' ABDUL RAUF ACCOUNTANT MEMBER.---The instant appeal has been directed against the order-in- original dated 31-2-2001 passed by the Additional Collector (adjudication) Customs, Sales Tax and Central Excise, Faisalabad. Facts necessary for the disposal of the appeal, briefly stated, are that the appellant which was registered with the Collectorate of Sales Tax, Faisalabad vide Registration No,04-09-2523-001-91 on 1-12-1990 installed an additional unit having production capacity of 2500 M.T. In the year 1994 which was named as Phase-II. Both the units are situated in close proximity and are separated only by a rail track laid between them. The second unit was got registered separately under some misconceived notion and was allocated Registration No, 08-05-4819-001-
82. Since both the units were supplied electricity from one connection of WAPDA, the appellant claimed adjustment of sales tax of Rs,26,24,101 on the electricity bills for the period 09.2000 to 01.2001 of (Phase-II) against the output tax of (Phase-I) which, in the opinion of concerned sales tax officer, was violative of section 8(4) of the Sales Tax Act, 1990. A show cause notice dated 12-9-2001 was, therefore, issued by the Additional Collector (adjudication) Customs, Sales Tax and Central Excise, Faisalabad whereby the appellant was confronted with wrong adjustment of input tax of Rs,26,24,101 against the output tax of unit No,
1. Objection was also raised to the timing of adjustment of sales tax charged through electricity bills and it was pointed out that the appellant had wrongly claimed adjustment of input tax paid along with electricity bills immediately on receipt of the bills whereas the said adjustment could be lawfully claimed only after the payment of the bill. Additional tax of Rs,65,191 was, therefore, proposed to be charged under section 34 of the Sales Tax Act, 1990 for out-of-period adjustment of the input tax charged through electricity bills pertaining to the months September, 2000 to April, 2001. Besides, sales tax attributable to consumption of electricity on the allegedly non taxable activities i,e, running of canteen and administrative offices etc. Etc. Was also proposed to be disallowed as it, in the opinion of the learned adjudicating authority, did not relate to taxable activity.
2. Reply submitted by the appellant did not find favour with the learned Additional Collector (adjudication) who proceeded to pass the order in original on the lines confronted to the appellant through the show cause notice. Penalty @ 3% was also directed to be recovered from the appellant:--
(a) for wrong adjustment of input tax relating to Phase-II against the output tax of Phase-I, and
(b) for adjustment of input tax on receipt of electricity bills rather than after the payment thereof.
4. Being aggrieved by the order passed by learned Additional Collector (Adjudication) the appellant has come up in appeal before us under section 46 of the Sales Tax Act, 1990.
5. The learned AR, initiating the arguments on appeal, contended that the appellant applied for separate registration of Phase-II plant at the instance of the staff of the Excise Department under misconceived notion of law. However, the CBR vide Sales Tax General Order No, 10/1998 dated 22- 12-1998 clarified that there should be one registration for one person carrying on different taxable activities within the jurisdiction of one Collectorate. On the basis of this order the appellant made a request to the Collectorate of Sales Tax, Faisalabad for cancellation of the second registration vide its letter dated 14-12-1999, which was followed by a number of reminders dated 22-1-2000, 12-4- 2000, 22-4-2000 and 22-10-2001. The first three reminders were dispatched to the Collectorate before issuance of show cause notice dated 12-9-2001. None of the letters was, however, responded by the Sales Tax Department, which compelled the appellant to approach the Member Sales Tax. Accordingly the appellant vide its letter dated 28-2-2002 (addressed to the Member Sales Tax CBR) made a request for cancellation of the second Registration. The said letter appears to have been forwarded by the Member to the concerned Collectorate and ultimately. The Collectorate vide its letter dated 3-4-2002 communicated cancellation of the second Registration to the appellant w,e,f, 23-6-1998.
6. On the basis of sequence of facts enumerated in the foregoing para, the learned AR pleaded that after the issuance of clarification by the CBR through Sales Tax General Order No, 10 of 1998 the appellant was fully justified to adjust input tax of Phase-II unit against the output tax of Phase-I especially because the Collectorate also affixed seal of approval on the adjustment made by the appellant by cancelling the second registration w,e,f, 23-6-1998. The effect of this cancellation, the learned AR argued, was more than obvious-both the units were to be treated as one business entity having the right of adjustment of input tax paid separately against the output tax of the unified business entity. The learned DR in his turn, though supported the order in original, could not controvert the submissions made by the learned AR of the appellant on legal as well as factual planes.
7. We have given due consideration to the rival arguments and also gone through the order of the adjudicating officer as well as the case-law relied upon by the learned AR of the registered person.
We are of the considered opinion that the second registration in respect of Phase-II was sought and accorded by the department under misconceived notion of law and was of no significance at all. As soon as the Central Board of Revenue vide Sales Tax General Order No, 10 of 1998 issued necessary clarification, the appellant approached the concerned Collectorate for cancellation of second registration and also sent a number of letters/reminders to the concerned authorities.
These letters, however, remained unattended for quite some time with the result that the registered person had to approach the member Sales Tax for the cancellation of the second registration. The member referred the matter to the concerned Collectorate, which ultimately cancelled the second registration vide its letter C. No, IV-ST(4)35/99/493 dated 3-4-2002. For the sake of convenience the contents of the letter are reproduced hereunder:-- "With reference to your application No, MLCF/P&T/Sales Tax/6465 dated 28-2-2002 for the cancellation of above said registration number the competent authority has been pleased to cancel the said registration number 08-05-4819-001-82 w,e,f, 27-6-1998. The unit now therefore, is allowed to continue its business under one registration No, 04-09-2523-001-91".
' It will not be out of place to mention here that the issue of multiple sales tax registration in the case of appellant also came up before the Honourable High Court, Lahore, and the Honourable Court in the judgment reported as 2000 PTD 1296 held as under:- "The Authorities below have completely omitted to notice that there was no second registered person in existence at the time when the input tax was paid or when the deduction out of the output tax was made. The import had been made by the appellant company which had paid the input tax and it was consequently entitled to deduct tax paid from the output tax payable on the cement produced by it. The subsequent registration of Messrs Maple Leaf Cement Factory Ltd.
Phase-II was not of any significance. The orders passed by the authorities below clearly suffer from non-consideration of material facts, on the basis of which the appellant could not have been denied the benefit of section 7 of the Sales Tax Act,'1990."
8. On the basis of discussion made hereinabove we are of the considered view that after the issuance of clarification by the CBR (Now FBR) vide Sales Tax General Order referred to above and cancellation of second registration w,e,f, 27-6-1998 the registered person was well within its right to claim the adjustment of input tax paid in respect of Phase-II unit and there was no legal infirmity in the claim. We, therefore, direct that the registered person be treated as one business concern for the purpose of adjustment of input tax. As a consequence additional surcharge under section 34 of the Sales Tax Act, 1990 and penalty levied under section 33 of the Sales Tax Act, 1990 of the Sales Tax Act, 1990 on account of disallowance of the said adjustment also stand deleted.
9. Next ground pertains to the levy of additional tax of Rs,65;191 because of wrong timing of adjustment of input tax. The learned AR contended that the at the time of filing of returns there was a confusion whether adjustment of input tax was to be made with reference to the date of issuance of electricity bill or the date of payment of bill. However, when the CBR vide its letter No, 1/1STL/P dated 28-5-2001 clarified that the adjustment of input tax could be claimed only after making the payment of the bill, the appellant started claiming adjustment in accordance with the instructions issued by the CBR. The learned AR further contended that the irregular adjustment of input tax made by the and appellant before the actual payment of electricity bill was just a procedural and inadvertent lapse which did not attract the penal provisions of law. In this context reference was made to the judgment of this Tribunal in the case of Layya Sugar Mills reported as GST 2004 CL-318 wherein it was held:-- "The allegation against the appellant is that he has carried out irregular adjustment of input tax amounting to Rs,1,32,076 in the month prior to which the same ought to have been carried out. As already mentioned above, this Tribunal in a number of cases has held the irregular input tax adjustment a procedural lapse. The learned Full Bench of this Tribunal in Appeal No,154/LB/2002 in the case of Messrs Trade Link International, Lahore v. Collector of Sales Tax, Lahore has allowed the appeal in favour of the appellant on this issue. In view of above, we also hold the same view and treat the irregular input tax adjustment a procedural lapse. The impugned order against this charge is set aside."
Respectfully following the judgment of the Tribunal we also hold that the adjustment of input tax made by the appellant under misconception of law does not render it liable to additional tax or penalty. We, accordingly, direct deletion of additional tax of Rs,65,191 charged on account of irregular adjustment of input tax.
10. As regards the disallowance of input tax attributable to the allegedly non business taxable activities and the consequential additional tax and penalty charged @ 3%, this issue also stands well settled by the clarification issued by the CBR vide letters No, 1(13)STR/2000, dated 10th December, 2002 and 1(13)STR/2004 dated 9th December, 2004 as well as reported judgments of this Tribunal viz. 2005 PTD (Trib.) 1358 and 2006 PTD (Trib.)
196. For the sake of reference findings/ observations of the Tribunal contained in the latter judgment are reproduced hereunder:-- "Coming to the last issue, we are of the view that the electricity used within the compound of the cement factory is used for the taxable activity of manufacturing of cement. The sales tax paid on electricity bills by the appellants adds to the value as the areas identified by the respondents in which the electricity is consumed i,e, plant lights, stores time office, dispensary canteen/mess, guest house (bachelor hostel) and administrative office are all located within the compound of the factory and are directly related to taxable activity within the meaning of section 2(35) of the Act in that the areas where the electricity is consumed are needed to enhance the efficiency of production of taxable goods by providing locational proximity for production planning production supervision, emergency handling of production problems, store keeping, security, accounting of taxable goods, providing first aid to the factory employees making taxable supplies and issuing tax invoices and also for satisfying periodical regulatory requirements like sales tax audit. As such the deduction of input tax paid on the electricity consumed in the areas shown in para 6(4) above is admissible under the law as held by the Tribunal's Special Bench in the case of Messrs Pioneer Cement Ltd., Khushab as cited above. We also gain support from another decision of this Bench in Appeal No, 783/PB/2002 of Messrs Premier Sugar Mills, Mardan in which adjustment of input tax paid on electricity consumed in labour colony and houses of personnel of the factory located inside the factory premises was allowed since salary and perks of labour were treated as part of cost of production, a taxable activity. The learned DR could not cite any decision of the superior courts or of the Tribunal that is contrary to the findings of the aforesaid decisions of the Tribunal.
Accordingly, we set aside the decision of the adjudicating officer on this count."
11. Since the offices and Canteen etc. Etc. In respect of which input tax has been claimed are located within the factory of premises of the appellant, there can be no other opinion except that they contribute to the smooth running and efficiency of the business and as such they are to be treated as integral part of the business. Following the ratio the above-quoted judgments of the Tribunal we, hold that the appellant is entitled to the adjustment of input tax paid on electricity consumed in the running of canteen and administrative offices located within the factory premises.
12. The appeal of the registered person succeeds as above.