account of inordinate delay in passing the order under section 65 of the Sales Tax Act as well as the allegation that the order so passed is contrary to law and on invalid grounds has been proved.

21. The cases cited by the department for establishing the practice of payment of sales tax are distinguishable as discussed above. No instance of any part manufacturing the same goods as the complainant has been provided to show that sales tax was paid by such parties on such supplies. It is clear that the complainant had been submitting returns as required by law claiming exemption from sales tax but no objection was taken by the department for about one year. Therefore, it seems that a practice had developed between the complainants and the department, of non‑payment of sales tax on goods manufactured by them.

21. The cases cited by the department for establishing the practice of payment bf sales tax are distinguishable as discussed above. No instance of any party manufacturing the same‑goods as the complainant has been provided to show that sales tax was paid, by such parties on such supplies. It is clear that the complainant had been submitting returns as required by law claiming exemption from sales tax but no objection was taken by the Department for about one year. Therefore, it seems that a practice had developed between the complainant and the Department of non‑payment of sales tax on goods manufactured by them.

22. It is recommended that:‑ (i) Notification under section 65 of the Sales Tax Act be issued exempting the complainant from sales tax for the period from June, 1995 to June, 1996. (ii) Compliance to be reported within 30 days. C.M.A./1022/FTO Order accordingly.