1. IKRAM ULLAH GHAURI, ACCOUNTANT MEMBER.---The appeal has been filed by .The appellant against sales tax Order-in-Appeal No.108 of 2011, dated 13-5-2011 passed by the respondent No.01 on the grounds mention in Para (3).
2. Brief facts of the case are that scrutiny of the sales tax profile of the appellant revealed non filing of sales tax return from July, 2005 to April, 2010. Therefore, in order to ascertain value of supplies made during the said period the income tax returns were scrutinized which envisaged taxable supplies worth Rs.413,165,982 made by the appellant on which sales tax of Rs.63,613,806 was not paid. Accordingly a show cause notice dated 25-5-2010 under sections 11(1) and 11(5) of the Sales Tax Act, 1990 was issued and an ex parte Order-in-Original No.170 of 2010 dated 23-7-2010 was passed by the respondent No.2. Aggrieved by the order dated 23-7-2010 the appellant filed appeal before the respondent No.1 which was modified vide Order-in-Appeal No.108 of 2001, dated 13-5- 2011 to the extent of reducing principle amount of sales tax amounting to Rs.38, 825,821 only.
2. However, the penalty and default surcharge adjudged by the respondent No.2 was upheld. The appellant still dissatisfied filed the instant appeal before this Tribunal on the following grounds:--
3. Grounds of Appeal: 3.1 That the Order-in-Appeal No.108 of 2011 dated 13-5-2011 framed by the learned CIR(A), is bad in law, contrary to the facts and circumstances of the case.
3. 3.2 That the learned Commissioner (Appeals) has failed to consider, discuss, appreciate and to decide the arguments and material provided at the time of appeal in the shape of detail etc. On his demand.
4. 3.3 That the CIR(A) has failed to appreciate that the proceedings initiated and subsequent order passed in the case on the basis of show cause notice which was never served upon the taxpayer, were liable to cancellation being in violation of principles of natural justice.
5. 3.4 That the order-in-original was passed ex parte without giving opportunity to the taxpayer to defend the allegations levelled in the show-cause notice which also has never been served. Its confirmation by first appellate authority ignoring this fact is not justified.
6. 3.5 That the learned Commissioner (Appeals) was not justified to ignore that the order-in-original was passed on 23-7-2010 for which date there is no notice for hearing at all.
7. 3.6 That the supply assessed on the basis of sales declared in income tax returns is complete ignorance of law and patent illegality. Its confirmation even discussing the legal aspect is highly unjust.
8. 3.7 That the taxpayer deals most of items relating to 3rd and 6th Schedule but the authorities below have failed to consider this important factor as a result of which the taxpayer has burdened with a huge illegal sales tax demand.
9. 3.8 That the learned CIR(A) was not justified in ignoring the basic objection regarding jurisdiction to adjudicate which not being available, the order is corum non judice.
10. 3.9 That after appreciating the argument and practically condoning the delay, the learned CIR(A) must have appreciated that the assessment is in total defiance of the famous right of the assessee that he has been condemned unheard as well as in ignorance or application of an independent judicial mind.
11. 3.10 That the proceedings initiated in the case without any inquiry in the matter are not maintainable in the eyes of law.
12. 3.11 That the confirmation of penalty without establishing "mens rea" under sections 33 and 34 of the Sales Tax Act, 1990 is totally against the norms of justice.
13. 3.12 That imposition of penalty by presuming it to be as a consequential action on presumption of default is in total ignorance of spirit of law and decided cases of this Tribunal as well as of the other Courts. The confirmation in defiance to the said binding judgment is not maintainable.
14. 3.13 That the levy of penalty and additional surcharge without establishing a legal default is not maintainable.
15. 3.14 That the petitioner reserves the right to alter, and or amend any ground or grounds hereafter.
4. The date of hearing in the case was fixed on 19-5-2011 and finally heard on 1-10-2011. During the course of proceedings the learned counsel of the appellant argued his case on the following grounds amongst other as stated 'in Para (3) above.
16. Arguments of the learned counsel of the Appellant: 4.1 That the appellant has correctly declared sales in his income tax returns for the period under reference. The entire gross sales shown in the income tax returns were taken by the respondents as "taxable supplies" without segregating taxable and nontaxable supplies. The sales tax is chargeable on taxable supplies and not on the supply of goods. However, on the taxable supplies the appellant has paid due sales tax from Jan, 2000 to July, 2004 timely and in the manner as provided under the Sales Tax Act, 1990 as provided under section 14 of the Act ibid. 4.2 That the appellant is also engaged in retail sale of exempt items to pass by motorway passengers through tuck shops outside each branch of the restaurant which include burgers, fruit juices, cigarettes, ice cream, tissues, newspapers and bread etc. These items enjoy exemption under Serial Nos.26, 32 and clause 03 of 6th and 3rd Schedule of the Sales Tax Act, 1990. Hence the appellant is not liable to pay any sales tax as demanded in the show cause notice and as adjudged by the respondents.
5. That the burden of proof lies on the respondents under Article 177 of the Qanun-e-Shahadat Order, 1984 to prove that the appellant had made "taxable supplies" for the amount of entire gross sales they have been charged. The respondents have so far failed to place on record any evidence that gross sales shown by the appellant in their income tax returns were "taxable supply" within the meaning of section 2(41) of the Sales Tax Act, 1990 chargeable to sales tax under section 3 of the Act ibid:-- 5.1 That no sales tax can be charged on mere presumptions of "taxable supply" as held by the different forums in cases .Reported as 2004 PTD 868, GST 2003 CL 109, GST 2004 CL 117. The Appellant further relied on the judgment of the Appellate Tribunal, Lahore Division Bench S.T.A.
17. No.48/LB of 2004 decided on 12-3-2005 wherein it was held that "the department is not authorized to use the data in the income tax returns to be made the basis for assessment of sales tax liability"
18. Similarly the Appellant cannot be burdened with additional tax without substantiating the element of mens-rea and no penalty could be imposed by the respondent No.2 as well.
19. 5.2 The learned counsel of the appellant also relied Appellate Tribunal judgments dated 1-11-2001 in Appeal No.398 of 2000, passed on 24-8-2006 in Appeal No.102/STB/IB/2006, and Appeal No.35/IB/99 in case of Awan Sports Industries (Pvt.) Ltd. That the sales tax authorities were not authorized to use the data or information and figures declared in the income tax returns for the purposes of assessm ent of sales tax liabilities of a sales tax registered person.
20. 5.3 The learned counsel of the appellant while arguing his case referred to Central Board of Revenue (Now F.B.R.)'s letter dated 30-6-2004 issued vide C.No.3(11)ST-1/L&P/2004 wherein the retailers and manufacturers whose annual turn over during the last twelve months were below five millionand who were registered under section 14 of the Sales Tax Act, 1990 were declared as de- registered i.e. From 1-7-2004.
21. 5.4 The learned counsel of the appellant contended that accordingly the appellant informed the sales tax department vide letter dated 8-8-2005 that their taxable sales are below the turn over limit prescribed, therefore, the appellant may be de-registered. A copy of the letter was also placed on record by the learned counsel of the appellant before thls Tribunal duly acknowledged by the Superintendent, Collectorate of Sales Tax and Central Excise, Rawalpindi on 10-8-2005. The registration number was thus de-activated at E-Portal of F.B.R. Web site and under a bona fide impression sales tax returns for subsequent periods were not filed.
22. 5.5 That the appellant was not required to file sales tax returns in terms of section 14 of the Sales Tax Act, 1990 which provides filing of sales tax returns by "every registered persons". The appellant was not existed on the strength of the sales tax department 'i.e. From 1-7-2004 and a non- registered person is, therefore, ousted from the application of Sales Tax Act, 1990 and rules made thereunder.
23. 5.6 The learned counsel of the appellant while concluding his arguments stated that:--
(i) That the respondent No.2 had no jurisdiction to adjudicate the case in the light of the F.B.R's letter C.No.1 (17) IR/Jud/2007, dated 11-11-2009 which was effective from 28-10-2009. (Reliance was made 2007 PTD 1780, 2010 PTD 927 PLD 1995 Kar 586).
(ii) No proper service of show-cause notice dated 25-5-2010 and hearing notices fixed for 7-6- 2010, 17-6-2010 and 30-6-2010 were ever affected upon the appellant. (Reliance was made "Messrs Faisal Pipe (Pvt.) Ltd., v. Additional Collector, Sales Tax, Gujranwala in Appeal No. Old 3089/2001, New 24/2004, dated 24-4-2004). PLD 1995 Lah, 1985, 1988 CLC (Karachi)-315, 1995 MLD 2886.
24. (i.e) That the amount of alleged sales tax recoverable from the appellant was not specifically mentioned in the show cause notice dated 25-5-2010.
(iv) That the respondent No.2 has passed an ex parte order dated 23-7-2010, for which there was no notice, against the appellant without providing of opportunity of being heard "Maxim Audi alteram". (Reliance is made on 1995 PTD (Trib) 1159 and 1981 PTD-210) and also against merits of the case.
(v) That in view of the above all series of action of the respondents right from show cause notice to adverse order passed by the respondent No.2 dated 13-5-2011 are thus ultra vires of the law and needs to be declared as unlawful, corum non judice and void ab-initio.
6. On the other hand the D.R. Supported the order passed by the respondents and argued the case on the following grounds:-- Arguments of the D.R. 6.1 The D.R. Appeared and stated that the appellant have not denied their declaration of total sales/supply of goods in their income tax returns for the tax/assessment period under dispute. They have also implicitly admitted that they had not made any specific declaration regarding any supply of exempt or zero rated goods in the sales tax returns. Therefore, the appellant have not come to this August forum with clean hands. It is the responsibility of the appellant to prove that the amount of gross sales declared in his income tax returns does not relate to the taxable supply.
25. 6.2 The D.R. Further relied on the judgment of this Tribunal titled Messrs Sufi Restaurant, Melody Market, Civic Center, G-6, Islamabad v. The Collector of Customs, Sales Tax and Central Excise (Appeals) Islamabad reported as 2007 PTD (Trib.) 840 wherein it was held that "income tax returns can be used by the sales tax authorities for the determination of tax liability-under section 11 of the Sales Tax Act, 1990 more specifically in such cases where the taxpayer had refused to provide the sales tax prescribed record despite repeated notices by the respondents".
26. 6.3 Another argument of the D.R. Was that the sales tax department can solicit information from departments of direct taxes under section 38(3) of the Sales Tax Act, 1990. Denial to make basis and use of such data for determination of sales tax liability against a tax payer would defeat the purpose of the aforesaid section both in letter and spirit. .
27. 6.4 With regard to the plea of de registration the D.R contended that sales tax department has not yet de-registered the appellant. He stated that a prescribed procedure is provided to get oneself de-registered and that too if the annual turnover of a registered person remains below five million during the last twelve months. Neither the turnover of the appellant is below five million in any tax period under reference nor the procedure as contemplated under Sales Tax General Order No.3 of 2004, dated 12-6-2004 was followed both in letter and spirit. The contention of the D.R. That assuming the automatic de-registration of the appellant is without any substance.
28. 6.5 The D.R further clarified that the proceedings against the appellant were based on section 11 of the Sales Tax Act, 1990 and show cause notice or the O.N.O.Or the order in appeal has no where mentioned that the adjudicatory proceedings are rooted in section 36(1) or section 36(2).
7. Finding: The arguments advanced by both the parties carry mixed question of law and mixed question of facts. This Tribunal has examined contentions of the appellant in Juxtaposition with the respondent's. In the following para we will enter our finding on each issue discussed before this Tribunal:-- 7.1 The first legal question raised by the learned counsel of the appellant is on the point of jurisdiction: The learned counsel of the appellant stated that the order-in-original should have been issued by the Audit Division. We have perused order-in-original dated 23-7-2010 passed by Mr. Musratullah Khan in the capacity of Deputy Commissioner, Inland Revenue, (Enforcement-III).
29. The order-in-original was supposed to be passed neither the Enforcement nor the Audit Division, but by an officer of the Legal Division in terms of F.B.R's. Letter C.No.1 (15) IR A JUD/2007, dated 11-11- 2009. The learned DR's plea that the jurisdiction in respect of non filers is vested with the Enforcement Division but this argument is not relevant because, after filing of return the jurisdiction stood vested with Legal. Division. Therefore, we agree with the contention of the learned counsel of the appellant that the adjudicating authority in this , case lacked jurisdiction.
30. 7.2 The second legal question raised by the appellant is whether respondent's reliance on the total amount of gross sales declared in the appellant's income tax returns sufficiently constitutes discharge of respondent's burden of proof required by Article 117 of the Qanun-e-Shahadat Order, 1984. He further explained that Article 117 of the Qanun-e-Shahadat Order, 1984 explicitly provides that the onus to prove that such amount of gross sales declared in the income tax returns represented taxable supplies, was on the respondents which remains un-discharged. The D.R contented that the onus to prove that the declared gross sales were not taxable supplies was on the appellant. We have observed that the order dated 23-7-2010 passed by the respondent No.2 is not indicative of any fact finding inquiry from sellers and the demand has been created whimsically without any supporting evidence: We have also taken notice of the modification of the amount of sales tax by the learned CIR(A) from Rs-.63,813,806 to Rs.38,825,721, but the CIR(A)'s order of reduction in the sales tax does not explain on what basis the sales, tax was reduced. It seems that both the forums below failed to confront the appellant with any credible evidence of taxable supplies or apply any intelligible criteria. It is a settled principle of law that no tax can be charged or reduced merely on an assumption. We find that taxable and non-taxable supplies were not quantified by the respondents, on the basis of any undisputable evidence. Even the reduction of sales tax by the learned CIR(A) is without any understandable basis.
31. 7.3 The third question (legal and factual) raised by the appellant is whether assessment of sales tax could be made. On the basis of income tax return alone without hearing the tax payer. In our opinion, this aspect remained un-addressed by the respondents. In the absence of correct determination of the amount of taxable and non-taxable supplies in the gross sales declared in income tax returns it is very difficult to quantify correct amount of "taxable supply" within the meaning of section 2(41) of the Sales Tax Act, 1990 subject to chargeability of sales tax under section 3 of the Act ibid. Hence passing.An order in the absence thereof against the appellant on the basis of conjecture is not correct at law. The contention of the appellant that the case-law cited by the learned D.R. Titled Messrs Sufi Restaurant, Melody Market, G-6, Islamabad is not relevant in his case, is valid. The appellant recalled the relevant part of Tribunal's judgment referred by the D.R which we reproduce here: "I have gone through these judgments which inter alia state that the Revenue Division can solicit information from departments of the direct taxes under section 38(3) of the Sales Tax. Act, 1990 but the revenue Division is not authorised to use the data or information obtained from the income tax department".
32. We have examined section 38(3)" of the Sales Tax Act, 1990 which empowers the sales tax department to obtain record from other departments which can validly be used to quantify the tax D liability 'against the tax evaders provided the taxpayer failed to furnish sales tax record requisitioned under section 25 of the Sales Tax Act, 1990. In the instant case the learned D.R. Has not denied that the appellant did not provide the sales tax record to the sales tax department. The department should have established the quantum of value of taxable and non-taxable supplies made by the appellant which they have not. The respondents seem to have failed to place on record any evidence that the entire value of supply shown in the income tax returns was a "taxable supply". The appellant claiming that he turned in bifurcation of taxable and non taxable supplies at both the adjudication forums but this fact was not reflected in the' orderin-original and order-in- appeal. In our mind the side stepping the appellant's contention in the adjudication orders dated 23-7-2010 and the order-in-appeal dated 13-5-2011 tantamount to mis- carriage of justice. Reduction in the sales tax liability was surely the result of some reconciliation exercise conducted by sales tax functionaries in association with the -appellant. Thus attributing the non-production of record to the appellant does not seem fair. We have also examined the criteria laid down for registration under the Sales Tax Act, 1990 wherein the registration is mandatory only if the annual turn over exceeds five million in any tax year. The appellant exhibited the bifurcation of taxable sales and non-taxable sales for the entire period under dispute.
33. The D.R.'s comments on the above statement giving bifurcation of taxable and non-taxable supplies were invited, however, the D.R. Did not offer any plausible justification for ignoring the bifurcation. Therefore the bifurcation of sales declared within precincts of restaurant and sales through their outlet tuck shops duly supported with the excisable record maintained by the appellant is found to be credible. No sales tax can be charged on mere assumption of taxable supply as held in various case-laws reported as 2004 PTD 868, GST 2003 CL 109, GST 2004 CL 117.
34. Hence we accept the contention of the appellant being substantiated with documentary evidence.
35. 7.4 We may address the fourth legal issue regarding de-registration of the appellant in the light of arguments advanced by both the parties. The contention of the learned counsel of the appellant was that the appellant was legally required to be de-registered with the sales tax department in the light of Central Board of Revenue's letter C.No.3(11) ST-1/L&P/2004, dated 30-6-2004 which he opted timely by addressing a letter dated 8-8-2005 to the sales tax department and the same was duly acknowledged by the sales tax department. The learned counsel of the appellant further pleaded that by not deregistering the appellant, the concerned officials of the sales department have violated section 72 of the Sales Tax Act, 1990, which provides as follows:-- Section 72....Officers of sales tax to follow Board's orders etc....All officers of sales tax and other persons employed in the execution of this Act, shall 'observe and follow the orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of officers of sales tax in the exercise of their quasi-judicial functions.
36. We have examined this aspect of this case. There exists an evidence that the appellant requested for his deregistration to the sales tax functionaries in terms of Board's instructions but no action was taken on his request. Therefore, we find force in the appellant's contention that he stood de- registered since 1-7-2004 and as a non-registered person he was not required to observe the provisions of Sales Tax Act, 1990 and rules made thereunder. The appellant is entitled to be deemed as unregistered person prior to the issuance of show cause notice or initiation of quasi-judicial proceedings. Sections 11(1) and 11(5) deal with the "registered persons" and do not apply to the appellant being an "un-registered person".
37. 7.5 The fifth legal objection raised by the learned counsel of the appellant relates to passing of an ex parte order dated 23-7-2010 without ensuring proper service of show cause notice and hearing notices upon the appellant which was of a paramount importance. There me two modes of service of notice (1) through courier service (2) procedure as contained under the Code of Civil Procedure, 1908 (V of 1908). We find that the notices were always issued to an unconcerned registered person, i.e., "Peacock Resort located in Chakwal", while the sales tax liability has been imposed on Peacock Kallar Kahar located at the motorway, who is appellant in this case. We notice that the similarity of the word "Peacock" and "Peacock. Resort" created confusion and the service of notice to the appellant could not be effected. We have also perused the case-law (1995 PTD (Trib.) 1159) relied upon by the learned counsel of the appellant which supports his contention. Therefore, we find that no proper service of notices were effected and an ex parte order passed by the respondent is not sustainable in the eyes of law.
38. 7.6 Based on the above finding, we strike down the arbitrary addition of the value of taxable supplies made in 0.N.0 or the Order in appeal. The appellant's declaration of the Value of taxable supplies is determined to be more credible. In the absence of any effort made by the department to controvert the appellant's declaration of exempt supplies as well as taxable supplies, the bifurcation of such supplies declared by the appellant is ' ordered to be accepted. The appellant's deregistration shall take effect from the date of the receipt of the appellant's application for deregistration. Besides, the orders passed by the forums below are also held to be without jurisdiction. The appellant has also successfully proved that no reasonable opportunity was provided by the department to explain his position. For the reasons entered herein, we accept the appeal.
39. This order consists of (11) pages each bears my official seal and signature. .