' MUNSIF KHAN MINHAS, JUDICIAL MEMBER.---This appeal has been filed by the department against the order No. 180/2011 dated 16-9-2011 passed by the learned CIR(A), Islamabad on the following grounds:--
(1) The CIR (A) has ignored suppression of Sales Tax Rs.4,038,73} on supply of material and rental of equipments.
(2) The CIR(A) has totally ignored the levy of Sales Tax Rs.1,424,435 on supply of software, which was integral part of the equipments and cannot be separated into software and equipments.
(3) The respondents imported goods/equipments during the audit period valuing Rs.42,983,530, and its local purchase were Rs.967,050. The respondents sales were Rs.5,546,649 and there was no stock at the end of the period. Thus the respondents suppressed its stock valuing Rs.38,403,931 which were sold by the respondents after value addition for Rs.59,728,522 but the respondents did not charge sales tax Rs.9,556,563 on supply of these goods/equipments. It is very astonishing that the CIR(A) did not consider this huge suppression of sales by Messrs Nera Asa valuing Rs.59,728,522 in the process of adjudication.
(4) The CIR(A) totally ignored suppression of sales tax on material and equipments of Rs.6,917,709 which were shown by the respondents without any. Invoices/documents.
(5) The respondents claimed input tax adjustments Rs.5,751,966 on imports without any bill of entry during the audit period. The CIR(A) also did not consider this huge wrong input tax adjustments.
(6) The CIR(A) is not justified to vacate the mandatory penalties without legal reason.
(7) The CIR(A) has erred to say that the show-cause notice has not been issued under section 11 of the Sales Tax Act, 1990 the show-cause notice has been issued under section 11 of the Sales Tax Act, 1990 together with following procedures mentioned in the section 11. Section 11 of the Act does not mention that when a show-cause notice is to be issued, the word "section 11" should also be placed there in black and white. The section is silent about this legal position. Infact the section demands to follow the procedure mentioned therein. The Assistant Commissioner has followed all the procedures mentioned in the section 11 of the Act. If the learned Advocate of the respondents did not know under which section the show-cause notice had been issued, they would have raised this question in the reply of show-cause notice, but the learned Advocate did not raise any objection at the time of reply of the show-cause notice. The respondents violated sections 3, 6, 7, 8, 22, 23, 26 of Sales Tax Act, 1990 in the audit period as mentioned in the Order-in-Original and suppressed Sales Tax Rs.34,563,340, but the learned Commissioner declared the Order-in-Original as annulled on the basis of just on section 11, however at the time of issuing the Order-in-Original that order was issued under section 11 of the Sales Tax Act, 1990.
(8) The CIR(A) in Para 20 of the order has narrated that the show-cause notice is null and void because in the show-cause notice subsection of section 36 is not mentioned. In this matter legal position is as under:-- "The learned ATIR, Islamabad has declared in its judgments vide 2006 PTD (Trib.) 2533, Messrs Tarbella Cotton and Spinning Mills (Pvt.) Ltd. v. Additional Collector of Sales Tax, Peshawar, that on the basis of judgments of the honorable Supreme Court of Pakistan, that a show-cause notice cannot be termed as illegal if section 36 of the Act is not mentioned in a show-cause notice, it is a question of fact since the material facts available on the record led the adjudicating office; to conclude that it was a case of wilful evasion tax in terms of subsection (1) of section 36 of the Act."
2. Brief facts leading to these appeals are that the taxpayer, a Norwegian company having a branch office in Islamabad registered in Pakistan with SECO deals in execution of contracts for supply, and installation of telecommunication equipment along with providing of training and engineering services. The case of the taxpayer was selected for composite audit under section 177 of the Income Tax Ordinance, 2001 read with section 25 of the Sales Tax Act, 1990 and section 46 of Federal Excise Act, 2005 for tax year, 2009 by Commissioner, Audit. The Assistant Commissioner Inland Revenue has ordered the taxpayer to pay Rs.34,563,240 on account of suppression of sales, inadmissible input tax. Being dissatisfied with the treatment given by the Assistant Commissioner (Audit), the Registered person preferred appeal before learned CIR(A-I) who declared the Order- in-Original as annulled on the basis of legal grounds. Based on the discussion, it is concluded that the decision of the Assistant Commissioner (A) is not fulfilling the requirement of Sales Tax Act, 1990, after considering the facts observed as under;-- "I have examined the case records and considered the submissions tendered by the learned counsel of the appellant. The Adjudicating Officer passed the impugned order on 31-1-2011 in a hurried manner by not considering the facts of the case. The show-cause notice was issued on 19- 1-2011 and hearing was scheduled on 29-1-2011 and decided on 31-1-2011. The contention of learned AR that the business of R/p is that of execution of contracts as a complete project on turnkey basis therefore total payments of contract amount as a whole are not chargeable to sales tax is found to be correct. In such cases of contracts sales tax could only be charged to the extent of value of supplies of material / equipment. The amounts received from Head Office of Company in Norway as commission and on account of services rendered for them is also not chargeable under the provisions of Sales Tax Act, 1990.
' Perusal of the Show-cause notice dated: 19-1-2011 and that of order in original dated 31-1-2011 of the Assistant Commissioner Inland Revenue Audit-V, RTO, Islamabad, reveal that either the tax has been charged on the points different from those confronted through show-cause notice or on the issues not at all confronted to the R/p. Through Show-cause notice the amount of suppressed sales confronted is reproduced as hereunder; {{ TABLE }} Total value of the contracts Rs.
754,013,628 Already declared Sales (10,306,792)
Suppression of Sales 743,706,836 Suppression of Sales Tax @ 16% 118,993,094 {{ TABLE }} 'Whereas the suppressed sales under various heads have been worked out and charged to tax on different basis. Similar is the case with the amount unadjusted input tax stated to be claimed at Rs. 13, 645, 422 through show-cause notice but disallowed/added at Rs.5,751,966 on different basis.
Further no discrepancy has been pointed out by the Assistant Commissioner in the Purchases and Sales record of the Company. Therefore the same is legally not sustainable. For the same reasons the penalties imposed under various heads without issuance of show-cause notices are also deleted.
' The next issue relates to the assuming of jurisdiction by the Assistant Commissioner under section 11 of Sales Tax Act, 1990 before initiation of proceedings and passing of order under the said section. In the instant case, the proceedings were initiated through show-cause notice under section 36 of Sales Tax Act, 1990. Another show-cause notice was also required to be issued under the provision of section 11 of the Sales Tax Act before passing of the Assessment Order under section 11. The ACIR proceeded to pass the order in original under section 11 of Sales Tax Act, 1990 without issuance of mandatory show-cause notice required to be issued under the said section.
' Thus all the subsequent proceedings including the Order in Original dated 31-1-2011 are declared illegal having been passed without assumption of jurisdiction.
' Another objection relates to the non-mentioning of specific provision in the show-cause notice issued under section 36 of Sales Tax Act, 1990. Subsection (1) and subsection (2) of Section 36 deal with different circumstances. The R/p was not confronted regarding under which provision his case falls. Reliance placed on the judgment of Supreme Court's judgment reported as 2005 PTD 480 S.C. Pak is also valid. The Show-cause notice issued and the Order-in-Original dated 31-1-2011 passed in consequence thereof are declared to be null and void.
' For the reasons stated above, the appeal of the taxpayer stands accepted on legal grounds and the Order-in-Original No.12 of 2011 dated 31-1-2011 has been annulled. As the case is decided on purely legal grounds, merits/ facts of the case are not adjudicated upon."
3. Learned 'DR Mr. Akhtar Anjum appeared on behalf of the appellant/Revenue while Mr. Atif Waheed, Advocate appeared on behalf of the R/P who have been heard. Learned DR in his arguments supported the grounds of department appeal. According to learned DR the annulment of the Order-in-Original passed by the ACIR (Audit Unit-V) RTO, Islamabad is without any justification. He reiterated the grounds of appeal. It is contended by learned DR that the show- cause notice issued by the ACIR was in accordance with the provisions of section 11 and it is not necessary to mention the said section 11 on the face of the said notice. He also stated that no such objection was raised on behalf of the taxpayer when the said show-cause notice was issued to him by the ACIR. Learned DR stated that the CIR(A) ignored the suppression of sales worked out by the ACIR under various heads resulting in Sales Tax of Rs.21,937,830 chargeable thereon. According to learned DR the assessm ent order has been annulled on the basis of non mentioning of just one section i.e. Section 11 in show-cause notice whereas the order in original was passed by specifically mentioning section 11 on the face of it. Learned DR further contended that CIR(A) was not justified to declare the show-cause notice as null and void for the reason that the provision i.e. Subsections (1) and (2) of section 36 was not specified therein. In this context a decision of the Trib. Reported as 2006 PTD (Trib.) 2533 was also relied upon by him. Learned DR further contended that the deletion of penalties by the CIR(A) was also without justification.
4. Learned AR Mr. Atif Waheed, Advocate on the other hand in his arguments vehemently defended the impugned order dated 16-9-2011 of CIR(A).
5. Learned AR has raised the preliminary objection that the appeal filed by the CIR, Zone-I, RTO, Islamabad is without jurisdiction and thus not maintainable being not signed / filed by a competent authority. Learned AR produced copy of FBR Notification No. C.No.57(2) S-DOS/2011- 28924-R dated 28th Feb. 2011 and stated that case of companies who's name begin with the alphabet N to Z fall within the jurisdiction of CIR (Zone-II) RTO, Islamabad as per serial No.2 of the notification. Learned AR further stated that there was no definition of 'resident' or 'non-resident' provided in the Sales Tax Act. According to him para C of column No.4 at serial No.1 of the said notification of FBR regarding jurisdiction of non-resident assigned to Commissioner Zone-I was not relevant in the cases of Sales Tax, therefore, not applicable in the case of respondent which is a non-resident company.
6. Another contention of Learned AR is that department appeal is liable to be dismissed as being infructuous because according to him the impugned order has not been challenged on all the grounds decided by the CIR(A) in favour of the taxpayer. Learned AR stated that 1st appellate authority in each of the four paras i.e. 17 to 20 of the impugned order has accepted the appeal of the R/P on different grounds, all of which have not been challenged through the instant department appeal. Learned AR states that it has been held by CIR(A) that the business of the R/P is the execution of contracts for completion of projects on turnkey basis therefore, total value of contracts as a whole is not chargeable to Sales Tax. He further states that it has been held by the CIR(A) that in such cases of contracts, Sales Tax could be charged only to the extent of part of contract comprising of the value of material and equipment provided by the contractor. It is also added by learned AR that amounts received from head office of company in Norway as commission and on account of services rendered for the same i.e. Head office have also been held by the CIR(A) as not chargeable under the Sales Tax Act, 1990. According to learned AR, these findings of CIR(A) having not been challenged through the ground of instant department appeal, therefore, the annulment of Order-in-Original through the impugned order dated 16-9-2011 has already attained finality.
7. Learned AR also contended that as per para .18 of the impugned order of CIR(A) the Sales Tax charged by ACIR vide his order dated 31-1-2011 on stated suppression of Sales and disallowance of unadjusted claim of input tax have been held to be legally not sustainable. According to findings as per para 18 of the impugned order wherein it is observed that either the tax payer has not been confronted on the issue or the tax has been charged on the basis different from that confronted through show-cause notice, the order of ACIR to charge the sales tax and disallowance of claim of input tax has been held to be illegal. For the same reason the penalties charged without issuance of show-cause notice have also been deleted by CIR(A). Learned AR further states that CIR(A) has also held that Assessing Officer failed to point out any discrepancy in the audited accounts of the company. According to Learned AR findings of CIR(A) on this issue have also not been challenged through present departmental appeal. Thus learned AR contends that the decision of 1st appellate authority to hold the order in original dated 31-1-2011 as legally not sustainable on this ground has also attained finality.
8. On the point of issuance of show-cause notice under section 11 of the Act learned AR contended that CIR(A) rightly annulled the Order-in-Original for non-issuance of mandatory show-cause notice under section 11 of the Act. According to learned AR it is not the case of non-mentioning of section 11 in the show-cause notice issued as contended in grounds of departmental appeal but it is a case of non-issuing of mandatory show-cause notice under section 11 of the Act. Learned AR contended that during the whole proceedings only a single show-cause notice has been specifically issued on 19-1-2011 under section 36 of the Sales Tax Act being the requirement of the said section. According to learned AR it was mandatory upon the ACIR to issue another show- cause notice under section 11 of the Sales Tax Act before proceeding under the said section because it was essential to be issued for assuming jurisdiction before passing of an order under the said section.
9. Learned AR has also supported the annulment by CIR(A) of the Order-in-Original in original dated 31-1-2011 because in the show-cause notice the ACIR has not specifically mentioned the relevant provision i.e. Subsection (1) or (2) of the section 36 of the Act under which his case falls.
According to learned AR the decision of Appellate Tribunal Inland Revenue quoted in the grounds of departmental appeal is not applicable to the instant case. According to learned AR in the quoted decision of Tribunal a judgment of honorable Supreme Court of Pakistan referred therein has not been correctly interpreted by the Trib. Learned AR further contended that the facts of the quoted judgment of Honorable Supreme Court of Pakistan relied upon in the said decision of Tribunal are also not relevant to the present case. Learned AR contended that in the above mentioned judgment of Supreme Court of Pakistan it has been observed by the apex court that authorities uptill Trib. Only are competent to decide the matter relating to the facts of the case which findings of fact is not to be interfered by the High Court. According to learned AR this observation of Honorable Supreme Court of Pakistan rather goes in favour of the respondent.
Learned AR further contended that it is an established fact that the R/Phas not suppressed any sales nor there has been any deliberate intention of evading the tax or any collaboration or connivance on its part for this purpose. It is contended by him that all the receipts were declared in the Annual Audited Accounts filed by him on the basis of which Audit observations were made.
Learned AR contended that payments received against part of contract comprising of services like Earthwork, installation charges, testing, commissioning, training etc. As well as rental of equipment and the amounts received from. Head office of company in Norway as commission and on account of services rendered for head office could not be treated as Sales of the company for the purpose of charging tax under the Sales Tax Act, 1990. Further states that no Sales Tax is payable on the value of software being exempt under clause 41 of sixth schedule. Of Sales Tax Act.
According to learned AR no default could be alleged merely on the basis of difference of opinion without establishing deliberate or intentional mala fide act on the part of the taxpayer. Learned AR stated that the point of view of the taxpayer that the alleged receipts are not covered by the Sales chargeable to sales under the Sales Tax Act already stands accepted by CIR(A) as well-as by the department itself since the findings of CIR(A) on this issue has not been challenged through the instant departmental appeal. Learned AR in addition to judgment of honorable Supreme Court of Pakistan reported as 2005 PTD 480 (S.C. Pak) relied upon by him before the 1st Appellate Authority also referred a subsequent judgment of Lahore High Court reported as 2007 PTD 2265 (Lah.). In support of his contention that mere non levy, short levy or erroneous refund of Tax without there being any reason, cannot be the basis for issuance of a show-cause notice. According to learned AR the taxpayer must be informed of the specific provisions of law i.e. Subsection (1) or (2) of section 36 under which his case falls. Learned AR also contended that the two provisions are to be applied under different circumstances and have different period of limitations. In this regard in addition to judgment of the Supreme Court of Pakistan reported as 2005 PTD 480 (S.C. Pak) relied upon by the CIR(A) also referred to case-law reported as CESTAT 2009 PTD (Trib.) 500.
10. Arguments of learned representative of both the parties have been heard and the facts of the case as well as the case-law cited by both the parties have also been perused.
11. First of all we shall take up the preliminary objection raised by learned AR with regard to maintainability of this appeal filed by CIR, Zone-I, RTO Islamabad. We have gone through the jurisdiction order C.No.67(2)S-DOS/2011-28927-R dated 26th Feb. 2011 issued by FBR also perused the relevant provisions of law. Although the definitions of 'resident' and 'non-resident' are not specifically provided in the Sales Tax Act, 1990 yet these terms have been used in the Act at certain places e.g. In section 56 as well as clause 71 of Table-I of Sixth Schedule to the Sales Tax Act. Thus the terms resident and non-resident are not alien to the Sales Tax Act. Hence we do not agree with the view point expressed by learned AR that these terms are not relevant for the purpose of proceedings under the Sales Tax Act, 1990. As a general principle of law the words and phrases used in a statute of which no specific definition is provided therein shall have common and ordinary dictionary meanings. In the Oxford Dictionary the words "non-resident" are defined as "A person or company not living or located permanently in a particular place or country". The respondent Messrs NERA ASA admittedly is a non-resident company. As per clause (C) of column
(4) at Serial No.1 of the Jurisdiction order dated 26-2-2011 the jurisdiction of the respondent being a non-resident company lies with Commissioner Zone-I, RTO, Islamabad. Thus the objection raised by learned AR is not maintainable.
12. The next contention of learned AR is that findings of CIR(A) on certain issues have not been challenged through present departmental appeal as such the order of CIR(A) declaring the Order- in-Original as not maintainable being illegal has already attained finality. Before proceeding further we shall like to go through the decision of CIR(A) on different issues as per impugned order dated 16-9-2011.
13. The perusal of the impugned order reveals that the order in original dated 31-1-2011 passed by adjudicating officer was challenged on a number of grounds by the R/P. However, CIR(A) as per para. 17 of impugned order allowed relief on the following issues in the manner as hereunder:-
(a) The business of the R/P being the execution of contracts for completion of project, on turnkey basis the amount of payments for whole of the contract are not chargeable to Sales Tax as supplies. It has been held by the CIR(A) in para. 17 of impugned order dated 16-9-2011 that Sales Tax is chargeable only to the extent of value of supplies of material or equipment, forming part of the contract.
(b) That the amount of Rs.43,235,680 received from head office of company in Norway as commission and on account of services rendered for them has also been held not chargeable to Sales Tax under the provisions of Sales Tax Act, 1990, CIR(A) in para. 17 of the impugned order.
(c) According to findings of CIR(A) the Order-in-Original dated 31-1-2011 is legally not sustainable because, before charge of Sales Tax and imposition of penalties the taxpayer has not been confronted on the issues and with their basis through the show-cause notice. It has been observed by the CIR(A) in para.18 of his order dated 16-9-2011 that either the Sales Tax has been charged on the points different from those confronted through show-cause notice or it has been charged on the basis of issues not at all confronted to the R/P. For the same reasons disallowance of the claim of input tax has not been upheld and the penalties imposed have also been deleted by CIR(A).
(d) All the proceedings and order in original dated 31-1-2011 passed by the ACIR (Audit-V), RTO, Islamabad have been declared illegal by the CIR(A) as per his findings given in para. 19 of impugned order dated 16-9-2011. It has been held by CIR(A) that the Order-in-Original has been passed without assumption of jurisdiction to be acquired through issuance of mandatory notice under section 11 of the Sales Tax Act, 1990.
(e) The show-cause notice issued on 19-1-2011 and the order in original dated 31-1-2011 passed by ACIR, RTO, Islamabad in consequences thereof have been declared as null and void as per findings of CIR(A) para 20 of the impugned order. It is held by CIR(A) that the relevant provision i.e. Subsection (1) or (2) of the section 36 applicable in the case of taxpayer has not be specified in the said notice.
14. From the perusal of para. 17 of the impugned order it reveals that the basic issue relating to nature of receipts of the respondent company regarding their chargeability under the Sales Tax Act, 1990 stands resolved in favour of the taxpayer company. According to findings of CIR(A) it is held that business of the taxpayer company is execution of contracts for completion of projects on turnkey basis and not of supplies. As a result all the receipts of taxpayer company except those forming part of the contract to the extent of material or equipment supplied by the company has been held as not chargeable to tax under the Sales Tax Act, 1990 by CIR(A). Similarly the amounts received by the Company from its Head Office in Norway as Commission and on account of services have also been declared as not chargeable to Sales Tax. The findings of CIR(A) on this issues are not contested by the department through grounds of instant appeal. Through grounds Nos.2 to 5 of departmental appeal it is alleged that CIR(A) has ignored the suppression of Sales Tax on various receipts stated to be Sales of the company chargeable to Sales Tax. However, the expressed findings of CIR(A) on this basic issue that the business of the taxpayer is the execution of contracts for completion of project on turnkey basis therefore, whole the payments against the total value of such contracts are not chargeable to Sales Tax is neither challenged through the grounds of instant department appeal nor such issue has been raised by the learned DR or any argument put forth by him in his regard. Thus the findings of CIR(A) on this issue having not been contested in appeal, his decision that Sales Tax is chargeable to the extent of part of contract amount comprising of the value of material or equipment supplied by the taxpayer have attained finality. Learned DR has not been able to put forth any plausible argument or material in support of the contention that the amounts mentioned are Sales chargeable to Sales Tax. Neither any details could be provided nor the nature of such receipts have been explained by him. Learned DR also failed to convince us that the amount received from execution of contract on turnkey basis particularly its parts comprising of services such as Earth and Civil Work installation, testing, commissioning and 'training etc as well as the rental for equipments received by the company are supplies chargeable to Sales Tax. No arguments have been putforth by the learned DR to establish that how the amount received by Company as Commission and Services from its own Head Office in Norway could be treated as Sales chargeable under the Sales Tax Act, 1990. Under these circumstances the findings of the CIR(A) that in such case the sales tax is not leviable on the total value of contract as a whole executed for completion of project and that the Sales tax could only be charged to the extent of value of material or equipment supplied by the taxpayer hereby stands confirmed. Similarly the findings of CIR(A) that amount received by the respondent company from its own head office in Norway as commission and for services rendered could not be treated as sales for the purpose of charge of sales tax also stands confirmed.
15. From the perusal of the grounds of the appeal before us it is found that the decision of CIR(A) on another issue whereby the Order-inOriginal dated 31-1-2011 has been declared as illegal by him is also not contested by the department through its appeal. The CIR(A) in para. 8 of his order dated 16-9-2011 has declared the Order-in-Original dated 31-1-2011 passed by ACIR as legally not sustained and also deleted the penalties for the reason that the R/P was not confronted on the issues before charge of Sales Tax, disallowance of the claim of adjustment of input tax or imposition of penalties. It has been observed by the CIR(A) that either the tax has been charged on the basis different from the one confronted through the show-cause notice or on the issues not at all confronted to the taxpayer. As a result of above findings of CIR(A) whereby the order in original has been declared illegal and the penalties imposed have been deleted.
16. The next issue decided by CIR(A) relates to the non issuance of mandatory show-cause notice under section 11 of the Sales Tax Act, 1990 for assumption of jurisdiction by the ACIR before passing the order under the said section. We have gone through the only show-cause notice issued on 19- 1-2011 by the adjudicating officer and also perused the relevant provisions of law. We agree with the findings of learned CIR(A) that in addition to show-cause notice issued under section 36 another notice was also required to be issued before passing of order under section 11 of the Act. Both the provisions i.e. Section 11 and section 36 of Sales Tax Act expressly provide for issuance of show- cause notice before initiation of proceedings under each section. In our considered opinion it is not the case of expressly mentioning of section 11 on the face of only show-cause notice issued but is a case of non issuing of notice under section 11 before passing the order under the said section order these circumstances the order of CIR(A) to declare the proceedings as well as order" in original dated 31-1-2011 as illegal because of having been passed without assumption of jurisdiction is hereby upheld.
17. Hence order passed by learned First Appellate Authority is upheld and maintained and departmental appeal stands dismissed.