1. MR. M. A. JAVED SHAHIN, JUDICIAL MEMBER.-(1)This appeal preferred at the instance of the registered person is directed against the order in original No. 19/2002 dated 15-11-2001 passed by Collector of Customs, Sales Tax and Central Excise (Adjudication), Faisalabad.
2. 2.Facts of the case in brief are that audit of the appellants company for the tax periods 09/2000 to 05/2001 was conducted and it was observed that the appellant is adjusting input tax on electricity bills which was being used in colony (residential area) and administrative offices which was not admissible under Section 8(a) of the Sales Tax Act, 1990. The management of the units was asked to produce the record of electricity consumed. From examination of record, it was ascertained that the appellant had adjusted input tax amounting to Rs. 23,47,968/- under this head. It was further observed that there are to bills involving sales tax amounting to Rs. 1,58,95,030/- which were neither in the name of appellants nor contain the sales tax registration number. Hence, the appellants had evaded the aforesaid sales tax by way of wrong adjustment during the periods 09/2000 to 06/2001 which was recoverable alongwith additional tax. Therefore, a show cause notice was issued calling upon as to why sales tax amounting to Rs. 1,58,95,030/- alongwith additional tax u/s 34 may not be recovered and why penal action u/s 33 of the Sales Tax Act, 1990 may not be taken against them. The reply furnished was found unsatisfactory and therefore the order in original was passed directing the appellants to pay Rs. 23,47,968/- and Rs. 1,58,04,646/- alongwith additional sales tax as required u/s 34 and penalty @ 3% u/s 33(2) of the Sales Tax Act, 1990 was also imposed.
3. 3.The AR vehemently contested the action of the Adjudication Officer as un-justified. Besides reiterating the submissions advanced before the lower forum, the AR pleaded that every registered person is entitled to adjust the sales tax paid on inputs procured for the purpose of making taxable supplies. This entitlement cannot be withdrawn through any rules regarding the procedure for calculation or through any administrative instructions issued by CBR. He argued that the use of electricity in the offices was definitely meant for furtherance of taxable activity and had rightly been adjusted by the appellants. According to him, all factors and items which are used as integral part of the manufacturing process and could not be separated merely on the ground that it was not part of the manufacturing unit. The AR further pleaded that input tax adjustment against electricity consumed in the residential colony situated with the premises of the registered person producing taxable goods is correctly adjusted as per provisions of Section 7(1) of the Act. This contention has been supported by placing reliance on the following judgments:- i. STA No. 1392 ii. 2007 PTD 473 iii. 2006 PTD (Trib.) 196
4. According to him, the Tribunal as well as the Superior Courts have already dilated upon this issue and allowed the adjustment of input tax adjustment in similar circumstances. In support of his contention he has relied upon various reported and unreported case law. It was further pleaded that the CBR has also clarified the issue vide letter C. No. 1(13) STR/2004 dated 09-12-2004 in the following words:- "Canteen guesthouse and residential block/colony are not used for manufacturing of the goods or taxable supplies made. Hence adjustment of the tax paid on electricity consumed in these areas is not permissible. However, the administration block deals with affairs linked with the manufacturing/production. Therefore adjustment of the tax paid on electricity consumed therein is allowed such block is in the same boundary wall where the production/manufacturing activity is carried out".
4. In the first case of the Tribunal reported as 2005 PTD (Trib.) 1358 it was held as under:- "Tax credit not allowed-allowed input tax adjustment on electricity bills was disallowed on the ground that electricity consumed in officer area and during off season could not be taken as taxable activity-Validity- All factors and items, which are used as integral part of the manufacturing process and could not be separated merely on the ground that it was used in off season because to run a factory is satisfactory and good condition its maintenance and ever grooming was fundamental aspect, without which a good production could not be expected-input adjusted made was in association with S. 8 of the Sales Tax Act, 1990 and consumption of electricity even in off season was an integral process of manufacturing and production of taxable goods-Charge levied was vacated by the Appellant Tribunal".
5. In the case reported as 2006 PTD (Trib.) 196 the same issue has been decided as under:- "Electricity used within the compound of cement factory was used for taxable activity of manufacturing of cement-Sales Tax paid on electricity bills by the appellants was added to the value of areas identified by the department in which electricity was consumed - Deduction of input tax paid no electricity consumed in the areas, was admissible under law-impugned decision of adjudicating officer on that count, was set aside".
6. The Tribunal in the case of M/s. Pioneer Cement Limited, Khushab bearing STA No. 807/LB/2002 dated 07.06.2002 has held as under:- "We have already held that the activities in an administrative office of a registered person, if located on the same plot/premises where production of taxable goods is undertaken, will be treated as part of the taxable activity of that registered person. We, therefore, hold that the words "administrative offices" as used in para (d) of CBR's letter C. No. 1/1-ST.L&P/2001 dated 28.05.2001 is not lawful or appropriate and should be construed as "administrative office c f a registered person located outside the plot/premises of that person where taxable goods are produced or manufactured or where taxable services are proved or rendered." With the aforesaid findings and observations, we direct that the appellant be allowed input tax credit/adjustment on account of consumption of electricity in their administrative offices locate on the plot/premises of the appellant producing taxable cement".
7. Another case relied upon by the learned AR deals with the same issue in the following manner:- "The use of electricity in the office is definitely meant for furtherance of taxable activity and could be adjusted towards input tax".
8. In STA No. 1392/LB/2009 dated 02.12.2010 the Tribunal came to the conclusion that:- "... .Electricity bills of residential colony and tube well, it is by no fairly well settled that the telephone installed within the factory premises as well as electricity used in the residential colony are the facilities meant to be used in the furtherance of the business...... We direct that the registered person be allowed adjustment of input tax paid on the utilities as they are not only inextricably linked to the carrying on of business but also play a pivotal role in the furtherance of business".
9. In another case reported as 2010 PTD (Trib.) 1874 the Tribunal has reached the following conclusion:- "Tax credit not allowed - Claim of input tax on electricity utilized in labour colony - Disallowance of - Assessee contended that labourers being integral part of the manufacturing process of production the input tax paid on their electricity bills was fully allowance - Legislature had disallowed the input tax on use of electricity for labour colony............. Input tax on electric supply of labour colony prior to 3.6.2007 was entitled to input tax and the concerned officer was directed to allow the same".
5. On the issue regarding non-printing of name and sales tax registration, number of the appellant on the electricity bills the learned AR pleaded that M/s. D.G Khan Cement Company was incorporated in Pakistan in 1978 and commenced production of cement in 1986. It was set forth by State Cement Corporation but State Cement Corporation has only minimum share and DG Khan Cement is an independent Company. Special procedure for collection & payment of sales tax (Electric Power) Rules, 2000 were issued vide Notification SRO No. 124(I)/2000 giving procedure for collection and payment of sales tax on electricity and the sales tax become payable on electricity consumed by cement industry and till to date the DG Khan had paid full amount with tax.
10. To the MEPCO. It was further contented that the Adjudication has completely failed to take into consideration the obvious facts that the electricity was supplied to none other the appellant Company, and the name of the consumer mentioned on each of the bills abundantly makes it clear. It is respectfully submitted that the Appellant Company is in the process of arranging from MEPCO the electricity bills with the correct name of the Appellant Company mentioned thereon. It was submitted the legal principle that statutory rights and entitlement cannot be defeated through reliance on administrative procedures stands enunciated and established by the decision of the Honorable Supreme Court of Pakistan in the case of M/s. Nishat Mills Vs. Superintendent of Central Excise (PLD 1989 SC 222). The attention is drawn to the following paragraph at page 228 of the said judgment "It must be straight-away stated that the statutory rule concerned [3(9)], is at a higher level that the order of relaxation passed by the Board of Revenue - whether it is particular one in the cases of appellant of or the general one for others. Keeping in view the state of the case law and the foregoing discussion on the rule of "substantial compliance" it will not be possible to hold that the principle would be applicable to the direction by the board of Revenue given to the appellant for ensuring that the looms were rendered into non-working condition. To hold otherwise would be instance on the mere technically of procedure, which as observed by this Court in the case of Imtiaz Ahmed, in any system of administration of justice is to hole and not to thwart the grant to the people of their rights".
11. 6.In the instant case it is clear that the Appellant Company has paid sales tax on the purchases of electricity for the relevant period and made adjustment against the output tax payable and that there has been no violation of the requirements of Section 7 and 8 of the Sales Tax Act, 1990. It is also clear that the procedure prescribed in SRO 124(I)/2000 is meant to ensure that no unauthorized adjustment of sales tax is made on electricity purchases. The procedure prescribed in the said SRO is not meant to trap registered persons. It was further submitted that there is no bar in the said SRO on a registered person to demonstrate compliance with the requirements of the said SRO even after the tax period concerned. In the instant case the Appellant Company has already placed on record the bills for the relevant period that contain the sales tax registration of the Appellant Company. The said bills cannot be overlooked or ignored so as to burden the Appellant Company with a huge tax liability which is otherwise not authorized by law. As regards the statement name of the consumer on the said bills it is submitted that the bills for the relevant period even without correction of the name clearly mention that the bills were issued as regard the electricity consumption by the cement project at D.G Khan Company.
12. 7.The AR also contented that non-mentioning of sales tax registration number ap the bills is at most a procedural lapse and legitimate refund could not be withheld on technical grounds. In this regard the AR has relied upon the judgment of the Honorable Supreme Court of Pakistan cited as PLD 398 SC 64 whereby it was held as under:- "Where some money was received by the Government not lawfully due, the plea of limitation by its departments was violative of the principles of morality and justice-Withholding of a citizen's money by public functionaries on the plea of limitation or any other technical plea if it was not legally payable by him was deprecated".
13. 8.The learned DR on the other hand supported the impugned order for the reasons stated therein.
14. According to him, the appellant has miserably failed to satisfactorily explain the charges levelled against them despite affording reasonable opportunity of hearing, therefore, no interference is warranted.
15. 9.We have considered the rival arguments and gone through the impugned order as well as the case law cited at the bar. It has been observed that on the issue of adjustment of input tax claimed against electricity bills consumed in the colony and administrative offices the Tribunal has already held that use of electricity in the offices is meant for furtherance of taxable activity and admissible.
16. The case law cited above in this regard are relevant and seeking guidance from these judgments we are of the considered opinion that the adjustment of input tax under this head had wrongly been disallowed. So for as the issue of non-mentioning of sales tax registration number on the electricity bills the Honorable Supreme Court in a case reported as PLD 1998 SC 64 has categorically held the default as a procedural lapse and therefore, the adjustment on this technical ground cannot be deprecated. All the more so when it is proved that the actual consumer was the appellants company. In this view of the matter this charge is also not tenable and the action of the Adjudication Officer is not sustainable. Consequently the charges levelled against the appellant are set aside and the impugned order is annulled.
17. Resultantly the appeal is accepted.