' Brief facts of the case are that during the course of audit by the audit team of D.R.R.A. Lahore for the year 2008-2009 it was alleged.
' The appeal has been filed by the appellant against sales tax Order-in-Appeal No, 98 of 2010, dated 27-12-2010 passed by the respondent No,2. That the appellant supplied Optical Fiber Cable of different length, size and specification to a telecom company during 2008 and charged sales tax Q zero per cent. Whereas they have claimed input adjustments on purchase of it from a registered person of Karachi because it was a taxable item. Moreover the negative list of S.R.O. 549(1)/2008 included PCT Heading 8544 and thus OFC was not covered in it. The appellant themselves paid sales tax out-put tax on optical fiber cable supplied to the same buyer in subsequent periods. The goods were neither exempt under Sixth Schedule of the Sales Tax Act, 1990 nor it was notified as zero rated vide any S.R.O. Accordingly a Show-Cause Notice dated 17-5-2010 was issued to the appellant which culminated into an Order-in-Original No,1 of 2010 dated 24-9-2010 creating a demand of sales tax amounting to Rs,6,839,036 along with default surcharge and penalty.
Aggrieved by the order dated 24-9-2010, the appellant filed an appeal before the respondent No,2 who upheld the order dated 24-9-2010, passed by the respondent No,3, and dismissed the appeal vide order dated 27-12-2010. Hence this appeal on the following grounds:--
2. Grounds of Appeal:-- 2.1 That the Order-in-Original No,1 of 2010 dated 24-9-2010 passed by the respondent No,3 hereinafter called order-in-original is illegal, incorrect, against the facts, without jurisdiction and also against the Article 77 of the Constitution of the Islamic Republic of Pakistan and subsequent sales tax Order-in-Appeal passed by the learned Commissioner (Appeal-1) Islamabad respondent No,2 is bad in law, and against the facts, against the circumstances of the case and is passed without considering the legal and factual position.
2.2 That Optical Fiber Cable (OFC) of PCT Heading 8544-7000 was zero rated at the time of supply i,e, from July 1st, 2008 to July 12th 2008 vide S.R.O. 549(1)12008, dated 11-6-2009. (Copy of S.R.O.
Attached as Annex-"F".)
2.3 That after supply period respondent No,4 issued clarification vide Board's letter C.No,1/33- STP/2004 (main)/120124-R dated 15-7-2008 restricting the supply and import of OFC under PCT Heading 8544-7000 as zero rated. (Copy of Board's letter/ clarification attached as Annex-"G").
2.4 That earlier S.R.O. 530(1)2005 with attached negative list was rescind by S.R.O. 550(1)/2008 dated'11-6-2008 (Copy enclosed as Annex-"D").
2.5 That without prejudice, the unit was entitled to have the benefits of the "Amnesty Schemes" announced from time to time, by the Federal Government /F.B.R. The spirit and intention whereof has not been considered/appreciated/understood neither the concept of "despotic benevolence".
2.6 That the question of jurisdiction has been raised on a very first instant that no case was/is made out under any of the provision of Sales Tax Act, 1990 on the observation resulting of any audit of DGRRA, as DGRRA staff is not competent to conduct any audit of the respondent, as the said being not a sales tax officer notified under any of the provision of Sales Tax Act, 1990 or under the Auditor General's (Functions, Powers and Terms and Conditions of Service) Ordinance, 2001 (Ordinance XXIII of 2001). The question of jurisdiction has not been decided by the learned Commissioner Appeals on the ground that the department has referred the issue to the Ministry of Law and Justice for its opinion and Ministry of Law and Justice has not yet been decided the issue.
2.7 Your appellant craves leave to, add, amend or after the above grounds of appeal.
3. Hearing in the case was fixed on 27-1-2001 and finally on 14-4-2001.
Arguments of the D.R/L.A.
3.1 The D.R/L.A. Supported the Order-in-Original No,1 of 2010, dated 24-9-2010 passed by the respondent No,3 and upheld by the respondent No,2. He stated that the appellant had claimed input tax adjustment on the purchase of Optical Fiber Cable from a registered person of Karachi because it was a taxable item. The input tax adjustment is only available under section 7 of the Sales Tax Act, 1990 against "taxable supplies". The appellant admittedly charged sales tax under section 3 of the Act, ibid and later on claimed input tax adjustment against their tax liability.
3.2 The D.R/L.A. Further argued that the Board taking notice of divergent practices at various formations with regard to the items covered under S.R.O. 530(I)/2005, dated 6-5-2005 amended vide S.R.O. 70(I)/2006, dated 28-2-2006 decided to circulate a negative list of tariff heading not 'covered under the said S.R.O. For ensuring uniformity of the application throughout the country.
Resultantly the benefit of sales tax zero rating was available to all tariff headings of Chapters 84, 85 and 90 of Pakistan Customs Tariff except the heading mentioned in the negative list of S.R.O.
530(1)/2005, dated 6-5-2005. The Optical Fiber Cable falling under PCT Heading 8544-7000 was included in the negative list of S.R.O. 530(1)/2005. Later on S.R.O. 530(1)/2005 dated 6-5-2005 was substituted with the S.R.O. 549(1)/2008, dated 11-6-2008 and the plant, machinery and equipment falling under PCT Heading 8544-7000 were also included in the negative list of S.R.O. 549(1)/2008, dated 11-6-2008 issued by the Board. Therefore, supply of the Optical Fiber Cable was never remained zero rated under the aforesaid S.R.Os. In the light of the negative lists circulated by the Board and the appellant cannot take refuge from payment of adjudged amount of sales tax in the Order-in-Original No,1 of 2010 dated 24-9-2010 along with default surcharge and penalty as provided under the Sales Tax Act, 1990 in the light of above discussion.
3.3 The learned D.R/L.A. Agreed with the contention of the appellant that DRRA had no jurisdiction to conduct audit of private enterprises as the officers of DRRA have not been vested with powers of Sales Tax Officer. He relied on the judgment of the honourable Lahore High Court's ratio concerning the audit by DRRA. However, this case is clearly distinguishable from the case-law cited by the appellant. In this case neither DRRA entered the premises of the appellant nor laid hands on its private record. The DRRA officials in discharge of their lawful functions of revenue receipts audit pertaining to appellant's concern pointed out a short payment of sales tax amounting to Rs,6,839,036 made by the appellant. On their potation the respondent No, 3 issued show-cause notice to the appellant on 17-5-2010 which confirmed the observation of the DRRA team that set the stage for adjudication proceedings against the appellant. The Auditor General's (Functions, Powers, Terms and Condition of Service) Ordinance 2001, vests certain legal responsibilities to conduct audit of receipts which are payable into the consolidated fund or public accounts of the Federal or Provincial Government. The role of the DRRA and the manner of their discharge of functions in relation to the sales tax department is envisaged in Auditor General of Pakistan's Circular No,1167-Coord (Hq) RRA/35-2007 dated 29-2-2007. The relevant part of which is reproduced as follows:--
(1) DRRA team will visit Sales Tax Collectorates and Collectors will make available all auditable record/information, including refund files, reward cases, departmental audit report (internal or investigative) along with supporting files, etc. DRRA offices will also be provided access to the entire computerized data of the sales tax registered persons available centrally with the C.B.R./Collectorates for desk audit.
(2) On the basis of desk audit, the DRRA audit teams will select cases which, in their opinion, need examination. The list of such cases would be handed over by the audit team to the concerned Collector who will ensure production of taxpayer's record under section 25 of the Sales Tax Act, 1990.
(3) There would be no direct interaction between DRRA audit team and taxpayers.
(4) The audit will be conducted at the Collectorates premises and in no case DRRA audit team will visit premises of private taxpayers.
(5) Sales Tax Department will not use the name of DRRA for any activity to be performed by them under the Sales Tax Act, 1990 nor will the department relate any section/cell of the Collector to the DRRA.
(6) The audit observations would be discussed by the leader of the audit teams with the concerned Collectorates. The Collectors would issue contravention reports only if the audit observations are, in their opinion, legally tenable.
(7) There will be no "stamping" of records of individual registered persons by the audit teams. Audit report issued by audit teams will suffice the requirements of audit.
4. In the light of discussion during the hearing of the case this Tribunal would like to frame the following issues to analyze the controversy and the legal framework impinging on the Case:--
(a) Whether issuance of Negative List by the Board vide letter C.No,1/33/STB/2004/(main)/20124-R dated 15-7-2008 under S.R.O. 549(1)/2008, dated 11-6-2008 can lawfully operate retrospectively.
(b) Whether the input tax adjustment claimed by the appellant against his tax liability (output tax) subsequent to the clarification of the Board dated 15-7-2008 falls within the ambit of "taxable supply" as envisaged under section 2(46) of the Sales Tax Act, 1990 and supply of Optical Fiber Cable is chargeable to sales tax under section 3 of the Act ibid.
(c) Whether the D.R.R.A. Has any legal responsibilities to conduct audit of the appellant in the manner as provided in Auditor General of Pakistan's Circular No,1167-Coord (Hq)/RRA/35- 2007, dated 29-2-2007.
(d) Whether benefit of zero rating supplies made by the appellant during 1-7-2008 to 12-72008 under S.R.O. 549(1)/2008, dated 11-6-2008 is available to the appellant.
(e) Whether default surcharge and penalty can be levied when the principle amount of sales tax is not payable.
5 Findings on Issue No,4(a).
We have carefully examined the S.R.O. 549(1)/2008, dated 11-6-2008 which does not provide any restrictions or conditions on the appellant for availing zero rating for supplies made during currency of the aforesaid S.R.O. The Board notified a negative list of the said S.R.O on 15-7-2008 for ensuring uniformity of the application throughout the country. However, this negative list cannot be given retrospective effect. The respondent's claim that the S.R.O. 549(I)/2008, dated 11-6-2008 stood amended through the negative list is not persuasive. It is equally important that the Board in exercise of the powers conferred under clause (c) of section 4 of the Sales Tax Act, 1990 amended the S.R.O. 549(1)/2008, dated 11-6-2008 through S.R.O. 472(1)/2009, dated 13-6-2009, meaning thereby that the clarification issued by the Board dated 15-7-2008 had no bearing on the case as the supplies in question were made prior to the issue of the Board's clarification. Moreover there is no dispute between both the parties to the case with regard to the period of zero rating supplies made by the appellant during 1-7-2008 to 12-7-2008. Hence we are of the considered opinion that the supplies made prior to the issuance of negative list of the S.R.O. 549(1)12008 are not chargeable to sales tax under section 3 of the Sales Tax Act, 1990 or S.R.O. 530(1)/2008.
6 Findings on Issue No,4(b).
' We have also given a careful consideration to the issue of input tax adjustment claimed by the appellant subsequent to the issuance of the clarifications issued by the Board on 15-7-2008. When viewed in the perspective of clarification issued by the Board through letter C.No,1/33- STB/2004(main)/120124-R, dated 15-7-2004 we hold that exclusion of certain items under Serial No,3 of the S.R.O. 549(1)/2008, dated 11-6-2008 cannot operate retrospectively. The supply of Optical Fiber Cable in terms of S.R.O. 549(1)/2008, dated 11-6-2008 had been zero rated at the time when supply was made. Therefore, the claim of input adjustment, if any, in respect of zero rated supplies is prima facie inadmissible. In case, input adjustment was claimed in respect of supplies made between 1-7-2008 to 12-7-2008, the amount of input adjustment shall be recoverable from the appellant.
7. Findings on Issue No,4(c).
' In light of the discussions reported in para 3.3 we conclude that initiation of adjudication proceedings in this particular case based on the potation or observations of DRRA is perfectly lawful. This case does not involve a direct audit by the staff of the DRRA. To say that the DRRA cannot point out any short payment is to deny the statutory role of the office of the Auditor General to protect public revenues. It is also tantamount to denying the institutional role of Public Accounts Committee in safeguarding the public revenue. Therefore, appellant's reasoning on this ground is determined to be without merit.
8. Findings of Issue No,4(d).
' Notwithstanding the clarification dated 15-7-2008 issued by the Board, the zero rated supplies made by the appellant prior to 15-7-2008 are not chargeable to sales tax under S.R.O. 549(I)/2008, dated 11-6-2008 as it does not provide any conditions or restrictions to avail such benefit. No negative list of S.R.O. 549(1)/2008 was in field during the period of supplies made by the appellant (1-7-2008 to 12-7-2008). In the instant issue the doctrine of the principle of "Promissory Estoppel" is rightly attracted. In view of the legal position we are, not inclined to subscribe to the contention of the respondents.
9. Findings on Issue No,4(e).
' In the light of discussion in above Paras we hold that supply of Optical Fiber Cable falling PCT Heading 8544-7000 being zero rated was not liable to sales tax. It is a settled principle of law that where there is no default in payment of sales tax (principal amount) or sales tax, the demand of default surcharge and imposition of penalty under the Act ibid is unlawful.
10. Based on the findings given above, we accept the Appeal to the extent of the appellant's claim 'of zero rating in respect of the supplies made by the appellant during 1-7-2008 to 12-7-2008 only and accordingly set aside the order passed by the respondent No,2 dated 27-12-2010 and respondent No,3, dated 24-9-2010.
11. This order consists of (7) pages each bears my seal and signature.