' The titled appeal has been filed at the instance of appellant/registered person against Order-in- Appeal No,98 of 2009, dated 7-9-2009.
2. Briefly stated, relevant facts of the case as recapitulated from the available case record are that during the course of scrutiny of record of the taxpayer for the period relevant to 1996-97 and 1997- 98, it was found by the department that the appellant supplied cotton lint to different textile units but sales tax involved on supplies made amounting to Rs,2,230,843 for 1996-97 and Rs,33,11,326/- for 1997-98, had not been deposited into government treasury. Accordingly, a contravention report was prepared and a show-cause notice dated 14-4-2000, was issued to the taxpayer, calling upon as to why sales tax amounting to Rs,56,32,169 along with additional sales tax should not been recovered under section 36 of the Sales Tax Act, 1990.
3. The taxpayer/appellant contested the issuance of show-cause notice before the Additional Collector but they did not find any favour from the adjudicating authority and feeling aggrieved and dissatisfied with the treatment given at adjudication stage, the appellant then filed the first appeal before the learned Collector (Appeals) who also rejected the appeal and upheld, the order-in-original dated 15-2-2000.
4. The learned AR of the appellant contested the impugned orders before us mainly on the following two points:-
(i) That the show-cause notice dated 28-10-1999, is illegal as it was issued without invoking the charging section.
(ii) That it was never the responsibility of the appellant to pay the sales tax on the supply of cotton but the buyers i,e, spinning unit are required to pay sales as per the provisions of S.R.O. 1271(1)/96, dated 10-11-1996.
5. On first point, it was submitted by the learned AR of the appellant that the adjudication officer did not invoke the provisions of sections 11 and 36 of the Sales Tax Act, 1990, therefore, the show- cause notice is illegal and without lawful jurisdiction. In this behalf, it is contended by the learned AR that superior courts has already held in a number of cases that the show-cause notice without specifying the provisions of charging sections is illegal and order passed on such show-cause notice could be termed as valid order in the eyes of law. In this behalf, reliance was placed on the reported judgments cited as 2003 PTD 1593, GST 2004 CL 423 and GST 2005 CL 239 and it was assertion of the AR that these cases are squarely applicable in the instant case. It is also submitted by the learned AR that these judgments have been passed by relying upon the ratio decided by the Hon'ble Supreme Court of Pakistan in re: Assistant Collector Customs v. Messrs Khyber Electric Lamps, reported as 2001 SCM R 838.
6. On the second point, it was submitted by the learned AR of the appellant that during the course of hearing on 25-2-2003, the learned Tribunal has ordered for constitution of a committee for reconciling the amount with regard to each sales tax invoices in respect of which the sales tax not paid by the taxpayer and for which period it relates. It is asserted by the learned AR that the committee prepared a reconciliation report dated 25-7-2003, wherein it was reported by the committee that amount of Rs,18,62,441 which was not deposited into government treasury was the responsibility Of the buyers of the appellant i,e, spinning units during the period 28-5-1998 to 1-6- 1998, therefore, it was concluded by the committee that amount of Rs,18,62,441 was recoverable from spinning units.
7. As far as the amount of Rs,18,30,132 for the period 14-2-1997 to 22-5-1997, is concerned, the committee has reported that the said amount is payable by the Ginners i,e, the appellant. In this behalf, it is contended by the learned AR that the observation of the committee is not tenable in the eyes of law in view of the S.R.O. 1271(1)/1996 dated 10-11-1996, the responsibility to pay the tax on the supply of the cotton lint was also of the spinning units. It is asserted by the AR that the sales tax was imposed on cotton lint w,e,f, July 1, 1996, and up to 9-11-1996, the liability to pay sales tax was on ginning units. It is further submitted by the AR that C.B.R. Through S.R.O. 1271 cited above, has introduced Special Procedure for the Ginning Industries Rules, 1996 and as per Rule 6 of these rules, the buyers of the cotton lint were required to deliver pay order/bank draft in the name of collector concerned for the amount of sales to the ginners before taking the delivery of the supply of the cotton lint. Therefore, it is crystal clear that the liability to pay sales was on the buyers the spinners and not on the ginners i,e, the appellant.
8. The learned DR on behalf of Revenue has strongly contested the legal objection of the learned AR regarding issuance of show-cause notice without invoking the charging section. It is submitted by the learned DR that show-cause notice issued in the case is not illegal as non mentioning of particular section would not render the notice as illegal. In this regard the learned DR, has relied on an unreported judgment of the Hon'ble Supreme Court of Pakistan in Civil Appeals Nos. 991 and 992 of 1992, dated 31-1-2007.
9. On merit, it is contended by the learned DR that the taxpayer was rightly directed by the department to deposit sales tax for the period relevant to 1996-97, as up to 26-5-1998, the ginner was required not to give delivery of cotton lint to the spinning units without taking the challan of sales tax leviable thereon. Since, the respondents had failed to comply with the procedure of payment of sales tax and they made supplies in terms of S.R.O. 1271, dated 10=11-1996, therefore, the taxpayer was rightly asked to deposit amount of Rs,18,30,132 for the period 1996-97.
10. We have heard both sides and have carefully gone through the relevant record and perused the case-law relied upon at bar. After due consideration, we are not convinced with the submissions made by the learned DR regarding legal objection raised by the AR that the show-cause notice was issued without invoking the provisions of charging sections 11 and 36 of the Sales Tax Act, 1990.
The case-law relied upon by the learned DR is not strictly relevant in the instant case. The Hon'ble Supreme Court of Pakistan in the case cited as 2001 SCM R 838 in re: Assistant Collector v. Khyber Electric Lamps, has already solved the controversy. The said judgment of the Hon'ble Supreme Court of Pakistan was subsequently followed by in a number of cases like reported as PTCL 2003 CL 78(sic), wherein the Hon'ble Lahore High Court has held that "in the absence of particular allegation or charge in the show-cause notice against the appellant by the Notifying Authority was patently illegal and without lawful authority. All orders based thereupon are liable to be set aside". The learned Tribunal after relying on the judgment of the Hon'ble Supreme Court of Pakistan has held that "a perusal of the show-cause notice reveals that the learned adjudicating officer has not invoked the provisions of sections 11 and 36 of the Sales Tax Act, 1990. This is a sufficient ground to accept the appeal and set aside the impugned order, so we while placing reliance on the judgment 2001 SCMR 838 (Assistant Collector Customs vs. Khyber Electric Lamps), accept the appeal and set aside the impugned order in original".
11. However, the case of the appellant is very strong on factual grounds. In the instant case, the learned Tribunal vide order dated 25-2-2003, had constituted a committee headed by Deputy Collector Sales Tax, who in its report dated 25-7-2003, has held that:-- "The amount payable Rs,1862441 relates to the period 30-5-1998, when the responsibility to pay tax was shifted from supplier (Ginner) to the buyer (Spinning Units) as per Special procedure for Ginning Industry Rules 1996. So the sales Rs,1862441 payable for the period 1997-1998 is recoverable from the spinning units (Buyers) and not from the supplier (Messrs Pusan Cotton Industries)."
12. Since, the committee constituted by the Tribunal which was headed by the Departmental representative has itself held that the appellant was not liable to pay sales tax amounting to Rs,18,62,441 we find no justification for the department to recover amount of Rs,1862441 from the appellant.
13. For sales tax amount of Rs,18,30,132 relating to the period relevant to 1996-97, the committee has concluded that the said amount was payable by the appellant but we are not convinced with the conclusion of the committee, because as per the provisions of S.R.O. 1271(1)/1996, dated 10-11-1996, it was also the responsibility of the spinning units to pay sales tax and not the ginner(appellant).
Central Board of Revenue issued S.R.O. 1271 cited supra, which was called Special Procedure for the Ginning Industry Rules, 1996, and as per Rule 6 of the said Rules, the buyers of the cotton lint were required to deliver pay order/bank draft in the name of concerned Collector for the amount of sales tax to the ginners before taking the delivery of the supply of the cotton lint. Therefore, it is clear from the said rule that the liability to pay sales was on the buyers i,e, the spinners because according to rule 6 of the said rules, the liability to pay sales tax was on the buyers and not on the ginners (appellant). This position remained in the field from 10-11-1996 to 22-9-1997, so the liability to pay sales tax on the supply made was on the buyer as admittedly the taxpayer had made supplies during the period 14-2-1997 to 22-5-1997.
14. The learned DR is misconceived in its assertion that the taxpayer has illegally made supplies in terms of S.R.O. 1271 and failed to comply with the procedure laid down for ginned cotton, as the amendment was made in the Special Procedure for Ginning Industries Rules 1996, through S.R.O.
820(I)/97, which was issued on 23rd September, 1997, whereas in the instant case the supplies were made by the taxpayer during the period 14-2-1997 to 22-5-1997 which is governed by S.R.O. 1271 cited supra.
15. Hon'ble Sales Tax Appellate Tribunal, in the case reported as GST 2004-CL-546, has discussed the issue in hand in detail and the said judgment is "on all fours" applicable in the instant case.
Here, we deem it expedient to reproduce the relevant portion of the said judgment, for ease of ready reference:--
(i) Sales tax on cotton lint was imposed w,e,f, 1-7-1996. For the period of 1-7-1996 to 27-8-1996, it was responsibility of the supplier (ginner) to pay sales tax, and also additional tax in case of default, in terms of section 3(3)(a) of Sales Tax Act, 1990. If any amount related to the said period, it was not responsibility of the appellant to pay additional tax as buyer of cotton lint.
(ii) Sales Tax General Order No, 3 of 1996 issued by C.B.R. On 28-8-1996 which regulated the procedure for payment of sales tax of ginned cotton. The said procedure was an alternative option for payment of sales on supply of ginned cotton. This needed to be ascertained as to whether the respective ginning units had opted to pay sales tax according to the procedure laid down in the said General Order and if so, the liability to pay sales tax would also be that of the buyer since liability to pay sales tax was also on the buyer. (the appellant) before taking delivery of the ginned cotton. In case the respective ginners had not opted work under Sales Tax General Order No, 3 of 1996 dated 28-8-1996, then normal law was to prevail---the liability to pay sales tax and also additional tax, was on the supplying ginning units. This position is to continue from 28-8-1996 to 9- 11-1996.
(iii) Special Procedure for Ginning Industries Rules, 1996 was notified vide S.R.O. 1271(1)/96, dated 10- 11-1996 from 10-11-1996, rule 6 of the said S.R.O. Required buyer of ginned cotton to deliver pay order/bank draft for the amount of sales tax due to the ginner before taking delivery of ginned cotton and the ginner was required to deposit the said pay order/draft 'within 48 hours of its receipt. For the period from 10-11-1996 to 22-9-1997, the liability to pay additional tax was that of the buyer because rule 6 of the Special Procedure for Ginning Industries Rules, 1996 envisaged that the buyer was to deliver pay order/bank draft for the amount of sales tax to the ginner before taking delivery of the ginned cotton from the ginner. When responsibility to pay principal amount of sales tax was that of the buyer, the responsibility to pay additional tax would also rest on him.
(iv) S.R.O. 820(1)/97, dated 23-9-1997 substituted rule 6 of the Special Procedure for Ginning Industries Rules, 1996 which laid down that in case the ginner made delivery of the ginned cotton to the buyer without receipt of treasury challan showing deposit of sales tax on the quantity under supply, he would be liable to pay the tax along with penalty and additional tax. Accordingly, for the period from 23-9-1997 to 24-5-1998, the respective ginners were liable to pay additional tax if they supplied ginned cotton to the appellant without first receipt of the amount of sales tax in the form of deposit of the treasury challan
16. On a careful consideration of controversy between the parties and in-depth consideration of the submissions, particularly in the light of law and dictum laid down in the judgments quoted supra, we are inclined to accept the appeal filed by the registered person. Be that as it may, findings recorded by both authorities below being illegal, vague and unlawful are accordingly set aside. Appeal of the registered person is succeeded as prayed for and disposed of in the manner and to the extent as dilated supra.