2003 PLP (Trib (PTD)

Date of hearing: 17th April, 2002. ZAFAR-UL-MAJEED, MEMBER (TECHNICAL).

This appeal is directed against Sales Tax Order-in-Original No.982 of 2000, dated 2-11-2000 passed by the Deputy Collector. (Adjudication), Multan. By this order the learned Adjudicating Officer has directed Messrs Madina Cotton Ginners. Pul-14 Road, Jahanian to pay sales tax amounting to Rs.14,71,117. alongwith additional tax and a penalty of Rs.73,558.

2. Briefly, the facts leading to this appeal are that on audit of the appellant's record, the Sales Tax Audit 'Staff of the Multan Collectorate observed following irregularities:-- (1) During 1997-98 the appellants under valued the supply of cotton seed by Rs.31 per maund and evaded sales tax amounting to Rs.92,

344. During the same period the recovery ratio of cotton seed according to ginning register was 46.3 % . (2) The appellants supplied cotton seed 889454 kgs. i.e. 27.7% of total phutti and in this way evaded sales tax of Rs.6,48,715 by suppressing supply of cotton seed by 30.3 % (58 % 27.7 % ). (3) the appellants made a short payment on the supply of cotton lint invoice No.28, dated 12-12-1997 amounting to Rs.3572. (4) During 1998-99, the appellants supplied cotton seed 1649861 kg. i.e. 33.7% of total phutti by issuing invoice and in this way, the said unit evaded an amount of Rs.11,64,975 as sales tax by suppressing supply of cotton seed by 24.3 % (58 % -- 33.7 %).

3. On the basis of above observations of the Audit Ream the appellants were called upon to show-cause as to why evaded sales tax amounting to Rs.19,09,606 alongwith additional tax be not recovered from them and why penal action be not taken against them under section 33 of the Sales Tax Act, 1990. The case was adjudicated by the Deputy Collector (Adjudication), Multan who after giving the appellants due opportunity of defence and after reconciliation of record determined the amount of sales tax payable by the appellants as Rs.14,71,177 alongwith additional tax besides imposition of penalty of Rs.73,558 vide the impugned order.

4. The appellants have assailed the impugned order mainly on. the grounds that (i) it paid sales tax on cotton seed at the price prevailing in the market; (ii) low yield of cotton seed during 1998-99 was because of extrication of Sangli from cotton which resulted in loss of cotton seed to the extent of 4 kgs. per maund and that the wastage on this account could be verified from the Cotton Ginners Associations; (iii) Supply of the cotton seed for growing purposes was through agents who provided certificates according to the quantity received by them. The appellant thus correctly claimed the quantity of seed as exempt but the Adjudicating Officer did not appreciate this fact and rejected the claim even to the extent of supplies reported by Seed Certification Department.

5. Learned D.R. opposed the appeal. However, during the course of arguments it transpired that the main issue involved in this and may other identical appeals was the determination of correct quantity of cotton seed recovered during the ginning of cotton. According to :the appellants there is no fixed formula indicating recovery ratio of cotton seed as its recovery depends on many factors like the quality of cotton and efficiency of the ginning unit. In the case of appellants, the recovery ratio of cotton seed during the year 1997-98 was 57 % whereas during the year 1998-99 is reduced to 46.8%. The Department, while admitting the possibility of variation in recovery ratio because of different factors, contends that the recovery-of cotton seed declared by the appellants is abnormally low as compared to the recovery ratio of other units in the same area leading it to believe that the appellants were indulging in evasion of sales tax by suppressing sales. The Department, thus, determined their actual sales by applying the average recovery ratio of 58% prevalent in the industry.

6. Considering tire submissions made by both sides and to ascertain the factual position, the Department was required to carry out an exercise to find out the recovery ratios declared by different ginning units located in different areas of Multan Collectorate which were accepted by the Sales Tax Authorities. The Departmental Representative has on 17-4-2002, placed on record, a detailed statement in this regard which shows the recovery ratio of cotton seed ranging from 55 % to 64.92 %. A copy of the statement was handed over to the learned counsel for the appellants who, after examining the same, contended that this information was not relevant as, according to law the departmental audit could not go beyond the sales tax record unless they had solid proof to show that the sales were suppressed. In support of his contention, learned counsel referred to a judgment of this Tribunal's Lahore Bench-I in Appeal No. 1539 of 2001.

7. We have gone through the case record and carefully considered the submissions made by both sides. Regarding short payment of tax on account of under valuation of cotton seed, the appellants were required to pay sales tax on supply of cotton seed at its value fixed by the Central A Board of Revenue vide S.R.O. 1361(1)/of 1998, dated 9-12-1998 in terms of section 2(46) of the Sales Tax Act, 1990. Since they paid the tax at lower value, demand on this account has been rightly raised vide impugned order. Short payment of sales tax amounting to Rs.3572 vide Invoice No.28, dated 12-12-1997 too is admitted. Similarly the appellant's claim about exemption from sales tax on supplies of cotton seed made for growing purpose has been rightly rejected by the learned Adjudicating Officer as the certificates in respect thereof were found to be forged on inquiry.

8. The only issue which remains to be resolved is the demand of sales tax determined by the Department on the basis of standard ratio of recovery of cotton seed i.e. 58% of the cotton ginned. There is no force in the appellants argument that Department had gone beyond the record to determine the amount of tax payable by them. It was actually from the record maintained by the appellants that the audit staff detected suppression of sales i.e. by observing that the quantity of cotton seed produced did not commensurate with the quantity of cotton received. In such a situation the Department was competent to assess the correct amount of tax payable by the appellants in exercise of the powers conferred upon it by section 11(2) of the Sales Tax Act, 1990. The precedent quoted by the learned counsel (this Tribunal's judgment in Appeal No.1539 of 2001) in support of his contention is not relevant as in this case the Department has not applied any self-devised formula to determine the actual supplies but relied upon the recovery ratio of cotton 'seed declared by other units engaged in cotton ginning. Learned counsel for the appellants has admitted during the course. of arguments that the appellants recovery ratio during the year 1997-98 was 57 % which fell down to 46.8% during 1998-99 because of various adverse factors. According to the information provided by the Department the recovery ratio of cotton seed in different areas of Multan Collectorate as accepted by the local Sales Tax Authorities ranged from 55 % to 64.92%. In view of this information and in the absence of any other evidence with the Department in support of its case, we ar inclined to accept the recovery percentage of 57% for the year 1997-98. the appellants have not been able to provide any convincing reason for fall or recovery ratio from 57 % to 46.8 % in the succeeding year, we direct that the same recovery ratio of 57% be applied for the year 1998-99 as well to determine the amount of tax payable by the appellants. This will, however, require fresh calculation of the quantity of cotton seed produced and the amount of sales tax payable thereon which can best be done at the original stage of adjudication.

9. In view of the foregoing, the impugned order is set aside and the case is remanded to the learned Adjudicating Officer for a fresh decision in terms of our findings contained in paras 7 and 8 above. C.M.A./660/Tax (Trib.) Case Remanded