Through this appeal the appellant has objected the impugned Order-in-Original No,104 of 2004 dated 12-11-2004 on the following grounds and prayers:- "(1) That the Show-Cause Notice dated 1 7-2-2004, is time-barred in terms of section 36(2) of the Sales Tax Act, 1990, the case related to the extent of the period from 1-7-1998 to 30-6-2002, while the Show-Cause Notice to issued to the appellant on 17-2-2004, i,e, after more than 6 years and 7 months and the Show-Cause Notice issued on the basis of the said provision itself failed to meet the legal requirement stipulated under section 36(2) of the Sales Tax Act, 1990, in which a limitation has been prescribed for serving Show-Cause Notice in case of where non-levy, short levy or erroneous refund had happened due to any inadvertence or misconception. In this context the ruling of Hon'able Supreme Court of Pakistan are more relevant and placed as under:-- (a)Federation of Pakistan through Secretary Finance, Islamabad and 4 others v. Ibrahim Textile Mils Ltd., and others as reported 1992 SCMR 1898. (Hon'able Supreme Court of Pakistan).
"Recovery notice for short levied duties on account of inadvertence error or misconstruction to be served within six months otherwise unenforceable".
(b)Assistant Collector, Customs, Dry Port Peshawar and others v. Messrs Khyber Electric Lamp Manufacturing Co., Ltd., Peshawar, as reported 2001 SCMR 838. (Hon'ble Supreme Court of Pakistan)
"In case of short levied duties on account of inadvertence error or misconstruction, section 32(3) of the Act provides that for recovery notice shall be served within six months, if that is not done, like a suit for recovery of money after laps of time prescribed by law of limitation the recovery becomes unenforceable".
(c)Messrs D.G. Khan Cement Co., Ltd., Lahore v. The Collector of Customs, Sales Tax and Central Excise Multan and 2 others as reported 2003 PTD 1797 (Hon'ble High Court Multan Bench).
"In this presence case, the words of the Show-Cause Notice indicated that the same was a narrative of facts without stating as to whether it was a result of collusion or deliberate act of the taxpayer of whether it was the result of inadvertence, error or misconstruction. Therefore for this reason the Show-Cause Notice subsection (1) or (2) of section 36. If the most, even if this notice was treated to be a valid notice under subsection (2) of section 36, Still it was beyond the described period of limitation of three years".
(2) Under the section 3 of Sales Tax, 1990, goods are liable to Sales Tax according to their classification in the first schedule to the Customs Act, 1969. Even exemptions are granted under the Sales Tax Act, with reference to the PCT, headings of the Customs Tariff. The appellant had made the supplies of "Newspaper", which was exempted, and unsold/old Newspapers were returned at evening from the dealers. The said returned Newspapers again was supplied in the market. The said goods does not come within the ambit of taxable supplies/activities and these goods have been classified under P.C.T Headings Nos,49-01,49-02 and 49-03, and exempted vide S. No,21 of the Sixth Schedule to the Sales Tax, 1990. Thus the demand of Sales tax along with additional tax and further to is completely arbitrary, illegal and unconstitutional and is liable to be withdrawn.
3. If "unsold/old newspaper" are treated a taxable supplies, instead of exempt Supply by the department, then the appellant company is entitled under the provision of section 7 of the Sales Tax Act, 1990 to deduct input tax from output tax in respect of tax period, for supplies charged at the normal rates of sales tax, since the value of output tax in case of supplies of unsold/sold.
Newspaper shall be substantially less than input tax deductable based on actual cast of raw materials i,e, Newsprint, therefore, refund situation may arise.
(4) In this connection, the Hon'able Appellate Tribunal strengthen our views regarding adjustment of the input tax, in the case of Messrs Brother Enterprises v. Deputy Collector (Adjudication), Karachi-III, Karachi-vide Sales Tax Appeal No,136/2001, decided on 21-12-2001 and ruled that:- "In the present case they applied for registration 14-7-1998, and they were required to discharge their liabilities, which was not done. We hold that in the case of all transaction after this date they were required to pay output tax and could claim adjustment for all purchases after this dated. This impugned order-in-original is modified to this extent only."
5. Without prejudice to the above it is contended that the charge mentioned in para (1) of the show-cause notice on the basis of "information gathered from the Annual Accounts", is totally illegal and also beyond the logical requirement/application of section 3 of the Sales Tax Act, 1990.
It is evident that initial onus lies on the department to show that the Company has acted knowingly, dishonestly or fraudulently and without any lawful excuse has done an act or has caused to be done has omitted to take any action or has cause to omission to take any action in contravention of duties or obligations imposed under the Sales Tax Act, 1990, Rule or Instructions issued there under with the intention of understating the tax liability or underpaying the tax liability. Once this burden is discharged by the department, only then the burden is shifted to the appellant to establish that act done without any intention of dishonesty or fraud and was done with any lawful excuse. In this regard the judgment of Karachi High Court reported as 2004 PTD 868, in the case of Messrs AlHilal Motors Stress and others v. The Collector of Sales Tax and Central Excise (East) and others in special Sales Tax Appeals Nos, 99 and 100 of 2002, decided on,12th November, 2003 is more relevant and read as Under: "An assesses can be subjected to tax under a provision of law, which is unambiguous and clear.
There is no room for any intendment and there is no presumption as to tax. In the absence of any deeming provision the revenue is required to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which the sales tax imposed on the basis of some assumption or presumption not warranted in law, shall always be struck down. In the present case it is apparent that except discovery certain cash- credits eateries in the books of the appellants the Revenue Officers have not been able to produce any material to show that the said amounts are in any way linked with the taxable supplies or with any taxable activities or present an amount an account of any business activity."
As per the ruling of the Hon'ble Karachi High Court, the chargers is baseless and contains no evidence.
6. Regarding the preparation of the additional tax in terms of section 34 of the Sales Tax Act, 1990, cannot be imposed unless there is a "deliberate Omission" to pay sales tax and findings of the Hon'able Supreme Court of Pakistan in C.As, Nos,1866/ 1999, 128/2000 and 1293, 1294, 1296 and 1306/2001, titled Ms. D. G Khan Cement Co., Ltd.; and others v. The Federation of Pakistan and others as reported 2004 SCMR 456 = 2004 PTD 1179, that effect are recorded:-- "Each and every case has to be decided on its own merits as to whether the evasion or payment of tax was willful or mala fide decision on which would depend upon the question of this cause, we find that non-payment of the sales tax within the tax period was neither willful, nor its could be considered to be mala fide evasion or payment of duty, therefore the recovery of additional tax as penalty or otherwise was not justified in law.
7. That the appellant seeks to urge the additional facts and grounds at the time of hearing. PRAYERS Due to facts and grounds aforementioned it is prayed that Hon'ble Court may be gracious enough:-- (i)To declare the show-cause notice and the order-in-original without lawful authority and without jurisdiction.
(ii)To grant any other appropriate relief."
2. Brief facts of the case are that the appellant in this case are engaged in the business of publication and supply of newspapers and periodicals. The supply of the same is exempt from payment of sales tax as provided in S.No,21 of Sixth Schedule of the Sales Tax Act, 1990. A case was made out by the Collector during years 1998-99 to 2001-2002, that the appellant supplied waste paper (old and rejected newspapers) without payment of sales tax which is chargeable under section 3(1) as according to the respondent/department the supply of waste paper did not enjoy any exemption from sales tax, therefore in addition to the sales tax amounting to Rs,9,093,861 further Rs,1,805,065 has also been charged on the supply of the said waste paper under section 3(1A) of the Sales Tax Act which according to respondent/department has not been paid.
Therefore, the adjudicating authority through above referred impugned order has held that such amounts are recoverable under section 36(2) along with additional tax under section 34 of the Sales Tax Act.
3. The learned counsel representing the appellant has contended that the show cause in this case is barred by time being issued on 17-2-2004 as the case is related to period 1-7-1998 to 30-6-2002 which according to subsection (2) of section 36 of the Sales Tax Act have to be issued within three years. The Learned Counsel has contended that in the show-cause notice it has not been mentioned that the tax has not been paid for the reason of collusion or deliberate act regarding which the time limit for the service of notice has been given under subsection (1) of section 36 as five years but in the case of tax or charge not levied or made by reason of any inadvertence, error and misconstruction the notice should have to be served within three years of the relevant date.
The Learned Counsel has drawn our attention to the impugned order in original wherein at para five it has been specifically mentioned that hearings on 6-1-2004, 25-2-2004, 17-3-2004, 24-3- 2004, 31-3-2004., 7-4-2004 and 4-8-2004 and finally the order has been passed on 12-11-2004 while in the same sub-para while giving the contention of the appellant it has specifically been mentioned that the show-cause notice dated 17-2-2004 has been objected time barred in terms of section 36(2) of the Sales Tax Act, 1990 as the case related to the periods from 1-7-1998 to 30-6- 2002 which is after more than three years. The learned counsel in this regard has referred the decision of the Honourabel Sindh High Court Karachi reported as 2000 PTD 1798 wherein it has been held that intimation of audit observation does not constitute a show cause. The Learned Counsel has contented that the above referred show-cause notice is actually the intimation regarding the audit reports. The learned counsel in this regard has also referred the decision of the Honourable Supreme Court of Pakistan reported as 2001 SCM R 838 wherein it has been held that " in case of short levied duties on account of inadvertence, error or misconstruction, section 32(3) of the Act provides that for recovery notice shall be served within six months, if that is not done like a suit for recovery of money after laps of time prescribed by law of limitation the recovery becomes unenforceable". On the merits of the case it is contended by the learned Counsel that the appellant has made up supplies of newspapers which were exempted and the unsold/old newspapers were returned at evening from the dealers. According to the learned counsel the said returned newspapers again was supplied in the market and therefore, the said goods does not come within the ambit of taxable supplies/activities and therefore these goods have been classified under P.C.T Headings Nos,49-01, 49-02 and 49-03, and are exempt vide S. No,21 of the Sixth Schedule to the Sales Tax, 1990. He has therefore, contended that the demand of sales tax along with additional tax and further penalty is completely illegal and against the law. He has contended that if unsold/old newspaper are treated as taxable supplies, instead of exempt supply by the department, then the appellant company is entitled under the provision of section 7 of the Sales Tax Act, 1990 to deduct input tax from output tax in respect of tax period, for supplies charged at the normal rates of sales tax, since the value of output tax in case of supplies of unsold/sold. He has contended that the newspaper shall be substantially less than input tax deductable based on actual cast of raw materials i,e, newsprint, therefore, their will be refund available. The learned counsel has therefore contended that the order-in-original is without lawful authority, without jurisdiction and liable to be cancelled.
4. On the other hand the learned D.R. is supporting the impugned order of the officers below. He has contended that the exemption in S.No,21 of the sixth schedule is available to newspapers, books, journals and periodicals etc falling in headings 49.01, 49.02 and 49.03 of the 1st Schedule to the Custom Act, 1999. He has in this regard referred the Explanatory Notes issued by World Custom Organization which according to the learned D.R. are treated as codes final authority on the interpretation of tarrif codes wherein under clause 4707 the waste and scrap has been given as under: "waste of paper or paperboard covered by this heading includes shaving, cuttings, clippings, torn sheets, old newspapers and journals, proof-sheets, printers, rejects and similar material". The Learned D.R. has contended that from the above it is evident that both rejected newsprints old unsold newspapers fall in heading 47.07 of PCT being waste and scrap paper, therefore, according to him the rejected newsprints and old newspapers are waste paper not entitled to aforesaid exemption. On the question of show-cause notice being time bared the Learned D.R. has contended that the notice has been issued under section 36(2) on 17-2-2004 but according to him the audit observation in the matter was issued to the appellant on 25-2-2003. He has contended that through Finance Act, 2003 a second proviso to subsection (3) of section 36 was provided according, to which in case of issuance of a audit observation the period of three years as provided in subsection (2) would be treated as extended from the date of issuance of audit observation to the date of issuance of show-cause notice but this proviso is no more on the statute being omitted through Finance Act, 2005. The learned D.R. has therefore requested to uphold the impugned orders.
5. We have considered arguments from both the sides and we are of the view that in this case either in the show cause nor in the impugned order in original it has been mentioned that before issuing the show-cause notice the appellant was confronted with the audit report as per the impugned order the hearing of the case was fixed on 6-1-2004 and during the course of hearing on 17-2-2004 the show-cause notice has been issued. The notice has admittedly been issued under section 36(2) of the Sales Tax Act according to which the show cause has to be issued within three years of the relevant date. Regarding proviso to subsection (3) of section 36 we are of the view that time limit can riot be extended as that proviso has already been omitted and the department cannot be given benefit of that proviso. Even on merits of the case we are of the view that the exemption under section 13 read with S. No,21 of the sixth Schedule of the Sales Tax Act is regarding following items:--
(i) 49-01. Printed books, broachers, leaflets and similar printed matter, whether or not in single sheet.
(ii)49-02. Newspapers Journals and periodicals, whether or not illustrated or containing advertisement material.
(iii)49-03. Children's picture drawing or coloring books.
On the behalf of the appellant the decision of the Honourlabe Karachi High Court reported as PLD 1982 Karachi, 725 in the case of Messrs Nabi Bux Khoso v. Pakistan Television Corporation has been referred wherein newspapers has been defined as any printed periodical work containing public news or comments or public news and include such other class of printed periodical work as may from time to time be notified in his behalf by the Central Government in the official Gazettee" We are of the view that as the exemption allowed in section 13 through Sixth Schedule under. clause 21 has been to newspapers, books, journals and periodicals excluding directories of all sorts.
Therefore, the newspapers under dispute in this case can not be said to be a waste paper in view of the decision of the Honourable High Court referred as PLD 1982 Karachi 725 as the printed periodical work containing public news or comments on public news and other class of printed periodical work notified by the government has been included in the newspaper. We have found that in this case the appellant has not made the supplies of waste paper but has supplied newspapers which does not come within the ambit of taxable activities as no separate taxable product has been manufactured or supplied which is not exempted vide S.No 21 of the Sixth Schedule to the Sales Tax Act, 1990. In view of these facts circumstances and legal position we find no justification in the impugned order-in-original which is therefore cancelled. Consequently impugned order is vacated.
The appeal filed by the registered tax person is allowed.