144 ,Its MUHAMMAD JAHANDAR (JUDICIAL MEMBER).---This appeal filed by the registered person is directed against an Order-inAppeal dated 14-9-2009 passed by Collector (Appeals) Sales Tax aid Federal Excise, Islamabad. {{BLUR PAGE}}
2. Brief facts as per Order-in-Original are that during audit conducted by a team of DGRRA, Lahore for the years 2006-2007 of Messrs Adnan Honda Centre, registered person Kamra Cantt. It was foundlhat the registered person did not pay the sales tax and income tax as provided in the rules which resulted in short realization of sales tax amounting to Rs,286,976 non realization of income tax of Rs,187,964 aggregating Rs,474,940 whereon a show-cause notice was issued to the effect that according to the Rules 16 and 17 of Special Procedure, read with Sales Tax Special Procedure Rules, 2006 for payment of sales tax by retailers, a registered retailer of Motorcycles shall have to pay 2% sales tax and 1% income tax of the value of taxable supplies after 4% value addition and it was further found that an amount of Rs,474,940 was recoverable from Messrs Adnan Honda Centre, registered person under section 36(1) Sales Tax Act, 1990 for violation of sections 3, 6 and 26 along with penalty and default surcharge under sections 33 and 34 of the Sales Tax Act, 1990.
3. The registered person in reply submitted; firstly, that he is engaged in the business of sales of Honda Motor Cycles and is an authorized dealer of Motor Cycle; that the audit by DGRRA was illegal as it was not competent to -conduct the audit and that Rules 16 and 17 of the Special Rules, 2006 were not applicable and instead Rules 123 read with 129 are applicable. After hearing, the Deputy Collector Adjudication did not accept the plea of the registered person and proceeded to pass Order-in-Original holding that there was a short payment of tax amounting to Rs,474,940 and also imposed default charge and penalty thereon. #
3. Aggrieved of this treatment the registered person went in appeal before the Collector but of no avail. Now the registered person is in further appeal before this Tribunal on the following grounds:--
(1) That the audit of the appellant was conducted by the respondent No,3 which was illegal because staff of DGRRA was not competent to conduct the audit of appellant. It is settled principle of law if the beginning of an act is illegal then entire proceeding which favours this act will also be illegal.
(2) That Rules 16 and 17 of Chapter-III of Special Procedure Rules 2006 issued vide S.R.O. No, 560(1)12006 dated 5-6-2006 for payment of sales tax by retailers are not applicable on appellant.
(3) That Rule 123 I of Chapter-XVIII of Special Procedure Rules, 2006 is about the application of this chapter and the words motorcycle dealers are not used in the said rule which may create confusion for respondents but if we read special procedure Sub-Rule (1 viii) of Rule 2 the said confusion resolved without any shadow of doubt.
4. Arguments have been heard. Learned A.R contended that DGRRA was not competent to conduct the audit of the registered person because under section 25 of the Sales Tax Act, 1990 an Officer of the Sales Tax, now Inland Revenue was empowered to conduct audit proceedings. In this regard, he referred to a judgment of the Lahore High Court Rawalpindi Bench in Writ Petition No,679 of 2010 titled Khadija Edible Oil Refinery (Pvt.) Ltd. v. F.B.R.
5. As against this, learned D.R maintained that the record of the registered person was requisitioned by the Sales Tax Officer who had the jurisdiction at the relevant time and was then got examined by the staff of DGRRA whereby certain discrepancies and short payments were pointed out. Following the said observations of the staff of DGRRA, the Deputy Collector Adjudication issued a show cause notice on 22-10-2008 by referring to short payments. Learned D.R. Contended that any assistance by staff of DGRRA cannot be taken to be illegal. As regards, the application of Rules 16 and 17 of Special Procedure Rules, 2006 is concerned, learned D.R. Argued that admittedly the registered person is a retailer and thus the said rules are applicable whereas Rules 123 and 129 pertain to a dealer and the registered person has not got himself registered as such.
6. Section 25 of the Sales Tax Act provides that the audit of the Sales Tax of the registered person could be conducted by the Sales Tax Officer, now Inland Revenue Officer only. In the instant case it seems, that the Sales Tax Officer who had the jurisdiction at the relevant time directed the registered person to produce the record before him and then took assistance from the staff of the DGRRA for audit, wherein certain discrepancies/short payments were pointed out This exercise seems to be an internal management which does not prejudice in any way the case of the registered person. Admittedly, the order for production of record by the registered person was issued by Sales Tax Officer and not by any member of staff of DGRRA and then no action culminating in passing an Order-in-Original was passed by the staff of DGRRA.
7. A relevant extract of the case law referred to by learned A.R is as under:- ' The audit team of DGRRA as admittedly the petitioner is under no obligation to supply its sale tax record to DGRRA, who is not a Sales Tax Officer/Inland Revenue Officer under the provisions of Sales Tax Act, 1990. However, in view of section 25 of the Sales Tax Act, 1990, the petitioner is bound to supply sales tax record to the respondents Nos. 1 and 2 as and when demanded by them.
8. In view of the above the records could be requisitioned by the Sales Tax Officer for audit and in the instant case after receiving the record by the Sales Tax Officer assistance from the staff of DGRRA was taken and then show cause notice was issued to the registered person by Dy. Collector of Adjudication by pointing discrepancies/short payments; Thus for the purposes of section 25 of the Act, it may be said that no illegality has been committed. For this view it will not be out of place to mention that the Sales Tax Act, 1960 as amended does provide a E mechanism by getting the records of the registered person audited by Sales Tax Officers from certain audit firms and after receipt of the report the proposed action shall have to be taken by Officer of the Inland Revenue. In these circumstances, the objection of the registered person is of no consequence and does not make the Order-in-Original to be questionable. The show-cause notice was issued by a competent Officer and after confronting the registered person with related issues the order-in- original was passed.
9. The next issue is that of application of Rules 16 and 17 of the Special Procedure Rules, 2006. The said rules are as under::-
(16) Levy and rate of tax:---A retailer operating under these rules shall charge and collect sales tax at the rate of three per cent of the value of taxable suppliers at the time of supply thereof, which shall be paid on monthly basis by the 15th day of the month following the tax period in which supplies were made[:]
(17) Determination of sales tax liabilities.---(1) The tax paid by the retailers operating under this is Chapter shall be construed as the discharge of final tax liability of the purpose of sales tax (two per cent) as well as for income tax (one per cent): ' Provided that in case of corporate sector retailers covered under this Chapter one third of the tax paid shall be treated as withholding income tax adjustable against the final income tax liability.
(8) The retailers operating under these rules shall not be entitled to adjustment of any input tax or claim refund of sales tax or income tax.
' Learned A.R. Referred 'to Rules 123, 124 and 129 which are also reproduced as under:--
123. Application. ---(1) The provision of this Chapter shall apply to the:--
(a) manufacturers who are engaged in the assembly or manufacture of vehicles for the purpose of supply.
(b) importers who import vehicles in CBU condition for further supply thereof; and I dealers who are engaged or otherwise deal in the sale of new locally manufactured vehicles and all types of imported vehicles, whether new or old or used, on the basis of commission or otherwise, whether or no such dealer is appointed or authorized by the manufacturer or importer of vehicles.
124. Registration.---(1) Each manufacturer, importer and dealer of Vehicles, if not already registered, shall obtain registration in the manner specified in Chapter I of the Sales. Tax Rules, 2006.
129. Determination of tax liability.---(1) A manufacture or importer of vehicles shall pay sales tax due 'on the supply of their vehicles as per relevant law.
(2) A dealer shall not be required to pay sales tax on such amounts of commission on which tax has been paid by the manufacturer or importer on whose behalf vehicles is sold by such dealer provided that in case any amount is received over and above such commission, the obligation to pay tax shall be of the dealer.
8. Admittedly, the registered person is not a dealer and has been registered as a retailer, thus in the given circumstances Rules 123 is not applicable and the registered person has rightly been dealt with under the relevant rules, consequently there is no force in the appeal which is rejected.
Appeal rejected. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.