' These are direct appeals, by Registered Persons, against Orders-in-Original Nos.711, 712 and 1044 of 2005 respectively dated 20-4-2005 and 2-5-2005. As common issues are involved, therefore, the appeals are decided through this consolidated order.
2. Appellant's Representative (AR) has pressed only following grounds, which are mutatis mutandis involved in these appeals:--
(i) Learned Collector (Adjudication) erred in treating the input tax paid on the purchase of High Speed Diesel (HSD) as inadmissible for adjustment under S.R.O. 578(I)/98 dated June 12th, 1998.
(ii) Learned Collector (Adjudication) erred in calculating the sales tax liability on account of supply of electricity to residential colony and street lights etc.
(iii) Learned Collector (Adjudication) erred in treating the input tax claimed on electricity during September and October, 2002 when unit remained closed and did not produce taxable goods.
3. Appellants are engaged in production of electricity which was supplied to WAPDA. Adjustment of input tax against consumption of high speed diesel was refused under S.R.O. 578(1)/98 dated 12-6- 1998. AR of the appellants submitted that this issue has been laid to rest by the Federal Board of Revenue through its clarification letter C.No,3(27)S(Legal)/04 dated 12-2-2008, directing that diesel used as fuel in generation of electric power is to be considered as 'stock-in-trade' in terms of S.R.O.
578(1)/98 and input adjustment was admissible on the same if it was used in generation of taxable electric power or the power so generated was used in manufacture of taxable goods. All pending cases on the issue were asked to be disposed of accordingly. He has also produced copy of F.B.R.
Order No,75 of 2008 dated 24th July, 2008 whereby following recommendations by the ADR were accepted:--
(a) The demand of sales tax against HSD consumption is unlawful as the department has confirmed that the same is being used as fuel and taken directly in the cost as reflected in their books of accounts while regarding the chargeability of sales tax on supplementary charges, Board's Sales Tax General Order No,1 of 2000 dated 24-1-2000.
(b) To waive off additional tax/default surcharge and penalty against the sales tax recovered, to accept the arguments the committee recommendations to waive off the additional tax/default surcharge and penalty, DR could not deny issuance of letter by F.B.R. And acceptance of recommendations by F.B.R. Through said order. He could also not deny applicability of clarifications and the order on instant appeals.
4. Pleading second ground, AR explained that appellants supplied electricity to its residential colonies and streets for lighting but did not pay sales tax thereon. The department, through impugned orders, charged sales tax on this supply. He conceded on the chargeability of sales tax but has challenged assumed rate of the supplied electricity at Rs,7.063 per kwh for the purpose of levying sales tax. He submitted that appellants were being discriminated as Messrs Roach Thermal Power Plant was paying sales tax for the similar supply of power to its colony and streets at Rs,3.00 per k.w., the value at which electricity was being supplied to WAPDA. He urged that same rate should have been applied in appellants case. DR opposed this ground and contended that issue of rate was neither contested nor is decided in the impugned orders, therefore, could not be raised at this stage.
5. On third ground, learned AR submitted that input on the electricity consumed during period when unit remained closed was not allowed by the department. It was explained; when there was no requirement of electricity from the buyer, the plant was required to be put into standby position and number of auxiliaries were kept in operation. He showed a long list of such auxiliaries, copy of which was enclosed as Annex. "E". Giving example, he added that oil field terminal plants usually are not closed during non-productive period, otherwise huge losses would be borne by such units.
He urged that electricity consumed during standby period was covered under section 8(i)(a) of the Sales Tax Act, 1990 which allows adjustment of input tax on goods used or to be used for the purpose of manufacture or production of taxable goods. He asserted that consumption of electricity during non-productive period was for the purpose of manufacturing or production of taxable goods i,e, electricity. DR opposed this ground and reiterated. Departmental stance that during this period unit remained closed and was not involved in manufacturing of taxable goods, therefore, was not entitled to claim/deduct input tax on the electricity consumed in this period.
6. We have carefully examined record in light of the arguments by both the parties. The ground on admissibility of input tax paid on High Speed Diesel (HSD) is found settled by F.B.R. In cases of electricity producing companies like appellant. In its order No,75 of 2008 dated 24th July, 2008, the F.B.R. Has accepted recommendation by the ADRC which were based on admission by the department that HSD was consumed as fuel and was taken directly in the cost. Direction of F.B.R. In clarification letter dated 12-2-2008 also strengthens the appellant's case, where all pending cases are directed to be disposed of by treating HSD as stock-in-trade in terms of S.R.O. 578(I)/98, if it was used in generation of taxable electric power or the power so generated was used in manufacture of taxable goods. The impugned orders to the extent of this issue are vacated and department is directed to allow adjustment of input on HSD in view of the direction given by F.B.R. In circular letter dated 12-2-2008.
7. Appellant has conceded on chargeability of sales tax against supply of electricity to its residential colonies and streets. We are inclined to entertain the grievance of appellant against rate/value of the supplied electricity as the same is consequential to the main issue. The objection of DR that the issue of value/rate was not discussed in orders below is ignored. The department has given no reason for assuming the rate/value of Rs,7.063 per kph, however, the rationale pleaded by AR appears convincing that value of supply for the purpose of charging sales tax should have been the same at which electricity was being supplies to WAPDA. The department could not establish, in support of charging the impugned rate, that the appellant ever sold the manufactured electricity on that rate to any buyer. Though supply of electricity to the residential colonies and streets are not charged by the appellant yet it falls within the definition of taxable supply. Such facility to its employees by the appellant should not be given a harsh treatment. Value of the supply for the purpose of charging sales tax should not exceed the rate at which taxable supplies are made by the appellant to any commercial entity. Even otherwise the department cannot discriminate between, similarly placed, two registered persons/taxpayers while exercising its discretion. We, therefore, direct the department to charge sales tax on the supply in question employing the same rate of electricity at which appellant has sold to any other commercial entity during the relevant period.
8. Third ground is of disallowing adjustment of input on the electricity consumed by the appellant during non-productive period. As per appellant's assertion number of auxiliaries remained operative in exigency of the business. The explanation that shutting down of unit completely, during non-productive period, would have incurred huge losses to the appellant requires verification through expert opinion. However, if this assertion is found correct then electricity consumed during non-productive period is within the provisions of section 7(1) and is not caught by the mischief of section 8(1)(a).' Provisions of subsection (1) of section 7 allows deduction of any input paid on goods used/consumed for the purpose of taxable supplies. Whereas section 8(1)(a) restricts such deduction only from the goods used or to be used for any purpose other than for taxable supplies.
Department, while disallowing the adjustment of input in question, has not dilated upon the main issue i,e, whether consumption of electricity during standby position of the unit was a necessary part of the business or not? Orders below on this issue are vacated and case is remanded to the adjudicating authority, currently having jurisdiction of the case, with directions to ascertain the answer of question posed supra and allow adjustment/ deduction of input if the consumption of electricity during nonproductive period is found necessary for the business of the appellant.
' All the three appeals are disposed of to the extent and manner indicated above.