MR. JAWAID MASOOD TAHIR BHATTI, JUDICIAL MEMBER.--(1). Out of these five appeals, four are the cross appeals against the two separate impugned orders of the learned CIR(A) bearing order in appeal No. 31 of 2013 dated 19.8.2013 arising out of the assessment order No. 04/2013 dated 13.02.2013 and order in appeal No. 492 of 2010 dated 30.05.2011 arising out of the assessment order No. 07/2010 dated 27.11.2010, two each filed by the department and the Registered Tax Person i.e. M/s. Peshawar Electricity Corporation.
The fifth appeal has been filed by the department against the impugned order in appeal No. 376 of 2010 dated 24.05.2011 arising out of the assessment order No. 01/2010 dated 29.06.2010.
2. The Revenue Department has also filed a miscellaneous application titled above requesting for vacation of stay granted by this Tribunal vide order dated 24.10.2012 in MA (Stay) No. 07/PB/2012 in respect of order in appeal No. 376 of 2010 dated 24.05.2011 subject matter of above titled appeal bearing No. STA No. 145/PB/2011 filed by the department. The titled miscellaneous application has already become infructuous as the stay was allowed in 2012 for 90 days which has already elapsed. The Miscellaneous application is therefore dismissed having become infructuous.
3. Brief facts of the Appeal No. STA No. 145/PB/2011 are that the Additional Collector (Adjudication) on the basis of audit of accounts of the Peshawar Electric Supply Company (PESCO) (the respondent in this case) issued Show Cause Notice bearing C.No. ST & FE/Adc/Adj/79/09/9245 dated 02.07.2009 asking to explain as to why the principal amount of Rs. 3,383,920,930/- for the period May 2008 to March 2009 should not be recovered under sections 11(2) and 36(1) alongwith default surcharge etc. Under section 34(1) of the Sales Act, 1990. The respondent in this case the PESCO filed reply to the above mentioned Show Cause Notice wherein charges leveled in the Show Cause Notice were denied as there were substantial mistakes in the Show Cause Notice, therefore, a reconciliation committee was constituted for rectification of the anomalies and discrepancies in the notice pointed out by PESCO's Counsel. Consequently certain figures were corrected and tax liabilities were reduced to Rs. 2,462,631,249/- vide reconciliation report No. C.No ST/Audit/ Pesco/09/12341 dated 15.10.09.
After the proceedings the Additional Commissioner Inland Revenue decided the case vide Assessm ent Order No. 01/2010 dated 29.06.2010 and the respondent/PESCO was held to be in default of sales tax amounting to Rs. 2,462,631,249/- in terms of sections 11 & 36 of the Sales Tax Act, 1990 alongwith the default surcharge under section 34 ibid. Penalty equal to 5% of the tax involved was also imposed under section 33(5) of the Sales Tax Act, 1990.
On appeal by the respondent /PESCO, the learned Commissioner Inland Revenue (Appeals)
Peshawar accepted the appeal and tax liability was abolished vide Order-in-Appeal No. 376/2010 dated 24.05.2011. It was also directed that the issue relating to double adjustment amounting to Rs.
30,141,383/- should be decided by Commissioner Inland Revenue, RTO Peshawar on the basis of application already submitted by PESCO. Now the RTO, Peshawar has filed the instant Appeal against the impugned Order. However the decision relating to the aforesaid issue of double adjustment has not been disputed.
4. On behalf of the respondent taxpayer at the very outset preliminary objections has been raised.
It is submitted that the Additional Commissioner who passed the impugned Order-inOriginal 01/2010 dated 29.06.2010 did not have jurisdiction to decide the subject case on 29.06.2010. It has been pleaded that Section 30 of the Sales Tax Act as it existed before 28.10.2009, was regulated by SRO 547(1)/2008 dated 11-06-2008 where under sales tax authorities were appointed and jurisdiction was assigned to them. The said section 30 was substituted through Finance Amendment Ordinance, 2009 dated 28-10-2009 and as a result jurisdiction exercisable under Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005 were consolidated But no Notification/SRO on the pattern of SRO 547(1)/2008 dated 11-06-2008 was issued or published in the official gazette appointing sales tax authorities and assigning them jurisdiction which was mandatory, for carrying out any proceedings by an officer of Inland Revenue under Section 30 of the Sales Tax Act, 1990. According to the learned representative of the Respondent, substituted sub section 30, on and after 28.10.2009 required a notification in the official gazette by the Board to appoint Inland Revenue officers for different cases/class of cases. Reliance in this regard has been placed on 2012 PTD (Trib.) 1335 M/s. Naseem Plastic House, Faisalabad vs. CIR, RTO, Faisalabad; 2012 PTD (Trib.) 1094 Punjab Beverages Company (Pvt.) Ltd. Faisalabad vs. CIR, RTO, Faisalabad; 2012 PTD (Trib.) 1040 Commissioner (Legal Division, Inland Revenue, RTO, Faisalabad vs. M/s. Zahidgee Fabrics (Pvt.) Ltd. Faisalabad.
5. The learned LA for the Department on the other hand has argued that the Additional Commissioner Inland Revenue was fully competent and had jurisdiction to decide this case. It has been pleaded that Section 30 was substituted by Finance Act, 2010 assented on 30.06.2010 w.e.f.
5.6.2010 while it was earlier substituted through Finance Amendment Ordinance, 2010 promulgated on 6.02.2010 and Finance Amendment Ordinance, 2009 promulgated on 28.10. 2009. It has been pleaded that the provisions relating to appointment by the Board by notification in the official gazette were deleted through the Finance Act, 2010 which came into operation on 05.06.2010. It is been argued that the citation quoted by the respondent representative are per incurium and hence not applicable to the instant case because all the cited cases were decided before 05.06.2010 i.e. The date of substitution of Section 30 of the Sales Tax Act, 1990 whereas the impugned Order-in-Original was passed on 29.06.2010.
6. In this regard the learned counsel for the respondent/PESCO has pleaded that the Finance Act, to Section 1 thereof, came into force on 1.07.2010 and thus amendment in Section 30 whereby determination of jurisdiction by notification in the official Gazette was deleted came into effect we"
01.07.2010. It is argued that reliance on Provisional Collection of Taxes Act, 1931 is also not relevant because these sections relate to imposition, increase, reduction of duty and taxes while the change in designation or jurisdiction of various officers is outside the scope thereof. It has been further pleaded that the Honourable Supreme Court of Pakistan in case titled Engineer Iqbal Zafar Jhagra and another vs. Federation of Pakistan an others PTCL 2013 CL. 591 has held that section 3,4 and 5 of the Provisional Collection of Taxes Act, 1931 are unconstitutional and thus amendment in section 30 cannot come into force on 05.06.2010 when the Finance Bill was presented in the National Assembly.
7. We have considered the submissions made on this legal A issue from both the sides. We are of the view that this Tribunal has already held in cases reported as 2012 PTD (Trib.) 1335, 2012 PTD (Trib.) 1094 and 2012 PTD (Trib.) 1040 that promulgation of a notification appointing various Inland Revenue officers for different cases in the official gazette by the Federal Board Revenue after substitution of Section 30 of the Sales Tax Act, 1990 by the Finance Amendment Ordinance, 2009 and the Finance Amendment Ordinance, 2010 is mandatory. The Appellant's plea that the Finance Act, 2010 came into operation on 05.06.2010 is belied by section 1 of the Finance Act, 2010 which clearly provides the coming into operation of that enactment w. El. 1.07.2010. Resultantly the impugned Order-in-Original is held to have been passed without jurisdiction in view of the cases already decided by this Tribunal.
8. The second preliminary legal objection raised by the respondent representative is in respect of period of limitation for passing the order in original. In this regard it has been pleaded that the adjudication/assessm ent has not been finalised within period stipulated in Sections 11 and 36 of the Sales Tax Act in view of the following facts: Date of the Show Cause Notice is 20.07.2009. The period provided under the law i.e. 120 days were over on 19.11.2009 and, even 30 days adjournment expired on 18.12.2009. Furthermore Even Collector's extension by 60 days over on 16.02.2010 but the Date of order in original is 29.06.2010.
Date of extension by FBR as per the order is 29.04.2010 till 30.06.2010 and the Date of dispatch of order=09.07.2010. While the Date of receipt of order is 15.07.2010 It is argued that the Show Cause Notice issued on 20.07.2009 became time barred in any case on 16.02.2010 and the extension granted by the FBR on 29.04.2010 till 30.06.2010 is invalid because period of limitation already expired cannot be extended. Reliance in this regard has been placed on the decision reported as:-- PTCL 2010 CL. 137 in the case of M/s. Tanveer Weaving Mills: vs. Deputy Collector Sales Tax. Wherein it was held that Order-in-Original was not valid for having been passed after expiry of 90 days provided under S.36 of the Sales Tax Act, 1990; and that CBR had no power to grant an extension.
Period of 90 days could be extended by Collector for proper reasons for another 90 days before expiry of original 90 days.
In an other case reported as:-- PTCL 2012 CL. 152 in the case of Commissioner of Income Tax/Wealth Tax, Legal Division, Multan vs. Musarrat Mumtaz Lady Dr. c/o D.H.Q. Hospital, D.G. Khan wherein it was held that once limitation starts running no subsequent event can stop of suspend it.
In this regard following reported decisions have also been referred:-- PTCL 2008 CL. 1 -- M/s. Super Asia Muhammad Din Sons (Pvt.) Ltd. Vs. The Collector of Sales Tax, Gujranwala wherein it was held that once limitation has started to run and had come to an end the assessee had acquired a vested right of escapement of assessment by lapse of time.
PTCL 2007 CL. 472 - Ghandhara Nissan Diesel vs. Collector of Customs wherein it was held that once a matter becomes barred by time then the subsequent enhancement in the period of limitation shall not have the effect of reopening the past and closed transaction.
1999 SCMR 1881 - Khalid Mehmood vs. Collector of Customs. Customs House, Lahore wherein it was held that if initial period of two months, envisaged in S. 168 is allowed to go by without any extension having been made, a vested right may come to accrue to the affectee and Collector should be obliged to issue a notice and accord necessary hearing before granting any extension.
PTCL 2012 CL. 347 - Pak Electron Ltd. Vs. Additional Collector wherein it was held that non timely extension of time perior to expiry of entire stipulated period is legally considered dead and new spirit cannot be infused into it by any means or on account of any reason whatsoever.
1990 CLC 868 - Pakistan International Airlines corporation vs. Central Board of Revenue, Islamabad wherein notice was declared void and of no legal effect, being beyond time and all orders passed subsequently in pursuance thereto also were declared without lawful authority.
On the basis of the above reported decisions it has been argued that the period of limitation in a fiscal statute creating liability against a taxpayer, once expired, cannot be extended. It is contended that even this extension upto 30.06.2010 is not relevant because the impugned Order- in-Original No. 01/2010 dated 29.06.2010 has been dispatched on 09.07.2010 and was received by the Respondent on 15.07.2010.
9. On the other side the learned LA for the Appellant Department has argued that the Respondent secured adjournments in this case on different dates whereafter a reconciliation committee was formed. The 60 days extension u/s 36(3) of the Sales Tax Act, 1990 was secured on 15.10.2009. It is pleaded that Finance Act, 2009 dated 28.10.2009 created a new hierarchy of Inland Revenue Officers while section 45 of the Sales Tax Act, 1990 providing powers of adjudicating officers was omitted and Section 25 was also amended. It has been pleaded that there was complete uncertainty regarding the pending adjudication cases after omission of Section 45 and amendment in Section 25 while the matter was finally clarified by FBR vide orders dated 10.02.2010.
It has been asserted that after re-organization 3f the Department, Federal Board of Revenue was requested to extend the time limit and the orders were issued by the FBR on 29.04.2010 extending the period to finalize adjudication. It. Is argued that uls 74 the FBR can extend any time limit specified under any provision of the Sales Tax Act, 1990 or the rules made thereunder. Reliance has been placed on the decision reported as PTCL 2009 CL. 35 whereby it has been held that extension in the period of limitation period can be granted even after the original 90 days at any time before 180 days of the Show Cause Notice. It has been stressed that the Honourable Supreme Court vide its order reported in PLD 2006 SC209 has held that: "No order can be scraped or annulled or set aside, only on the ground that the same has been passed with unreasonable delay. There is no such concept attached to the judicial and quasi judicial proceedings, unless provided in the statute."
It has been pointed out that the impugned Order-in-Original No. 01/2010 was passed on 29.06.2009 but the delay in the postal delivery of this order is beyond the human control of the adjudicating authority while the date of passing the order is the crucial date as section 56 clearly distinguishes between making an order and serving an order. Reliance has been placed on the decisions reported as 2010 PTD 660 and 2007 PTD Trib. 803 whereunder date of framing the Assessment u/s 64 of the Income Tax Ordinance, 1979 has been held to be the crucial date. It has also been argued that C.G.O. No. 12 of 2002 has no relevancy and applicability on the instant case. The Learned LA for the Department has argued that the Sales Tax Act, 1990 does not provide any consequence for non-compliance or failure to comply with the provisions of section 36(3) thereof. It is submitted that there are numerous statutes which provide a time frame for adjudication or other matters without providing any consequences for failure to comply with the same. And all such provisions are treated to be directory and not mandatory. According to the learned L.A. For the Department where consequential provision of failure to comply with the direction of time limit is not stated in the statute, said phrase would be treated as directory and not mandatory. Further reliance in this regard has been placed on the following decisions:-- i. 2010 PTD 21, ii. 2009 PLC 258, iii. PLD 2008 Lah 200, iv. PLD 2007 Pesh. 103, v. 2007 CLC 315, vi. 2007 PTD 127, vii. 2007 PTD 840, viii. 2005 CLD 713.
10. The above points raised by the Department have been rebutted by the learned Advocate of the respondent PESCO and it has been emphasised that Federal Board of Revenue had no authority to grant extension after the expiry of the limitation period as the subject case has become a closed and past transaction. It is pleaded that judgments quoted by the learned L.A of the Department are inapplicable to the facts of this case. Regarding the decisions of the Honourable Supreme Court reported as 2006 PTD 769 = PLD 2006 SC 209 According to learned Advocate of the respondent the contention is negated in very clear words by the first two quoted sentences of this judgment as reproduced below: "No order 'can be scraped or annulled or set aside, only on the ground that the same has been passed with unreasonable delay. There is no such concept attached to the judicial and quasi judicial proceedings, UNLESS PROVIDED IN THE STATUTE" (Emphasis Supplied)
It is submitted that in that case, Show Cause Notice was issued on 10-07-1989 and the case was decided on 26-09-1992 under the Customs Act, 1969. The Honourable High Court vide reported order (2002 PCTLR 902) quashed the proceedings on the ground that it was not passed within a reasonable time. However no time limit was prescribed to complete the adjudication proceeding in 1992 i.e. At the time of issuance of adjudication order, in the Customs Act, 1969. This judgment itself excludes its operation to cases where time period is mentioned in the statute itself and is thus not applicable to our case as time limit has been provided in sections 11 & 36 ibid. Limitation period to adjudicate the cases has now also been provided in Section 179 ibid w.Ef 1.07.2000 vide Finance Ordinance, 2000. Regarding decisions reported as 2010 PTD 660 and 2007 PTD (Trib.) 803 Learned Advocate contended that these two cases relate to interpretation of the word `Assessment' as used in section 64 of the Income Tax Ordinance, 1979. An entry in the relevant officially prescribed Register (Demand & Collection Register) has been made within time. These judgments are not applicable to facts of this case where sections 11 and section 36 (as then applicable) of the Sales Tax Act, 1990 clearly require that order shall be made within the stipulated period and section 56 read with section 70 clearly links the making of that order with the receipt of the order by the concerned party. In addition there is no similar prescribed register in the sales tax cases. Regarding decision quoted as 1966 PTD 40 it is submitted that it is an incorrect citation.
Regarding decision reported as PTCL 2009 CL. 35 it is submitted that this judgment provides that limitation period u/s 36(3) is mandatory while the Department is perhaps relying on the observation that extension in the period of limitation can be passed even after the original 90 days at any time before 180 days of the show cause notice. This judgment is inapplicable to the facts of this case because Show Cause Notice in this case was issued on 20.07.2009 and order of extension was issued by the Board on 29.04.2010 i.e. After 279 days while all possible extensions included, period of limitation to decide the case has expired on 16.02.2010. We have already quoted the judgments whereunder period once expired cannot be extended.
Regarding decision reported as 2010 PTD 21 it is submitted that this case relates to FTO order which provides that belated claim of refund was not barred by time. Since time limit for issuance of refund was directory and not mandatory, this order is not applicable to the facts of this case as a liability is being created against the respondent in this case. It is contended that there are dozen of orders wherein this Tribunal & the Honourable Superior Courts have held that period provided in section 36 ibid is mandatory as it relates to creation of liability against a citizen/taxpayer.
Regarding reported case 2009 PLC 258, PLD 2008 Lah. 200 & 2007 CLC 315. It is submitted that these cases relate to the Constitution of Pakistan, 1973 and different enactments like Representation of the People Act, 1976, Civil Procedure Code, 1908, Limitation Act, 1908, Sindh Buildings Control Ordinance, 1979 e.g. 2009 PLC 58 refers to disciplinary proceedings - Federal Service Tribunal directed the Zarai Taraqiati Bank to hold fresh ' inquiry within 4 months - It was held by the High Court that period of 4 months was not mandatory - This judgment is not applicable to the facts of this case as we are not discussing any disciplinary proceedings in this case and dozens of judgments of this Honorable Tribunal and Honourable Superior Courts have been relied upon wherein the period of limitation u/s 36 has been. Held to be mandatory.
Regarding reported case 2007 PTD (Trib.) 127 & 2007 PTD (Trib.) 840 it is submitted that these judgments have been passed on 26.07.2006 and 28.11.2005 respectively by a single technical member of the now defunct Customs, Excise and Sales Tax Appellate Tribunal. These single member judgments does not hold the field NOW as this Tribunal and the Honourable Superior Courts have repeatedly held that period provided by Section 36 is mandatory. It is submitted that judgments given by higher fora always supersede the orders of the subordinate hierarchy.
Regarding reported case 2005 CLD 713 it is submitted that this judgment provides that time limit of 3 years prescribed in Section 319 of the Companies Ordinance, 1984 is directory - This judgment is not applicable to this case because specific always excludes the general provisions. In this case, this Tribunal and the Honourable Superior Courts have all held that period provided in Section 36 is mandatory.
11. We have considered the above submissions from both the sides. Two basic points requiring decision on this issue to our view are as follows:-- Whether the period of limitation entailing creation of tax liability provided in sections 11 and 36 of the Sales Tax Act is mandatory or directory.
(ii) Whether such period of limitation can be extended after expiry thereof.
This Tribunal and the Honourable High Courts in scores of judgments have decided that period of limitation in section 11 and section 36 is mandatory. Reference may be made in this regard to 2008 PTR 34 (S.C. Pak.), PTCL 2010 CL. 121 (H.C.), STR No. 21/2011 (H.C.), PTCL 2010 CL. 141 (H.C., 2013 PTD (Trib.) 4, 2013 PTD (Trib.) 379, 2013 PTD (Trib.) 639, 2013 PTD (Trib.) 834. It is noteworthy that even the Federal Board of Revenue vide C.No. 1 (23) C (legal) 107 dated 06.02.2007 has circulated the opinion of Law Division in this regard whereunder the above mentioned period of limitation has been held to be mandatory. The underlined principle settled' by the Honourable High courts is that where issue involved entails creation of liability against a taxpayer, the period of limitation is mandatory.
As regards extension in the period of limitation u/s 74 of the Sales Tax Act, 1990, the contention made by the Respondent appears to be more plausible and in consonance with the principle of law laid down in various judgments of this Tribunal, the Honourable High Court and Supreme Court of Pakistan relied upon by the learned Advocate for the respondent PESCO.
It is thus evident that extension given by the FBR on 04.02.2010 has been granted after the expiry of the prescribed limitation period and is thus of no avail and the impugned Order No. 1/2010 dated 20.06.2010 is held to be void as having been passed after the prescribed period of limitation.
12. Now coming to the merits of the case, the main contention of the Department is that the respondent PESCO has not used unbilled units of electricity in the taxable supplies and hence it is not entitled to input tax adjustment relating to unbilled units u/s 8(1)(a) of the Sales Tax Act which provides that a registered person shall not be entitled to claim or deduct input tax paid on the goods used or to be used for any purpose other than for taxable supplies made or to be made by him. Reliance has been placed on decision reported as PTCL 2002 CL 302 CESTATE, Karachi. It has been pleaded that the learned CIR (Appeals) relied on the FTO's decision which has been set aside by the President of Pakistan. According to the Department, no provision exists in Sales Tax Act, 1990 which allows Transmission and Distribution losses (T & D losses) to the electric distribution companies. It has been further submitted that reliance on FBR's Letter dated 07.12.2004 is not tenable because this letter has been overruled by Rule 37(A) of the SRO 1236(1)/2005 which provides:-- E "37-A. Discharge of tax liability by KESC.-(1) In case of KESC, sales tax shall be paid on the basis of supply of electric power billed to the consumers after adjustment of input tax in terms of section 7 and 8 of the Act and as provided under sub-rule(3).
(2) The KESC shall file a monthly return under section 26 of the Act and Chapter II of the Sales Tax Rules, 2005, and deposit the amount of sales tax payable for the tax period by the due date.
(3) Input tax adjustment shall be admissible to the KESC in proportion to the quantum of electric power billed during the tax period." It has been pleaded that this SRO read with SRO 480(1)/2007 dated 09.06.2007 clearly leads to the inference that T & D losses in violation of Section 8 of the Sales Tax Act, 1990 are not admissible. It was further argued that input tax adjustment relating to the T & D losses is not admissible u/r 14 & 15 of the Sales Tax Special Procedure Rules, 2007. It is emphasised that inefficiencies and pilferage of electricity should not be encouraged.
13. On behalf of the respondent /PESCO, it has been explained that T & D losses are indispensable component of conversion of electricity from 220 KV-> 132KV->66KV->33KV->11KV->440 Volts ->220 volts and its transmission by wire over thousands of miles. It has also been pointed out that KPK is specifically in the grip of revolt type insurgency where even the writ of the government has been diluted to a negligible extent in some parts while thousand of complaints relating to pilferage/theft of electricity have been lodged with the police without any consequence. It is submitted that T & D losses are a universal phenomenon while the CNG stations have been allowed 13% wastage which operate in a radius of few meters vide CBR letter C. No. 2(1)-M-Audit/2002 dated 08.07.2002. As regards SRO 1236 (1)/2005 dated 14.02.2005, it has been argued that this SRO brought about amendment in the Sales Tax Special Procedure Rules, 2005. However these rules were repealed by the Sales Tax Special Procedure Rules, 2006 which were further repealed by Sales Tax Special Procedure Rules, 2007 and thus the. SRO 1236(1)/2005 dated 14.02.2005 has nothing to do with the PESCOs audit for the period starting from May 2008. It has been emphasized that the present legal framework of input tax adjustment is the same as enunciated under the Sales Tax Special Procedure Rules, 2004 notified vide SRO 484(1)/2004 dated 12.06.2004. The following comparative chart of the relevant provisions contained in the aforesaid rules of 2004, 2005 and 2007 has been placed before this Bench to prove that rule 37-A restricting input tax adjustment in proportion to the quantum of electric power is only available in the Sales Tax Special Procedure Rules, 2005:-- Sales Tax Special Procedure Rules, 2004Sales Tax Special Procedure Rules, 2005Sales Tax Special Procedure Rules, 2007Remarks "37. Determination of tax liability in"37. Determination of tax liability in respect of WAPDA and KESC.--"15. Determination of tax liability in respect of WAPDA and KESC.--Rules 37-A (KESC Specific)
Issued vide SRO respect of WAPDA and KESC.-- (1)..........................................
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period," ....................................................
Rule 37A -- NIL(1) ...............................................................
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period:" .......................................
Rules "37-A. Discharge of tax liability by KESC.--
(l) In case of KESC, sales tax shall be paid on the basis of supply of electric power billed to the consumers after adjustment of input tax in terms of section 7 and 8 of the Act and as provided under sub- rule(3).
(2) The KESC shall file a monthly return under section 26 of the Act and Chapter II of the Sales tax Rules, 2005, and deposit the amount of sales tax payable for the tax period by the due date.
(3) Input tax adjustment shall be admissible to the KESC in proportion to the quantum of electric power billed during the tax period."(1)......................................................................
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period:" ...................................................................
Rule 37A -- NILNo. 1326(1)/2005 dated 14.12.2005 is not incorporated in sales Tax Special Procedure Rules, 2006 and 2007.
As Rule 37-A inserted by SRO 1236(1)/2005 dated 14.02.2005 in the Sales Tax Special Procedure Rules, 2005 is not available in the Sales Tax Special Procedure Rules, 2007, clarification of FBR issued vide Letter dated 07.12.2004 is applicable with full force and is in fact in operation during the audit period starting from May 2008. It was also emphasized that the RTO, Peshawar has not disputed the determination of the fact as to allowing of total T & D losses to KESC during the audit period of PESCO. Reliance in this regard has been placed on the following reported decisions:-- i. PTCL 2002 CL 495 -- M/s. Trade Links International. Lahore v. Collectorate of Sales Tax, Lahore wherein it was held that the claim of input tax under the Sales Tax Act, 1990 is backed by statutory right which cannot be defeated. ii. PTCL 2002 CL 115 -- M/s. Mayfair spinning Mills Ltd, Lahore v. Customs, Excise and Sales Tax Appellate Tribunal Lahore wherein it was held that a registered person is entitled to reclaim or deduct input tax paid inter alia where the goods on which input tax was paid by the registered person were subsequently destroyed and were not meant for use nor were intended to be used for any purpose other than taxable supplies. iii. PTCL 2002 CL 95 -- The Coca Cola Export Corporation v. The Additional Collector, Lahore wherein it was held that right of input tax adjustment provided in section 7 of the Act, can not be denied despite the form that there was a procedural lapse on the part of the Appellant. iv. PTCL 2006 CL. 527 -- M/s. Chenab Fabrics and Processing Mills Ltd Faisalabad v. Government of Pakistan wherein it was held that substantive rights of citizens should not be crucified on the altar of some procedural, administrative instructions if otherwise the requirements of a beneficial legislation or notification issued thereunder are fulfilled.
As regards the decision reported as PTCL 2002 CL 302 relied upon by the Department, it has been explained that this case was decided on 29.04.2001 by the now defunct Customs, Excise and Sales Tax Appellate Tribunal. In this case, the issue involved was whether input tax adjustment will be available to embossing plates as being footwear machinery parts. As per the department contention the same not to be covered by Section 8(1) of the Sales Tax Act. However the Tribunal has held that embossing plate is a part of that machine which is producing goods for taxable supplies and hence input tax relating thereto is adjustable. It has been argued that resultantly this judgment is not applicable to the facts of this case.
It has been pleaded on behalf of respondent PESCO that the last two paragraphs relating to the decision of this issue by the learned Commissioner Inland Revenue (Appeals), Peshawar at page 37 of his Order-in-Appeal 376/2010 clearly reveal that he has not based his order on the findings of FTO and has decided the case as an independent forum u/s 45B of the Sales Tax Act, 1990.
14. We have considered the rival arguments. It is noted that this appeal and two other above titled Appeals STA No. 159/PB/2011 & STA No. 98/PB/2013 have been filed by the Department against the respondent/PESCO which dispute the admissibility of T & D losses.
The respondent/PESCOs plea that FBRs letter dated 07.12.2004 is still being actually implemented in the case of KESC during the period starting from May 2008 has not been denied at any stage including this Tribunal by the Department while this fact has also been verified and relied upon by the learned Commissioner Inland Revenue (Appeals). The reliance of the Department on SRO 1236(I)/2005 dated 14.02.2005 is ill founded because this SRO brought about an amendment in the Sales Tax Special Procedure Rules, 2005 and these rules were omitted by the Sales Tax Special Procedure Rules, 2006 and even these rules were superseded by Sales Tax Special Procedure Rules, 2007. It has been established by a comparative chart reproduced above that KESC specific amendment brought about by SRO 1236(1)/2005 dated 14.02.2005 is not applicable to the respondent/PESCO's audit period starting from May 2008 as the Sales Tax Special Procedure Rules, 2005 were omitted in 2006 and this ceased to be operative. It is also noted that CBR (now FBR) clarification dated 07.12.2004 being operative in the case of KESC during the audit period of respondent/PESCO is of general nature. It is trite law that a concession or facility being extended to one taxpayer i.e. KESC cannot be denied to another taxpayer i.e. PESCO in common facts and circumstances of cases. T & D losses are integral part of supply of electricity and these losses have been approved even by NEPRA.
We are of the considered view after going through the impugned order of learned CIR(A) that recommendations of FTO have not been relied upon in the relevant operative part of the impugned order and the learned CIR (Appeals) has decided the case as an independent forum. Our view to allow input tax adjustment relating to T & D losses is strengthened by the Honourable Lahore High Court's judgment in the case titled M/s. Mayfair Spinning Mills ltd., Lahore vs. Customs, Excise and Sales Tax Appellate Tribunal Lahore (PTCL 2002 CL 115) wherein it is held that a registered person is entitled to reclaim or deduct input tax paid inter alia where the goods on which input tax was paid by the registered person were subsequently destroyed and were not meant for use nor were intended to be used for any purpose other than taxable supplies.
It has been pointed out that similar issue of T & D losses has already been decided on 19.05.2014 by the Lahore Bench of This Tribunal in Appeals STA No. 874/LB/2013 & STA No. 950/LB/2013 in the case of Faisalabad Electric Supply Company and CIR, Faisalabad wherein input tax adjustment relating to total T & D losses has been allowed. In view of the above discussion, the decision given by the learned Commissioner Inland Revenue (Appeals) as to admissibility of input tax relating to T & D losses is held to be in order.
15. The next issue is Adjustment of Rs. 327,691,437-against 500,376,324 electricity units supplied to PATA. The basic issue involved in this case is that respondent/PESCO has shown the taxable supplies in PATA under the column "exempt" in the sales tax return and the Department disputes the admissibility of input tax relating to exempt supplies. On behalf of the Department, the learned LA has taken the plea that this issue has been decided by the Honourable Peshawar High Court in favor of the Departments vide its judgment dated 18.12.2009 passed in Writ Petition No. 854/2006 (M/s. Lal Ghee Oil Mills (Pvt.) Ltd. Vs. Federation of Pakistan etc. PTCL 2010 CL. 1007) whereunder levy and collection of Federal Excise and regulatory duty on edible oil under the laws not extended to the Tribal areas in terms of article 247(3) of the Constitution of Islamic Republic of Pakistan, 1973, has been disputed. In that case, the Honourable court held that the taxable event in the case of import of goods occurs at the time of actual H arrival of goods in Pakistan and their subsequent transfer to PATA and FATA is not relevant. It has also been argued that, as sales tax has not been charged from the end consumers by respondent/ PESCO, input tax adjustment relating thereto is not admissible u/s 8(1)(a) of the Sales Tax Act, 1990.
On behalf of respondent/PESCO, it has been argued by the learned counsel that the sales tax was included in the electricity bills issued to the consumer in June 2004 but the Civil Judge Swat stayed its recovery on the ground that Sales Tax Act, 1990 is not applicable to PATA while the First Appeal against that order was rejected and the case is currently pending before the Honourable Peshawar High Court. It has been argued by the learned Advocate on behalf of PESCO that the Sales Tax Return Form (the Return) does not cater to an eventuality where the courts of competent jurisdiction have stayed the recovery of sales tax. It has been explained that clarification has been sought repeatedly at the adjudication/ assessment and appeal stages to guide the respondent/PESCO as to the Column in the Return whereunder the relevant figures relating to output tax payable by the consumers in PATA but stayed by a court of law can be shown. It has been explained that no such guidance has ever been provided and per force these supplies of electricity in PATA were shown in exempt column which are otherwise taxable supplies in view of FBR's Letter C. No. 3(30) STP/99 dated 22.10.2003.. In this regard article 5 of the Constitution of Islamic Republic of Pakistan, 1973 has been referred by the learned counsel of PESCO which provides that obedience to the Constitution and law is the inviolable obligation of every citizen and it is settled law that a party should not be made to suffer on the account of act or, omission on the part of Court. Reliance has been placed on cases reported as 2002 SCMR 134 & 1997 SCMR 209. It is pleaded that decision by the Honourable Peshawar High Court in Writ Petition No. 854/2006 relied upon.By the Department is not applicable as PESCO's Civil Revision titled Chairman WAPDA vs. Noor Muhammad Khan dated 06.09.2006, relating to the specific issue of taxability of supply of electricity in PATA, is still pending. It has been explained that the judgment of the Honourable Peshawar High Court in W.P. No. 854/2006 in the case of M/s. Lal Ghee Oil Mills (Pvt.) Ltd. Vs. Federation of Pakistan relied upon by the department is not applicable to the facts of this case. In that case, goods have been imported in Karachi. The Honourable Peshawar High Court, following the principle of law laid down by the Honourable Supreme Court has held that in case of goods brought to Pakistan, the taxable event occurs at the time of IMPORT of goods regardless altogether of the fact that these have been imported for transportation/consumption in areas declared exempt from taxes. Respondent/PESCO's case does not relate to IMPORT of goods and taxable event of supply of electricity occurs when electricity is actually used by the consumers in Swat but courts have held such supply to be nontaxable and hence this judgment is not applicable to the facts of this case.
After considering the submissions from both the sides we are of the view that the respondent/PESCO has per force been obliged to show the supplies of electricity in PATA under the column "exempt" in view of the fact that such supplies have been declared as non-taxable by the courts of competent jurisdiction. It is evident that even the Department is not clear as to the placement of such supplies in the sales tax return. In such unavoidable circumstances, simple mentioning of these supplies in PATA under the "exempt" column does not render them exempt.
The CBR's clarification dated C. No. 3(30) STP/99 dated 22.10.2003 makes such supplies as taxable and their ultimate account as taxable supplies is not disturbed by any lacuna in the Sales Tax Return Form. It is trite law that order of the courts of competent jurisdiction must be obeyed and the Respondent/PESCO should not be made to suffer on account of such orders. Therefore, we are inclined to agree with contentions made on behalf of Respondent/PESCO and findings of the learned CIR (Appeals) in this regard are upheld.
16. Regarding Input tax adjusted on stocks acquired before registration (Rs. 23.538 Million) we have found that this issue relates to input tax adjustment claimed by the Respondent/PESCO on stocks which were acquired by WAPDA during the transit period between submission of sales tax returns by WAPA on behalf of PESCO and filing of return by Respondent/PESCO itself from May 2008. The learned LA for the Department has relied on Section 59 of the Sales Tax Act, 1990 whereunder a registered person required to be registered under section 14 shall be entitled to input tax adjustment provided that such goods were purchased by him from a registered person against an invoice issued under section 23 of the Sales Tax Act during a period of 30 days before making an application for registration. It has been argued that the invoices forming basis of input tax adjustment were actually issued in the name of WAPDA and so input tax adjustment is not admissible to Respondent/PESCO in terms of section 7 read with section 23 of the Sales Tax Act.
Furthermore, the invoices are beyond the period of 30 days upon which the respondent company has claimed input tax which is against the provisions of section 59 ibid. The learned Advocate for the Respondent/PESCO has asserted that it is not dispute that Respondent/PESCO have made the payments for these stocks and these stokes been utilized by the Respondent/PESCO for distribution and supply of electricity. It has been submitted that section 59 refers to a newly registered company. The position of the Respondent/PESCO is unique in the sense that although it has obtained a new sales tax registration No. In May 2008 on the directions of WAPDA, it is not new to this field. The Respondent/PESCO has been operating as a separate company since its incorporation in 1998 and since then has been making procurements through its Material Management Directorate. From 1998 till April 2008 the sales tax matters were dealt by WAPDA on behalf of PESCO and suppliers issued invoices in the name and registration No. Of WAPDA but payments relating thereto were made by the Finance Directorate of PESCO and these invoices were sent each month to WAPDA Lahore. So if any input tax was not claimed by WAPDA in the last return it filed on PESCO's behalf, PESCO can legally claim the same as it had paid input tax on purchases of these goods, which have been used by PESCO for making taxable supplies. It is elaborated that this procedural issue has cropped up due to transition of PESCO submitting its Sales Tax Returns from May 2008 instead of WAPDA. The Commissioner Inland Revenue (Appeals) has mentioned in the concluding part of his order about this issue which is reproduced hereunder:- - "While considering the arguments of both the parties, the learned counsel of the appellant produced a clarification letter vide No. Taxes/GST-22/74-75 dated 12/04/2011 duly issued by the office of the General Manager Finance (Power), 320--Wapda House, Lahore. In the aforesaid letter it has been clarified that M/s. WAPDA has not claimed input tax on the invoices, therefore, M/s. PESCO has legitimately claimed/adjusted the input tax."
As regards the discrepancy relating to WAPDA and PESCO, the Customs Excise and Sales Tax Appellate Tribunal Islamabad Bench has laid down a comparable principle in Appeal No. 368/2000 Murree Glass Industrial Estate Hattar vs. Collector Sales Tax and Central excise, Peshawar that input tax adjustment relating to Bill of Entry of a subsidiary company or a division of a parent company is valid and legal. Reliance has been placed also on:-- i. 2002 PTD 541 (Haft Mehr Din verses Zone-A, Lahore)--wherein it was held that the rules of procedure are meant to advance the cause of administration of justice thin to thwart it and these technicalities should never undermine the advancement of purpose for which judicial or quasi- judicial forums are established by law. ii. PTCL 2006 CL 389 -- M/s. Kohinoor Textile Mills Ltd, Rawalpindi V. The Additional Collector of Customs, Sales Tax & Central Excise (Adjudication), Rawalpindi wherein it was held that input tax adjustment is a substantive right of the taxpayer and cannot be taken away or withheld on mere technical grounds. iii. PLD 2003 Kar. 495 - M/s. Clifton and Defence Traders Welfare Association v. President, Clifton Cantonment Board wherein it has been held that courts are sanctuaries of justice not to be persuaded by technicalities and 'wherever possible and circumstances so required to act in aid of justice and adopt such interpretation or mould relief in a manner that may serve the cause of justice and suppress the mischief. Technicalities cannot be allowed to be used to frustrate such cause.
After considering the arguments from both the sides and perusal of available record we are of the view that such problems usually crop up in the transition period when accounts are being switched between different public sector organizations and their subsidiaries. It is not disputed that the Respondent/PESCO has paid for the taxable supply of these stocks. It is also not denied that these stocks have been used for further supply of electricity by PESCO on which sales tax has been paid.
It is also established that WAPDA has not claimed input tax adjustment relating to these stocks. The case law referred to by the learned counsel of the PESCO also supports admissibility of adjustment of input tax by PESCO - Accordingly it is held that PESCO is entitled to input tax adjustment on the stocks acquired before registration and the learned Commissioner Inland Revenue (Appeals)
Order in this regard is upheld.
17. As regards eight questions raised by the Department, it is observed that these questions mainly relate to admissibility of input tax linked with T & D losses and points raised therein have been elaborately examined and decided in the preceding paragraphs. Consequently the appeal bearing STA No. 145/PB/2011 filed by the Department is dismissed in the manner as stated above.
18. The cross Appeals S.T.A. 159/PB/2011 & S.T.A. 170/PB/2011 relate to the same Order-in-Appeal No. 492/2010 passed by the learned Commissioner Inland Revenue (Appeals), Peshawar and Assessm ent Order 07/2010 passed by the Assistant Commissioner Inland Revenue.
Brief facts of the case are that the Assistant Commissioner (AuditXIII) R.T.O. Peshawar on the basis of audit of accounts of the Peshawar Electric Supply Company (PESCO), issued Show Cause Notice bearing No. ST/Audit-XIII/Haroon/2010/237 dated M 30-06-2010 to PESCO asking them to explain as to why the principal amount of Rs. 13,288,199,371/- for the period April, 2009 to April, 2010 should not be recovered under section 11(2) and 36(1) alongwith default surcharge etc. Under section 34(1) of the Sales Act, 1990. The PESCO filed reply to the above mentioned Show Cause Notice wherein charges leveled in the Show Cause Notice were denied. As there were substantial mistakes in the Show Cause Notice, therefore, a reconciliation committee was constituted for rectification of the anomalies and discrepancies in the notice pointed out by PESCO's Counsel. Though, the committee could not finalize a unanimous report, it agreed to reduce the tax liability to Rs. 7,851,648,213/-.
The Assistant Commissionel Inland Revenue decided the case vide Assessment Order No. 07/2010 dated 27-11-2010 and PESCO was held to be in default of sales tax amounting to Rs. 7,851,648,213--in terms of sections 11 & 36 of the Sales Tax Act, 1990 along with the default surcharge under section
34. Penalty equal to 5% of the tax involved was also imposed under section 33(5) of the Sales Tax Act, 1990.
On appeal by PESCO, the learned Commissioner Inland Revenue (Appeals) Peshawar reduced the tax liability to Rs. 600,710,536/-vide Order-in-Appeal No. 492/2010 dated 30.05.2011 and directed that the issue relating to double adjustment amounting to Rs. 10,086,668/- should be decided Commissioner Inland Revenue, RTO Peshawar on the basis of application already submitted by PESCO. Now both the parties have filed these cross appeals before this Tribunal.
19. The learned counsel of the PESCO has raised at the very outset the Preliminary/Legal/Jurisdictional Issues that the Assistant Commissioner Inland Revenue did not had jurisdiction to issue show cause notice on 30.06.2010. It is argued that the Assistant Commissioner Inland Revenue, who issued the show cause notice on 30.06.2010, did not have the jurisdiction under Section 30 of the Sales Tax Act, 1990 as he was not appointed through a notification published in the official gazette as required u/s 30. This issue has been examined in detail in the above paras of the order in appeal STA No. 145/PB/2011 and as held in that case, it is decided that no notification conferring jurisdiction on the Inland Revenue Officer having been issued u/s 30 and published in the official gazette after the promulgation of Finance Amendment Ordinance, 2009 Finance Amendment Ordinance, 2010, the order issued by the Assistant Commissioner Inland Revenue is without jurisdiction. It may be added that requirement relating to conferring of jurisdiction u/s 30 by notification in official gazette was omitted by the Finance Act, 2010 which came into operation on 01.07.2010. As stated in the N above paras of this order, similar issue has been decided this Tribunal vide 2012 PTD (Trib.) 1335, 2012 PID (Trib.) 1094, 2012 PTD (Trib.)
1040.
20. The issue of time limit the Adjudication not finalised within the prescribed period is also the similar as decided above. It is submitted that the Adjudication/Assessment in this case has not been finalised within the stipulated period of 120 days as per facts detailed below: Date of issue of show cause notice = 30.06.2010 (120 days over on 28.10.2010)
Date of order on file = 27.11.2010 Date of delivery to TCS=30.11.2010 Date of receipt of order= 1.12.2010.
However the Department has argued that the case has been finalized within the stipulated period as the date of order on file is 27.11.2010 and 120 days period of limitation expired on 28.10.2010.
Department has also argued that even if the period of limitation has expired, this irregularity does not render the order as void. Two crucial issues involved in this matter are as follows:--
(i) Whether the expiry of period of limitation of 120 days in Section 11 and 36 renders the order void or otherwise.
(ii) What is the effective date of order to determine the period of limitation.
The first issue as stated above has been thoroughly examined and P analyzed in Appeal STA No. 145/PB/2011 and it has been held that subject period of limitation involving creation of tax liability against a person is mandatory.
As regards second issue relating to crucial date to determine the date of an order. It is argued that the subject order has been given to TCS on 30.10.2010 while the 120 days stipulated period expired on 28.10.2010. According to learned counsel of the PESCO this issue has been improperly examined and erroneously decided at the first appellate stage. It is emphasised that mere passing of an order is not enough and the crucial date to determine the time of judgment is the date when order is dispatched to and received by the concerned party. Reliance has been placed on: i. 2013 PTD 537 -- Zamindara Paper Mills vs. C.I.R. (Legal Division) R.T.O. Wherein it was held that order was passed beyond the prescribed limitation of 120 days as it was dispatched and received after more than 220. Days from the issuance of show cause notice. ii. 2007 PTCLR 548 -- M/s. Sabir Daud Exports vs.'Secretary, Revenue Division, Islamabad -- wherein it was held that mere passing of an order in the file is not enough and the crucial date to determine the time of judgment is the date when the order is dispatched to and received by the concerned party. iii. PTCL 2010 CL. 137 -- M/s. Tanveer Weaving Mills vs. Deputy Collector Sales Tax -- wherein it was held that Order-inOriginal was not valid for having been passed after expiry of 90 days provided under S.36 of the Sales Tax Act, 1990. iv. PTCL 2008 CL 1 -- M/s. Super Asia Mohammad Din Sons (Pvt.) Ltd. Vs. The Collector of Saks Tax, Gujranwala wherein it was held that once limitation had started to run and had come to an end the assessee had acquired a vested right of element of assessment by lapse of time. v. 2008 PTD 1379 -- M/s. Siddiqui Sons Denim Mills (Pvt.) Ltd V. Secretary, Revenue Division, Islamabad.
Vi. 2007 P.C.T.L.R. 997 -- M/s. Qasim Cotton Ginners V. Secretary, Revenue Division, Islamabad.
Vii. PTCL 2005 CL 841 -- CBR/Sales Tax Department V. M/s. Pace International, Rawalpindi.
Viii. PTCL 2010 CL 1134 -- M/s. Zeenat Printing & Dyeing Gujranwala Vs The Collector of Sales Tax & Central Excise, Lahore.
1992 SCMR 1898 -- Federation of Pakistan v. M/s. Ibrahim Textile Mills Ltd. Wherein it was held that due consideration was given as to whether the respondents should not pay the short-levied duty and whether the State should suffer in public finance. But the cardinal principle of law is that all are equal before law, whether citizens or State. Secondly if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Collets. Thirdly, while construing a financial statute, its terms are strictly to be followed.
2009 SCMR 1126 -- M/s. Dewan Cement Ltd. v Collector of Customs and Sales Tax and another wherein it was held that where the show cause notice is time-barred the merits of the case need not be discussed.
As regards effective date of an order to determine limitation, the learned counsel for PESCO has referred to C.G.O. 12/2002 issued by the now FBR. In this Order, provisions of section 36 of the Sales Tax Act, 1990 have been compared with section 32 of the Customs Act, 1969 and Section 39 of the Sea Customs Act, 1878. Section 36(3) of the Sales Tax Act requires order to be made within 120 days.
It has been argued that para 64 of the Chapter XIV of the Customs General Order No. 12 of 2002 provides that a demand was considered to have been "made" only when it was received by the parties concerned. It has also been submitted that Section 70 of the Sales Tax Act, 1990 envisage the date of receipt to be the crucial date.
On the other side the learned LA for the Department has explained that any postal delay does not infringe any right of PESCO as the time limit for preferring an appeal before the higher forum is to be reckoned from the date of receipt of that order. It has been emphasized that allegation of PESCO as to backdating the order is false and baseless. It has been further argued that various adjournments were secured by the PESCO and the period of adjournments is liable to be excluded from the period of limitation. The learned LA for the Department also explained the difference between passing/making an order and serving it. A reference has been Made in this regard to section 56 of the Sales Tax Act which reads as follows: "Any adjudication order or decision made or any summons or notice issued under this Act shall be served....." This clearly means that first an order is "made" and then it is communicated.
Reliance has been placed on the decisions reported as 2010 PTD 660 and 2007 PTD (Trib.) 803 wherein completion of assessm ent has been differentiated with communication of order u/s 64 of the Income Tax Ordinance, 1979. It has also been stated that the purpose of Section 70 of the Sales Tax Act, 1990 has been misinterpreted. According to the Department, the purpose of Section 70 of the Sales Tax Act, 1990 is that the date on which such order was served upon him or in case copy of order was not furnished to him, the time requisition for obtaining copy of such order shall be excluded while computing limitation period for filing of appeal.
On behalf of PESCO it has been explained that these judgments relate to the interpretation of the word 'Assessm ent' as used in section 64 of the Income Tax Ordinance, 1979 and an entry in the relevant officially Prescribed Register (Demand & Collection Register) has been made within time in these cases. These judgments are not applicable to facts of the PESCO case where sections 11 and section 36 (as then applicable) of the Sales Tax Act, 1990 clearly require that order shall be made within the stipulated period and section 56 read with section 70 of the Sales Tax Act clearly link the making of that order with the receipt of the order by the concerned party. In addition there is no similar prescribed register in the sales tax cases.
We have given careful consideration to the rival arguments and observe that the Department has admitted that the impugned order by the Assistant Commissioner Inland Revenue was dispatched to PESCO on 30.11.2010 but the Department has tried to take shelter behind the excuse of postal delay to seek condonation of the period beyond the 120 days prescribed u/s 11 & 36 of the Sales Tax Act. The period between 27.10.2010 to 30.10.2010 has not been explained and the excuse of postal delay at best can commence after the receipt of the envelope containing the order by the courier therefore held that the effective date to complete the period of limitation 30.11.2010 when the order was handed over to Courier Company. It is therefore held that the subject order has not been passed within the stipulated period u/s 11 & 36 of the Sales Tax Act.
21. The next legal issue is regarding lack of pecuniary jurisdiction of the Assistant Commissioner.
The learned counsel for PESCO has submitted that the Assistant Commissioner Inland Revenue even if this designation existed in the Sales Tax Act, 1990 on 30.06.2010 when the show cause notice in this case was issued, has no pecuniary jurisdiction under SRO 555(I)/96 dated 01.07.1996. Under this SRO, Assistant Commissioner Inland Revenue could issue show cause notice in a case falling u/s 11 & 36 of the Sales Tax Act, 1990 provided that the amount of tax involved did not exceed Rs.
500,000/- while the amount involved in this case exceeds Rs. 13 Billion. Reliance has been placed on the reported decisions:-- i. 2013 PTD (Trib.) 316 -- M/s. Chenab Board, Faisalabad vs. CI R(A) RTO, Faisalabad wherein it was held that the order dated 07.02.2012 passed by the AC IR was much beyond the monetary limit prescribed for adjudication at Serial No. 2 of the SRO 555(I)/1996 dated 1.07.1996 which remained in force till 1.06.2012 when it was rescinded by the Federal Government vide SRO 594(1)/2002 dated 1.06 2012 and the order was declared null and void and of no legal consequences. ii. 2013 PTD 1001 -- M/s. Central Power Generation Company Ltd Guudu, District Kashmore vs. Zone-I, R.TO., Lahore wherein it was held that order passed by DCIR is beyond the pecuniary jurisdiction as provided under S.R.O. 555(1)/1996 dated 01.06.1996. iii. STA No. 126/LB/2012 -- Islam Engineers (Pvt.) Ltd. Lahore verses The Commissioner Inland Revenue Zone VIII, RTO Lahore -- wherein it was held that Assistant Commissioner has acted beyond his pecuniary jurisdiction as laid down in S.R.O. 555(I)/96 dated 01.07.1996. It is a settled principle of law that any proceedings without lawful jurisdiction are illegal and void ab-initio. iv. 2011 PTD (Trib.) 105 - C.I.R. Zone-II, RTO, Multan v. M/s. Prime PVC Factory, Multan wherein it was held that the Deputy Commissioner of Inland Revenue had been authorized to adjudicate the cases involving assessm ent of sales tax, charging of additional tax and imposition of penalty provided that the amount of tax involved did not exceed Rs. 1,000,000. v. 1013 PTD 1189 -- M/s. Malik Enterprises, Rawalpindi v. Commissioner Inland Revenue (Appeals)- Islamabad wherein it was held that show cause notice and Order-in-Original passed by the Deputy Commissioner Inland Revenue and Assistant Commissioner Inland Revenue were without pecuniary jurisdiction in terms of SRO 555(1)/1996 dated 1.07.1996 and hence null and void.
The Department in this regard has' taken the plea that the proceedings carried out by the assessing authority are protected u/s 25 of the Sales Tax Act. It has been stated that Section 25(3) prior to the Finance Act, 2010 read as follows: "The Assistant Commissioner (Audit), shall issue audit observations pointing out the contravention of the Act or rules; as the case may, and the amount of tax evaded therein, on basis of scrutiny of such records, as prescribed under the Act or rules or in any other manner by the Board. The registered person may, within a period of fifteen days of the receipt of audit observations, submit his point of view in writing." However Section 25(3) was substituted by the Finance Act, 2010 as under:- "After completion of audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section 11 or section 36, as the case may be." It has been further pleaded that Section 45 of the Sales Tax Act was omitted vide Finance Act, 2010 w.e.f. 06.05.2010. It has been thus concluded that SRO 555(1)/96 dated 01.07.1996 has become redundant and there are no pecuniary limits under the present section 25(3) of the Sales Tax Act.
Learned counsel for PESCO has argued that the Finance Act, 2010 came into operation on 01.07.2010 as is evident from section I thereof and amendments in section 25(3) of the Sales Tax Act or deletion of Section 45 take effect from 1.7.2010. Thus Finance Act, 2010 is not relevant to the Show Cause Notice issued on 30.06.2010. He further pointed out that SRO 555(I)/96 dated 01.07.1996 remained in force till it was rescinded by SRO 594(1)/2012 dated 01.06.2012.
We have given careful consideration to the rival arguments of the parties and it is evident that Section 1 of the Finance Act, 2010 mentions the date of its coming into force as 01.07.2010.
Resultantly the substitution of Section 25(3) and omission of Section 45 by the Finance Act, 2010 are not relevant to the impugned show cause notice issued by the Assistant Commissioner Inland Revenue on 30.06.2010. While perusal of the reported decisions 2013 PTD (Trib.) 316, 2013 PTD (Trib.)
1001, 2012 PTD (Trib.) 105 and 2013 PTD 1189, we have found that this Tribunal has held that orders issued on the basis of a show cause notice issued beyond the pecuniary limits provided in SRO 555(1)/96 dated 01.07.1996 are not lawful. These specific judgments given with reference to SRO 555(1)/96 dated 01.07.1996 have not been rebutted by the department and it has been only stated that cases laws quoted by the PESCO have no relevance to the facts and circumstances of the case and if there is any conflict between the State and the rules, the statute shall prevail. It is evident that SRO 555(1)/1996 dated 01.07.1996 was alive and operative till it was rescinded vide SRO 594(1)/2012 dated 01.06.2012 and it was operative on 30.06.2010 as discussed above. Accordingly show cause notice dated 30.06.2010 is held to be beyond pecuniary jurisdiction and all subsequent proceedings in pursuance of such an unlawful show cause notice are held to be void. It is settled law that a superstructure built on an unlawful foundation collapses with all of its parts.
22. On the merits of the case the first issue is the inadmissible Input Tax adjustment in violation of section 7 and 8 of the Sales Tax Act, 1990. (Rs. 3,127,862,538/-) Input tax adjustment relating to Transmission and Distribution losses. The subject matter relating to input tax adjustment of Transmission and Distribution Losses (T & D Losses) has been thoroughly examined in above paras while deciding appeal STA No. 145/PB/2011. It has been decided that adjustment of such input tax on total T & D Losses is admissible and so this decision of the learned Commissioner Inland Revenue (Appeals) in this regard is ordered to be upheld.
The issue of inadmissible input tax adjustment in violation of section 8(2) of the Sales Tax Act, 1990 (Rs. 1,228,712,182/-) & section 8 of the Sales Tax Act, 1990 (Rs. 440,789,062/-) - supplies to PATA has also been decided in the above paras of this order. It has been decided that the aforesaid input tax is admissible to PESCO and so the decision of the learned Commissioner Inland Revenue (Appeals) in this regard is ordered to be upheld.
23. The next issue in these cross appeals is the declaration of less sales in sales tax returns as compared with annual accounts-short payment of sales tax (Rs. 4,031,662,444) subsidy paid by the Government. This issue relates to levy of sales tax on the subsidy paid by the government to the power distribution companies. The learned LA for the Department has argued that this amount has been paid with reference to cost of electricity and is hence taxable. However the Counsel for the PESCO has explained that subsidy falls outside the scope of value of taxable supply u/s 2(46) and hence sales tax cannot be levied on such welfare payment by the government to keep the prices of electricity at a lower level.
Taxability of amount received as subsidy by a power distribution company has been thoroughly examined and decided in favor of taxpayer by this Tribunal, Lahore Bench vide STA No. 874/LB/2013 & STA No. 950/LB/2013 between RTO, Faisalabad and Faisalabad Electric Supply Company.
Following the judgment given in exactly similar and comparable circumstances, it is held that sales tax is not payable on the subsidy received by PESCO from the Government of Pakistan.
24. Next issue is the non-payment of sales tax on post employment free electricity (Rs.
114,627,266/-). The learned LA for the Department has argued that the learned Commissioner Inland Revenue (Appeals) was not justified to hold that PESCO has shown hypothetical contingent liability relating to retired employees payable only at the time of winding up of the company as it falls outside the scope of Section 3 of the Sales Tax Act, 1990. It has been argued that electricity supplied to the retired employees can not be precluded from the scope of Section 3.
The learned counsel for PESCO on the other side has emphasized that the Department has unjustifiably mixed the hypothetical contingent liability in the financial statement of PESCO with the tax free supply of electricity to retired employees. It is submitted that no sales tax during the relevant period was payable on advances under the Sales Tax Act, 1990 and on the same footing this hypothetical contingent liability payable only at the time of winding up of the company falls outside the scope of section 3. Therefore this charge appears to originate from misunderstanding of the nature of hypothetical contingent liability determined by the actuary as per international accounting standards.
25. We have given careful consideration to the rival arguments and we are inclined to agree with the verdict given by the learned Commissioner Inland Revenue (Appeals) that sales tax was not payable on the advances during the relevant period and on the same analogy any contingent liability shown in the financial statement in accordance with the international accounting standards payable only at the time of winding up of the company, is outside the scope of Section 3.
25. Next are the specific issues decided against PESCO. The first one is the inadmissible input tax adjustment in violation of section 8(1)b read with SRO 490(1)/2004 dated 12/06/2004 of the Sales Tax Act, 1990 (Rs. 2,622,420/-). The PESCO has claimed adjustment of input tax paid on vehicles purchased by it. The Department has disputed this adjustment on the ground that such adjustment is not tenable u/s 8(1)(b) of the Sales Tax Act read with SRO 490(1)/2004 dated 12.06.2004. It has been pleaded on behalf of PESCO that these vehicles have been used to monitor the installation and distribution of electricity on which output tax has been paid by PESCO.
We have given careful consideration to submissions made by the two parties. SRO 490(I)/2004 dated 12.06.2004 issued u/s 8(1) specifically mentions vehicles falling in Chapter 87 of the First Schedule to Customs Act, 1969, in respect of which input tax adjustment is not admissible.
Resultantly it is held that input tax adjustment claimed on the vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 is not admissible.
26. Next is the inadmissible input tax on other than power energy (Rs. 359,146,351) -- MNA Grants.
The department has alleged that PESCO has supplied goods against consideration but has failed to charge sales tax thereon and, therefore, input tax adjustment relatable to the aforesaid goods is not admissible. The learned counsel of the PESCO has explained that the PESCO have not supplied such goods to any person. In fact, the Government allocated funds for various MNA's/ Senator Grant schemes relating to electrification and installation of equipment for distribution of electricity.
These funds are routed from Finance Division to AGPR and then utilized by PESCO to purchase various goods and to incur expenses for installation and distribution of electricity. It has been further explained that this expenditure is thereafter capitalized in PESCO's books of accounts and assets permanently belong to PESCO. Relevant record relating to the Auditor General's office Islamabad and Controller General of Accounts, Islamabad clearly reveals that these funds have been placed at the account of PESCO. It has been categorically asserted that these goods have not been supplied to any person and hence question of charging output tax does not arise.
We have given careful consideration to the rival arguments. The Department has failed to provide any proof of taxable supply of the subject goods and it is evident that output tax is payable only when taxable supplies are made uls 3. Purchase of goods with the funds given by the Government of Pakistan to PESCO does not affect the nature of transaction relating to purchase of goods by PESCO. It is settled law that sales tax can not be levied on the basis of surmises and conjectures and resultantly input tax adjustment involved in this issue is held to be admissible.
27. Next is the non payment of sales tax on sale of scrap (Rs. 1,938,062/-). The department has alleged that payment of sales tax on scrap is not substantiated by record. In response the learned counsel for PESCO has pleaded that the relevant record was provided to the Assistant Commissioner Inland Revenue Vide letter dated 13.102010 and the learned Commissioner Inland Revenue (Appeals) but this record has not been examined and the same has again been enclosed as Annex XIII of the Memo of Appeal.
We have given careful consideration to the rival arguments. A perusal of the aforesaid record (page 226-246 of the Memo of Appeal) authenticity of which has not been rebutted by the Department reveals that the sales tax has been charged and deposited in the State Exchequer on the sale of scrap.
It appears that the subject record previously produced at the Assessment/Appellate stage has not been examined. Accordingly, it will be just and fair to remand this issue to the Assistant Commissioner Inland Revenue for examination of record and to decide the issue after hearing both the parties.
28. Next issue is non-payment of sales tax on FAS season charges (Rs. 226.15 million). This issue relates to non-payment of sales tax on FAS season charges on the ground that PESCO has failed to prove the withdrawal of this levy. The learned counsel for PESCO has explained that FAS Season charges were discontinued in 2007 while the subject case relates to the audit period April 2009 - April 2010. It has been explained that this issue has cropped up due to use of electricity bill forms which were printed in bulk before the aforesaid withdrawal and these forms contained the column FAS season charges. The Government has levied Neelam Helium Hydro Power Project Fund Charge but exempted it from payment of sales tax and in order to utilize the already printed forms, Neelam Helium Hydro Power Project Fund Charge was shown under the column FAS Season charges. It has been argued that WAPDA's letter C.No. MF/CPCC/Cash Flow/5204/407-19 dated 14.03.2007 clearly provides withdrawal of this levy as follows:-- "The revised tariff consists of two parts i.e. Fixed charges and variable charges whereas earlier tariff notified by the GOP effective 01.11.2003 comprised four (4) components i.e. Fixed charges, energy charges FAS and additional surcharge." (Emphasis Supplied)
It has been agitated that this documentary evidence produced before the Assistant Commissioner Inland Revenue and the learned Commissioner Inland Revenue (Appeals) has not been examined in the operative parts of their orders.
We have given consideration to the rival argument. A perusal of the WAPDA's Letter C,No. MF/CPCC/Cash Flow/5204/407-19 dated 14.03.2007 clearly reveals that four components i.e. Fixed charges, energy charges, FAS and additional surcharge have been merged in the revised tariff in 2007 and the revised tariff thereafter consisted of two parts i.e. Fixed charges and variable charges.
As the sales tax has been charged on the revised tariff, allegation as to non-payment of sales tax on a discontinued levy is not tenable. The plea relating to showing Neelam Helium surcharge in the balance available printed forms. In 2007 appears to be in order. As the documentary evidence relating to this issue has not been examined and analyzed at the Assessment/Appellate stage, it is considered appropriate to remand this issue to the Assistant Commissioner AD Inland Revenue with the direction to examine the relevant record and to decide the issue after hearing the parties.
29. Next issue is the non-payment of sales tax on supplies to associatd undertaking (Its. 12,853,702).
This issue relates to nonpayment of sales tax on supply of free electricity to employees. The learned counsel for PESCO has submitted that the relevant record proving payment of the subject sales tax was provided to the Assistant Commissioner Inland Revenue as Annex V of the Rejoinder duly mentioned in Para 3.X on Page 36 of the Assessment Order No. 07/2010 and Annex M of the Rejoinder as mentioned in Para XI on Page 32 of the Order-in-Appeal but the same has not been examined at all by the A.C. (IR) or the learned Commissioner Appeals. It has been pleaded that the relevant record has again been enclosed as Annex XV of the Memo of Appeal. On AE the other side the Department contention is that PESCO has failed to provide any documentary evidence regarding payment of sales tax on supply of free electricity to its employees.
We have given careful consideration to the rival arguments. As pointed out by PESCO, documentary evidence in the form of month wise GST assessed against WAPDA employees alongwith electricity bills showing payment of sales on free supply of electricity to its employees are available as Annex XV of the Memo of Appeal on the pages 255-276 of the paperbook. It appears that these documents have failed to attract attention of the Department and, accordingly, charges relating to non-payment of the subject sales tax are held to be disproved.
30. The cross appeals STA No. 159/PB/2011 filed by the Department and the appeal STA No. 170/PB/2011 filed by the taxpayer are disposed of in the way and to the extent as stated above.
31. The cross appeals S.T.A. 96/PB/2013 filed by the taxpayer and S.T.A.98/PB/2013 filed by the Department relate to the same Order-in-Appeal No. 31/2013 dated 19.08.2013 passed by the learned Commissioner Inland Revenue (Appeals), Peshawar and Assessment Order No. 04/2013 dated 1102.2013 passed by the Deputy Commissioner Inland Revenue.
Brief facts of the captioned appeals are that PESCO claimed refund of input tax carried forward in the sales tax return of March 2012 under Section 10 of the Sales Tax Act, 1990 read with Rule 34 pf the Sales Tax Rules, 2006 and as contended by the taxpayer also provided the supporting documents as per Rule 28 of the Sales Tax Rules, 2006. Complete data in the RCPS format in the computer diskette in accordance with law was also submitted on 17.08.2012 and refund claim No. D050312100052 was assigned by the RTO, Peshawar.
The Deputy Commissioner Inland Revenue, Refund Cell, Zone-II, Regional Tax Office, Peshawar issued Show Cause Notice dated 04.01.2013 to PESCO asking them to explain as to why input tax/refund amounting to Rs. 15,063,493,791/- may not be rejected under sections 10(4) of the Sales Tax Act, 1990 & Rule 37 of the Sales Tax Rules, 2006. The written reply to the above mentioned Show Cause Notice was filed on 30-01-2013 by PESCO wherein charges levelled in the Show Cause Notice were denied. The Deputy Commissioner Inland Revenue, Refund Cell, Zone-II, Regional Tax Office, Peshawar passed Assessm ent Order No. 04/2013 dated 13.02,2013 rejecting the refund claim of PESCO amounting Rs. 15,063,493,791/.
The learned Commissioner Inland Revenue (Appeals) decided the appeal partially against PESCO vide impugned Order-in-Appeal No. 31/2013 dated 19.08.2013. Now both the parties have filed these cross appeals against the impugned order of the learned CIR(A).
32. The learned counsel for PESCO has at the very outset submitted that reply to the show cause notice was submitted after the last date of hearing and the Deputy Commissioner Inland has not confronted PESCO with this document. It has been pleaded that deciding the case on the basis of such a document renders such decision to be unlawful.
Mentioned in the show cause notice and thus the merits of the case have not been adversely affected. As this case has been already reexamined at the learned Commissioner Inland Revenue (Appeals) level, therefore, this objection appears to be of academic nature and is held to be untenable.
PESCO the registered tax person in this case has agitated that the refund processing officer has relied on SOP dated 06.02.2013 to substantiate STARR/CREST objection while the FBR's letter dated 06.02.2013 has forwarded a draft Sales Tax General. Order for comments by the field formations.
This objection is also overruied because merits of the case have been already reexamined by the learned Commissioner Inland Revenue (Appeal) without taking into consideration the subject FBR's letter dated 06.02.2013
33. The appeal No. 98/PB/2013 filed by Department exclusively relates to admissibility of input tax relating to Transmission and Distribution losses (T & D losses). The grounds raised as on pages 2-3 of the Memo of Appeal in this Appeal are in fact part of the similar questions posed in Appeal No. 145/PB/2011 discussed in the above paras of this order. These questions have been examined in detail and it has been decided that input tax relating to T & D losses is admissible to PESCO. It is therefore held that the subject input tax adjustment on T & D Losses has been validly claimed by PESCO.
34. PESCO the taxpayer in this case in the cross appeal has submitted that the learned Commissioner Inland Revenue (Appeals) vide the impugned order dated 19.08.2013 has also upheld the contentions of the taxpayer relating to following two issues also in addition to the matter relating to T & D losses:
(i) Objection of time barred refund claim and STARR objection "Wrong Tax Period" decided in our favour under Rule 34(1)(a) of the Sales Tax Rules, 2006.
(ii) Inadmissible input tax adjustment/refund in violation of sec 8 of the Sales Tax Act, 1990 (Rs.
4,872,484,9050 -Supplies made to PATA.
It has been pleaded that the Department has not filed Appeal against the decision on these points and accordingly these issues stand finally resolved in favor of PESCO.
35. It is further contended that the department has alleged that additional supportive documents have not been produced to overrule STARR/CREST objections. Learned counsel of the PESCO has submitted that various explanations given with reference to STARR objections have not been considered by the Deputy Commissioner Inland Revenue & the learned Commissioner Inland Revenue (Appeals) and therefore their orders are violative of Section 24-A of the General Clauses Act, 1897. An example in this regard has been given about invoices relating to purchase of energy from WAPDA, . Lahore involving Rs. 7,294,420,502 on page 59 of the impugned Assessment Order.
Comments in this regard are available in the last sentence of Para 2 on Page 21 of the Assessment Order as reproduced below:- "Moreover the input tax claimed on the basis of power purchase invoices of WAPDA, is not in the category of utility invoices in the instant case."
The learned Commissioner Inland Revenue (Appeals) has overruled the objection relating to "Wrong Tax Period" in respect of all invoices and the Department itself concedes that the subject invoices are not utility invoices - However the impugned order fails to clearly grant relief in this regard though the CREST objections namely "Wrong Tax Period" & "Utility Invoice" stood resolved. It is requested that the Sales Tax Automated Refund Repository System (STARR) objections are liable to be overruled keeping in view the facts and circumstances of the case.
36. Utility Invoices It has been pleaded that this objection has been raised on all the PTCL, Sui Gas bills and even power purchase invoices of WAPDA AG amounting to Rs. 7,294,420,502 (Annex VI on page 496 - 497 of the Memo of Appeal It has been argued that utility bills cannot include purchase of electricity worth over 7 billion rupees. It has been further stated that the adjustment of input tax relating to utility bills is admissible under the law. Reliance has been placed on:
1. [(2012) 105 TAX 351 (Trib.)] ST.4 NO 43/K/2011 in which department was directed to allow input tax paid, by the registered person on account of utility bills.
II. PTCL 2013 CL: 79 -- M/s. D.G Khan Cement Co. Ltd vs. CIR (Legal Division) RTO, Multan wherein it was held that input tax adjustment claimed against bills of electricity consumed in residential area and administrative offices in Cement Factory of taxpayer was meant for furtherance of taxable supply, thus, was admissible III. PTCL 2013 CL. 136 -- M/s. Maple Leaf Cement Factory Ltd Lahore vs. Collector of sales Tax, Faisalabad wherein it was held that taxpayer is entitled to the adjustment of input tax paid on electricity consumed in the running canteen and administrative offices located within the factory premises.
We have considered the arguments from both the sides and have perused the available record.
We are of the view that WAPDA's power purchase invoices of billions of rupees fall outside the scope of utility bills. We are further inclined to agree with the contention of the learned counsel of the PESCO that input tax relating to utility bills of the PESCO offices is admissible for adjustment against their output tax or refund.
37. Invoice Summary Not Submitted The department has alleged that invoice summaries of PTCL, NTC etc. Have not been submitted.
The learned counsel of the PESCO has pleaded that the subject objection is passed by the. STARR system (Annex VI on page 497 - 499 of the Memo of Appeal) because the supplier like PTCL, NTC etc. Declare sales as single figure as it is not practically feasible for them to prepare sales summary of millions of consumers. Reliance has been placed on: i. PTCL 2013 CL 534 (H.C) -- D.G Khan Cement vs. The Federation of Pakistan wherein it was held that section 8(1)(ca) which disallows deduction of input tax to a buyer if the supplier fails to deposit Sales Tax in the Government treasury is illogical and absurd offends articles 23 and 24 of the constitution and is declared to be unconstitutional and, therefore struck down. ii. PTCL 2002 CL 115 -- (M/s. Mayfair Spinning Mills limited vs. Customs, Excise and Sales Tax Appellate Tribunal and two others) wherein it was held that the input tax paid by the appellant goes to the national exchequer as input tax, it is a trust till the time it was to be adjusted or refunded. iii. 2012 PTR 47 (Trib.) -- STA Nos. 73/LB/20I I, 74/LB/2011 & 75/LB/201 I wherein it was held that duty to pay the sales tax collected on supplies lay on the supplier. Buyer cannot be held liable for the supplier's default in payment.
Keeping in view the rival arguments, it is held that the supplier's sales summary was needed to be checked by the Taxation officer in the relevant return of the supplier.
Accordingly this issue is referred back to the Refund Processing Officer for further/scrutiny and decision of the issue after hearing both the parties.
38. Non-filer The department is of the view that certain suppliers namely Blue Star, Nam International, B2C, Maliks Furniture, Usman & Company, Daco International Transport (Pvt.) Ltd., M/s. Shaheen Aero Traders and Telephone Industries of Pakistan Ltd on the invoices at serial numbers 457, 473, 3140, 3317, 3407, 4363, 4683, 5151, 5414, 6191, 6914,6924, 6999, 7001, 8373, 8786, 9063, 9618, 1365, 3822, 4304, 4319, 4364, 4385, 4682, 6199, 9662 of the show AK cause notice are non-filers. It has been pleaded on behalf of PESCO that this determination has been made keeping in view the status of the aforesaid supplier in March 2012 while their invoices relate to the tax period between May 2008 - April 2010. It has been further added that RTO, Peshawar did not raise any such objection in its earlier audit reports for the period May 2008 to April 2010 as they were operative during that period.
It has been argued that if a supplier has ceased to operate at a later stage after taxable supply of goods then PESCO cannot be denied the input tax. Reliance has been placed on: I. PTCL 2013 CL 235 -- A4/s. Deluxe Packages vs. CIR, RTO. Karachi wherein it was held that purchases from blacklisted/blocked suppliers when all the suppliers were active at the time of transaction the question of inadmissibility of sales tax input is not sustainable and tax should be recovered from supplier, taxpayer should not be punished for the sin of and wrong of suppliers.
II. PTCL 1998 CL, 354 (S.C) -- M/s. Pfizer Laboratories vs. Federation of Pakistan wherein the Honorable Supreme Court of Pakistan has held that latest Judicial trend is to deprecate and to discourage withholding of citizen's money by a public functionary on the plea of limitation or on any other technical plea if it was not legally payable by him.
The learned Commissioner Inland Revenue (Appeals) has held in his Order at Page 23 that in the instant case, PESCO has failed to produce requisite documents to the Refund Sanctioning Authority for the rebuttal of CREST objections.
Keeping in view the circumstances of the case, PESCO is entitled to adjustment of input tax relating to the aforesaid suppliers because their contention as to these suppliers being operative at the time of taxable supply and issuance of invoice has not been denied. This fact is proved by the assertion that otherwise RTO, Peshawar audit team would have pointed out this discrepancy during earlier audit for the period from May 2008 to April 2010.
39. Registered Person Showing Abnormal Tax Profile This objection has been observed against the invoices of two suppliers namely Gemco and Modern Chemical Co. At S.No. 3535, 405, 5310, 6823, 6824 of the Show Cause Notice. It has been argued that PESCO has paid the input tax on the invoices in accordance with Section 7 and 73 and cannot be held liable for any abnormality in the tax profile of the supplier. The relevant sales tax returns of the suppliers have been enclosed as Annex IX of the Memo of Appeal. Reliance has been placed on: 2013 PTD (Trib.) 1290 -- M/s. Pakistan Television Corporation Ltd Islamabad vs. CIR (Appeals-II)
Islamabad wherein it was held that registered person if become successful, in producing credible evidence of payment of sales tax corresponding to his input tax claim, then its such claim might be allowed and simultaneously recovery proceedings might be initiated against supplier for his failure to deposit sale tax.
According to the learned Commissioner Inland Revenue (Appeals), this objection has been upheld because PESCO has failed to produce requisite documents to the Refund Sanctioning Authority for the rebuttal of CREST objections.
After careful consideration of the rival arguments and keeping in view the facts of the case, it appears that the nature of abnormality of tax profile of the supplier has not been detailed impugned order, therefore this issue is remanded back to the Refund Processing Officer for verification of tax profiles of the supplied after providing opportunity of hearing to PESCO for clarification of the matter.
40. Scrutiny for Verification of Input Tax The department has alleged that the PESCO could not produce any supportive documents for overruling the objections and to process the refund claim. According to PESCO this objection has been raised with reference to invoices at S. Nos. 572, 1786, 3257, 3297, 3301, 3318, 3981, 4021, 4044, 4066, 4503, 4696, 4732, 5626, 5727, 7729, 8284, 8382, 8778, 9585, 9588 of the show cause notice. It has been pleaded by PESCO that expression scrutiny for verification of input tax is neither a discrepancy nor an objection and the person who purchases goods from a registered person is only under the legal obligation to check whether the person making taxable supplies is registered under the Sales Tax Act, 1990 and operative at the time of transaction. Rest of the responsibility lies basically on the person making taxable supplies and the Sales Tax Department who is supposed to monitor the payment of sales tax. However, it is well established law that refund claim cannot be rejected merely on assumptions and presumptions.
We are therefore inclined to agree with PESCO's contention that this is a vague allegation as the nature of scrutiny for verification of input has not been detailed. It is settled law that tax liability against a taxpayer cannot be adjudged on the basis of surmises, conjectures and presumptions and, accordingly, this issue is decided in favor of PESCO and input tax claimed in this regard is held to be in order.
41. Exceeds Declared Sales Tax to the Claimant in Summary & Exceeds Declared Output.
It has been pleaded on behalf of PESCO that this objection is raised on the invoices at S. No. 3336, 3776, 4039, 4077, 4303,4386, 4489, 4505, 4507, 4692, 5722, 5811, 6206, 6437, 6438, 6725, 6728, 7692, 7715, 7875,8264, 8275, 8283, 8352, 8368, 8371, 8762, 8787, 9034, 9061, 9065, 9067, 9383, 9579, 9587, 9589, 9595, 9614, 9621, 9643, 9656 & S. No. 456, 3317, 3407, 4363, 5953, 6867; 7879 of the show cause notice.- According to PESCO its refund claim cannot be withheld if there is any discrepancy on the part of supplier in filing the return. Reliance has been placed on 2002 PTD 1805 Alls. Kashmir Edible Oils Ltd, Lahore vs. Secretary Revenue Division, Islamabad wherein it was held:- "The discussion with two representatives and the scrutiny of record brings out that Sales Tax Department is caught in the cobweb of its own making. When it was thought fit to authorize the suppliers of cotton seed as "collecting agents" for input tax, a foolproof system should have been devised to ensure that such agents are reliable, known verifiable contactable and (above all) trustworthy, so as to be entrusted with he responsibility of handling Government funds If precautions were not taken and full details, business particulars and financial trustworthiness not evaluated by the government, It is riot proper to compensate the loss by refusing refund to those who actually parted with their money in the hope that it would go to Government account and then paid back to them, when due. If loss has occurred to Government due to loopholes in the system, the proper course would be to penalize those who designed the scheme but not the taxpayers who handed over the money in good faith...."
The learned Commissioner Inland Revenue (Appeals) has held in his Order at Page 23 that in the instant case, PESCO has failed to produce requisite documents to the Refund Sanctioning Authority for the rebuttal of CREST objections.
We have given careful consideration to the rival arguments and we are inclined to agree with the viewpoint of PESCO. It is noted that the payment for a taxable supply can be made within 180 days of the issuance of the tax invoice while Section 66 allows a period of one year for claiming refund of input tax adjustment not claimed within the relevant tax period. Therefore, there can be a bonafide mismatch of figures relating to tax invoices & payments made therefor. Accordingly this issue is remanded back to the Refund Processing Officer to recheck the relevant documents and allow input tax adjustment to PESCO if delivery of goods to PESCO and payment u/s 73 is proved.
42. Duplicate It has been pleaded by PESCO that the STARR objection of Duplicate was observed at S.No. 1271 & 9625 of the Show Cause Notice where two invoices of Pakistan Cable have been declared as duplicate which are in fact two different invoices with different dates and amounts mentioned therein. Copies of the aforesaid two invoices were enclosed as Annex X of the Memo of Appeal. A perusal of the record shows that copies of these two different invoices have been provided before the Deputy Commissioner Inland Revenue and the learned Commissioner Inland Revenue (Appeals). Para 8.10 on Page 6 of the Order-in-Appeal clearly elaborate this fact. However these documents perhaps have not been examined at these two stages. A perusal of the invoice No. 1271 & 9625 enclosed as Annex X of the Memo of Appeal clearly reveal that these are two distinct and different invoices. Accordingly input tax/adjustment relating to these two invoices is directed to be allowed.
43. Black listed (Rs. 53,760/-)
PESCO has pleaded that this objection has been raised on the invoice No. 4476 of the Show Cause Notice involving Rs. 53,760/-. It has been argued that if a supplier is not black listed at the time of purchase of goods and issuance of sale tax invoice then there is no lapse on the part of the PESCO as at the time of transactions the concerned supplier was operative on the FBR website. PESCO can not be denied its refund if any supplier is black listed subsequently. Reliance is placed on: 2012 PTD (Trib.) 619 -- CIR v. Ms Kamal Fabrics Faisalabad wherein it was held that refund of input tax against invoices of blacklisted companies can not he denied.
Keeping in view the facts and circumstances of the case it is held that input tax relating to the subject issue may be allowed by the Refund Processing Officer if payment has been made in accordance with Section 73 and goods have been actually received by PESCO.
44. Bill of Entry dated 11.11.2011 It has been pleaded by PESCO that they have provided additional supportive document with there reply to the Show Cause Notice as Annex V (Page 66 of the Reply to Show Cause Notice) to overrule the STARR objection "Computer data not available" of Bill of Entry. The Refund Processing Officer has acknowledged it as quoted in para v. On page 22 of the impugned Assessment Order that "the claimant has produced the documental)! Evidence AT regarding overruling the said objection which is under consideration." The Deputy Commissioner Inland Revenue admitted in the last row of the Table on page 60 of the impugned Assessment Order that the claimant has submitted the documentary evidence regarding the clearance of bill of entry, which reveals that the claimant has duly cleared the said Bill of Entry and due tax has been deposited in the Government Treasury.
The learned Commissioner Inland Revenue (Appeals) has held in his Order at Page 23 that in the instant case, PESCO has failed to produce requisite documents to the Refund Sanctioning Authority for the rebuttal of CREST objections.
We have examined the case record. Keeping in view the observations of the Deputy Commissioner Inland Revenue that the due tax has been deposited in Government treasury and the AU contention that there is no other objection relating to bill of entry, input tax adjustment relating to the Bill of Entry dated 11.11.2011 is directed to be allowed.
45. Specific issues Inadmissible input tax adjustment in violation of Section 8(1)b read with SRO 490(1)/2004 dated 12.06.2004 of the Sales Tax Act, 1990 (Rs. 13,167,381) claimed on account of sales tax paid on purchase of vehicles. The subject issue has been decided in the above paras while deciding Appeal STA No. 170/2011 wherein it was held that SRO 490(1)/2004 dated 12.06.2004 issued u/s 8(1) specifically mentions vehicles falling in Chapter 87 of the First Schedule to Customs Act, 1969, in respect of which input tax adjustment is not admissible. It is, therefore, ordered that the adjustment/refund of input tax relating the subject vehicles is not tenable.
46. Inadmissible input tax adjustment/refund in violation of Section 7 of the Sales Tax Act, 1990. (Rs.
122,420,178/- Double Adjustment).
It has been argued that issue relating to the double adjustment for the period May 2008 to March 2009 & April 2009 to April 2010 has been decided by the learned Commissioner Inland Revenue (Appeals) at page 38 of the Order-in-Appeal No. 376/2010 and at page 44 of the Order-in-Appeal No. 492/2010 respectively. It has been further argued that NTDC letter No. MD/CPPA/BOR/7749- 51 dated 13.09.2011 proves that there is no double adjustment since July 2010. We are of the view that the learned Commissioner Inland Revenue (Appeals) vide orders referred to above has directed the Commissioner Inland Revenue, RTO, Peshawar to finalize this issue on the basis of application already pending with him. It has been observed that the Department has not disputed the validity of this decision in two Appeals i.e. STA Nos. 145/PB/2011 and 159/PB/2011. It is, accordingly, considered just and appropriate that this issue being agitated again in the refund case, is referred to the commissioner Inland Revenue, RTO, Peshawar for its early finalization after hearing both the parties.
47. Inadmissible Input Tax On Other Than Power Energy (Rs. 1,290,778,438/-) MNA's & MPA s Grants, Government funds etc. This issue has already been decided in the above paras of the order while deciding Appeal STA No. 170/PB/2011 wherein it is held that Department has failed to provide any proof of taxable supply AW of the subject goods by PESCO and it is evident that output tax is payable only when taxable supplies are made u/s 3. Purchase of goods with the funds given by the Government of Pakistan to PESCO does not affect the nature of transaction relating to purchase of goods by PESCO. It is settled law that sales tax cannot be levied on the basis of surmises and conjectures and resultantly input tax adjustment relating to this issue is held to be admissible.
48. The cross appeals STA No. 98/PB/2013 filed by the Department relating as to the single issue of T & D losses and STA No. 96/PB/2013 filed by the PESCO are disposed of in the way and to the extent as stated above.
49. All the five appeals three filed by the Department and two cross appeals filed by the Registered Tax Person/the PESCO alongwith the Miscellaneous Application filed by the Department are decided to the extent and in the manner referred above.