MUHAMMAD WALI KHAN, MEMBER (TECHNICAL).--- (1) This judgment disposes of the appeal filed by M/s. Tarbella Cotton Mills (Pvt.) Ltd., Tarbella Township, Haripur (hereinafter called the appellants) against the Order-in-Original No. 32/1999, dated 29.09.1999 passed by the Additional Collector of Sales Tax, 'Peshawar (hereinafter called the adjudicating officer).
2. Briefly, facts leading to the appeal are that the appellants were alleged to have charged sales tax at the standard rate from their buyers on their taxable supplies made during the period of January, 1998 to December, 1998 but failed to deposit the said tax into Government Treasury within due time. They were also alleged to have made some adjustment of input tax without holding any instrument of payment (Demand Draft, Pay Order, Ghallan, etc.) in violation of SRO 1271 (I)/96, dated 10.11.1996 which- stipulates that adjustment of sales tax paid on the purchase of ginned cotton without holding any evidence of remittance of tax within due date is not admissible. The appellants, a registered person, failed to produce any demand draft/return-cum-payment challan to show payment of sales tax on ginned cotton purchased from various ginners located in the jurisdiction of different Collectorates to justify adjustment thereof against their output tax liabilities.
For the aforesaid reasons the appellants were alleged to have evaded sales tax (output tax) of Rs.
5,326,892.00. They were therefore called upon, vide Show Cause Notice C. No. ST(Cont)65/99/350, dated 31.05.1999, to show cause as to why the said amount should not be recovered from them along with additional tax of Rs. 2,444,969.00 (calculated upto 14.04.1999) due under section 34 of the Sales Tax Act, 1990 (hereinafter called the Act) and why they should not be penalized under section 33 of the said Act.
3. After hearing both the parties the adjudicating officer came to the following conclusions:- That the party has charged and collected sales tax under section 3 of the Sales Tax Act, 1990 on their taxable supplies but badly failed to deposit their liabilities to the tune of Rs.5,326,892/- into Government Treasury. However, later-on, they. Have deposited an amount of Rs. 1,914,923/- on 28.6.1999 as their partial liability to avail the benefits of SRO 679(I)/99 dated 12.06.1999. They are liable to pay the remaining balance liability to the tune of Rs. 3,405,969/- under sections 11 and 36 of the Sales Tax Act, 1990.
That they have also taken adjustments of input tax paid on purchase of ginned cotton without holding any proof of payment (D.D. Challan, Cheque etc.) wile SRO 1271 (I)/96, clearly speaks about the special rules for ginners and admissibility of input tax paid on ginned cotton. c. That under SRO 1271(1)96, the input tax adjustments would stand inadmissible if the party fails to remit the sales tax due on ginned cotton within due limit of time. The scrutiny of record available on file shows no evidence of payment of sales tax due on ginned cotton. On contrary to the above, they took adjustment of input tax and sort payment was made to the tune of Rs. 3,405,696/-. d. In the light of above legal facts, I therefore order M/s Tarbella Cotton Spinning Mills (Pvt.) Ltd., to pay the remaining balance liability to the tune of Rs. 3,405,696/- as principal amount along with additional tax (to be calculated all the time actual payment) under section 34 of the Sales Tax Act, 1990. A penalty of Rs. 170,285/- is also imposed on the said registered person as per para 6, sub- para 3 of SRO. 1271(I)/96."
4. Aggrieved of the decision of the adjudicating officer, the appellants filed the present appeal with the Collector of Customs, Central Excise and Sales Tax (Appeals), Northern Zone, Rawalpindi which stood transferred to this Tribunal owing to abolition of the institution of Collector (Appeals) in the year 2000.
5. The appellants have assailed the decision of the adjudicating officer on following grounds:---
(1) The show cause notice and subsequent proceedings are void ab-initio, unlawful and of no legal effect in that it is vague and the provisions of section 36 of the Act for recovery of the alleged short paid amount have not been invoked.
(2) The adjudicating officer lacked jurisdiction and the show cause notice issued by him being without lawful-jurisdiction is not maintainable.
(3) The points raised in the reply to the show cause notice, though reproduced in the impugned Order-in-Original, have neither been properly evaluated nor reasons for non acceptance thereof have been given in the impugned order of the adjudicating officer with the result that the impugned order of the adjudicating officer can best be treated as a vague and non speaking order.
(4) All the transactions made by the appellants are transparent and verifiable. A statement showing the total outstanding liabilities was prepared by the department itself, according to which an amount of Rs. 2,269,973.00 (Rs. 1.914.923.0 as principal amount and Rs. 1.725.248.0 as 20% additional tax, as per provisions of SRO 679(l)/99 dated 12.06.1999) was to be paid by the appellants which was accordingly deposited. Hence any fresh demand, deviating from what was previously calculated/demanded by the department itself, is simply illegal and not sustainable.
(5) A statement showing the overall transactions undertaken in the relevant period appended to the memo of appeal as Annex H duly supported by the relevant back-up record appended as Annex. I thereof support the contention of the appellants.
(6) Without prejudice, the provisions of SRO 183(l)/98 dated 27.05.1998 is ultra vires of the Act, hence not sustainable.
(7) Without prejudice and without conceding the original liabilities, it is submitted that this is not a case of wilful evasion, mens rea is lacking hence no question of additional tax and penalty.
6. In view the above it was prayed that the proceedings conducted under the impugned show cause notice being coram non judice gave rise to the Order-in- Original which as such being void ab initio is liable to be struck down.
7. We have heard both Mr. Farhat Nawaz Lodhi, Advocate for the appellants and Dr. Kamal Azhar Minhas, learned DR for the respondent at length and examined record of the case carefully. We first take up the factual aspect of the appeal with reference to the divergent stands taken by both the parties at the bar. It is the claim of the appellants that they did not evade any amount of sales tax; that they maintained transparent records showing all the transactions made during the period under dispute and that despite their request to verify and reexamine their record the adjudicating officer ignored their request and came to the conclusion that they had evaded the aforesaid amount and ordered to recover the same after deduction of Rs. 1,914,923.0 which the appellant had paid pending adjudication proceedings under the cover of SRO 679(l)/99 dated 12.06.1999 and also imposed additional tax and penalty on them despite the fact that there was neither any evasion of sales tax nor was there any mens rea to do so It was therefore claimed that the impugned order being arbitrary was liable to be set aside: Controverting this claim the learned DR-stated that the appellants charged sales tax from their buyers on the taxable supplies made by them to those buyers but failed to deposit by due dates sales tax as output tax of Rs. 5,326,892.00 so charged from the buyers. He was of the view that by not paying the aforesaid amount of sales tax the appellants rendered themselves, liable to penalty in terms of section 33 of the Act besides being liable to pay the said amount of sale tax along with additional tax in terms of section 34 of the Act.
He also pointed out that the appellants also claimed adjustment of input tax on the purchase of ginned cotton without holding any evidence of payment of the input tax on ginned cotton and such adjustment of input tax was not admissible in terms of the provisions of SRO 1271(1)96, dated 10.1.1996. Inviting our attention to the show cause notice dated 31.05.1999, learned DR claimed that after taking into consideration the above factual and legal position and allowing input tax adjustment where evidence of payment of input tax was provided by the appellants the net amount of sales tax not paid by them was worked out in the show cause notice as under:- Tax Period Output Tax Due (Rupees) Input Tax Adjustment Allowed (Rupees) Tax Not Paid (2-3) Add. Tax Payable (upto 12.04.1999)
(D (2) (3) (4) (5)
0198 497644/- 120428/- 377216/- 369646/- 0298 784119/- 483827/- 300292/- 265953/- 0398 349500/- 346315/- 3185/- paid 0498 843025/- 549810/- 293215/-' 208282/- 0598 879288/- 447808/- 431480/- 271355/- 0698 690713/- 689325/- 380044/- 0798 23637/- He further stated that out of the aforesaid amount of Rs. 5,326,892.0 an amount of Rs. 1,914,923.00 was paid by the appellants subsequent to the issuance of show cause notice leaving a balance amount of Rs. 3,411,969.00 which was recoverable from the appellants along with the additional tax and penalty as adjudged by the adjudicating officer. He therefore prayed for the rejection of the appeal.
8. 9. #tbs
10. Pakistan Company & Tax Law Reports Vol. XI
11. %
12. #the
13. 14. #tbs
15. 708 C.L
16. #the
17. 18. #tbs
19. 0898 811127/- 333085/- 478042/- 194611/-
20. 0998 1115328/- 1115328/- 379318/-
21. 1098 8>0847/- 113758/- 757080/- 209169/-
22. 1198 471096/- - 568350/- 100932/-
23. 1298 566022/- 149468/- 416555/- 65659/-
24. Total 7878709/- 2568136/- 5326892/- 2444969/-
25. 26. #the
27. From the perusal of the impugned Order-in- Original No. 32 of 1999 dated 29.09.1999 of the adjudicating officer we have observed that the appellants disputed the allegation and contended that they paid the tax due from them and that their record may be reexamined to verify payment of the tax but the adjudicating- officer did not consider it appropriate to verify the factual position and instead held that the amount indicated in the show cause notice was recoverable from the appellants after deducting Rs. 1,914,923.00 already paid by them. We have-also observed that the appellants took the same plea again before the Tribunal and on the direction of the Tribunal the figures were reconciled and Mr. Bakht Dawran Khan, Senior Auditor of the Collectorate of Sales Tax, Peshawar, after verification of facts and reconciliation of figures, came out with the following figures: Tax Period Output Tax Due Input Tax Adjustment Allowed Tax Not Paid (2- 3)
(1) (2) (3) (4)
01/98 494944 180515 317129 02/98 784119 503943 280176
9. After having heard the rival arguments on the facts of the case and having considered the reconciliation statement signed by Mr. Bakht Dawran Khan, Senior Auditor alongwith verification statement jointly signed by him and a representative of the appellants showing payment of input tax of Rs. 3,340,410.00 we are of the view that subject to input tax deduction the appellants were liable to pay sales tax of Rs. 7,878,709.00 as output tax on the supplies made by them to the buyers from whom they had already charged the sales tax. The reconciliation statement and statement showing input tax payment show that the appellants were entitled to the input tax adjustment to the extent of Rs. 3.340.410.0 as against Rs. 2568136.00 allowed by the sales tax authorities as per the show cause notice and the impugned Order-in-Original. Thus deduction of input tax of Rs.
3,340,410.00 from the output tax liability of Rs. 7.878.709.0 is allowed to them. This means that a balance of Rs. 4,535,115.00 only was not paid by the appellants at the time show, cause notice was issued to them on 31.05.1999 as against the original demand of Rs. 5.326.892.0 given in the said notice, It will therefore be seen that a demand for Rs. 791,777.00 (5326892 -4534115= 791,777) was raised in the show cause notice and adjudged in the impugned order of the adjudicating officer over and above what was actually due from the appellants as outstanding output tax. We therefore order that this excess amount of Rs. 791,777.00 shall be deducted from the original demand of Rs. 5,326,892.0 with the result that the outstanding principal amount of sales tax against the appellants shall come down to Rs. 4,535,115.00 only. Coming to the outstanding demand of Rs. 4,535,115.00, the appellants have not been able to place on record evidence of payment of this amount to rebut the claim of the sales tax authorities. On the contrary, they are replying upon legal technicalities which we shall discuss in the succeeding paras. According to computer print out furnished by the sales tax authorities the appellants, subsequent to the issuance of show cause notice and passing of the impugned Order-in- Original by the adjudicating officer, have made the following payments to discharge their outstanding liabilities of Rs. 4,535,115.00: S. No. Tax Period/Date of Payment Amount of Tax Paid 1 051999 28-Jun-1999 1,914,923 2 072000 09-Sep-2000 150,000 3 052000 17-Jul-2001 500,000 4 052001 06-Aug-2001 300,000, 5 072001 10-Sep-2001 300,000 6 072001 10-Oct-2001 300,000 7 092001 10-NOV-2001 300,000 8 072001 10-Dec-201 300,000 9 072001 l0-Jan-2002 300,000 10 072002 11-Feb-2002 300,000 11 * 072001 11-Mar-2002 300,000 Total 4,964,923,00
10. From the above, it will be seen that against the total outstanding liability of Rs. 4,535,115.00 the appellants made payment of Rs. 4,964,923.00 or Rs. 429,808.00 more than what was due from them. This payment was made in installments between the period from June, 1999 to March, 2002.
But perusal of the reconciliation statement signed by the department authorities and available on record gives an intriguing picture. On the one hand, they have confirmed as under:- #tbs Total output tax due from the appellants Total input tax adjustments verified Total output tax due after adjustment of input tax Rs.7,878,709.00 Rs.3,340,410.00 Rs.4,535,115.00 #the But, on the other hand, they still claim that an amount of Rs.361,969.00 is outstanding against the original demand of Rs. 5,326,892.00 raised in the show cause notice after adjustment of Rs,.
4,964,923.00 paid by the appellants in installments as pointed out above. This logic of the sales tax authorities is devoid of any substance. When their own verification statement belies their original demand of Rs. 5.326.892.0 and shows that against this demand the actual amount of non paid sales tax is Rs. 4,535,115.00 only how can they still insist on Rs. 5,326,892.00 without any backing. We, therefore, do not accept this logic and hold that based on verification and reconciliation-of figures done by the sales tax authorities themselves only Rs. 4,535,115.00 was outstanding against the appellants on the date of issue of the show cause notice i.e. On 31.5.1999. The appellants have discharged this liability by making payment of Rs. 4.964.923.0 as confirmed by the sales tax authorities. This an amount of Rs. 429,808.00 has been paid by them in excess of what was due from them as principal amount.
11. Having perused the show cause notice, the impugned order of the adjudicating officer, the reconciliation statement prepared by the sales tax authorities, the statement jointly signed by the representative of the Sales Tax Collectorate and that of the appellants showing payment of input tax of Rs. 3,340,410.00 and considering the rival arguments made at the bar we now attend to the legal questions raised by the learned counsel for the appellants. The learned counsel claimed that the show cause notice is vague and section 36 of the Act for recovery of the escaped tax has not been invoked. Therefore, the show cause notice is void and all proceedings based on the same are also void and unlawful. The learned DR has denied that the show cause notice is void. He claimed that the following reasons were the basis of issuing show cause notice to the appellants:
(a) Although the appellants charged sales tax from the buyers on the taxable supplies made by them to the said buyers but the amount of sales tax so charged was not paid to the exchequer.
Therefore according to the sales tax department the sales tax not paid was recoverable.
(b) The appellants claimed input tax adjustment on purchases of ginned cotton without proof of payment of sales tax on such purchases. Therefore according to the sales tax authorities deduction of input tax from the output tax due from the appellants without proof of payment of input tax was not admissible in terms of SRO 1271 (I)/96, dated 10.11.1996.
He further submitted that for the aforesaid reasons the appellants were alleged to have not paid R's. 5,326,892.00 as output tax due to the supplies made by tern. Although subsequent verification of facts and reconciliation of figures has shown that the appellants were entitled to deduction of input tax more than the one shown in the show cause notice i.e. Rs. 3,340,410.00 instead of Rs.
2,568,136.00 and the exact liability of the appellants to pay the output tax was less than the one given in the said notice i.e. Rs. 4,535,115.00 instead of Rs. 5,326,892.0 yet the reasons remained unchanged i.e. An amount of Rs. 4,535,115.00 as output tax was recoverable from the appellants on the date of issue of show cause notice i.e. On 31.05.199 which they had not deposited into the treasury despite receipt thereof from the buyers.
12. Having heard the rival claims we are inclined to agree to the view point of the learned DR. The show cause notice cannot be termed as vague. On the contrary, the reasons for recovery of the escaped amount of sales tax have clearly been stated in the show cause notice without any ambiguity.
13. So far as the second part of the argument made by the learned counsel of the appellants is concerned, he has claimed that section 36 of the Act was not quoted for recovery of the sales tax.
Therefore the demand is illegal and void. Learned counsel has relied upon the judgment of the Honourable Supreme Court of Pakistan reported as Assistant Collector Customs versus M/s. Khyber Electric Lamps Ltd. (PTCL 2004 CL. 1) and the judgment of the Honourable Lahore High Court in the case reported as M/s. Zamindara Paper Mills versus Collector (PTCL 2002 CL. 212) to claim that non mentioning of section 36 of the Act in the show cause notice has rendered he same as null and void and therefore the adjudication proceedings initial by the adjudicating officer are illegal and without lawful authority. The learned DR, on the other hand, has stated that the requirements of natural justice has been compiled with by the adjudicating officer by issuing show cause notice to the appellants and affording them adequate opportunity of hearing. He claimed that the law does not prescribe that for issuing show cause notice the provisions of law should also be quoted.
According to him show cause notice is nothing but a narration of facts and grounds with regard to violation of law and demand of the amount of tax, additional tax and penalty etc. Accruing through the violations specified therein. He stated that it is well established that if the law (section 36) under which action is to be taken by an authority expressly provides for notice, then non compliance with such provisions would render the action taken or order passed in pursuance thereof as void which is not the case in the appeal under consideration. He pointed out that it is well settled, interpretation of statutes that legislative instruction must be gathered from the language used in the enactment. The intention of the legislature, by requiring the officer of sales tax to serve a notice for demand of the escaped tax within the prescribed period, is to safeguard the fundamental rights of the citizen as envisaged in the Constitution and to fulfill the requirement of natural justice based upon the maximaudi alteram partem. According to him in the case under reference, a valid notice has been served upon the appellants as per requirements of section 36 of the Act. Section 36 or for that matter any other, provisions of the Act do not require the sales tax officer to mention the section of law in the said notice. He further claimed that the letter of law is strictly to be construed and the objection of the appellants does not stand in the letters of law as all the conditions stipulated by the law have been fulfilled by the respondent. He argued that section 36 of the Act does not require the officer of sales tax to mention sequence number of the law enacted for issuing a notice. The law requires for a notice only and that requirement has been fulfilled by the respondent. He claimed that the case laws referred to as Assistant Collector versus Khyber Electric Lamps (PTCL 2002 CL. 1) and M/s. Zamindara Paper Mills versus Collector (PTCL 2004 CL. 212) and relied upon by the learned counsel for the appellants are not attracted in facts and circumstances of the present case in that in both the cases either the reasons were not given justifying issue of show cause notice or if given the same were vague and also two sub-section of section 32 of he Customs Act, 1969 and 36 of the Act, being opposite in nature, were simultaneously invoked against the petitioner which made the show cause notices defective as the offence mentioned in both the subsections cannot be committed simultaneously. The commission or omission of an act may either be committed with collusion and fraudulent intention or may be the result of an inadvertent action He claimed that the instant case non payment of sales tax by the appellants after receipt of thereof from the buyers is nothing but wilful evasion of the tax and the appellants deserve no leniency.
14. After considering the rival contentions on this issue we are of the view that the appellants have np case on legal premises. Neither they have denied that they received sales tax amounting to Rs.
7,878,709.00 as output tax fro their buyers against supplies made to them nor they have furnished any proof of deposit of the remaining amount of Rs. 4,535,115.00 into the treasury within due dates after making deduction of input tax of Rs. 3,340,410. It means that they pocketed an amount of Rs.
4,535,115.00 which belonged to the government despite the fact that incidence of the same was passed on to buyers. Thus they violated the provisions of section 3 of the Act. It therefore follows that out of a tax liability of Rs. 7,878,709.00 as output tax the appellants could claim adjustment of Rs. 3,340,410.00 as input tax leaving a balance of Rs. 4,535,115.00 that, though charged from the buyers of supplies made by the appellants, was n6t paid to the exchequer till issuance of show case notice on 31.05.1999. However, record shows that subsequent to the initiation and finalization of adjudication proceedings they have discharged their tax liability. The payment schedule given in para 8 above shows that an amount of Rs. 1,914,923.00 was paid subsequent to the issuance of show cause notice and prior to finalization of adjudication proceedings and that too by taking advantage of the amnesty scheme notified under SRO 679(l)/99, dated 12.06.1999 and. The' remaining amount was paid in installments subsequent to the decision of the adjudicating officer, It is thus clear that on factual grounds the allegation stands proved. So far as reliance of the appellants on the case laws cited in para 13 is concerned, while deciding Appeal No. 92/ST/IB/2004 filed by M/s Kohinoor Spinning Mills, Chakwal we have come across the latest judgment dated 27.12.2005 of a larger Bench of the Honourable Supreme Court of Pakistan in the case of Collector Customs, Central Excise and Sales Tax (Adjudication) versus Pakistan Tobacco Company in which the apex Court, on a similar issue with reference to rule 10 of the Central Excise Rules, 194, has held as under:- "We have heard learned counsel for the parties and have gone through the impugned judgment and order passed by Collector in original as well as the order passed by the Tribunal carefully.
It may be noted that both the forums on having taken into consideration the material available on record had concluded that it was the case of misdeclaration. Learned High Court while interfering in the concurrent findings of facts of both the forums had traveled outside the scope of its jurisdiction because the appeal before the High Court was competent only on the question of law, therefore, it may have not entered in to question of fact which had already been settled on the basis of material which was placed before the forums competent, to do so. Beside we have also independently taken into consideration the show cause notice as well as reply submitted by the respondent and other material on record which indicates that it was not a case where on account of inadvertence, proper declaration was not made but it is a case of misdeclaration knowing well stand taken by the respondent to the effect that 4.30 tone of tobacco used has been used by it for the trial of the machinery, is not acceptable in absence of evidence.
Thus for the foregoing reasons we are of the opinion that the impugned judgment is not sustainable in law, as such same is set aside and the judgment of the Customs, Central Excise and Sales Tax Appellate Tribunal, Islamabad dated 18th December 2002 is restored.
Petition is converted into appeal and allowed with costs.
15. From the judgment dated 27.12.2005 of the august Court as referred to above it will be that the august Court has held as under:-
(a) Not invoking the provisions of law regarding recovery of the escaped amount of tax in the show cause notice is not a question of law but a question of fact and omission to mention a question of fact does not vitiate the show cause notice.
(b) Material evidence available on record will determine whether the short payment or non payment of tax was wilful or it was due to inadvertence, error or misconception.
In the instant case section 36 of the Act relating to assessment and recovery of the escaped tax was not mentioned in the show cause notice. Due to this omission, which is a question of fact, the show cause notice cannot be termed as illegal since the material facts available on record led the adjudicating officer to conclude that it was a case of wilful evasion of tax in terms of sub-section
(1) of section 36 of the Act. The decision of the august Supreme Court is binding in terms of Article 189 of the 1973 Constitution of the Islamic Republic of Pakistan. The judgment dated 27.12.2005 of the august Court being later in time and taken by a larger Bench shall have overriding effect on its earlier judgment reported as PTCL 2002 CL. 1 and relied upon by the appellants, In holding so we gain support from the following judgments of the Supreme Court of Pakistan:
(1) Babar Shahzad versus Said Akbar and another as 1999 SCM R 2518.
(2) Fazal Muhammad Chaudhari versus Ch. Khadim Hussain and 3 others reported as 1997 SCM R 1368.
(3) Chaudhry Muhammad Saleem versus Fazal Ahmad and 2 others reported ps 1997 SCM R 315.
Therefore the plea of the appellants that the show cause notice is defective in that section 36 of the Act has not been invoked and resultantly the subsequent order of the adjudicating officer is illegal does not hold the ground and is rejected accordingly.
16. Adverting to the other aspect of the matter, the appellants by not depositing the output tax due from them by due dates have not only evaded the said tax but' have also betrayed the trust reposed on them by the government to receive the tax from their buyers and to deposit the same in the treasury by due dates, In these circumstances holding the appellants to be not liable to pay these circumstances holding the appellants to be not liable to pay the sales tax would amount to giving them undue benefit which cannot be allowed under the doctrine of undue enrichment as the appellants had no right to retain the tax beyond due dates, In this view of the matter we also find support from the judgment of the august Supreme Court of Pakistan in the case reported as M/s. Fecto Balarus Tractor Ltd., versus Government of Pakistan PCTL 2005 CL. 754 specially when the show cause notice, was not barred by time and reasons for the demand were clearly mentioned in the said notice and the tax liability of the appellants was adjudged after affording them full opportunity of hearing and following -the principles of natural justice. Further, all the payments of the escaped sales tax were made by the appellants at their own and without any protest reserving their right to challenged the demand raised on any premises. Rather admitting the same to be genuine and by making overpayment of Rs. 428.808.0. Thus it is a case where a demand order has been acted upon voluntarily. Therefore they are barred by the law of estoppel to go against the action taken by them voluntarily. We therefore hold that the appellants have failed to disprove the allegation of non, payment of output tax of Rs. 4.535.115.0. However, it is a fact that the appellants had challenged the amount of sales tax that was alleged to be recoverable from them and had requested for reexamination of their records which was not accepted by the adjudicating officer.
We are also mindful of the fact that on reconciliation, under the orders of the Tribunal, the appellants were found to be entitled to more input tax adjustment and liable to payment of lesser amount of sales tax as compared to the ones indicated in the show cause notice, It is also a matter of record that subsequent to initiation and finalization of adjudication proceedings the appellants not only made payment of the due amount of tax along with an amount of Rs. 435,050.00 as additional tax availing the amnesty under SRO 679(l)/99, dated 12.06.1999 but also made over payment to the extent of Rs. 429,808.00. We are therefore of the view that both the sales tax authorities and the appellants were initially not clear of the exact tax liability of the appellants. The benefit of this confusion must go to the appellants. We accordingly remit the additional tax and penalty adjudged against them by the adjudicating officer over and above the one paid by the' appellants during the amnesty period as mentioned above as we fell that it was a case of confusion rather than wilful evasion that resulted in non payment of the sales tax specially when we find that the appellants have subsequently made payment of more sales tax than what was actually due from them.
10. The learned counsel for the appellants also challenged the jurisdiction of the adjudicating officer to issue show cause notice and to adjudicate the case. Explaining his point of view he claimed that the appellants have been charged to have not paid sales tax on ginned cotton in accordance with SRO 1271(1)796, dated 10.11.1996. He stated that under this notification Special Procedure for Ginning Industry Rules, 1996 were notified and vide rule 6 thereof payment of sales tax on ginned cotton was to be made by the recipient of the supply which was in conflict with the express provisions of section 3 of the Act under which it was then the supplier who had to pay the sales tax. He claimed that since rules 5 and 6 of these Rules were in conflict with the express provisions of the Act (section 3 thereof) the august Supreme Court of Pakistan has held that rules 5 and 6 of the aforesaid Rules are ultra vires and therefore claimed that any demand of sales tax on ginned cotton from his clients by the adjudicating officer is without lawful authority and is of no legal effect. He also drew our attention to CBR Letter C. No.3(13)STP/96(PT.I), dated 24.08.2002 and stated that vide this letter: CBR has issued instructions to its field formations that in the case of ginned cotton the sales fax is to be collected from the ginners and not from the recipients of ginned cotton. He claimed that in view of the Superior. Courts' decision and the instructions of the CBR the sales tax on ginned cotton is to be recovered from the ginners. This being the position, he contended, the adjudicating officer had no jurisdiction to issue show cause notice to the appellants and to decide the case as the ginned cotton was purchased from supplier living beyond the jurisdiction of the adjudicating officer. He further stated that if any cause of action was there that related to the ginners who were not within the jurisdiction of the adjudicating officer.
Hence, according to the learned counsel of the appellants the show cause notice issued and the impugned Order-in- Original passed by the adjudicating officer are without jurisdiction and are of no legal effect.
11. Repelling this contention the learned DR stated that the adjudicating officer had the jurisdiction to issue show cause notice for the following reasons:-
(i) The appellants' manufacturing unit was located within the jurisdiction of the Collectorate of Sales Tax, Peshawar and the adjudicating officer was the competent officer of sales tax in terms of section 30 of the Act read with, notification No SRO 557(l)/96 dated 01.07.1996 to issue show cause notice to the appellants and to adjudicate the case.
(ii) The offence of nori payment of sales tax charged and levied under section 3 of the Act was committed by the appellants and the amount to the extent of non payment of tax under the above provisions of the law has been impugned in the show cause notice.
(iii) The Special Procedure for Ginning Industry Rules, 1996 makes liable either the seller or the buyer of ginned cotton for violating sub- rules (2) and (3) of rules 6 thereof.-In the instant case of appellants have violated sub- rule (3) of the aforesaid Rules. Therefore, liability falls upon the appellants and they have rendered themselves to panel action under the law. The competent adjudicating officer to issue show cause notice was, therefore, the Additional Collector Sales Tax, Peshawar, In view of this legal position the Board's letter has been misconceived by the appellants and the same is not applicable to the present case. The superstructure made upon misconceived letter with regard to jurisdiction and to section 72 of the Act falls to the ground.
(iv) The appellants have misquoted the fact that the Supreme Court has held rules 5 and 6 of the aforesaid Rules as ultra vires. On the contrary, the august Supreme Court has . Substituted the words "ultra vires" as "inapplicable". Had Rules 5 and 6 of the aforesaid rules been "ultra vires" of the law, the same would have been expunged from the rales by the Federal Government under the principles of obiter dictum of Supreme Court of Pakistan as envisaged under Article 189 of the Constitution. The order of the Honourable Lahore High Court has been merged in the final order of the Supreme Court with regard to rules 5 and 6 of the aforesaid Rules, under the doctrine of merger.
12. Having perused record of the case and taking into consideration of rival arguments advanced at the bar by both sides we are of the view, that the contention of the learned counsel for the appellants is based on misconceived notion. From the perusal of record of the case it is crystal clear that the allegation against the appellants is that they made supplies to their buyers and during the course of supply they received payments including the amount of sales tax from the buyers. According to sub-section (1) of section 3 of the Act the sales tax was to be charged, levied and paid and the payment was to be made by the suppliers in terms of sub-section (2) of Section 3 ibid. But having charged and received the tax from the buyers the appellants as supplier did not pay the said tax to the exchequer. No where in the show cause notice they were charged to have not paid the tax on ginned cotton. The law of sales tax is very clear. Where a taxpayer claims deduction of input tax from the output tax due from him he is legally bound to show evidence of payment of input tax be it a case of rules 5 and 6 of the Special Procedure for Ginning Industry Rules, 1996 or that of sub-section (2) of section 7 of the Act. There is no exception to this law. This is necessary to avoid bogus claims of input tax adjustments. Where the appellants showed evidence of payment of the input tax the sales tax authorities allowed adjustment thereof against their output tax liabilities. This is very much clear from the reconciliation statement. This on factual ground the appellants' contention cannot be accepted. Legally speaking, the appellants are registered- as manufacturers. Their manufacturing unit is located in the jurisdiction of the Collectorate of Sales Tax, Peshawar. Their records were audited by the auditors of the Collectorate of Sales Tax, Peshawar and the adjudicating officer had jurisdiction tp adjudicate the case as it fell in his jurisdiction since the issue pertained to non payment of tax on the supplies made by the appellants and not on the supplies of ginned cotton received by the appellants. So far as the judgments of the Honourable Supreme Court of Pakistan and the Honourable Lahore High Court with, reference to rules 5 and 6 of the Special Procedure for Ginning the judgments the question for consideration was whether rules 5 of section 3 of the Act and or who was liable to pay the sales tax on ginned cotton or it was the recipient of the ginned cotton who was to pay the tax. The judgments have nothing to do with the question of adjustment of sales tax paid as input tax on ginned cotton for determination of output tax liabilities of a tax payer on the supplies made by him The allegation against the appellants is not that they did not pay output tax on ginned cotton. On the contrary, the charge against them is that they made adjustment of input tax on ginned cotton purchased by them against their output tax liabilities without showing proof of payment of the input tax on ginned cotton through sales tax invoices of the suppliers of ginned cotton. Where they could prove that payment of input tax was made the sales tax authorities allowed adjustment of the said input tax against the appellants' output tax liabilities as can be seen from the reconciliation statement referred to above. Therefore, the judgments of the Superior Courts relied upon by the appellants being not relevant to the issue in hand are not applicable to the case of the appellants. Even the CBR's instructions are not relevant to the present case since the dispute in the instant appeal pertains to adjustment of input tax on ginned Cotton and not to payment of sales tax on ginned cotton. Thus on legal count- too the appellants have no case.
13. The above discussion leads us to conclude that the appellants failed to, deposit sales tax amounting to Rs. 4,535,115.00 by due dates in terms of sections 2(9) and 26 of the Act rendering themselves liable to penalty in terms of section 33 thereof besides making themselves liable to pay the non paid amount of sales tax as shown above along with additional tax due under section 34 of the Act. However, the record shows that they have paid Rs. I, 914,923.00 on 28.06.1999 along with Rs. 35,050.00 as additional tax out of their total liability of Rs. 4,535,115.00 under the amnesty scheme notified under SRO 679(l)/99, dated 12.06.1999 and an amount of Rs. 3,050,000.00 in installments stretching over a period from 09,09.2000 to 11.03.2002 as per computer print out furnished by the sales tax authorities and confirmed in the reconciliation statement totaling Rs.
4,964,923.00 with the result that they have made over payment of Rs. 429,808.00 towards principal amount due from them. The record also shows that both the parties were not sure about the exact liabilities of the appellants and the exact liabilities were determined through verification of facts and reconciliation of figures after finalization of adjudication proceedings and the appellants also made payment of not only the principal amount but an excess amount of Rs. 429,808.00. Therefore they cannot be framed to have willfully evaded the sales tax. They deserve to treated leniently.
Therefore we are clear in our minds that imposition of additional tax and penalty adjudged against them over and above what has been paid by them during the amnesty period is not justified. We accordingly remit the additional tax over and above Rs. 345,050.00 which they have already paid under the amnesty scheme and the entire amount of penalty adjudged against them by the adjudicating officer. The appellants have already deposited the entire principal amount of Rs.
4,535,115.00 as has been verified and confirmed by the sales tax authorities through reconciliation report. As such nothing is outstanding against the appellants as of now. For the excess amount paid by them they may approach the appropriate authorities in accordance with the law. With these observations the appeal is disposed of.
14. Announced.
15. Parties may be informed accordingly.