1. Through this sales tax appeal appellants namely M/s. International Cigarettes (Pvt.) Ltd., Village Shewa, Swabi has asked for relief against the order-in-Appeal No. 588/2011 passed by L/CIR (A), Peshawar vide dated 28.09.2011.
2. Precisely the facts necessary for disposal of appeal as per record are that appellant's record was audited fer the year July 2008-09 by the auditors of the department. They observed suppression of production and sales Of cigarettes and discovered inadmissible adjustment, non-payment of Sales Tax of Rs. 8,375,188/- on the production and sale of cig. Of 7824 pack rites declared less and the Federal Excise duty on un-manufactured tobacco etc. A show-cause notice No. ST&FE(Audit- XXI)/Int Cig/SA/2010/337, dated 17.01.2011 was issued by Assistant Commissioner (Audit-VI) Inland Revenue RTO, Peshawar (hereinafter called respondent No. 1) who after giving an opportunity of hearing to the appellants (then respondent) passed Assessment Orders No. 05/2011, dated 14.07.2011 holding that the appellants on the basis of details of shifts, working hours, operative machines and their production capacity provided, in response to the notice, were supposed to have declared 9576 pack rites in their books and thus evaded payment of FE duty to the tune of Rs.
3. 26,938,576/-, special excise duty of Rs. 254,064/- and sales tax of Rs. 8,375,188/-. Penalty at the rate of 5% of the principal amount of sales tax under Section 33(5) of the Sales Tax Act, 1990 and @ 5% of the principal amount of Federal Excise duty under Section 19(1) of the Federal Excise Act, 2005 has also been imposed.
4. Input tax adjustment of Rs. 82,146/- claimed under Section 7 or the Act has been alleged to be inadmissible under Section 8(l)(ca) and 8(1 )(d) of the Act as the payment under Section 73 the Act was not made in time. The Bank statement showing payment under Section 73 has not been accepted and the learned respondent No. 1 ordered recovery of the said amount under Sections 11(1) and 36(1) of the Act.
5. It has also been alleged in the show-cause notice that during 2008-09 the appellant (then respondent) cleared 7150 Kgs of un-manufactured tobacco for commercial purposes without payment of FED amounting to Rs. 35,750/- @ 5/- per kg in violation of Sections 3, 4, 17 and 18 of the Federal Excise Act, 2005. The plea taken by the authorized representative of the appellant to the effect that no such clearance had taken place and the entry appearing in the annual accounts actually related to the sale of stem which does not fall within the definition of manufacture, was not accepted and the learned respondent No. 1 ordered recovery of the said amount of Rs. 35,750/- along with default surcharge and the penalty under Sections 8 and 19 ibid. For alleged late filing of sales tax and federal excise returns and also filing of incorrect returns the learned respondent No. 1 imposed penalties of Rs. 60,000/- and Rs, 240,000/- respectively and ordered recovery of the same under Sections 11(2) and .36(1) of the Sales Tax Act and Section 14 of the Federal Excise Act. 2005.
6. Being aggrieved by the above order No. 05/2011 the appellant filed the first appeal before the Commissioner (A) Inland Revenue Peshawar (respondent No. 2) who vide his Orders-in-Appeal No. 588 of 2011 passed on 28.09.2011 decided by the case vide his orders in brief as under:-
1. Suppression of production and sales: Stance of the counsel for the appellants based on the power outage schedule provided by the Assistant Manager (PESCO), Nawankili subdivision during 2008-09 indicating 1429 horse power outage is not correct because the department has taken the actual working hours consumed in the production of cigarettes and the production capacity of the machines as declared by the appellants. The suppression of production and sale of 7824 pack-rites of cigarettes are proved on the basis of actual consumption of the electricity coupled with the declared production capacity of the machinery. The impugned assessment orders have been upheld.
2. Inadmissible input tax adjustment in violation of Section 8 of Sales Tax Act 1990: The plea of appellant that payment of sales tax of Rs. 82,126/- was made in the manner provided in Section 73 of Sales Tax Act, 1990 as was evident from the details of the cheques mentioned on page 14 of the impugned Orders-in-Appeal has not been accepted on the grounds that appellant did not produce evidence to the effect that the amount of tax was deposited into Government treasury by the suppliers during the period 2008-09. The orders of recovery of the said amount has been upheld.
3. Non-paym ent of Federal Excise Duty on clearance of unmanufactured tobacco: The demand of five rupees per kg on un-manufactured tobacco supplied in the market has been upheld and explanation of the appellant that entry to this effect in the annual accounts pertains to the sterns of tobacco has not been accepted. Federal Excise duty of Rs. 35,750/- on 7150 kgs of un- manufactured tobacco has thus been ordered to be recovered.
7. Arguments have been heard and the relevant record of the case has been minutely scrutinized with the assistance or the parties. The learned counsel for the appellant argued that the consumption of electricity is by no means a yard stick to assess the production. He contended that there are so many factors to be considered in assessing the production like the model of machinery, the condition of the machinery, maintenance, its supervision, its management, the skill of the labours, the willingness of the labourers and above all availability and use of raw material such as tobacco, filter rods, cigarette paper etc. He also argued that the audit party has calculated the dispute on the basis of declared efficiency of machines, working days, number of shifts but did not take into account the undeclared power shut down by the PESCO. At this stage the learned counsel produced a chart issued by Assistant Manager, PESCO showing load shedding during the period from July, 2008 to June, 2009. The chart consisting of three pages is also placed on record of appeal on page 45 to page 47. If calculated on the basis of working hours as depicted in the chart the total production comes to 1752 pack-rites as against 19152 pack-rites calculated by the audit.
8. Further L/AR or assessee/appellant took the additional ground that assessment order is barred by limitation. As the respondent/department issued show-cause notice C. No. IT/(Audit- XII)/int/Cig/SA/2010/337, dated 17.01.2011, whereas the assessment order has been passed by the Assistant Commissioner oh 14.07.2011 meaning thereby after lapse of 179 days whereas the law require that O.N.O/assessm ent order should be passed within 120 days of issuance of show-cause notice or within such extended period as the Commissioner may for reason to be recorded in writing for further 60 days, but no sufficient the reason seems to have been recorded by the Commissioner for the extension of time, while further extension has been granted after the period of 120 days already stood expired to this effect the L/AR relied the various cases-law on the subject.
9. On the other hand the learned departmental representative defended the impugned orders. He submitted that the assessm ent order is quite in accordance with facts and law. He further submitted that difference in production was discovered on comparison of production vis-a-vis installed capacity as provided in sub-rule (d) of Rule 69 of Federal Excise Rules, 2005. When questioned whether there is any provision in the Federal Excise Act and Rules and the Sales Tax Act and rules to calculate the production on the basis of consumption of electricity without referring to the consumption of raw material in the production of excisable goods the learned representative could not give any satisfactory reply. The written, comments by the department are as under:-
(1) Admitted to the extent that the appellant is a Pvt. Ltd. Company under the name and style International Cigarettes as described in the Companies Ordinance, 1984 and registered with the Regional Tax Office, Peshawar and is engaged in the production and taxable supply of cigarettes.
(2) Admitted as correct to the extent, that audit of the appellant was conducted and show-cause notice was issued under the provisions of the Sales Tax Act, 1990 and Federal Excise Act, 2005.
(3) Admitted to the extent that reply of the show-cause notice was submitted by the appellant. The respondent No. 1, has issued speaking order after considering the pros and cons of the entire case and giving sufficient opportunity of being heard.
10. We have carefully gone through the record and have considered the arguments advanced at the bar and find that the assessm ent on the basis of consumption of electricity, is hardly a safe rule and yardstick to assess the production. Through SCN suppression of sales on account of electricity consumption and on account of annual audited account has been observed. However, while concluding the appeal, the observation of O.N.O. About the suppression of sales on audited account has been dropped by accepting the sales as per audited accounts, but the observation of sales estimation on the basis of consumption of electricity has been confirmed, but in this situation how the sales could be presumed on consumption of electricity, when the audited accounts have been accepted by the department. The estimation of sales on the basis of any type of presumption is not just and fair to tax a citizen especially when the basic ingredient for determination of production i.e. The raw material consumed by the manufacturer as provided in Rule 19 of Federal Excise Rules, 2005. Sub-rule (2), which clearly lays down that if the officer is satisfied about the accounts maintained by the manufacturer, shows lesser quantity of excisable goods manufactured on the basis of the quantities of raw material including "manufactured and semi- manufactured" products received by the manufacturer, the assessing officer may demand from the manufacturer such amount of duty as is, his discretion under the Act or Rules made thereunder, payable by the manufacturer. Similar Rule existed in the defunct Central Excise Rules, 1944. Rule 226(2) of the said rules lays down that if the officer is satisfied that the accounts maintained by the manufacturers shows a lesser quantity of excisable goods manufactured and accounted for than should have been on the basis of quantities of raw materials received by the manufacturer, he may demand from the manufacturer such amount of duty as payable by the manufacturer.
11. There is nothing on record to suggest that any investigation in regard to raw material such as tobacco, cigarette paper, paper rod etc. Was received by the manufacturer but not properly accounted for towards productions of cigarettes, has been made in this case.
12. Charging Section 3 of the FE Act, 2005 speaks to levy of duty on goods produced or manufactured.
13. There is no provision of Act or the Rules made thereunder which allows the assessing officer of Inland Revenue to determine the duty of exercise or sales tax on the basis of production capacity of the machines or the consumption of electricity in the manufacture of such goods. Under Section 3(3)(a) of the Act the FBR could by a Notification in the official Gazette, in lieu of levying and collecting duties of excise under Section 3(1) ibid levy and collect duties on the production capacity of plants, machinery or installation producing or manufacturing such goods. There is no such notification on record. As regards calculating production on the basis of consumption of electricity, the method despite being unfair and unjust is in conflict with the provision of Section 3 of the FE Act, 2005. We are afraid we cannot subscribe to the said idea.
14. The Hon'ble Supreme Court of Pakistan in its judgment in case Government of Pakistan v. Shahi Bottlers Ltd., reported as 1987 SCM R 571 has upheld the ruling of Lahore High Court .That the officer concerned can exercise his authority to demand from the manufacturer on the basis of raw material such excise duty as is in his judgment payable by him on goods that should have been produced from such raw material.
15. In sales tax matter the judgment passed by the learned Lahore High Court, Lahore reported as PTCL 2008 CL 499 is also unambiguous. It lays down that under Section 2(35) of Sales Tax Act, 1990 the yard stick to charge and levy sales tax is the sale constituting a taxable activity for a taxable supply. Law requires that tax must be levied or charged in clear, unambiguous and specific terms.
16. Tax cannot be levied on presumption or importing something which the legislature has not provided therein.
17. Input tax adjustment cannot be disallowed because genuineness or the purchase invoices have not been challenged. Nonpayment of duty on clearance or unmanufactured tobacco is also not established as the record shows that no' such sales had taken place.
18. Besides above, the other legal objection about the limitation involved in SCN and completion of O.N.O. This ground has been agitated additionally by the L/AR of the taxpayer/units. On the subject the cases-law referred are 2009 PTD 762,2010 PTD 251 & 2009 PTD 2004.
19. L/DR relied upon the case-law cited as 2008 PTD 2025. In this case it has been held that time period could be extended after expiry of period of limitation of prescribed limitation of Section 36(3) of Sales Tax Act, 1990. While in the other cases-law it has been held that period of limitation could be extended but permission of extension must he given by the Commissioner by recording sufficient reason of extension before the expiry of prescribed period of limitation as mentioned in Section 36(3) of the Sales Tax Act, 1990. In the matter in hand no sufficient reason has been recorded by the competent authority about the extension of time, while also in this particular case referred by the L/DR for the period earlier than December, 2006 vide sub-section (2) of Section 45 of Finance Act, 2006 time limitation was extended upto 31st December, 2006. Which read as under:- "Notwithstanding anything contained in sub-section (4) of Section 11 and sub-section (3) of Section 36 or any other provision of the Act or any other law for the time being in force and notwithstanding any decision or judgment of any forum, authority or Court, the time for adjudication in all the cases pending as on 31st June, 2006, shall be deemed always to have been extended upto 31st December, 2006 from the date on which the time-limit prescribed under sub- section (4) of Section 11 and sub-section (3) of Section 36, expires."
20. In the above scenario of the matter, giving accumulative effect to the above discussed fact, we are inclined to accept the appeal on behest of the appellant and to vacate the SCN and O.N.O. And we order it accordingly.