1. MR. IKRAM ULLAH GHAURI, ACCOUNTANT MEMBER.-(1). These are cross appeals filed by Messrs Attock Refinery Ltd. Morgah Rawalpindi and Commissioner Inland Revenue, Zone-II, LTU, Islamabad against the Order-in-Appeal No. 104/2001, dated 22.1.2011 passed by the Commissioner Inland Revenue (Appeals-I), Islamabad.
2. Brief facts of the case are that staff of the Commissioner Inland Revenue (Audit), LTU, Islamabad conducted audit of the appellant for the period 2007-2008 and out of six audit observations three were completely dropped and one was partially dropped by the Deputy Commissioner Inland Revenue (Audit) vide order dated 15-10-2010. The appellant assailed the order dated 15-10-2010 on the remaining upheld issues before the Commissioner Inland Revenue (Appeals-I) who vide order dated 22-1-2011 also vacated one more audit observation and upheld only two observations namely "Non payment of F.E. Duty of Rs. 1,949,019 on sale of sludge" and "imposition of default surcharge and penalty for payment of sales tax on sale of scrap during adjudication proceedings".
2. The appellant being dis-satisfied of the order dated 22-1-2011 passed by CIR (Appeals-1), L.T.U.
3. Islamabad filed appeal before this Tribunal mainly on the following grounds:- Grounds of appeal: 2.1 That Federal Board of Revenue has classified the sale of Sludge under the head 2713.9000. The Federal Board of Revenue through letter Ref: C. No.1 (2) CEB/02 dated 15-6-2002 withdraw central excise duty on different items including Sludge.
4. ' 2.2 That it is a fundamental principle of law that no penalty and default surcharge should be imposed without establishing the willful default of taxpayer.
5. 2.3 That Honourable Supreme Court of Pakistan in the case of Deputy Collector v. ICI Pakistan Ltd.
6. Held that "such liability being not automatic would be determined by appropriate authority as to whether or not there was reasonable ground for default in payment of Sales Tax, which could be considered to be willful and deliberate".
7. 2.4 That it is a well established law, no additional tax and penalty can be demanded if any conflict arises out of the bona-fide interpretation of law. Reliance is placed upon the landmark judgment of the honourable Supreme Court of Pakistan reported as 2004 SCMR 456 titled M/s. D.G. Khan Cement vs. Federation of Pakistan. Further reliance is placed upon the following judgments:-- PLD 1991 SC 93, 2001 PTD (Trib.) 2888, 2002 PTD (Trib.) 300, 1999 PTD 3907 (Maple Leaf Cement).
8. 2.5 The date of hearing was fixed on 19-3-2011 and finally heard on 17-11-2011. The learned counsel of the appellant reiterated the grounds of appeal and produced a printed and illustrative material regarding "Reclaimed Petroleum Hydrocarbons.... Residual Hydrocarbon Wastes from Petroleum Refining" and claimed that Sludge waste is different from the waste of PCT Heading No. 2710.9900 and contended that on official of the Federal Board of Revenue has communicated the classification of Sludge under PCT Heading 2713.9000.
3. Findings: We have examined the appellant's contention in juxtaposition with the budget instructions issued by the Revenue Division, Central Board of Revenue, Islamabad dated 15-6-2002 and find no mention of withdrawal of the C.E. Duty on sludge in there. The taxpayer's reliance on a letter written to him by a Superintendent of Central Excise Department advising that sludge falls under PCT heading 2713.9000 is found to be irrelevant to the period of audit in question. We find that sludge has been classified under P.C.T Heading No. 2710.9900 Entry No. 30 of 1st Schedule to the Federal Excise Act, 2005. Thus the contention of the taxpayer that sludge is appropriately classified under PCT heading 2713.9000 is without substance. Therefore, we determine that the demand created by the department and upheld by the CIR (Appeals-1) is correct at law. In case the appellant believes that sludge has wrongfully been classified under PCT heading No. 2710.9900 Entry No. 30 of 1st Schedule to the Federal Excise Act, 2005, he may take up the issue with the F.B.R, for its reclassification. Given, the existing classification, the appellant's contention of exemption is unfounded.
9. The default surcharge and penalty imposed by the Deputy Commissioner Inland Revenue (Audit) is however set aside because, the superintendent's letter created confusion for the taxpayer and the element of willful default does not exist in this particular case.
10. The appeal succeeds only to the extent of remission of default surcharge.