MS. ZARINA N. ZAIDI, ACCOUNTANT MEMBER.-(1). These appeals have been filed by the taxpayer/ applicant against the order-in-appeal No. 1092 & 1093/2008 dated 26.04.2008, on the grounds as set forth in the Memo of appeals.
2. The appellant is a multinational public limited company engaged in the business of manufacture and sale of petroleum products. The Appellant is engaged in the country-wide* distribution as also export of POL products and is registered under the Sales Tax Act, 1990 as also in the categories of the importer, manufacturer, distributor, wholesaler and exporter. The selling price of the petroleum products is regulated by the Ministry of Petroleum (hereafter: "MOP") under the Petroleum Products (Development Surcharge) Ordinance, 1961 (hereafter referred to as "the 1961 Ordinance"). In view of limitation of section 4 of the 1961 Ordinance, the Appellant could not have sold its products at any price other than one notified by the MOP. Furthermore, any contravention in this regard whereby the appellant would sell beyond the notified price would have constituted an offence under the Price Control and Prevention of Profiteering and Hoarding Act, 1977 and the Essential Supplies Act, 1957.
3.That till 16.8.99 petroleum products were exempted from Sales Tax as per Item No. 8 of the Sixth Schedule to the Sales Tax Act, 1990 (hereafter: "the 1990 Act"). Suddenly, however, through SRO 922(1) of 1999 dated 16.8.1999 the said exemption was withdrawn. Strangely however despite the said withdrawal of exemption, the pricing structure by the MOP remained unamended. As a result the appellant could not add the Sales Tax component in its selling price and hence could not recover Sales Tax from the customers. Thus the appellant could not collect and did not pay the Sales Tax. Later the MOP acknowledging this omission through office Memo dated 31.8.1999 prescribed payment/charging of sales tax but not for the .. Product in question i.e. Furnace oil. For the product in question if was only though SRO dated 23.9.1999 that the MOP prescribed the pricing structure. The appellant therefore contended that between August 1999 to 23.9.1999 it was not under any obligation to pay Sales Tax since the mandatory pricing structure to charge Sales Tax was only prescribed vide SRO /(I)/99 dated 23.9.1999.
4. Without any dispute on the payability of Sales Tax an Audit was ordered by the Department and to Audit Observations dated 8.6.2001 were communicated repeating the same contention once again. The appellant submitted an appropriate reply to the audit observation vide letter dated 13- 06-2001.
5.The appellant had no other option at then but to challenge the above audit observation No. 1 dated 08-06-2001 through Suit No. 836/2001 before the High Court of Sindh against illegal demand of Sales Tax. The Hon'ble High Court of Sindh vide order dated 25.6.2001 the Department to maintain status quo. The case was fixed in Court from time to time and ultimately the Honorable High Court of Sindh vide order dated 24-11-2005 directed the Respondent department to issue proper notice and raise a demand thereafter accordingly.
6. Initially the Department was making an attempt to suppress the to show cause notices issued on 26.10.2011. However, the show cause notices were traced out and attested copies thereof were obtained (after paying copying fee of Rs. 40/-) on 17.3.2005 (Annex N). These show cause notices were repelled vide Appellant's to letters dated 1.11.2006 followed by another letter dated 9.1.2007.
7.The case was assigned later to the Addl. Collector (Adjudication) Mr. Sadaruddin Ahmed Qureshi, who heard the case since 17.4.2006 to 15.1.2008 and passed the order in original No. 4/2008 on 24.1.2008 rejecting all the grounds, arguments and the case law furnished by the Appellant's counsel as well as the Order in parallel case on the same facts in Sales Tax Appeal No. K-286 and K-309/2001 dated 14.6.2006 in the case of M/s. Caltex Oil Pakistan Ltd. Which was passed by a Division Bench of the Tribunal. Thereafter, the Commissioner of Sales Tax Appeals also rejected the first appeal vide his Order in Appeal No. 1092/2008 dated 26.4.2008. There also the facts, grounds and arguments and case law cited by the Appellant were arbitrarily ignored or rejected. Hence the instant appeal has been filed as per takes , grounds, arguments and case law.
8.Mr. Mohammad Naseem, the learned counsel of the appellant, has raised the pleas and arguments as also the case law as under:-
(i) The very show cause notice is illegal and without jurisdiction since the same having been issued u/s 36 of the 1990 Act is vague for want of necessary particulars. The show cause notice also does not mention as to which category of section 36 the case falls under. Reliance in this regard is placed on Assistant Collector Customs v. Khyber Electric Lamps 200I SCMR 838; Zamindara Paper & Board Mills (Pvt.) Ltd. v. Collector of Customs, Sales Tax & Central Excise 2003 PTD 1797; Atlas Tyre v.
Additional Collector Adjudication (2003) 88 Taxation 128 and Caltex Oil v. Collector Central Excise PTCL 2004 CL 494; (ii)The Sales Tax is an indirect tax which means that a registered person is allowed to in build the same in its price; and where the registered person is not entitled to charge the output tax from its customers the charging section contained in section 3 of the 1990 Act would not come into play and hence no sales tax can be imposed. In this regard reliance is placed on Elahi Cotton Mills Ltd. v.
FOP PTCL 1997 CL. 260; Frontier Ceramics v. Govt, of Pakistan PTCL 2000 CL. 356 and more pertinently Mayfair Spinning Mills Ltd. v. Customs, Excise & Sales Tax Appellate Tribunal PTCL 2002 CL 115; (iii)Section 4 of the 1961 Ordinance contains a non- obstante clause whereby the appellant cannot tamper with the pricing structure prescribed by the MOP and charge/pay sales tax, unless and until the MOP allows it to do so. Accordingly to the appellant this non-obstante clause contained in section 4 of the 1961 Ordinance Act has an overriding effect over the 1990 Act; (iv)Without prejudice, although the charge of sales tax is introduced through section 3 of the 1990 Act, its payability is dependent upon section 4 of the 1961 Ordinance and through SRO 922(I)/99 dated 16.8.1999 although the chargeability was introduced, the payability of the tax was suspended and only introduced vide SRO (I)/99 dated 23.9.1999 when the MOP had prescribed the pricing structure. For such purpose reliance is placed on Kohinoor Textile v. Federation of Pakistan 2002 PTD 121;
(v) The impugned charge is expropriatory and confiscatory in nature and opposed to the fundamental rights guaranteed under the Constitution. According to the appellant although on one hand the charge is introduced but on the other hand it is not allowed to pass on the burden, which is nothing but an exercise against the fundamental rights, being also unreasonable in nature. This has also subjected the appellant to a situation of loss. For such purpose reliance is placed on Govt, of Pakistan v. Mohammad Ashraf PLD 1993 SC 176; Elahi Cotton Mills Ltd. v. FOP PTCL 1997 CL. 260 and Firdous Spinning & Weaving Mills v. FOP PTCL 1985 CL. 10; (vi)Since the petroleum products are sold in pursuance of certain price control regulations, there is no "sale" within the meaning of Entry 49 of the Fourth Schedule to the 1973 Constitution, in view whereof there is no question of chargeability or payability of the levy. In this regard reliance is placed on Chhitter Mai Narain Das v. Commissioner of Sales Tax (1970) 3 Supreme Court Cases 809 and State of Tamil Nadu v. Cement Distributors Private Ltd. (1973) 3 SCC 342; (vii)The facts as above would show that the Tribunal under section 65 of the 1990 Act should give a finding that the sales tax in question is exempt and the government/CBR have erred in exercising this power. For such purpose reliance is placed on the findings given by the Supreme Court in the first round of proceedings in the case i.e. Caltex Oil v. Collector PTCL 2004 CL 494 (SC); (viii)In a similar case a Division Bench of the erstwhile Customs and Sales Tax Tribunal has already accorded relief to the appellant i.e. The case of Caltex Oil v. Collector (unreported) being Central Excise Appeal K-220/04/8015 dated 30.9.2004; (ix)Item No. 8 of the sixth schedule to the 1990 Act, which had conferred the exemption was purportedly amended through SRO 922(I)/99 dated 16.8.1999. This was all an illegal exercise of power since a statute cannot be amended by a subordinate legislation such as a SRO. In this respect attention is invited to CTT v. Kashmir Edible Oil Ltd. 2006 SCMR 109; (x)The show cause notice was issued on 25.5.2001, while the order in original was framed on 16.7.2001. The ONO since not having been passed within 45 days of the issuance of the show cause notice, and no time limit having been extended by the competent authority is barred by limitation and of no effect in terms of proviso to section 36(3) of the 1990 Act. In this regard attention is invited to Pace International v. Secretary PTCL 2005 CL 836; SS Oil Mills Ltd. v. Secretary GST 2005 CL 592; CST v. Hilal Tanneries PLD 1976 Lah. 655 and Nagina Silk Mills v: 1TO PLD 1963 SC 322; (xi)The requirement of submission of old record of monthly return, inventory records, sales and clearing stock as on 15.9.1999 beyond the period of limitation (five years) in the hearing on 9.1.2008 was arbitrary, without jurisdiction and barred by limitation; (xii)The learned Collector Adjudication has erred in not following the DB judgment in the case of Caltex, delivered by the Tribunal is Sales Tax Appeal No. 255/2001 and K-309/2001 dated 14.6.2006 levelling the same facts and issues which was binding on subordinate officers and is binding on our Division Bench also, as per PLD 1963 SC 296, PLD 1995 SC 423, (1997) 75 Taxation 108, PLD 1963
(WP) Kar. 280, PLD 1997 SC 582, SCMK 1136;
(xiii) The ONO contains many points and discussions which are not contained in the show cause notice as such the entire exercise is void. In this regard attention is invited to Collector v. Rahamdin 1987 SCMR 1840 and Exide Pakistan v. Deputy Collector 2004 PTD 1449; (xiv)The imposition of additional tax and penalty is also attacked as the matter concerns a genuine interpretation of law and no malafides on the part of and others as per 2004 PTD 2371; the appellant are present. For such purpose reliance is placed on DG Khan Cement v. FOP 2004 SCMR 456 and Gandhara Nissan v. Sales Tax Department 9. On the other hand, the learned departmental representative failed to address and rebut any of the above facts, arguments and case law. We further observe that for the purposes of petroleum products the 1961 Ordinance by virtue of its section 4 will have an overriding effect over the 1990 Act (NB: for the overriding effect of non- obstante clauses, see Elahi Cotton v. FOP PTCL 1997 CL. 260. This issue was decided by a DB of this Tribunal in CE Appeal No. 20/2004 dated 30.9.2004. Mrs. Yasmeen Abbasi, Member Judicial, as she then was, while authoring the order, was pleased to hold that the appellant's obligation to pay central excise duty on furnace oil began not from the date of notification issued by the CBR but rather from the date of notification issued by MOP in the present case, due to the inaction of the MOP a corresponding notification to CBR's SRO 922(I)/99 dated 16.8.99 was not issued by the MOP till 23.9.99. In other words, it was only on 23.9.99 that the MOP had prescribed a price structure notification authorizing the appellant to charge sales tax on furnace oil, while permitting it to pass on the burden to the end consumers. The appellant and other OMCs made a number of representations and it took the MOP more than a month to issue a notification in harmony with SRO 922(I)/99 dated 16.8.99. This is nothing but sheer negligence and lack of harmony between the to govt, departments i.e. MOP and CBR. The Appellant can hardly be blamed for it or saddled with the responsibility to pay sales tax for the intervening period. The position otherwise would be patently unjust since on one hand the appellant is obligated to pay sales tax, while on the other hand it is not allowed to pass on the burden of tax to the end consumers, due to the failure of the MOP to prescribe a corresponding price notification. The whole position would be against the spirit of sales tax, which is an indirect tax and the appellant is denied the status of collecting agent of indirect tax.
If the interpretation proposed by the department is accepted then sections 7 & 8 of the 1990 Act would be rendered redundant.
10.The show cause notice was issued on 25.5.2001 and the ONO framed on 16.7.2001. This means that the ONO was framed after 45 days from the date of the show cause notice. In terms of the proviso to section 36(3) of the 1990 Act the period prescribed at the time of passing of the ONO i.e. 16.7.2001 was 45 days. As such the ONO is barred by limitation. It is correct that there is a power to grant extension of this time limit. However, the departmental representative has not been able to file any document whereby it could be inferred that time limit had been extended by the competent authority. Equally the learned Additional Collector has fallen into error by ignoring that the time limitation.' When ONO was passed the limitation period prescribed by the statute was 45 days. The order is thus liable to be annulled on this score alone.
11. Be that as it may, there is yet another fundamental issue in this appeal. On 15.8.1999 item No. 8 of the sixth schedule to the 1990 Act had granted exemption to certain POL products. The said exemption was conferred by statute. On 16.8.99 SRO 922(I)/99 dated 16.8.99 withdrew the said exemption. One fails to understand how through a subordinate legislation i.e. a notification a statutory provision i.e. Item No. 8 of the sixth schedule of 1990 Act could be amended or omitted.
Very recently, the Hon'ble Supreme Court in the case of CTT v. Kashmir Edible Oil 2006 SCMR 109 has been pleased to hold that an SRO cannot bring about an amendment, repeal or omission in the statue. This being a clear SRO 922(I)/99 dated 16.8.99 purportedly taking away the statutory exemption is of no legal effect. It seems that it was only through the Finance Ordinance, 2000 that later an amendment to item No. 8 to the sixth schedule of the 1990 Act was introduced. There may be no cavil with regards the amendment made by the Finance Ordinance, 2000 but SRO 922(I)/99 dated 16.8.99 seeking to amend the law has no legs to stand. As such the very basis of the show cause notice, which is based upon the said SRO, and all subsequent proceedings and orders became a nullity.
12.The orders of penalty and additional tax are also not sustainable since when the main levy fails the imposition of penalty or additional tax also fails. Even otherwise in the facts and circumstances no malafides are spelt out on the part of the appellant, who made the payments when the MOP prescribed the notification dated 2.9.1999.
13.The upshot of the above discussion is that the to appeals bearing Nos. 201(K) and 202(K)/2008 are allowed, the to impugned show cause notices, the Orders in Original dated 16.7.2001 and orders in First Appeal are annulled and the Bank Guarantee(s), if any, given by the appellant are revoked and withdrawn.