DR. RIAZ MEHMOOD, MEMBER (JUDICIAL).--(1).The appellant has assailed, in this appeal, the Order-in-Original No. 87/01, dated 18.10.2001, passed by the learned Additional Collector, Faisalabad, whereby among others, a demand of sales tax had been raised on the basis of units of electricity consumed by M/s. S.Q. Textile Mills.
2. The brief facts, giving rise to this appeal, are that audit of M/s. S.Q. Textile Mills was conducted by the Senior Auditor, Sales Tax, Faisalabad for the period 01.01.2000 to 30.04.2001 and the following discrepancies were pointed out:-
(i) Sale Suppressed During scrutiny of record it was observed that the production declared by the said unit far less with respect to electricity units consumed by the registered person. The declared production was also compared with the market having same kind of unit and was found far less than the average which shows the registered person suppressed his production as well as sale. The calculation is appended below:- Month Declared Prod, in bagsAssessed prod, in bagsDifference in bagsSales tax payableElectricity consumed Total: 23823 32992 9169 3179546 2784743 Calculation is as under:-- Total unit consumed for the said period = 2784743 units:- Assessed consumption of electricity for the production of 1 Kg yam = 1.8608 unit (declared by the unit)
Total assessed production for the said period = 2784743/1.8608 = 1496529/- kg(32992 bags).
As per above calculation, the unit has removed 9169 bags of yam form the business premises without charging/ paying sales tax. Therefore, sales tax amounting to Rs. 3179546/- is recoverable alongwith additional tax in violation 3, 22, 23 and 26 of the . Sales Tax Act, 1990 and also liable to penal action under section 33 ibid.
(ii) Short realization of sales tax
(a) During checking of purchase, sale and inventory record of the unit it was observed that the unit had supplied taxable goods from business premises without paying sales tax.
Detail is under:--
(a) Opening Balance of finish goods: 1250 bags Produced during the period: 24530 Return from customers: 400 Purchases 130 Available for sale: 26310 Sold during the period upto 13.05.01 25376 Finished goods stock: 357 Difference of finished goods: 577 Value of finished goods: Rs. 1 155154 Sales tax payable: Rs. 190600
(b) Opening balance of raw material: 162000 KG Purchase up 12.05.01: 2002137 Total available for use: 21664137 Less: Issued to below room: 1797278 Sale: 222922 Used: 2020200 Raw Material stock: 1060600 Shortage of stock: 37337 Value of raw material @ 21 kg. Rs.784077 Sales Tax receivable Rs. 129372 Thus the unit violated section 3, 6, 7, 11, 23 and 26 of the Sales Tax Act, 1990. Therefore, sales tax amounting to Rs. 319972 alongwith additional tax is recoverable from the unit under section 34 and 36 of the Act, 1990 and also liable to penalty under section 33 ibid.
(iii) Inadmissible input tax on electricity The registered person is not entitled to adjust input tax on electricity bills issued in the month of January, 2000 because the government gave the credit of GST amount on the electricity bills issued in the month of February, 2000. Thus the sales tax amounting to Rs. 95571/- alongwith additional tax is recoverable under section 34 and 36 of the Sales Tax Act. 1990.
(iv) Inadmissible input on electricity supplied to offices Section 3(1)(a) of the Sales Tax Act, 1990 requires that the taxable supplies made in Pakistan shall be chargeable to sales tax by the registered person in the course of furtherance of any taxable activity carried on by him and section 8 of the Sales Tax Act, 1990 also requires that the registered person is entitled to adjust input tax only on the goods which are used for furtherance of business activity, while the registered person adjusted input tax on electricity (bills) used for office purposes that is not part of furtherance of business activity and is not covered in the definition of section 3(1 )
(a) of the Sales Tax Act, 1990. So sales tax amounting to Rs. 16630 is recoverable under section 34 and 36 of the Sales Tax Act, 1990.
3. On the basis of above M/s. S. Q. Textile Mills, Faisalabad were charged with the violation of section 3, 6, 7, 11, 22, 23 and 26 of the Sales Tax Act, 1990. They were called upon to show cause as to why sales tax amounting to Rs. 36,11,719/- alongwith additional tax should not be recovered from them and why penal action should not be taken against them under the Sales Tax Act, 1990.
4. The show cause notice was contested. The defence took the following plea:~
(i) Sales Suppressed (a) That the allegation is based on presumption and imagination. The audit has arbitrary alleged that 2.8608 units of electricity are used for production of 1 kg of yam, which is factually incorrect and without any substance of legal force, ln presence quantitative as well as qualitative accounts, there is no logic to derive assertions through presumptions and whims.
(b) That the audit has alleged neither impropriation of raw material to the extent of the alleged under production of finished goods nor procurement of raw material for the same purpose.
(c) That the audit has not provided any proof regarding receipt of consideration in money against the supply of goods said to have been suppressed by the respondents.
(d) That in the absence of any evidence regarding procurement of raw material, receipt of consideration in money and more so in the non-existence of any buyer, a mere presumption cannot execute the sale which requires a seller and a buyer both positively. Sale of goods warrants physical transfer of goods and ownership to any other person against certain consideration in money without which no transaction on account of sale/purchase can be deemed to have been affected. If otherwise any assertion is made, it would tantamount to harassment of the registered person on one hand and professional incompetence of the audit on the other hand.
(e) That the units of electricity used in a month are compared with that of production of yam in the subsequent month which reflects that the audit has based their observation on mere surmises and guess work without any factual strength.
(f) That the units of electricity used in offices are not excluded from that of the total units while computing the so-called under production of yarn.
(g) That the respondents have never declared that 1.8608 units of electricity are used for the manufacturing of 1 kg of yam. This ratio of production of yam and units of electricity neither exists on record nor can be ascertained, otherwise through an arbitrary and whimsical manner.
(h) The version of the audit regarding the said ratio is self contradictory as the uniform production of 2062 bags of yam per month has been assessed against the variable consumption of electricity for each month that is sufficient to prove professional incompetence and inefficiency on the part of audit. Details are given below:-- Month Assessed Production (bags)Unit of electricity 01/2000 2062 180928 02/2000 2062 138520 03/2000 2062 159248 04/2000 2062 158332 05/2000 2062 153228 06/2000 2062 181956 07/2000 2062 142744 08/2000 2062 165912 09/2000 2062 165228 10/2000 2062 157456 11/2000 2062 185232 12/2000 2062 167284 01/2001 2062 204671 02/2002 2062 220128 03/2001 2062 214704 04/2001 2062 1891 12 Total: 2784743
5. It is evident from the above chart that the audit had assessed production of 2062 bags of yam for the month of February, 2000 and February, 2001 as against consumption of 138520 and 220128 units of electricity respectively which is equal to make mockery of facts and law.
6. On the basis of above premises, it was submitted that whole observation was framed on presumptions, surmises and intendment of the audit without any legal as well as factual worth and ought to be dropped on merit.
(ii) Short realization of sales tax
(a) The observation is again presumptive in material and imaginative in character as it is based on misconstruction of facts and figures by the audit as evident from the vide infra facts.
Position of yarn As per observation (bags)As per record (bags)
Opening balance of finished goods1250 630 Produced during the period 24530 24590 Return from customers 400 400 Purchases 130 130 Available for sale 26310 25750 Sold during period upto 13.05.0125376 25376 Finished goods stock 357 374 Difference of finished goods 577 Nil.
7. It is crystal clear from the above data that the audit had taken opening balance of finished goods as 1250 bags instead of 630 bags available as per record in opening balance of finished goods as on 01.01.2000. It is pertinent to mention here that previously the audit of the record of the respondents was conducted for the period from 01.12.1997 to 31.12.1999 and a contravention report was issued which provided that closing balance of finished goods as on 31.12.1999 was 630 bags i.e. Opening balance of finished goods as on 01.01.2000. It can be verified from the previous contravention report.
8. The adjudication was conducted. During adjudication, every effort was made that-the parties may reconcile. The learned adjudicating authority observed that at long last the appellant had agreed that the assessm ent be made at the production level of per frame per month. The learned adjudicating authority concluded that the assessment be made at 300 bags per frame per month and that the Senior Auditor had taken the opening balance of finished goods as 1250 bags instead of 630 bags ignoring the fact that this balance was available on the sales tax record and that previous departmental report for the period 1997 to 1999 had showed it as the same. The learned adjudicating authority also observed that opening balance of raw material should have been taken as the one adjudged in the previous audit report and the Order-in-Original No. 11/00 i.e. 146332 kgs. (136852 kg in stock + 9680 kgs shortage). The learned adjudicating authority furthermore observed that the assessee had admitted its liability regarding Rs. 95,571/- in respect of the electricity charges, so the said recovery be made alongwith additional tax under section 34 and 36 of the Sales Tax Act, 1990. The learned adjudicating authority furthermore observed that the electricity used in office could not be adjusted towards input tax and Rs. 16,630/- was recoverable alongwith additional tax under section 34 and 36 of the Sales Tax Act, 1990. Hence, this appeal.
9. Arguments were heard. The learned counsel for the appellant argued that consumption of electricity was by no means yard stick to assess the production. He contended that there were so many factors to be considered in assessing the production like the model of the machinery, the condition of the machinery, its maintenance, its supervision, its management, the skill of the labour, the willingness of the labour and the condition of the raw- material etc. He furthermore submitted that the learned adjudicating authority had assessed the production of 2062 bags in all 16 months each regardless of different units consumed each month. For example, the Auditor had assessed 2062 bags in February, 2000 against electricity units numbering 138520 and again 2062 in February, 2001 against units numbering 220128. It was a mockery of assessment. The learned counsel furthermore submitted that it was admitted during discussion that other units of similar nature were giving a were range of production from 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per month. The production of M/s. Ittehad Textile Industries was just 135 bags per frame per month. It was also admitted during discussion in adjudication that their could not be any hard and fast standardized production/electricity consumption ratio because it varied widely from unit to unit. The learned counsel read paragraph No. 6 of the impugned judgment. The learned counsel vehemently contended that the appellant had never conceded that its production level be considered as 300 bags per frame per month.
10. The learned Auditor defended the impugned order. He submitted that the impugned order was quite in accordance with facts and law. He furthermore submitted that the appellant had admitted its liability amounting to Rs. 95,571/-.
11. We have carefully gone through the record and have considered the arguments advanced at the bar and find that the assessm ent on the basis of consumption of electricity was hardly ai safe rule and yard stick to assess the production. There are I different apartments of a textile mills and the electricity is variedly utilized in each of them. The audit report and the show cause notice have absolutely not mentioned as to how many spindles were there in the relevant mills. It was also silent about the type of frame as to whether it was auto coro frame or ring frame. Sometimes there are 7 and sometimes there are 8' machines in a frame. Similarly, the machines were having 60 spindles and now there are machines even having upto 1000 spindles. It was also silent about the count of the yam. Normally, the production was 10 ounce in 8 hours per spindle. The audit report is very much flimsy in respect of assessment viz the units in January, 2000 the bags were shown as 2062 against 180928 units. In February, 2000 the bags were shown as 2062 against 138520 units and in March, 2000, 2062 bags were shown against 159248 units and so on so forth. It was definitely a self-styled assessm ent. Further, it had been admitted that the production of different units was 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per frame per month which appeared to be quite reasonable. There is nothing on record to show that the appellant had made any admission. The copy of the previous Order-in-Original No. 11/2000 (Annexure-B) is on record. The Auditor had wrongly showed the number of finished goods and the quantity of raw material in the light of the previous audit report. The use of electricity in the office is definitely meant for furtherance of taxable activity. The management of the mills is intended for the reasonable or optimum if not highest production. However, the appellant during the comments had admitted its liability towards the electricity charges amounting to Rs. 95,571/-. It was not definitely a willful default, so there was no occasion to charge additional tax or impose penalty. In fact the tenor of the concluding part of the judgment is against the levy of additional tax or imposition of penalty. With this discussion, leaving the liability of Rs. 95,571/, regarding electricity charges, the impugned order is set aside on the remaining counts.