2010 PLP (Trib (PTD)

MIAN MUHAMMAD HANIF TAHIR, MEMBER (JUDICIAL).

This appeal has been lodged against Order-in-Original No,48 of 2003, dated 28-7-2003 passed by the learned Additional Collector, Collector of Customs, Sales Tax and Federal Excise (Adjudication) Faisalabad.

2. Brief facts of the case are that an audit of Messrs Sufi Weaving Industries (Pvt.) Ltd. Faisalabad was conducted by the Senior Auditor for the period July, 1997 to June, 2002 and following discrepancies were observed:-- (i) Compliance of section

73. During the checking of purchase register it was observed that the registered person did not meet the requirements of section 73 of the Sales Tax Act, 1990. Thus the registered person violated sections 8, 10, 26 and 73 of the Sales Tax Act, 1990 and sales tax amounting to Rs.32499 is payable by the registered person alongwith additional tax under section 34 of the Sales Tax Act, 1990. The aforesaid contravention of law was prima facie a deliberate act on part of the registered person which attracts the provisions of section 36(1) of the Sales Tax Act, 1990. The offence is also punishable under section 33(2cc) ibid. (ii) Inadmissible Input on Electricity Bills The registered person claimed an amount of Rs.69,219 on electricity bills used for non-productive activities in violation of sections 7, 8, 10 and 26 which is payable by the registered person along with additional tax under section 34 of the Sales Tax Act, 1990. The aforesaid contravention of law was prima facie a deliberate act on part of the registered person which attracted the provisions of section 36(1) of the Sales Tax Act, 1990. The offence is also punishable under section 33(2cc) ibid. (iii) Double refund claimed on Electricity Bills. During the checking purchase registered it was observed that registered person claimed input adjustment on electricity bills Rs.41,765 of which Rs.35,021 were refunded to the unit by Messrs LESCO (WAPDA) in the month of February, 2000. The unit did not make any adjustment in this regard and hence the registered person double claimed input of Rs.35,021 in violation of sections 8, 10, and 26 of the Sales Tax Act, 1990, therefore sales tax amounting to Rs.35,021 is payable by the registered person along with additional tax under section 34 of the Sales Tax Act, 1990. The aforesaid contravention of law was prima facie a deliberate act on part of the registered person which attract the provisions of section 36(1) of the Sales Tax Act, 1990. The offence is also punishable under section 33(2cc) ibid. (iv) Inadmissible Input Adjustment against Fake invoices. The registered person adjusted input against invoices of Messrs Mutakabbir Textile GST No.03-05-5205-008-73, Messrs Basit Textile GST No.03-02-5205-006-46, Umar Tex International GST No.08-80-5205-035-37 and Tariq Enterprises GST No.03-09-4810-010-91 which were declared fake by concerned Collector of Sales Tax. Thus the registered person violated sections 8, 10, and 26 of the Sales Tax Act, 1990 and sales tax amounting to Rs.159,601 is payable by the registered person along with additional tax under section 34 of the Sales Tax Act, 1990, the aforesaid contraven tion of law was prima facie a deliberate act on part of the registered person which attracts the provisions of section 36(1) of the Sales Tax Act, 1990, the offence is also punishable under section 33(4) ibid. (v) Inadmissible Input Adjustment against suspected unit. The registered person claimed refund against invoices of Messrs Moosa International GST No.08-80-52505-081-37 Faisalabad which was in the suspected units list issued by the Collectorate of Sales Tax, Faisalabad. Thus the registered person has violated sections 8, 10 and 26 of the Sales Tax Act, 1990 and sales tax amounting to Rs.536513 is payable by the registered person along with additional tax under section 34 of the Sales Tax Act, 1990. The aforesaid contravention of law was prima facie a deliberate act on part of the registered person which attracts the provisions of section 36(1) of the Sales Tax Act, 1990. The offence is also punishable under section 33(4) ibid. (vi) Suppression of sales Declaration production of the unit was compared with the actual production on the basis of actual running RPM and it was noticed that the registered person had suppressed his actual sale. I have heard Mr. Mohammad Nawaz S.A. for the appellant and Mr, Falak Sher, Mr. Abuzar Hussain and Mr. Khubaib Ahmad Advocates for the respondent and perused the record. Learned Senior Auditor argued that the requirement under the proviso to section 73 that payment is transferred through banking channels within 120 days of issuance of tax invoices does not apply to goods exported from Pakistan. The learned S.A. argued that the time limit of 120 days will not apply to Bank Credit Advice in respect of goods exported from Pakistan. During the investigation it has been observed that certain registered persons have issued invoices showing supply of yarn and fabrics which they have never purchased or manufactured. It proves that these registered persons have fraudulently issued fake invoices. On the basis of the aforesaid fake/flying invoices, the registered person claimed and received refund without receiving any goods. The name of such units has been included in the list of suspected units. The goods exported in such cases were purchased/got converted from unregistered person without payment of sales tax but exporters received refund of sales tax from government exchequer which has not been actually paid. Learned Senior Auditor also argued that the goods exported in such cases were purchased/got converted from unregistered person without payment of sales tax but exporters received refund of sales tax from government exchequer which has not been actually paid. In some cases the registered person did not exist physically i.e. to say that they have no manufacturing facility whatsoever but has issued fake/flying invoices just to facilitate to the registered person to get excessive illegal refund of sales tax. Senior Auditor argued that as per sections 7 and 8 of the Sales Tax Act, 1990 word goods has been used for determination of tax liability and tax credit. Learned S.A. argued that no goods has been transferred against fake/flying invoices. Hence no transaction has been completed. The learned S.A. argued that the case was not based on production capacity but it was made of on the basis of actual running RPM as well the efficiency of machinery which was declared by the respondents themselves. On the other hand Mr. Falak Sher Mr. Abuzer Hussain and Mr. Khubabi, Advocate argued that during the course of hearing on 21-5-2009 the learned official alleged that since the respondents did not maintain any record relating to the production of goods the calculations were made on the basis of power consumption and the working of power loom. The learned counsel argued that I have been asked by my clients to place it before the honourable Tribunal that the statement made by the learned official runs contrary to the factual position and is wholly devoid of truth. As a registered person the respondents fully complied with the record-keeping. As a registered person the respondents fully complied with the record keeping requirement and furnished the production reports and other relevant record to the sales tax audit staff when they asked for it. The staff disregarded the declared production and made the calculations arbitrarily on the working of power looms. Learned counsel further argued that there is no provisions in the Sales Tax Act, 1990, rules and even the audit manual which empowers of permits the staff to work out the production of a unit on the basis of its production capacity. The method adopted by the staff has no relevance and place in the sales tax system and thus has no legal sanction. In this case proceedings were initiated against the respondents in April, 2003. A period of more than six years has elapsed but the sale tax staff has not been able to bring any evidence on record or even otherwise in support of the charges levelled against the respondent. He argued that in view of the above it is requested that the appeal preferred by Assistant Collector Sales Tax Audit Division-I, Faisalabad may kindly be dismissed as it has not been filed by competent authority. I have heard Mr. Mohammad Nawaz Senior Auditor for the appellant and Mr. Falak Sher, Mr. Abuzer Hussain and Mr. Khubaib Ahmad Advocates for the respondent and perused the record. My findings on each issue are given as under;-- (1) The first issue pertains to recovery of sales tax against the charge of non-compliance of section 73 of the Act. The learned counsel contended that they have made payments through banking channel as per requirement of section 73 as also admitted by the department but due to financial problems, payment were delayed beyond 120 days in certain transactions and 180 days in others. He relied upon the order of Central Board of Revenue in the case of Messrs United Textile Printing Industries Faisalabad, the Board vide its Order No.17-06, dated 17th April, 2006 has condoned the delay on the ground that it was a procedural omission, no revenue loss to national exchequer and even it does not carry any adverse revenue implications. The learned counsel for the respondents also referred Sales Tax General Order No. 8 of 2009, dated 26-2-2009 wherein the Collector of Sales Tax and Federal Excise has been empowered to condone delay up to one year beyond the limitation provided in the statutory provisions of the Sales Tax Act, or rules made thereunder. In view of above, it is held that in alleged transactions, payments have been made through banking channel however, the same are delayed beyond statutory limit as provided under section 73 of the Act. Delay in making payments beyond 120 days and 180 days is not contumacious but due to certain financial problems entailing no revenue loss hence, this procedural omission is condoned. (2) The second issue involved in the instant appeal is that respondents have claimed refund against invoices of suspected units. The learned counsel for the respondents assailed that no liability can be created against any person merely on suspicion and doubt as no specific order for blacklisting of such person or suspension or his registration has been provided by the department and even no action or proceedings had so far been taken against the said suppliers despite expiry of years of inclusion of their names in the list of suspected units. It is however, very clear that mere inclusion of a unit in a list of suspicious units or declaring as a suspected unit does not render it fake unless it is declared as a blacklisted unit after due process of law as provided under section 21 of the Act hence, and that too at the time of transaction without adhering due process of law and without declaring the alleged units as blacklisted, the instant charge of suspected unit against the respondents is held to be illegal, unlawful and premature and no more recovery stands against the respondents. (3) The third issue pertains to recovery of sales tax on the charge of suppression of sales. Production has been estimated on the basis of RPM of machinery installed whereupon it is alleged that the same has been understated by the respondents. The calculations made by the department are based on presumptions and assumptions. The working of the machines is one of the relevant factors which need to be taken into an account for ascertaining the production of a unit. An assessment made solely on the basis of efficiency of the machines is not sustainable under the law. Under the Sales of Goods Act, sales entail delivery of goods and receipt of money consideration as price. In the instant case, neither any clandestine removal of goods nor any concealed receipt of money thereto is established or proved therefore, the observations stands unsubstantiated and thus remains in the air. Sales tax is on supply of taxable goods and not on production or production capacity of a unit. The production formula adopted by audit is subject to number of variable and may be a good tool for assessing production capacity of a weaving unit if all such variables are assigned with some presumptive values. Production and production capacity ascertained on the basis of said formula has no significant value until and unless it is supported by some corroborating evidence regarding any clandestine receipt of raw material or removal of finished goods or receipt of money consideration in this respect thereto without which it remains presumptive and having no force of law. In the absence of any material evidence, corroborating the clandestine removal of goods and receipt of money consideration in this respect, it is unjustified to hold any recovery on account of suppression of sales against the respondents. For the foregoing reasons, the appeal having no force is dismissed. Parties be informed through registered post or by UMS. File be consigned to the record after completion. C.M.A./50/Tax (Trib.) Departmental appeal dismissed.