' RAJA LEHRASSAB KHAN (JUDICIAL MEMBER).---Through this order, I intend to dispose of above captioned appeal pertaining to a taxpayer, arising out of Order-in-Original No,31 of 2002, passed by the Deputy Collector (Adjudication).
2. I have heard both sides and have perused the available record.
3. The relevant facts in brief are that the appellant in this case is a private limited company engaged in supply of goods subject to tax at the rate of zero percent. Sales tax audit of the taxpayer was conducted by the Sales Tax Department for the period 21-10-1997 to 18-5-2001. During the course of audit, it was observed that the unit consumed yarn packed in polypropylene bags and paper cones but no disposal of empty bags/paper cones has been shown in sales tax record nor any payment of sales tax was shown on these sales. According to the department, the unit violated the provisions of sections 3, 6, 7, 11, 22, 23 and 26 and has suppressed the sales as well as tax payable amounting to Rs,11,137 and Rs,27,842 along with additional tax. During the checking of record, it was also found by the department that the taxpayer also violated the sales tax provisions as it had claimed input tax adjustment on goods value Rs,2,784,583, when these goods are destroyed by fire. Accordingly, a show-cause notice dated 10-9-2001, was issued and after affording opportunity for rebuttal, the learned Adjudicating Officer upheld the audit observations with regard to sales tax recoverable on sale of empty bags and paper cones, as well as sales tax recoverable on destroyed goods.
4. The learned AR of the appellant vehemently contested the impugned order-in-original and submitted that the appellant has neither made any sale of polypropylene bags and paper cones nor has received in consideration any money, therefore, sales tax demand cannot be made merely on presumption and surmises. It is contended by the AR that the appellant without payment of sales tax supplied polypropylene bags and paper cones procured constituently with raw materials, therefore, the allegation of non-payment of sales tax is not maintainable. In this behalf, the learned AR relied on the order of the Tribunal dated 8-11-2006 in re: Messrs Saleem Textile, Faisalabad.
5. I have looked into the matter and after due consideration, I find that appellant engaged in the sale and supply of textile goods and not in the sale and supply of polypropylene bags and paper cones. There is a considerable force in the arguments of the AR that the appellant consumed yarn packed in bags and paper cones and supplied these to registered persons who retained the cones and bags for disposal, especially when the department could not prove from their records that 'these items were returned to the appellant. The department constructed its case merely on presumptions. In this behalf, I am strengthened by the case-law cited by the AR of appellant wherein the learned Tribunal has accepted the appeal in similar circumstances. In this view of the matter, I am inclined to accept the appeal of the taxpayer on the issue of empty bags and wastage of paper cones and held that no sales tax is recoverable on these items.
' 7(sic). With regard to sales tax, allegedly, recoverable on destroyed goods, it is submitted by the learned AR that the appellant's yarn stocks amounting to Rs,2,784,583 on which input tax amounting to Rs,417,687 was claimed, were destroyed due to fire in the month of April, 2001. It is argued by the AR that the company claimed refund on the purchase of yarn against sales tax invoices on which sales tax had already been deposited by the supplier into Government Treasury.
It is contended by the AR that the appellant has claimed/received input tax credit incurred with regard to goods destroyed by fire and the destruction of these goods was very well established by the record, therefore, the department was not justified to hold that the input tax on the goods destroyed by fire was not admissible. The learned AR also submitted before me, copies of insurance fire claim, copy of F.I.R. And copies of Fire Brigade Documents in support of his claim.
6. I have looked into the matter and after due consideration, I find that there is no denial on the part of the revenue as well as the record submitted by the AR that stock of the taxpayer was destroyed by fire. As per section 7 of the Act, a registered person is entitled to deduct input tax paid during the period for the purpose of taxable supply made or to be made by him from the output tax. The issue in hand had already been settled by the Hon'ble Lahore High Court in the case of Messrs Mayfair Spinning Mills Limited (reported as PTCL 2002 CL 115) wherein it was held by the Hon'ble Court that "a registered person is entitled to reclaim or deduct input tax paid inter alia where the goods on which input tax was paid by the registered person were subsequently destroyed and were not meant for use nor were intended to be used for any purpose other than taxable supplies. To withhold the amount paid as input tax in this situation amounts to confiscation which the state cannot resort to accept in due process of law". The case-law cited supra is "on all fours" applicable in the instant case.
7. In the cited judgment, the Hon'ble Lahore High Court has looked into all aspects of the issue involved and passed a detailed judgment and thrashed out the questions framed before it. Here, I deem it expedient to reproduce some portion of the said judgment for the sake of ready reference: -- "I cannot believe that State through its revenue department, like an ordinary individual will try to retain the money, which was first instance paid to it as a trust till the time it was to be adjusted or refunded. The charging provisions of section 3 read with subsection (3) thereof are conditional that the levy would be subject to other provisions of the Act. The other provisions inter alia contemplate input tax and output tax and their adjustment in certain specific situations. The liability to pay tax under section 3(3) is on the person making taxable supplies. The appellant, it will be noted while paying input tax was not making taxable supplies. Looking at the preposition from that angle as well, I am of the view that if the appellant paying input tax on the supply of goods received by him was not entitled to its adjustment or refund then he was not covered by the said charging provisions inasmuch as he never made taxable supplies and therefore, was entitled to receive the sum paid as input tax to the exchequer. To withhold the amount paid as input tax in this situation amounts to confiscation, which the State cannot resort to except in due process of law. To State it does not behave to eye upon the money paid by a citizen either on the promise of refund or adjustment or even due to any misconception. The amount paid by the petitioner in this case by all reasonable interpretation of the provisions of law belonged to him and the appellant was entitled to seek, at its discretion, either adjustment or refund. (emphasis ours)
10. In view of the above binding precedent of law, I am inclined to hold that the taxpayer has rightly claimed/received input tax credit incurred with regard to goods destroyed by fire.
11. Resultantly, the impugned order-in-original is set aside and appeal filed by the appellant is accepted to the extent and in the manner as dilated supra.