(i) Sales Tax- on supply of scrap: Rs,33 ,831,850 Rs,3,408,526
(ii) Sales Tax on supply of fixed assets Rs,13,878,917
(iii) Duplicate claim of input tax Rs.5,177,508
(iv) Sales Tax on supply of printed material Rs.85,547,748
(v) Input Tax claimed on purchases from de- registered/suspected/closed unitsRs.1,392,892 Rs.39,494,111
(vi) Excess claim of input tax Rs.116,520,117ORDER This appeal arises from the Order-in-Appeal No,103/ST/2008 dated 24-12-2008, passed by the Collector of Sales Tax (Appeals), against the Order-in-Original No,43 of 2008 dated 24-5-2008 pertaining to financial year 2005-2006 i,e, 12 tax periods from July, 2005 to June, 2006.
2. Facts giving rise to the appeal, briefly stated, are that the Assistant Director Audit Division-I, Large Taxpayer's Unit (LTU), Lahore, conducted audit of the appellant for the financial year 2005-2006 and on the completion thereof audit report was prepared, the Additional Collector (Legal) LTU, Lahore, on the basis of this audit report issued a show-cause notice dated 3-5-2008 to which the appellant raised legal objections and sought time for reply on factual aspects of the case. The Additional Collector, however, did not allow further time and passed the Order-in-Original No,42 of 2008 on 24-5-2008 creating Sales Tax demand along with default surcharge and penalty against the appellant as detailed below:--
(vii) Inadmissible input (tax) Pakistan WAPDA FoundationRs,9,254,948
(viii) Non-payment of Sales Tax on Miscellaneous IncomeRs,30,709,297
(ix) Non-payment of Sales Tax on Other Electric RevenueRs.689,380,681 Rs.68,907,681
(x) Non-payment of Sales Tax on Overhead RecoveryRs.1,736,207,156
(xi) Non-payment of Sales Tax on Repair, Testing and Inspection FeeRs.1,940,934,128
(xii) Non-Payment of Sales Tax on Other Income- Energy TariffsRs.20,026,830
(xiii) Non-payment of Sales Tax on Receipts against Deposit WorkRs.1,955,640
(xiv) Non-payment of Sales Tax on Receipts against Deferred CreditsRs.2,942,637
(xv) Non-payment of Sales Tax against Advances from CustomersRs.31,010,345 Rs.135,083
(xvi) Inadmissible Input Tax under sections 7 and 23Rs.3,879,985
(xvii) Inadmissible Input Tax under sections 8(1)(a)
(xviii) Inadmissible Input Tax under section 8(1)(b)
(xix) Inadmissible Input Tax LPGCL
(xx) Non-payment of Output Tax
(xxi) Inadmissible Input Tax pointed out vide Third Party Verification
3. Being aggrieved, the Registered persons preferred appeal before the Collector (Appeals), but could succeed only partly. Controversy regarding items at serial Nos.i- Sales Tax on supply of scrap, iii- duplicate claim of input tax, vi-excess claim of input tax and xvi- inadmissible input tax under section 7 was resolved. The Collector (Appeals) deleted the demand of Sales Tax on supply of printed material and the Sales Tax Department did not file appeal against the said deletion. Thus the above said five points were settled between the parties and are, therefore, not subject-matter of this appeal. The learned Collector (Appeals), however, confirmed the Sales Tax demand of Rs,39,494 111 as inadmissible claim of input tax on behalf of Pakistan WAPDA Foundation whereas issues forming the bases of demand of Sales Tax in respect of remaining 15 heads were remanded to the Collectorate. The demand on account of default surcharge was confirmed and it .Was held that penalty was also not warranted in the case.
4. Being still dissatisfied the Registered Person was come up in further appeal before us agitating the issues on which appeal could not succeed at the 1st stage.
5. Initiating the arguments on behalf of the appellant, the learned A.R. Of the appellant vehemently contended that the dominant object of the impugned Order-in-Original was to create demand with a view to adjusting the refund of the appellant to meet the revenue targets. An inchoate and vague show-cause notice dated 3-5-2008 was served upon the appellant on 8-5-2008 for compliance on 10-5-2008. The appellant pointed out that the notice was not self-contained and what to speak of compliance, it was not possible to comprehend it unless the relevant material was sorted out with the office of the respondent. It was also pointed out that it was very difficult to make compliance within the given time because collection of data/information from offices of the registered person scattered all over the country was impossible. It was also submitted that complicated questions of law had to. Be thrashed out for which the appellant needed advice and representation by a qualified counsel. Appellant, therefore, requested for reasonable time to understand the issues and make compliance. The Adjudication Officer, however, allowed only 7 daystime and on further request allowed another week. On 24th May, 2008, the counsel for the appellant filed partial reply, raising jurisdictional objections, and sought some further time for preparing the brief on merits of the case. The Adjudication Officer, however, declined the request and passed the Order-in-Original on the same day i,e, 24th May, 2008, which was served upon the appellant on 30-5-2008, providing one month's time for filing appeal against it. Before the expiry of the time for filing the appeal i,e, 30-6-2008, the Sales Tax Department adjusted the refunds of Rs,1,364,939,605 and Rs,329,824,870, respectively due to the appellant vide refund orders RPO No,14 of 2008 and RPO No,15 of 2008.
6. The learned AR pointed out that the observation of the learned Collector (Appeals) that the amount of pending refund of Rs,1,694,764,475 was adjusted on expiry of the appeal period was ex- facie contrary to the facts obtaining on record.
7. It was further argued that before adopting the coercive measures of adjusting the refund of the appellant, the Department was required to issue notice under section 48 of the Sales Tax Act, 1990.
Besides, in complete disregard of section 45B(4), which provided that on payment of 15% of the demand, the taxpayer would be entitled to statutory stay of six months, about 41% of impugned demand was adjusted even before the expiry of appeal period. Another amount of sanctioned refund of Rs,1,542,362,401 was adjusted on 27-4-2009 vide RPO No,4 of 2009 despite the fact that the first Appellate Authority had remanded the case on 24-12-2008 and no tax demand was in the field. Thus, the sanctioned refund of Rs,3,237,126,876 was illegally adjusted to meet the revenue targets. It was vehemently contended that the entire exercise was tainted with mala fide. Reliance was placed on para. 11 of the judgment of the Hon'ble Supreme Court of Pakistan reported as [(1999) 80 Tax 30 (SC Pak)] in the case of Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others, relevant part of the reference is reproduced hereunder for the sake of reference:-- "The perusal of these facts and circumstances also leads us to believe that the extraordinary zeal was being shown by the respondents to somehow charge the appellant-company with the amount of deductions made along With the additional tax and penalty. In our view, such demand is otherwise than in accordance with law and we cannot also help to .Observe that such demand was being made by an impatient department with a view to achieving the target of recovery of revenue and, therefore, in our view the demand was mala fide as well."
Reference was also made to the judgment of the Hon'ble Supreme Court of Pakistan cited as PLD 1965 SC 671 in the case of Abdul Rauf and others V. Abdul Hameed Khan and others in support of the principle of law: "Mala fide act was by its nature an act without jurisdiction".
8: The authorized representative of the appellant further submitted that the learned first Appellate Authority had no jurisdiction to remand the case nor was it justified to do so. The show-cause notice did not spell out allegations by giving basic facts, attracting the charge of Sales Tax under the charging provisions, while the initial burden to show that the transactions subjected to tax were covered by the charging provisions was on Revenue. Reliance, in this context, was placed on the following judgments:- 1991 SCMR 2374 = 1991 PTD 999, 1996 SCMR 1470, 2008 PTD 1563 (Lahore High Court) and 2004 PTD 868.
9. It was stressed that the impugned demand, based on invalid show-cause notice, was unlawful and liable to be set aside. Reliance was placed on the judgments cited as 2005 PTD 480 (SC Pak), PLD 1989 Lahore 47 (affirmed by the Hon'ble Supreme Court in the judgment cited as 1992 SCMR 1898).
10. Vehemently agitating against the order passed by the first Appellate Authority, the learned AR pointed out that the learned Collector (A) did not confine himself to appeal proceedings and unjustifiably going beyond his domain grafted additional original adjudication to the impugned appellate order.
11. It was pointed out by the learned AR that the learned first Appellate Authority proceeded on erroneous assumptions of law and facts. The entire appellate order was based on stretched interpretations of the Sales Tax Special Procedure Rules, 2007, issued vide S.R.O. No,480(I)/2007 dated 9th June, 2007 instead of the Sales Tax Special Procedure Rules, 2005 issued vide S.R.O.
No,522(I)/2005, dated 6th June, 2005 which were in force during the relevant tax periods. This was done, the learned AR argued, on the stated presumption that there was no material change between both the sets of Rules, although even a cursory reading of both the sets of Rules indicated that the scheme of charge of Sales Tax on electricity and its collection was entirely different under both the sets of Rules. Clause (t) of sub-Rule (1) of Rule 33 of the Sales Tax Special Procedure Rules, 2005, was omitted in the Sales Tax Special Procedure Rules, 2007. Similarly, the definition of electric power under 2005 Rules confined the charge of Sales Tax to the power supply by a person to the consumers only. The omission of this definition was made with a view to expanding the scope of the charge. Besides, under the 2005 Rules Sales Tax was levied and collected on cash collection basis (Rules 36) while under 2007 Rules it was deposited on accrual basis. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1992 SCMR 710 to highlight that "Indeed, the mere fact that the legislature enacts an amendment is of itself an indication of an intention, as a general rule, to alter the pre-existing law". It was maintained that the same principle was applicable to the amended Rules. Thus the academic discussion by the learned Collector (Appeals) with reference to the Special Procedure Rules, 2007, which were not retrospectively applicable to the financial year 2005-2006, was misdirected and misplaced.
12. With reference to the specific heads of the impugned demand, the learned AR advanced the following arguments:-- SALES TAX ON THE SUPPLY OF FIXED ASSETS AT Rs,3,408,526: --
(i) It was submitted that no allegation was specified in the show cause notice. The basic facts as to what fixed assets were supplied and to whom were they supplied are not ascertainable from the notice as these were mere presumptions? How the given facts attracted the charge of the Sales Tax is also not established from the notice. Even the reply of the appellant to Audit Report under section 25(3) of the Act that it was adjustment of inter departmental old transactions, which did not attract charge of Sales Tax, was not considered. The original para of the Audit Report was mechanically copy pasted without even mentioning the contention of the appellant. The learned AR submitted that the impugned demand is thus based on an invalid show-cause notice--- concealing more than revealing anything; on the basis of such facts, the learned AR contended that the impugned Order-in-Original was liable to be set aside but the learned Collector (Appeals) instead of setting aside the demand remanded it with irrelevant reference to exemption under the Sixth Schedule of the Act. Thus, the burden of proof was illegally shifted from the Revenue to the appellant.
The allegation was based on presumptions, while initial burden of proof to show that the transaction being in the nature of sale of goods was chargeable to tax under the Act was on the Revenue. Reliance in this context was placed on the judgment of the Hon'ble Karachi High Court reported as 2004 PTD 868. To further support the point that the demand of Sales Tax was based on a vague show-cause notice and, therefore, not sustainable, reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 2005 PTD 480 (SC Pak). .
INPUT TAX CLAIMED ON PURCHASE FROM DE-REGISTERED/ SUSPECTED/CLOSED UNITS Rs,85,547,748:--
13. The show-cause notice did not provide the details of parties and their status during the relevant period, nor were the details of transactions confronted. The learned Collector (Appeals), however, obtained the details from the respondent-Department during appeal proceedings and based the impugned appellate order thereon. The learned AR of the appellant pointed out that even the present "active" status of the parties mentioned by the Collector (Appeals) in the appellate order does not justify the impugned demand under the head. Party-wise details of the taxpayers, obtained from, F.B.R. Pakistan e-portal dated 25-8-2010 indicate that the following taxpayers are active and F.B.R. Itself allows purchases from such active taxpayers:-- Sr. No. Parties Name Sales Tax Registration No.
(i) Amin Brothers Engineers Pak (Private) Limited 0406681000491
(ii) Nimbus Engineering Corporation (Pvt.) Ltd. 0402681100182
(iii) Highland Ceramics 0903691000619
(iv) Chaudhry Steel Re-Rolling Mills(Pvt.) Ltd. 0303721317119
(v) Office Automation Group 0391999965037 Messrs Fizan Associates has been shown as suspended taxpayer while the date of its suspension has not been specified. It was further submitted that the show-cause notice did not even specify whether the parties were suspected or deregistered. Unless, the show-cause notice confronted the fact that some particular supplier was deregistered in the relevant period or the input tax invoices availed by the appellant were fake in terms of section 8(1)(d) of the Sales Tax Act, 1990---not only show-cause notice was rendered invalid but the demand of Sales Tax raised on its basis could also not be treated as lawful. The impugned show-cause notice suppressed all material details, as the details would not justify demand of Sales Tax. The learned AR of the appellant emphasized that the entire exercise was undertaken just to give a semblance of legality to illegal revenue collection for meeting the Revenue Targets.
EXCESS CLAIM OF INPUT TAX OF RS.1,392,892 (FAUJI KABIRWALA):--
14. It was submitted that the learned first Appellate Authority was not legally justified to remand the case under the head when the Department had itself withdrawn the allegation. Our attention was drawn by the learned A.R. To the Reconciliation Report at page 130 of the appeal (Paper Book) which was the basis of the settlement of five heads of demand between the parties, and at Serial No,4 the Auditors had dropped the allegation. It was urged that there was no justification for remanding the allegation of excess claim of input tax of Rs,1,392,892 as the allegation had admittedly been rebutted and resolved.
INADMISSIBLE INPUT TAX IN THE CASE OF PAKISTAN WAPDA FOUNDATION RS.39,494,111:
(12) The learned AR admitted that the distinctive business activity of Pakistan WAPDA Foundation was not covered by the consolidated Sales Tax Registration of WAPDA entities. It was submitted that the Foundation had been held to be separately liable to Sales Tax by the Customs, Exercise and Sales Tax Appellate Tribunal in its order dated 21-10-2008 in Federal Excise Appeal No,353/LB/2006 and the matter was sub judice in the Hon'ble Lahore High Court. Controversy between the Registered Person and Sales Tax Department revolved around the following amounts:-
(a) Non-payment of Sales Tax on Miscellaneous IncomeRs,116,520,117 (b)Non-payment of Sales Tax on Other Electric RevenueRs,9,254,948
(c) Non-payment of Sales Tax on Overhead RecoveryRs,30,709,297 (d)Non-payment of Sales Tax On Repair, Testing and Inspection FeeRs,689,380
(e) Non-payment of Sales Tax on Other Income---Energy TariffsRs,68,907,681 It was pointed out that the five amounts mentioned under the above heads of impugned demand had no nexus with the charge of Sales Tax. In this context, our attention was drawn to various certificates produced before the first Appellate Authority, which were annexed with the present appeal as well. The amounts under the above heads include commission on collection of T.V.
License fee, savings from new connections, quarter rent recoveries, sale of tenders, burnt meter charges, liquidity damages, rent of stand by generators, house rent, school bus charges, repair charges, testing and inspection fee like design vetting fee on survey of new electrification schemes etc. It was vehemently urged that the respondent-Department misdirected itself in taxing the items which were not chargeable to Sales Tax. Besides, it shifted the burden to show that the amounts were not covered under section 3 of the Act onto the appellant while initial burden to prove that the items were chargeable to tax was on the Department. It was further argued that under the scheme of the Sales Tax Act, prescribed Return of Sales Tax is based on the the prescribed record under sections 22 and 23 of the Act. Although the Sales Tax Authorities have been allowed access to record other than the prescribed record under section 25(1), such access is only for the purpose of ascertaining whether all the amounts chargeable to Sales Tax had been declared in the Return or not. Such access to record is thus aimed at discovery of transactions chargeable to tax but not disclosed in the Return. Unless Revenue shows that a transaction attracts charge of tax, it cannot shift the onus to the taxpayer to show that each and every transaction, manifestly having no nexus with the charge of Sales Tax, was not chargeable to tax. The audit report, eventually has to be based on the prescribed record in terms of section 25(3) of the Act. Reference in this regard was made to the case-law reported as 2004 PTD (Trib.) 2026, wherein the learned Customs, Excise and Sales Tax Appellate Tribunal, on the basis of the judgment of Hon'ble Supreme Court of Pakistan: 1987 SCMR 571, held that "scrutiny of record would be restricted to the prescribed record only." In yet another case reported as 2008 PTD (Trib.) 541, the learned Customs, Excise and Sales Tax Appellate Tribunal held that the Income Tax record cannot be made the basis for adjudicating the liability under the Sales Tax Act, 1990. In nutshell, it was stressed, that access to other record under section 25(1), does not allow shifting of initial burden to show chargeability to a taxpayer, as was done in the present case. It was averred, that if the total service charges are not subject to Sales Tax by the Federation, it is absurd to require a taxpayer to break up the totals into thousands of its components and to prove that each component is not chargeable to tax. It was maintained that the creation of demand on manifestly non-taxable heads was mala fide. It was further pointed out that the learned Collector (Appeals) did not appreciate the relevant provisions of law and facts of the case and remanded the matter on the basis of presumptions, which was patently without jurisdiction in terms of section 45B(3). The entire exercise was thus contended to be misdirected, unjust and unfair.
(a) Non-payment of Sales Tax on Miscellaneous IncomeRs,1,736,207,156Rs,1,736,207,156 (b)Non-payment of Sales Tax on Other Electric RevenueRs,1,940,934,128Rs,1,940,934,128
(c) Non-payment of Sales Tax on Overhead RecoveryRs,20,026,830Rs,20,026,830 The demand, under the above three heads, aggregates toRs,3,697,168,114 and constitutes about 89% of . Total demand of Rs,4,149,235,498. The said demand was raised on the amounts received by the appellant as partial cost of immovable infrastructure for its electrification/development schemes and works. The learned Collector (Appeals) recorded the following finding on the three identical items:-- "WAPDA can (fully or) partially demand and recover the cost (compensation) for its schemes (infrastructural development schemes and works) from the sponsors/users/beneficiaries (government departments, local government, local bodies, housing schemes, public and private sector institutions and organizations etc). Despite such cost recovery, the ownership (under the relevant laws, the work "control" has been used) and responsibility to operate (management) and maintain (repairs, up- gradation, balancing, replacement, modernization and replenishment) remains with WAPDA. WAPDA .Can formally sell out its undertakings, schemes and works etc. Discontinuation, abandonment or demolition of any such scheme does not render WAPDA to pay back any such amount charged from the beneficiaries. Price of power supplied through or with such schemes or works is entirely an independent charge."
13. The learned representative of the appellant also referred to the relevant paras of the show- cause notice to highlight that the total receipts were mechanically mentioned in the notice without any specifics or break up of service charges, cost of construction of immovable property or even purchase of material. The show-cause notice, what to speak of showing that prima facie charge of sales tax was attracted to the above amounts, does not even suggest the subjects of allegation.
The show-cause notice was, thus, contended to be invalid. Reliance in this context, was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 2005 PTD 480 (SC Pak.) and PLD 1989 Lahore 47.
Referring to para. 15 of the appellate order, it was pointed out by the AR of the Registered Person that the learned Collector (Appeals) impliedly admitted that even supply of immovable property is not chargeable to tax under section 3 of the Act:- "If the stance of the appellant that immoveable property/ construction is not taxable, then an inference can be drawn that use of the tax paid goods in these schemes/works is not for taxable supply purposes, which means WAPDA cannot avail input tax adjustment in respect of such inputs."
14. The learned AR pointed out that, in fact, the learned first appellate authority illegally built up a new case in appeal regarding the adjustment of presumed input tax on the basis of presumptions and conjectures. Thus, the learned Collector (Appeals) exceeded his jurisdiction. It was explained that even the presumption of supply of immovable property by the learned Collector (Appeals) is based on farfetched interpretations and inconsistent with the unambiguous language of the Constitutional and statutory provisions. Reference was made to Article 142(c) of the Constitution of the Islamic Republic of Pakistan, 1973 which expressly excluded the subjects not enumerated either in the Federal Legislative List or the Concurrent Legislative List from the domain of Federal Legislation. It was pointed out that Sales Tax on immovable property was not enumerated in the above said lists and as such it stood expressly excluded from the fiscal domain of the Federation of Pakistan. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1993 SCMR 1523 wherein the Honourable Court observed: "What is excluded by express words cannot be included on any principle of interpretation."
It was argued that the supply of immovable property is the subject under the fiscal domain of the Provinces and, as such, it cannot be charged to tax under the Sales Tax Act, 1990, on any principles of interpretation. The learned AR further argued that the learned Collector (Appeals) illegally stretched various definitions and phrases of the Act to create fiction of deemed supply of infrastructure to rope it in the charge of Sales Tax by the Federation. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1996 SCMR 1470 in thecase of B. P.
Biscuit Factory Ltd. Karachi v. Wealth Tax Officer and another wherein it was held:- "It is well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties: the subject is not to be taxed unless the language of the statute clearly imposes the obligation and language must not be strained in order to tax a transaction which, had the legislature thought of it, would have been covered by appropriate words".
Reference was also made to the judgment cited as 2006 CLD 162 to support the submission that the construction or supply of immovable property is not taxable activity falling within the domain of the Sales Tax Act, 1990:-- Inadmissible Input Tax under section 8(1)(a)Rs,3,195,636 Inadmissible Input Tax under section 8(1)(b)Rs,2,942,637
16. The contents of the show-cause notice do not crystalize any comprehensible allegation. It was maintained that S.R.O. No,490(I)/2004 dated 12-6-2004 read with sections 8(1)(a) and 8(1)(b) specifies various items in respect of which claim of input tax adjustment is not admissible but this disqualification is hedged by the condition that such items are not stock-in-trade of the registered person. Dilating up the concept of stock-in trade, it was asserted by the learned AR that the meaning of the phrase changed its hue according to the nature and character of the tax in reference. Its connotation in the Sales Tax law was enunciated by the Hon'ble Supreme Court of Pakistan in the judgment 'cited as (1999) 80 Tax 30 (SC Pak) in the following words:- "In the absence of the technical definition of 'stock-in-tradeby the Legislature in the Act or the Rules framed thereunder one has to resort to the dictionary meanings.
The dictionary meaning includes 'the aggregate of things necessary to carry on business'.
17. According to the learned AR, the Adjudicating Officer failed to determine allegations in this perspective. Elaborating his contention, he submitted that a vehicle may not be stock-in-trade in some case but in the case of the appellant vehicles with ladder are essential for maintaining supply Of electricity. Similarly, clothes are not generally stock-in-trade, but keeping in view the peculiar nature of work they are stock-in-trade because special clothing is required while performing specified jobs. It was pointed out that the learned Collector (Appeals) illegally remanded the case after incorporating out-of-perspective details in-his order, thus providing an opportunity to the adjudication officer to further distort the case on the suggested lines. While deciding the appeal, he was not supposed to import and incorporate fresh facts for adjudication.
Reliance; in this context, was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1987 SCMR 1840 wherein the apex court ruled that:- "The order of adjudication being ultimately based on a ground which was not mentioned in the show-cause notice, the order was palpably illegal and void on the face of it."
18. INADMISSIBLE INPUT TAX LAKHRA POWER GENERATION COMPANY LIMITED (LPGCL) OF RS.31,010,345: The appellant's case is that no separate return in the case of LPGCL was filed for the period and its Sales Tax was accounted for in the consolidated Sales Tax Return of the appellant. The learned AR vehemently pleaded that the learned Collector (Appeals) was not justified to remand the case as there can be no evidence for a non-existent fact. It was submitted that in case the Department alleged that the input tax was claimed separately both in appellant's Sales Tax Return and also in LPGCL account, the onus of proof to show the double claim of the input tax was on the Department which was not discharged.
19. NON-PAYMENT OF OUTPUT TAX OF RS.135,083: It was contended that the learned Collector (Appeals) remanded the demand without application of mind to the Sales Tax Return-cumPayment Challan which is sufficient proof of the fact that the demand of Rs,135,082 which was part of Rs,139,472 had been paid. Since the payment was more than the demand, the Department was not justified to presume that some other demand might also be payable because both the figures of payment and demand were not exactly the same.
Without there being any other amount of tax due, the Sales Tax payment challan showing payment of higher amount than the demand was sufficient proof that tax liability had been discharged. The remand was, therefore, without jurisdiction and without application of mind; hence illegal.
20. INADMISSIBLE INPUT TAX POINTED OUT VIDE THIRD PARTY VERIFICATION OF RS.3,879,985: The appellant's case is that the statement of the 3rd parties, which did not confirm supplies to it, without cross-examination was not legally admissible. It was pointed out that the appellant made payments against supplies through crossed cheques and the third parties, concealing their supplies for their own reasons, could not stand the test of cross-examination. Reliance was placed on the judgment cited as 1990 PTD (Trib.) 747 to support the submission that the statement of a party cannot be used against another person without providing it opportunity of cross- examination.
21. Concluding his arguments, the learned AR vehemently agitated against the order in original contending that the Adjudication Officer passed the impugned Order-in-Original with mala fide intent as cover- up to illegally adjust the refunds of the, appellant and the learned Collector (Appeals) illegally remanded the aforesaid heads of impugned demand instead of setting them aside.
22. The learned Legal Advisor, representing the Revenue, defended the impugned Order pleading that the learned Collector(Appeals) did not remand the case as the word "remand" had not been mentioned in the appellate order. Besides, even if it was treated to be a remand order, it was a case of remand with specific directions. It was averred that section 45B(3) of the Act does not completely prohibit remand by the first appellate authority and the only restriction is on remand for de novo consideration of the case as a whole. On specific points, it was argued that remand may be resorted to as it was not practicable to decide an appeal in cases of incomplete adjudication. In such a situation, the Collector (Appeals) him-self was not supposed to undertake adjudication. It was further stated that in the present case, sending back of the case to the Collectorate for working out demand according to the directions contained in the appellate order was fully justified, as the appellant failed to furnish all the requisite details and record during audit proceedings spanning over a year.
23. For explaining the precise connotation of remand, the learned Legal Advisor referred to the Black's Law Dictionary according to which Remand means "The act or an instance of sending something, (such as a case, claim or person) back for further action". It was pointed out that the appellate authority did not refer the case back to the Adjudication Officer; rather it was sent back to the Collectorate and as such it was not covered within the definition of remand.
24. Responding to the argument of the learned AR of the appellant regarding invalidity of the show-cause notice on account of vagueness, the learned Legal Advisor submitted that audit had kept lingering on for a year due to the default of the appellant to produce complete record. He submitted that in view of prolonged audit proceedings, the appellant could easily comprehend the allegations.
25. Regarding the allegation of reliance on the Sales Tax Special Procedure Rules, 2007, instead of the Sales Tax Special Procedure Rules, 2005, it was asserted that there was no material change in both the sets of Rules except that late payment surcharge had been included in the value of supply in the latter Rules while it was excluded therefrom in the former Rules. Thus, it was opined that no prejudice had been caused to the appellant due to reference and reliance on the former Rules.
26. Commenting on the bulk of the demand raised on the 'Deposits received by the appellantfor development of immovable infrastructure, the learned Legal Advisor highlighted that the learned Collector (Appeals) had given option to the appellant either to pay tax on the said Deposits or in case the appellant takes the stand that immoveable property is not subject to Sales Tax livable by the Federation of Pakistan, it should work out input tax claimed against the development of stately non-taxable activity.
27. The learned LA also referred to the various cases relied upon by the appellant and averred that facts and circumstances of the said cases were different; hence, reference to the case law by the appellant was misplaced. The learned L.A referred to the reported judgments:--
(i) 2001 SCMR 1376 = 2001 PTD 2097: Shiekhoo Sugar Mills Ltd. And others v. The Government of Pakistan and others
(ii) PLD 2007 SC 517 = 2007 PTD 1902: Collector of Customs, Sales Tax and Central Excise etc. v.
Messrs Sanghar Sugar Mills Ltd. Karachi and others to support the submission that both ingredients of the charge of Sales Tax viz. Taxable supplies and taxable activity were available in the appellant's case as rendering of services, had also been included within the definition of taxable activity under section 2(35) of the Act.
28. Exercising the right of the rejoinder the authorized representative of the appellant highlighted the following points:
(i) The Collectorate cannot determine the demand under the remanded heads without de novo consideration, hence, it was nothing but a case of remand for de novo consideration.
(ii) Section 45B(3) was couched in negative language: "The Collector of Sales Tax (Appeals) shall not remand the case for de novo consideration"; It was mandatory and its violation was without jurisdiction. Reliance was placed on the case reported as 1993 PTD 332 (Lahore High Court).
(iii) The learned Collector (A) had authority to make further enquiry while keeping the decision of appeal pending. The allegation leveled by the learned LA that the appellant did not allow the auditor access to record was baseless. The learned Collector (A) had caused further enquiry on the points and the counsel for the appellant assisted re-examination of accounts by the Auditors for a number of days. The Reconciliation Report, which became basis of settlement of 5 out of 21 issues, whereby the Department withdrew demand of Rs,9,048,292 and the appellant agreed to pay Sales Tax to the tune of Rs,43,253,007 was made after thorough scrutiny of accounts in the course of further enquiry undertaken by the Collector (Appeals) during the pendency of appeal. There was, therefore, no jurisdiction or justification to remand the case for making out a fresh case.
(iv) Remand of the impugned demand rendered the case pending before the Collectorate. As such it is precisely covered under the definition of remand for de novo consideration. Reliance, in this context, was placed on the judgment of the Hon'ble Supreme Court reported as 2005 SCMR 1713.
(v) The averment of the learned LA that the case was not sent back to the Additional Collector Legal/Adjudication but to the Collectorate is of no consequence, as the case had to be decided by the Authority having jurisdiction to adjudicate the matter and not by the Collectorate jointly. The learned LA has not spelt out as to how the Collectorate could exercise such jurisdiction.
(vi) Remand would nullify mandatory provisions of section 45B(3), limitation for issuing show- cause notice under section 36 of the Act and limitation under proviso to subsection (3) of section 36 of the Act after the issuance of the show-cause notice which clearly lays down that "extended periods shall in no case exceed 90 days".
(vii) The show-cause notice is ex facie vague on the points under discussion and the material facts were suppressed as the allegations would not stand the test of scrutiny. The impugned demand based on inchoate, evasive and ambiguous show-cause notice is void. Reliance in this context was placed on the cases reported as 2005 PTD 480 (S.C. Pak), PLD 1989 Lahore 47 and 1987 SCMR 1840, (viii)Huge illegal demand was created to provide an illegal cover for the unlawful adjustment of the appellant's refunds.
(ix) Reference to the inclusion of services unit then the definition of taxable activity by the learned LA was misplaced. Such reference was restricted to services specifically included in the schedule to the Provincial Ordinances while services of the contractor for construction of immovable property was not and could not be included in the Schedule. Even F.B.R. Itself issued Sales Tax Ruling/instruction No,27/2002 to clarify that "there is no Sales Tax on immovable property such as buildings and roads, since, these are excluded from the definition of goods under the Sales Tax Act, 1990".
(x) The learned LA did not appreciate that despite difference of facts of the cases, the principles of law enunciated by the Hon'ble Courts were applicable to the appellant's case. For instance, the Hon'ble Supreme Court enunciated the principle: "What is excluded by express words cannot be included on any principle of interpretation, in the judgment cited as 1993 SCMR 1532. Since Sales Tax on the supply of immovable property is expressly excluded from the fiscal domain of Federation under the Constitution of the Islamic Republic of Pakistan, 1973, it cannot be subjected to Sales Tax on the pretext of principles of interpretation. Similarly, the initial burden to show that a transaction is subject to charge of tax is on Revenue and it is invariably applicable to all fiscal matters.
29. We have heard the parties and perused the record. We are not inclined to subscribe to the view of the learned Legal Advisor that it is not a case of remand for de novo consideration. The substance and not the form or use of the word remand is the determining factor. All the heads of impugned demand, except the disallowance of the claim of input tax on behalf of Pakistan WAPDA Foundation at Rs,39,494,111 have been sent back for reappraisal of facts and fresh determinations.
These issues are now pending re-adjudication before the Adjudication Officer. It is simply a case of remand for de novo consideration of the demand which was not found to be sustainable by the learned Collector (Appeals). In view of the mandatory prohibition contained in section 45B(3) of the Sales Tax Act, 1990 from remanding the case for de novo consideration, such remand order is manifestly without jurisdiction. Even otherwise, there was no justification for remand of the case and shifting the burden of proof to show that the transactions referred to in the show-cause notice were chargeable to Sales Tax from Revenue on to the appellant which is violative of the authoritative rulings by the hierarchy of the Courts contained in the case-law cited supra. Besides, remand would indirectly nullify the prescribed limitations provided under the law and as such remand for de novo consideration is not only unlawful but also unjustified as de novo consideration of the remanded issues would entail cumbersome rounds of litigation on questions of law not open to two opinions. Since the show-cause notice spells out no allegation and details of primary facts which are sine qua non to attract the charge, there is no justification to prolong, protracted litigation at the cost and inconvenience of the taxpayer---particularly when the statutory provision has expressly prohibited such remand. We are, therefore, of the considered view that the learned Collector (A) acted illegally in remanding the case for de novo consideration.
30. Having dealt with the legal issue, we now advert to the factual aspects of the case and dispose of appeal on various items of taxation as under:-- SALES TAX ON SUPPLY OF FIXED ASSETS RS.3,408,526: 31.. The show-cause notice did neither specify the fixed assets allegedly supplied nor the time of supply. The appellant had explained in its reply to the Audit Report dated 27-8-2007, that it was WAPDA's inter departmental adjustment and not a supply. The reply was not considered and the audit objection was, mechanically repeated and reproduced in the show-cause notice while the onus to show that transaction was chargeable to tax was squarely on the Department. The vague show-cause notice failed to meet the foundational legal requirements. Resultantly the demand of Sales Tax at Rs,3,408,526, not being sustainable, is set aside.
Input tax claimed on purchases from deregistered/suspected/closed units Rs,85,547,748.
32. Without a specific allegation that the input tax invoices were fake in terms of section 8(1)(d) of the Act or that the parties which issued such invoices had been deregistered before the issuance of the invoices in reference, the claim could not be disallowed. No such allegation was specified in the show-cause notice. Section 8A was enacted and made part of the statute with effect from 1-7- 2006 and was D not retrospectively applicable to the relevant period. The observation of the learned Collector (A) that the appellant could not escape its obligation under the time honoured principle of "vicarious liability" is contrary to the plain language of section 8A of the Act. The Hon'ble Supreme Court of Pakistan in the judgment cited as PLD 1990 SC 68 (SC Pak) held that:-- "In taxing Act one has to look merely at what is clearly said. There is no room for any intendment.
There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
The show-cause notice was silent about the particulars of the units (suppliers) concerned. It was not even specified whether the said units were only suspected or deregistered. It is worth- mentioning here that the details introduced later on at the appeal stage have been verified from F.B.R. Portal and majority of the parties (five out of eight) are found active taxpayers entitled to issue invoices. Non-specification of material particulars incurring disentitlement of adjustment of input tax vitiates the proceedings. The illegally remanded demand of Rs,85,547,748 is therefore, set aside.
EXCESS CLAIM OF INPUT TAX RS.1,392,892:
33. We fail to understand as to why the learned Collector (Appeals) considered it appropriate to remand the demand even when the Auditors had dropped the allegation in the Reconciliation Report and the learned Collector had also accepted the same. The remand, not being sustainable, is set aside.
INADMISSIBLE INPUT TAX IN PAKISTAN WAPDA FOUNDATION OF Rs,39,494,111:
34. The learned Collector (Appeals) confirmed the demand under this head for the reason that the Foundation is separately taxable, because of being engaged in business activity different from WAPDA and its entities. It is an admitted fact that the Customs, Excise and Sales Tax Appellate Tribunal, Lahore Bench, Lahore, held that WAPDA Foundation was engaged in taxable activity and was, therefore, liable to Sales Tax. In the Federal Excise Appeal No,353/LB/2006 dated 21-10-2008 it was settled that the Foundation is separately chargeable to Sales Tax under the Act and input tax in its account is adjustable in its own account and not in the appellant's account. No interference is, therefore, called for with the findings of the authorities below:-- Non-payment of Sales Tax on Miscellaneous IncomeRs,116,520,117 Non-payment of Sales Tax on other Electric RevenueRs,9,254,948 Non-payment of Sales Tax on Overhead RecoveryRs,30,709,297 Non-payment of Sales Tax on Repair, Testing and Inspection FeeRs,689,380 Non-payment of Sales Tax on other Income Energy TariffsRs,68,907,681 As discussed above, the learned Collector (A) lacked jurisdiction to remand the demand for re- determination under the above mentioned five heads. The totals of various service receipt and income items, having no nexus with the charge of Sales Tax, were subjected to Sales Tax on the basis of unwarranted presumptions. Service receipts and income items like commission on TV license fee, tender fee, liquidation charges are ex facie not chargeable to Sales Tax. The Sales Tax Officers are allowed access to record other than prescribed record under section 25(1) of the Act, only to discover omission of any item chargeable to Sales Tax in the prescribed record; otherwise as a rule the audit is to be based on the prescribed record in terms of section 25(3) of the Act, since initial burden to show that taxpayer suppressed items chargeable to tax is on the Revenue, this burden cannot be shifted on to the taxpayer to prove that everything it did was not chargeable to tax. Such an exercise is also violative of the case law referred to supra. Respectfully following the judicial pronouncement of the Hon'ble Karachi, High Court in the case reported as 2004 PTD 868 the demand is set said under all the aforesaid five heads:-- Non-payment of Sales Tax on Miscellaneous IncomeRs.1,736,207,156 Non-payment of Sales Tax on Other Electric RevenueRs,1,940,934,128 Non-payment of Sales Tax on Overhead RecoveryRs. 20,026,830 We are inclined to agree with the proposition advanced by the learned representative of the appellant that supply of immovable property is expressly excluded from the domain of taxation by the Federation of Pakistan hence it cannot be subjected to tax on far-fetched interpretations made by the learned Collector (A). Reference in this regard may be made to the law laid down by the Hon'ble Supreme Court of Pakistan cited as 1993 SCMR 1523 wherein it was ruled that:-- "What is excluded by express words cannot be included on any principle of interpretation."
The Hon'ble Lahore High Court in the judgment cited as 2006 CLD 162 held that/construction of immovable property even for its supply is not a taxable activity under the Act and the charge of Sales Tax is confined to j supply of goods only. The case-law relied upon by the learned Legal Advisor relates to interpretations in the context of supply of goods. Immovable property, not being goods, falls out of the purview of taxation by the Federation and it was not the subject of the judgments relied upon by the learned Legal Advisor. The judgments referred to and relied upon by the learned LA are, therefore, not relevant to the present controversy regarding non-taxability of the immovable property by the Federation under the Act. The Hon'ble Supreme Court of Pakistan in the case of B.P. Biscuits Factory Ltd., quoted supra categorically held that charge of tax cannot be extended by straining the language of the statute.
37. We, therefore, do not approve of the stretched academic arguments advanced by the learned Collector (A) regarding 'other dispositionunder section 2(33) of the Act, because supply of immovable property has been expressly excluded from the fiscal domain of the Federation under Article 142(c) of the Constitution of the Islamic Republic of Pakistan, 1973; the learned Collector (A) impliedly, accepted the contention that supply of immovable property was not taxable, but, instead of setting aside the demand he unjustifiably remanded the case with a view to developing a new case of adjudication regarding admissibility of presumed input tax on goods used in the development of immovable infrastructure. The learned Collector (A) thus acted illegally to make a new case of adjudication, as it was not the case of Revenue as per show-cause notice. The Hon'ble Supreme Court in the judgment cited as 1987 SCMR 1840 categorically held that the impugned order based on an allegation not mentioned in the show-cause notice is palpably illegal and void.
The demand raised under the aforesaid three identical heads is, therefore, void and is accordingly set aside.
Inadmissible Input Tax under Sections 7 and 23Rs,1,955,640 Inadmissible Input Tax Under section 8(1)(a)Rs,3,195,636 The demand under these two heads is based on vague and inchoate allegations, not considered with reference to the relevant provisions and S.R.O. No,490(I)/2004 dated 12-6-2004 and the law laid down by the Hon'ble Supreme Court of Pakistan in the case cited as 1999 PTD 1892. The demand was raised in flagrant Violation of the principles of natural justice and, therefore, is set aside under both the heads.
39. Inadmissible Input Tax Lakhra Power Generation Company Limited (LPGCL) Rs,31,010,345 The appellant was filing consolidated Sales Tax Return in respect of all of its entities during the period under reference. The Department was not justified to presume double adjustment of input tax in the absence of any return filed by the LPGCL --- an entity of the appellant. The demand is based on surmises and conjectures; hence, it is not sustainable and is set aside.
40. Non-payment of Output Tax Rs,135,083 The appellant provided the proof of the payment of Rs,139,472. Which was inclusive of the demand of Rs,135,083. There was, therefore, no justification to raise further demand without any basis. The demand based on suspicion and without any evidence is held to be illegal and is accordingly set aside.
Inadmissible Input Tax Rs,3,879,985 pointed out vide Third Party Verification
41. The statements made by the third parties, without their cross-examination by the appellant, were not admissible evidence. The assertion on behalf of the appellant that payments were made through crossed cheques to the concerned parties and, had opportunity been given to dross- examine them, the Department would have uncovered concealment in the cases of the said third parties. Since, the statements of the third parties were accepted without providing the appellant an opportunity to cross-examine them these statements were not admissible as evidence. Reliance in this behalf was placed on the judgment cited as (1990) PTD 747 (Trib.). The demand was thus not raised in accordance with law and remand thereof by the appellate authority was also illegal and unjustified. The demand is accordingly set aside.
40. The appeal is disposed of as above.