The miscellaneous application for additional ground as well as main appeal has been filed by the Registered Person against the impugned Order-in-Original No, 05/2004 dated 16-12-2003 passed by the learned Collector (Adjudication), Faisalabad.
Firstly, we dispose of the miscellaneous application for additional ground. The learned AR appearing on behalf of the applicant has requested to allow the following additional grounds which are hereby reproduced below:--
(i) That the appellant was entitled to deduct input tax from output tax under section 7 of the Sales Tax Act, 1990 on the supplies made as the subsequent provisions of the aforesaid law has no overriding effect.
(ii) That the Collector Sales Tax was not justified in passing the order under section 3(2) of the Sales Tax Act, 1990 to recover the sales tax from the appellant, when the show cause notice was issued under sections 34 and 36 of the said act and all the above said provisions of law irrelevant to the case of the appellant.
2. Since the grounds contain important legal issues which have a vital bearing on the decision of the appeal these are allowed to be raised.
3. Facts in brief emanating from record leading to the instant appeal are that on pursuance of report made by the Assistant Collector Sales Tax Faisalabad that the audit of registered person, namely Messrs ELLAHI TRADERS, a distributor of biscuits, manufactured and supplied by Messrs CONTINANTAL BISCUITS LIMITED KARACHI, was conducted for the period 05/1999 to 08/2001 and it was observed that during the period 07/2000 to 08/2000, the registered person did not provide any proof of payments of Rs,75950791 through crossed banking instrument as required under section 73 of the Sales Tax Act, 1990. Hence, sales tax amounting to Rs,11392619 is recoverable from the said registered person under section 36(2) read with section 34 of the Sales Tax Act.1990. It was further reported that the sales tax amounting to Rs,23784 was also recoverable on account of shortage of stock for the said period and the said registered person was also liable for imposition of penalty under section 33(2)CC. The Collector (Adjudication) Faisalabad issued Show-Cause Notice bearing C.No,39 dated 3-1-2003 confronting the registered person/appellant with regard to the aforesaid allegations. The said show-cause notice was duly replied by the appellant/registered person and explained that after the deduction of, fright expenses of Rs, 1637683, discount of Rs,1036546 and credit notes for the said period amounting to Rs,148861, payments of Rs,76497701 were made against the total purchase of Rs,79320791 for the period 07/2000 to 08/2001. It was replied that the payments of Rs,10200000 were made through demand drafts while the amount of Rs,66225000 was paid through cross travellers cheques in the favour of principal/supplier company. However, after considering the reply of the registered person, the Collector Adjudication Faisalabad held that the registered person although have shown payments through traveller cheques, but could not produce any substantiating evidence that the said payments were made from their business/ bank account and registered person did not make payments of purchases a envisaged under section 73 of the Sales Tax Act, 1990 and were therefore not entitled for input tax adjustment of Rs,11392619 and ordered through the order in original under appeal that the said amount of inadmissible sales tax credit may be recovered under section 3(2) by Collectorate of Sales Tax Faisalabad. A penalty of an amount equivalent to 3 % of the principal amount was also imposed under section 33(2cc) for violation of provisions of section 73 of the Sales Tax Act, 1990.
4. Initiating the arguments, the learned Counsel of the registered person has challenged the impugned order in original on the, point of limitation as well as on factual grounds. It has been contended that the registered person/appellant is entitled to input tax credit of the purchases under section 7 of the Sales Tax Act, 1990 and while making the payments of purchases to the supplier company did no violate the provisions of section 73 of the Sales Tax Act, 1990. The payments were made through crossed travellers cheques and the supplier company also confirmed this contention that the said travellers cheques were enchased in their business bank account. It is known in commercial parlance that a traveller cheque is a "banking instrument" and duly qualifies for the purposes of section 73 of the Sales Tax Act, 1990. It has also been argued that in section 7 of the Sales Tax Act, 1990, the words "subject to the provisions of section 73 "and simultaneously in section 73 of the Act, the proviso "that when a registered person supplies taxable goods for a sum exceeding fifty thousand rupees in respect of which payment is received otherwise than in the manner prescribed in this section read with section 7 he shall not be entitled to claim adjustment or refund of input tax in respect of such goods" were inserted through Finance Ordinance, 2001 dated June, 18, 2001 and as such before aforesaid insertions, both the sections were independent and the later provisions of law has no overriding effect to the prior section. The learned AR has relied upon a reported case of Sindh High Court Karachi VIZ 2006 PTD 1902. The learned AR has also contended that the Collector Adjudication has wrongly interpreted the law that the payments were not made from the business/bank account due to the reason that for the relevant period, section 73 of the Sales Tax, Act, 1990 provides the words "payment in favour of seller from the business accounts of the buyer "only and the word" bank" in section 73 was inserted through Finance Act, 2003. The AR of the taxpayer has also relied upon sales tax ruling/instruction No,53/2002 issued by Revenue Division (sales Tax wing) vide C.No,3(36) STP/99(PT-1) dated 13-7- 2002 through which a clarification in respect of section 73 of the Sales Tax Act,1990 was made. It has also been argued that the Revenue Division has also issued the Order No,5/2004 dated 31-3- 2004 under section 47-A of the Sales Tax Act, 1990 to implement the recommendations of Alternate Dispute Resolution Committee regarding the acceptance of payments made through crossed travellers cheques. It was further argued that, for the arguments sake, if there was any violation of section 73 exists in this case, then it was a procedural laps and the same is condonable. Reliance was places on unreported judgment of the ATIR viz S.T.A. No,116/LB of 2011 as well as following reported judgments:- 2010 PTD (Trib.) 975 2010 PTD (Trib.) 2656.
5. On the point of limitation, the learned AR has appraised the forum that show-cause notice in the instant case was issued on 3-1-2003 against which order-in-original was passed on 28-4-2004 contrary to the provisions contain in section 11(4) and section 36(3) of the Sales Tax Act, 1990 (hereinafter called the Act). It has also been pointed out that the date of judgment has been mentioned as 16-12-2003 whereas the same was signed by the assessing authority on 28-4-2004 and as such the date of judgment is 28-4-2004 instead of 16-12-2003. As prescribed in the aforesaid provisions of the Act, the Sales Tax authorities are bound to pass order in original within 45 days from the issuance of show-cause notice to the registered person. Explaining this he has maintained that mandatory period for passing the order-in-original after issuance of show-cause notice in that particular time was 45 days and if the order, due to any reason, could not be passed by an officer of Sales Tax, he was, under the law, bound to obtain extension within that stipulated 45 days but this mandatory requirement has not been fulfilled as evident from the order in original. He has vehemently asserted that the order-inoriginal was passed after 480 days of the issuance of show-cause notice to the registered person. Hence the same is barred by time and has got no value in the eye of law and the same merits cancellation. To support his submissions, he has referred before us the following reported judgments.
2009, PTD 2004 (HC LAH), 2009 PTD 762 (HC LAH) and 2012 PTD 1092 (HC LAH).
The learned Counsel also contended that the order-in-original for subsequent period i,e, 09/2001 to 06/2002 was passed against the appellant and a complaint was lodged before the Honorable Ombudsman, Islamabad on the point of time barred limitation. The said complaint was accepted by the Honorable Ombudsman and against the said order, the department filed representation before the Hon'ble President of Islamic Republic of Pakistan. The departmental representation was rejected by the Hon'ble President of Pakistan and it was -held that the time limit for passing the order is mandatory. Copy of the order is available on the file.
6. On the other hand the learned DR appearing on behalf of the department has fully supported the impugned order by reiterating the bases evolved therein and contented that the words business account mentioned in section 73 of the Sales Tax Act, 1990 for the relevant period means the business bank account of the buyer. On the point of the limitation it has been argued by the learned DR that the time limit is directory and not mandatory.
7. We have heard the arguments advanced by both the parties and also carefully gone through the documents available on file along with the relevant provisions of the Act. The Collector Adjudication has mentioned in his order that the payments to the supplier were not made from the business/bank account of the registered person. Therefore, the registered person has violated the provisions of said section. The provisions of section 73, for the relevant period has been perused and it has been observed that the word "bank" was inserted through Finance Act, 2003 much after the period for which the audit of the registered person was conducted by the revenue. Before the said amendment, the language of the provisions indicate the words "business account" and not "business bank account". Thus the Collector Adjudication was erred in considering the business account as business bank account for the period prior to the insertion of the said word "bank" account i,e, 1-7-2003. It is found that the payments made by the appellant to the supplier/company were in accordance with the procedure as provided in the Act for the relevant period. Further, the appellate forums have held that violation of provisions of section 73 even after the Finance Act, 2003, are procedural in nature and the provision is to streamline the transactions of registered person through banks and also to avoid the input tax adjustment from the fake and forged sales tax invoices. In the present case, admittedly the responded/revenue have, verified all the invoices provided by the appellant/registered person as sales tax return, purchase invoices, bill of entry and purchase register which are declared genuine and no allegation of fraud or bogus invoices has been levelled. It is settled principle that registered person may not be deprived from his legal money due against the government, when there is particularly no mis-statement, forgery, collusion, cheating, fraudulent activity are alleged or any false claim is submitted by the registered person with the view to obtain the illegal gain or causing loss to the government. The contravention of section 73 does not absolutely debars the registered person to claim the input tax adjustment. If there is no allegation of fraud, cheating, collusion, fake and bogus invoices have been levelled against the registered person. The reliance in this respect is placed on the following case-laws:- 2010 PTD (Trib.) 975 2010 P(Trib.) 2656.
The above case-laws are fully applicable in the instant case on hand, as such the above dictum of learned Tribunal that registered person cannot be deprived from claiming input tax adjustment on the plea of non-compliance of section 73 of the Sales Tax Act, 1990 "alone" is illegal, arbitrary and against the natural justice.
8. As for as passing of order in original beyond the time limitation as provided in section 36 and whether the time limit is directory or mandatory is concerned, before we dilate on these issues and referred to the case-laws relied on by the learned Counsel, relevant section 11(4) and 36(3) of the Sales Tax Act, 1990, for the relevant period, for convenience are reproduce as under:- "SECTION 11 (4)
4. No order under this section shall be made by an officer of Sales Tax unless a notice to show cause is given within five years to the parson in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard: Provided that order under this section shall be made within forty five days of issuance of show- cause notice or within such extended period as [the Collector [x x x x] may, for reason to be recorded in writing, fix provided that such extended period shall in no case exceed [ninty] days".
"SECTION 36
3. The office of Sales Tax empowered in this behalf shall, after considering the objections of the person served with a notice to show cause under subsection (1) or subsection (2),determine the amount of tax or charge payable by him and such person shall pay the amount so determined.
Provided that order under this section shall be made within 45 days of issuance of show cause notice of within such period as [ the Collector ] [x x x x x x x x x x ma for reason to be recorded in writing , fix provided that such extended period shall in no case exceed 90 days. (emphasis provided by us)."
9. The perusal of above sections clearly transpire that after issuance of show-cause notice, the authority is legally bound to pass order-in-original within 45 days of the issuance of show-cause notice to the registered person and if due to any reason, the Collector fails to pass the order, then he is legally bound to seek extension for further period, which shall not in any case exceed 90 days and it is also to mention here that such extension must be in writing and the reason for delay must be incorporated in the order. It is found that the show-cause notice in the instant case was issued on 3-1-2003 to the registered person and the order in original was passed by the Collector on 28- 4-2004 (the date on which the judgment was singed) while time limitation of 45 days as per section 11 and section 36(3) stood expired on 17-2-2003. The case-law relied upon by the learned counsel of the appellant adequately supports his contention. The Honorable High Court in the case of Commissioner Inland Revenue v. Messrs Crescent Textile Mills and others reported as 2012 PTD 1092, case of Messrs Miraj Din v. Collector Customs, Excise and Sales Tax (Appeal) reported as 2009 PTD 2004, case of Messrs Tanveer Weaving Mills v. Deputy Collector Sales Tax reported as 2009 PTD 762 has settled the issue that the limitation as prescribed in sections 11(4) and 36(3) is mandatory and that the passing of order in original after the statutory time limitation is nullity in the eyes of law.
10. In view of the above, we have no doubt in our mind that the order-in-original under appeal was passed by the Collector beyond the prescribed limit of 45 days even the extended period of 90 days. Moreover, the adjudication authority, as is evident from the order in original has neither fixed any extended period nor recorded any reason for passing the order after 45 days. Thus, it is established that the order in original was passed by the Collector after 480 days from the issuance of show-cause notice to the registered person and we have no hesitation to accept the appeal by declaring the order in original as time barred. Hence, the impugned order in original is hereby cancelled.
11.The appeal is decided in favour of the appellant and against the revenue.