CH. ANWAAR-UL-HAQ, JUDICIAL MEMBER. --The titled cross sales tax appeals have been preferred at the instance of Registered person and Revenue, calling in question the impugned Order-in- Appeal No, 42/2013, dated 29.11.2013, passed by the learned CIR (Appeals-I), Islamabad. Registered person as well as the Department assailed the impugned order on the following grounds:--- Registered person's Grounds of Appeal
(1) The learned Commissioner Inland Revenue (Appeals-I), Large Taxpayers Unit, Islamabad has erred in upholding sales tax of Rs, 213,143,361 on services portion of Rs, 1,332,146,007 where combined invoices for both materials and services were issued by the Appellant by presuming the amount of services as supplies without any material in support thereof and appreciating the facts of the case and the provisions of Sales Tax Act, 1990 under which sales tax is not chargeable on services provided by the Appellant.
(2) The learned Commissioner Inland Revenue (Appeals-I), Large Taxpayers Unit, Islamabad has erred in upholding the levy of sales tax of Rs 2,457,901 being reversal of sales in the sales ledger for the tax period November 2008 in absence of issuing debit/credit notes without appreciating the fact that the Company has already paid sales tax in tax period May 2008 based on system generated invoices in April 2008 which were not issued to the customers in absence of required specifications.
(3) The learned Commissioner Inland Revenue (Appeals-0, Large Taxpayers Unit, Islamabad has erred in confirming the disallowance of Appellant's claim of input tax of Rs 5,284,151 on the contention that the Appellant failed to provide the purchase invoices on which the said input tax was claimed during original proceedings without appreciating the facts of the case.
(4) The learned Commissioner Inland Revenue (Appeals-0, Large Taxpayers Unit, Islamabad has erred in setting aside the disallowance of input tax of Rs, 12,654,903 on purchase of shelters for further verification on the contention the Appellant did not provide evidence in respect of supplies thereof during original adjudicating proceedings instead of allowing the claim of input tax under the facts and circumstances of the case.
(5) The learned Commissioner Inland Revenue (Appeals-0, Large Taxpayers Unit, Islamabad has erred in confirming disallowance of input tax of Rs 1,954,487 on the contention that the same has been claimed on time-barred invoices without appreciating the facts of the case.
Departmental Grounds of Appeal
(1) That the learned CIR (Appeals-0 was not justified to delete the SED as the Registered Person was liable to pay the same being Manufacturer.
(2) That the learned CIR (Appeals-I) was not justified to direct the adjudicating officer to work out taxable and non-taxable consideration as the Registered person is liable to pay the tax on services as well as supplies, and DCIR had rightly charged the same.
2. Brief facts of the case are that it has been reported by the Auditor (Audit-IV) that during scrutiny of the record provided for the Sales Tax audit u/s. 25 of the Sales Tax Act, 1990, for the tax period January 2008 to December 2008, the following discrepancies have been observed:---
(i) Non-payment of sales tax of Rs, 2,457,301/-.
(ii) Inadmissible carry forward of sales tax of Rs, 2,236,851/-.
(iii) Non-production of purchase invoices on which input tax of Rs, 5,284,151/- was claimed.
(iv) Sales suppression resulting in short payment of sales tax of Rs, 4,123,440/- and SED of Rs, 257,715/-.
(v) Non-payment of SED of Rs, 3,611,890/- @1% on supplies.
(vi) Non-payment of sales tax of Rs, 83,804/- on disposal of fixed assets.
(vii) Inadmissible input tax claim of Rs, 12,654,903/- on shelters.
(viii) Non-payment of sales tax of Rs, 856,902,722/-on service.
3. On the basis of above discrepancies, the registered person vide notice dated 27.12. 2012, was called upon to Show-Cause as to why the sales tax amounting to Rs, 885,698,259/- and SED amounting to Rs, 3,869,605/- may not be recovered u/s. 11(2) of the Sales Tax Act, 1990 and u/s. 14 of the Federal Excise Act, 2005, alongwith default surcharge and penalty. The taxpayer responded to the show-cause notice and its reply alongwith supporting documentation. However, the explanation submitted by the taxpayer found unsatisfactory by the assessing authority except sales of Rs, 4,124,440, and SED of Rs, 257,715/- on account of sales suppression. Consequently, the assessing authority passed the impugned order-in-original No, 40/2013 dated 12.7.2013, whereby remaining charges as per show-cause notice were upheld and the DCIR directed the registered person to pay sales tax amounting to Rs, 881,574,819/- and SED at Rs, 3,611,890/- alongwith default surcharge and penalty. Being aggrieved, the registered person/company preferred first appeal, whereby the learned CIF'. (A) vide impugned order-in-appeal No, 42/2013, dated 29.11.2013, accorded partial relief to the registered person. Both the parties being not satisfied with the order of the learned CIR(A) preferred appeal before this Tribunal which is disposed of through this consolidated order in the following manner:- NON-PAYMENT OF SALES TAX ON SUPPLY IN THE GARB OF SERVICES (CROSS APPEALS)
4. During the course of audit, it has been observed that the company has received an amount of Rs, 5,355,642,015/- on account of alleged services provided to its customers for manufacturing/assembling of the telecommunication towers/equipments. The registered person provided the breakup of alleged material and services during the period under consideration as under:- Description Material portionServices portionValue invoices ofSales Tax Paidon material usedTotal value Rupees Rupees Rupees Rupees Rupees (i)Invoices related to material only366,563 366,563 58,418 424,981 (ii)Invoices related to both material and services359,798,3311,332,146,007 1,691,944,339 57,566,133 1,749,510,472 (iii)Invoices related to services only- 4,023,496,0074,023,496,007- 4,023,496,007 Total 360,164,894 5,355,642,014 5,715,806,909 57,624,5515,773,431,460 On perusal of sales tax invoices, it revealed the appellant issued combined invoices for both material and services and charged sales tax only on the amount of material supplied. The registered person being a manufacturer (as defined in the Sales Tax Act, 1990) of these goods was required to charge sales tax on the whole amount billed to its customers including the amount of services, which it failed to charge and deposit in the Government exchequer. The reply submitted by the registered person in this behalf was rejected by the DCIR and he, accordingly, charges sales tax of Rs, 856,902,722/- on the whole invoiced amount of alleged services of Rs, 5,355,642,014/- issued by the appellant to its customers, representing value of Rs, 4,023,496,007/- where separate invoices with respect to services were issued and value of Rs, 1,332,146,007/-where combined invoices for both material and services were issued. The learned CIR(A) deleted the levy of sales tax on services of Rs, 4,023,496,007/- where separate invoices with respect to services were issued by the appellant. However, the CIR (Appeals) upheld the levy of sales tax on services of Rs, 1,332,146,007 where combined invoices for both material and services were issued. Both the parties assailed the said action of the learned CIR (A) in the following manner:-
6. It is submitted by the learned AR for the appellant that the registered person/company is principally engaged in the business of providing services to companies dealing with telecommunication services and during the period under consideration out of total invoiced amounts, 6% pertain to supplies and rest of the 94% pertains to services. To provide these services, the appellant requires certain local material like towers and shelters etc. Purchased by the appellant locally and invoices the same to its customers on which sales tax is duly paid. No value addition is made on this local material. The installation of these local materials is carried out through appellant's subcontractors. In this way, the observations of the CIR (Appeals) that supplies and services integral part where combined invoices have been issued by appellant and as such whole consideration received on this account should be given one character only is contrary to the actual facts on record. It is contended by the learned AR that the CIR (A) while upholding the levy of sales tax on services of Rs, 1,332,146,007/- has not considered at all the following judgments of the Courts and circular letters issued by FBR whereby it has been held/clarified that services are not subject to sales tax:- Judgment of the Court/ circular letter Gist of the case- law/circular letter (as per contention of the AR)
(i) [(2007) 95 Tax 281 (HC)]Under the provisions of the ST Act, sales tax is chargeable only on goods which cannot be extended to services whichone can render while offering goods for sale.
(ii) [(2006) 94 Tax 345(HC)]The term taxable activity is to be read in conjunction with taxable supplies which attract charge of sales tax on supply of taxable goods.
The services rendered on account of repair cannot be subjected to charge of sales tax by placing reliance on another judgment of High Court whereby installation services were held to be not included in taxable activity and value of supply.
(iii) 2007 PTD 250 (HC)]Sales tax on services is a provincial tax levied under a provincial statute while sales tax on goods is a federal tax levied under the ST Act.
The Federal Government is not empowered to collect any tax not finding place in the respective Provincial Ordinance, 2000.
(iv) Circular No 1/33- STS/2004, dated March 20, 2006.Sales tax is not leviable on services of construction and civil works.
(v) [(2006) 93 Tax 31 (HC)]Value of supply would only include value of goods Whereas services which are integral part and parcel of supply would not be included in the value of supply.
(vi) 2012 PTD 1635 (Trib.)Charges received on account of installation would not be considered to be part of value of supply and also within the ambit of definition of taxable goods.
(vii) Circular No 4(47) There is no sales tax on repair of STB/98 (Pt-II), dated April 2, 2002goods. However, if the person making repair also provided other taxable goods the same would be chargeable to sales tax.
There is no sales tax on immovable property such as buildings, roads etc. since these excluded from the definition of goods.
(viii) [(2001) 84 Tax 176 (HC)]Federal Government is not empowered to levy tax on services which fall in the Domain of Provincial Governments i,e, Sales Tax Ordinance, 2000.
(ix) 2003 PTD 1852 (HC)The sale of services, as distinct from the sale of goods, falls within the Provincial Domain because it has not been specified in any of the items included in the Federal Legislative List.
However, in the Federal Legislative List taxes in respect of sales are only mentioned in Item 49 of the Federal Legislative List and the same is confined to goods only.
(x) 2004 PTD 1987 (HC)Concept of sale, goods, taxable activities, taxable goods and taxable supplies as laid down in the ST Act having no relevance while dealing with the payment of sales tax on services chargeable under the provision of Provincial Ordinance.
(xi) 2008 PTD 1693 (HC)Service is not covered within the definition of supply as laid down in the ST Act.
6. It is also asserted by the learned AR that the CIR (A) has erred in law to not to appreciate the following provisions of the Sales Tax Act, 1990 which provide levy of sales tax on goods only:---
(i) "Scope of tax" as per Section 3, definition of "taxable supply" as per clause (41), "supply" as per clause (33), "taxable goods" as per clause (39), "goods" as per clause (12), "output tax" as per clause (20) and "input tax" as per clause (14) of Section 2 of the ST Act
(ii) Definition of "taxable activity" as per clause (35) and "value of supply" as per clause (46) of Section 2 of the ST Act on which DCIR in the Order-in-Original placed reliance to justify the sales tax on services.
7. It is explained by the AR that the definition of "taxable activity" where the words "the rendering or providing of services" used in sub-clause (b) of clause (35) referred in the Order-in-Original when read with the definition of "output tax" and "input tax", it emerges that aforesaid words refer to tax levied on rendering or providing of services under the Federal Excise Act to be collected in sales tax mode as duty of excise and provincial sales tax levied on services rendered or provided to be collected under the provisions of Sales Tax Appeal and this legal position was accepted by the CIR(A) in the impugned Orderin-Appeal. It is asserted by the learned AR for the appellant that the value of supply as per clause (46) of Section 2 refers consideration received in respect of "taxable supply" only as held in judgments [(2006) 93 Tax 31 (HC)] and 2012 PTD 1635 (Trib.) whereas supply excludes the services as held in the judgment reported as 2008 PTD 1693 (HC). When services provided by the appellant not fall in the scope of sales tax laid down in Section 3 being outside the ambit of value of taxable supplies, taxable supplies or taxable activity, the question of subjecting to sales tax to such services does not arise. It is contended that this aspect of the case escaped the attention of the learned CIR (A) while confirming levy of sales tax of Rs 1,332,146,007/- on services provided by the appellant. Accordingly, it is asserted by the AR that the order of CIR (A) being against the provisions of Section 3 is not sustainable under the law on this scope only. Reliance is placed by the AR on the following judgments; the relevant extracts thereof are also reproduced below:-
(i) 2002 PTD 976 (HC)
"A perusal of Section 3 of the Act, 1990k confirms that in order to create the charge or sales tax, inter alia, two conditions must be fulfilled independently, i,e, the transaction of sale must constitute a "taxable activity" and it should also to be a "taxable supply". Even if one condition is missing the charge of sales tax would not be leviable."
(ii) [(2007) 96 Tax 264] The two expressions used in Section 3(1), the taxable supply and the taxable activity, have been confused and mixed by the forums below and the whole case, in the impugned judgment of the High Court as well as of the Tribunal, has been built on the assumption by considering the taxable supply as taxable activity, while the two are quite different with different concept and operate in their respective field. The quantum of tax liability is determined on the basis of value of taxable supply, while the liability to pay tax under Section 3(1) of the Act arises only when such supply is made in the course or in furtherance of taxable activity. The taxable activity is relatable to the main business/main activity of the industrial concern or of the company or of a person while the taxable supply is made, as noted above, in the course of or for the progress, promotion and advancement of the main activity.
8. It is contended by the learned AR that the company was subjected to levy of sales tax on services at Rs, 1,332,146,007/- solely on the ground that the appellant have issued combined invoices, is against the ratio of the judgments cited as [(2007) 95 Tax 281 (HC), [(2006) 94 Tax 345 (HC)], [(2006) 93 Tax 31 (HC), 2012 PTD 1635 (Trib) and circular letters No 1/33-, STB/2004 dated March 20, 2006 and No, 4(47)STB/98 (Pt-II), dated April 2, 2002. In these judgments/circulars, it has been held/confirmed that services are not subject to sales tax. It is contended that the CIR (Appeals) has taken contradictory position while confirming , the levy of sales tax on services of Rs 1,332,146,007 where combined invoices for both material and services were issued by the appellant as follows:-
(i) In the Order-in-Original, to justify sales tax on services provided by the appellant, the DCIR has placed reliance on the definition of "manufacturer" as per clause (17) of Section 2 of the ST Act. The CIR (Appeals) disagreed with this contention of the adjudication officer but inspite of that CIR (Appeals) upheld the levy of sales tax on services where combined invoices for both material and services were issued.
(ii) In the Order-in-original, to justify sales tax on services provided by the appellant, the DCIR has placed reliance on the definition of "taxable activity" as per clause (35) and "value of supply" as per clause (46) of Section 2 of the ST Act. The CIR (Appeals) disagreed with this view point of the adjudication officer in this behalf but inspite of that CIR (Appeals) has upheld the levy of sales tax on services where combined invoices for both material and services were issued.
(iii) The CIR (Appeals) also agreed with appellant's contention that services are neither included in the supply nor in the value of supply as defined in the relevant clauses of Section 2 of the ST Act.
Inspite of having agreed with appellant's contention that CIR (Appeals) upheld the levy of sales tax on services where combined invoices for both material and services were issued.
9. It is submitted by the AR that the learned CIR(A) has confirmed the levy of sales tax on services of Rs, 1,332,146,007/- where combined invoices of both material and services were issued by the appellant after having admitted that the levy of sales tax on services are outside the ambit of provisions of Sales Tax Act, 1990. In this way, the finding of the CIR(A) whereby sales tax on services of Rs, 1,332,146,007/- provided by the appellant was upheld, is contradictory and as such not sustainable under the law. Reference is made to the judgment of this Tribunal reported as 1997 PTD 926 (Trib).
10. To conclude his submission on the issue, the learned AR submitted that sales tax on services of Rs, 1,332,146,007/- where combined invoices declaring separately the value of material and services were issued and confirmed in the Order-in-Appeal, is unjustified, without any basis, devoid of merit and legal support, hence, liable to be deleted.
11. On the other hands, it is submitted by the learned DR that the registered person is engaged in the business of supplying telecommunication towers/ equipments, as per Section 2(46) of the Sales Tax Act, 1990, and value of supply means "the consideration in money including all Federal and provisional duties and taxes, if any which the supplier receives from the recipient in respect of that supply". From perusal of the said definition, it is clear that all the consideration in money which the appellant received in respect of their supplies and services has to be the value of supply. As the component of service is part and parcel of every supply, the supply is incomplete without the component of services. Therefore, the appellant has to charge sales tax on whole of the consideration received irrespective of services or supplies. It is asserted by the learned DR that if for the sake of arguments, the contention of the registered person/company may be accepted, then they have to apportion their input tax during the default period and claimed only 6% of the input tax against 6% of the declared value of supplies. But perusal of the Tax History reveals that they have claimed 100% of input tax against 6% of declared value of supply, which clear indicates that the plea of the registered person carries no weight. According to the DR, the following table shows month-wise input tax and output tax during the default period:--- Tax PeriodSales Output Purchases Input Amount paid 01/2008 73,115,580 10,967,337 02/2008 3,260,513 489,077 03/2008 119,465,500 17,919,825 04/20080 0 0 0 05/200816,569,264 2,485,390 229,008,533 34,351,280 06/2008 80,667,286 12,100,093 07/2008 193,825,544 31,012,087 08/2008 74,824,618 11,971,939 09/2008 293,12,162 46,900,026 10/2008 89,256,300 14,281,008 11/2008 344,276,45355,084,23222,021,950 3,523,512 5,508,423 12/2008 343,303 54,928 23,285,419 3,725,667 5,493 Total 361,189,020 57,624,550 1,201,856,405 187,241,8515,513,916
12. The learned DR further submitted that during the period under reference the appellant have show purchases of Rs, 1.201 Billion but value of supply of Rs, 361.189 Million which clearly indicates that they are suppressing the value of supplies. Similarly, under the head "inadmissible input claimed on supplies" (discussed hereunder), the appellant claimed the input of Rs, 14,600,575/- but did not show supplied thereof.
13. We have heard the arguments put-forth by the learned representatives on the issue and have carefully gone through the available record, including the case-law cited at the bar. After due consideration, we find that the main question on this issue is whether or not the consideration received by the appellant were for the purpose of that supply or not. To appreciate the issue, we feel necessary to incorporate here the following provisions of the Sales Tax Act:--- 2(17) 'manufacturer' or 'producer' means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include:- a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner,.
2(35) "taxable activity", means any economic activity carried on by a person whether or not for profit and includes an activity that involves the supply of goods, the rendering or providing of services, or both to another person; 2(46) 'value of supply' means:- in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax:
14. Perusal of sales invoices issued by the appellant revealed that it issued separate as well as combined invoice for both material and services, however it only charge sales tax on the amount of material supplied to its customers. Being a manufacturer as defined above, the appellant should have charged sales tax on the whole amount billed to its customers including the "value of supply" of material and services provided for manufacturing/assembling of such material for composition of a finished product, which it failed to charge and deposit in the Government exchequer and therefore violated the provisions of Sections 2(17), 2(35), 2(46), 3, 6, 25, and 26 of the Sates Tax Act, 1990.
15. Perusal of the record further reveals that the services provided by the appellant are actually mandatory component of the goods supplied by the appellant and services are part and parcel of the supply. The supply of goods is incomplete without the service component. The services provided are not independent services only. This contention of the department is further strengthened by "warranty" clause in the contract agreements. Warranty is always given in case of sale of goods not of services. Therefore, it is established that appellant is making taxable activity by charging a composite price for its final product/supplies. Whereas, the services are integral part of the taxable supplies because without these services supply of material only is useless for its customers. Therefore, the whole consideration of the appellant is for the purpose of its supplies irrespective of fact, whether combined or separate invoices were issued.
16. Additionally, we are also in agreement with the submissions of the learned DR that during the period under reference the appellant has declared purchases of Rs, 1.201 Billions but value of supply of Rs, 361 189 Million only, which indicates that it is supressing the value of supplies and receiving amount under the garb of alleged service. The learned AR in rebuttal also failed to convince us that why the value of purchases and input tax claimed thereon is higher than the value of supply and output tax charged thereon. Had the appellants' principal business only providing services to telecommunication sector, it was required to register itself under the Federal Excise Act; 2005 and to pay Excise duty on the alleged telecommunication service being rendered by it and/or got registered itself under the Provincial Sales Tax Act for paying sales tax on services, but nothing was done in this regard.
17. There is also weight in the argument of the learned DR that if the arguments of the appellant company be accepted that out of total invoices issued, supplies component is only 6% and rest of the 94% is of value of services, then it have to apportion input tax during the default period and to claim only 6% input tax against declared value of supplies. But as per tax history it has claimed 100% of input tax against 6% of alleged declared value of supply, which is not permissible under the law.
18. The case-law cited by the learned AR on the subject-matter not applicable in the peculiar circumstances of the case.
19. Accordingly, the appeal of the appellant on this issue is devoid of merits, hence, rejected and the departmental appeal on this issue succeeds. Order of the learned CIR(A) on this issue is accordingly vacated and as recorded by the assessing officer in the impugned order-in-original is upheld.
Non-issuance of debit and credit notes
20. During the course of audit, it is observed that the registered person has made sales to M/s. CM Pak for Rs, 16,386,007/- in the month of April, 2009, however, the registered person has declared these sales in the monthly sales tax return of May, 2009 but later on the registered person in the month of November, 2009 returned back these sales and adjusted sales return in the sales ledger of November, 2009, however the registered person has failed to produce the Debit and Credit note as required u/s. 9 of the Sales Tax Act, 1990. Therefore, this act of the registered person does not give proof of sales return, hence the registered person is not entitled to make adjustment of sales return in the monthly sales tax return and is liable to pay sales tax of Rs, 2,457,901/- for contravening the Section 3, 6, 9, 26, 73 of Sales Tax Act, 1990. Therefore a sum of Rs, 2,457,901/- was found recoverable from the registered person u/s. 11 (2) of the Act. On appeal filed, the learned CIR
(A) upheld the action of the assessing authority.
21. The AR argued that the appellant in the month of April 2008 prepared system generated invoices of Rs 16,386,007 for CM Pak individually for each site inadvertently instead of in bulk which was not forwarded to CM Pak by the appellant. The appellant deposited related output tax of Rs, 2,457,901 in the "Return" for the tax period May 2008 based on system generated invoices. However, these invoices were issued by the appellant to CM Pak in the month of November 2008. On the contrary, the learned DR argued that the contention of the appellant carries no weight as the amount of the two invoices does not tally. Moreover, in case of any reversal no debit or credit note was issued/available in the record as per Section 9 of the Act. Therefore, it is evident that the invoices issued in April-2008 and in November-2008 are two different invoices relating to two different supplies.
22. We have looked into the matter and after due consideration, we find that the taxpayer has failed to substantiate his claim with the help of any corroborative documentary evidence before the authorities below and even before us that invoices issued in April 2008 and in November 2008 were relates to same sales as the contents of invoices issued in April 2008 do not tally with the invoices issued in November 2008. We are of the view that two different sales have been made by the taxpayer-company for two different projects, therefore, recovery of sales tax at Rs, 2,457,901/- has rightly been ordered by the assessing authority which action was later on confirmed by the learned CIR (A). After due consideration, we find no reason to disturb the orders of the authorities below which is accordingly maintained. Accordingly appeal of the registered person on this issue is rejected.
INADMISSIBLE CARRY FORWARD:
23. During scrutiny of monthly sales tax returns of the period under consideration, it was found that the registered person has shown carry forward of an amount of Rs, 154,249,062/- in the monthly sales tax return for the month of May 2008 but the registered person, allegedly, by exaggerating the amount, brought forward an amount of Rs, 156,485,913/- in the month of June 2008 which resulted inadmissible input tax claim of Rs, 2, 236,851/-. Accordingly, the registered person was charged for contravention of Section 2(14), 7(2)(i), 8(1) of Sales Tax Act 1990 and the inadmissible input tax of Rs, 2,236,851/- was found recoverable u/s. 11(2) of Sales Tax Act, 1990 alongwith the default surLhcrge u/s. 34; ibid. On appeal filed, the learned CIR(A) upheld the action of the DCIR.
24. Perusal of the grounds of appeal reveals that the registered person has not taken this issue in their grounds of appeals; neither this issue has been pressed during written and verbal argument.
Learned D.R has argued that the appellant have in knowledge of excess input tax of Rs, 2,236,851/- and has taken benefit of this in the month of June-2008, which was not admissible to him under the law.
25. The issue has been decided as not pressed by the appellant and the decision of the CIR (Appeals) on this issue is accordingly upheld.
NON-PRODUCTION OF PURCHASE INVOICES.
26. The registered person has, allegedly, failed to provide the purchase invoiocess against which the input tax of Rs, 7,399,101/- has been adjusted against output tax in the sales tax returns, therefore, the registered person was found in contravention of Sections 2(14), 7(2)(ii), 8(1) of Sales Tax Act, 1990 and the inadmissible input tax of Rs, 5,284,151/-was found recoverable u/s. 11(2) of Sales Tax Act, 1990 alongwith the default surcharge u/s. 34; ibid.
27. The learned AR on behalf of registered person has argued that the appellant is facing difficulty in retrieving the related invoices from its archived records and it was requested to the department they can verify validity of these invoices directly from the concerned suppliers. It was further stated by the AR that it is not justifiable to disallow input tax claimed by the appellant where the same has been accepted in the hands of suppliers. Reliance in this behalf was placed on the judgments of this Tribunal reported as [(2010) 102 Tax 289 (Trib) and GST 2002 CL 87 (Trib).
28. On the contrary, the learned DR has argued that as per Section 7(2)(i) of the Sales Tax Act, 1990, a registered person can deduct the input tax from the output tax if he holds a valid sales tax invoice and it is admitted by the registered person that they have not hold the alleged invoice neither they can provide it now for verification.
29. We have looked into the matter and after due consideration, we find that it is mandatory requirement for claiming input tax under Section 7(2)(i) of the Sales Tax Act, 1990 to hold a valid sales tax invoice, as the appellant has admitted that they have not hood the alleged invoices therefore, the claim of input tax adjustment cannot be allowed. Therefore, we find no reason to disturb the order passed by the authorities below which is hereby maintained. Appeal of the registered person on this score is rejected.
Non-paym ent of Special Excise Duty (Departmental appeal).
30. During the course of audit, it is observed that the registered person has not charged/paid Special Excise Duty @ 1% on the supplies made during the audit period under consideration, which is in contravention of Sections 2(16), 3, 3A, 4, 17, 18 of the Federal Excise Act, 2005 read with SRO 655(1)/2007, dated 29.6.2007. Therefore, SED amounting to Rs, 3,611,890/- was found recoverable from the registered person under Section 14(1) alongwith default surcharge under Section 8 apart from penal action available under Section 19 of the Federal Excise Act, 2005. However, the learned CIR (A) deleted the charge of SED after observing as under:- "I have considered the arguments of AR, provisions of the law and judgment of the Tribunal referred by AR. It is found that Tribunal in the judgment supra held that SED is chargeable in addition to FED levied under Section 3 of the FE Act. Admittedly, FED is not chargeable on the registered person in the present case and it is also held above that the appellant is not a manufacturer and respectively following the judgment of the Tribunal and status of the appellant, it is held that SED is not payable in case of registered person."
31. It is the departmental contention that the learned CIR (A) was not justified to delete the SED as the registered person/company was liable to pay the same being manufacturer. On the other hand, the AR has taken the plea that they are not manufacturer and that as per sub-section (2) of the Section "3A" of the Federal Excise Act, 2005, SED is chargeable in addition to FED levied under Section "3" of the FED Act since FED is not chargeable in their case therefore, SED is not applicable on them.
32. We find that the Honourable Sindh High Court, Karachi, in the case of M/s. Sakrand Sugar Mills Limited in C.P No, 2123 of 2011, dated 22.2.2013 has declared the provisions of Section 3A of the Federal Excise Act, 2005, ultra vires and void ab initio. Under the circumstances of the case before us and in the presence of the above decision of the Hon'ble Sindh High Court, the departmental appeal on this issue found devoid of merits, hence, rejected.
33. During the course of audit examination of the record it revealed that the registered person has claimed input tax on invoices that were time-barred in terms of Section 7(1) of the Sales Tax Act, 1990. As per assessing authority, the proviso given in Section 7(1) of the Sales Tax Act, 1990 enforced during the period of review allows the registered person to claim input tax within six months of the tax period to which it relates, whereas it reveals that the registered person has claimed input tax on the invoices older than six months. Therefore, registered person has found contravened Section 2(14), 6(2), 7(1), 26 and 73 of the Sales Tax Act, 1990 and inadmissible input tax on time-barred invoices amounting to Rs, 1,954,487/- was found recoverable under Section 11(2) of the Sales Tax Act, 1990 alongwith the default surcharge and penal action u/s. 33(5) of the Sales Tax Act, 1990. The learned CIR (A) upheld the action of the assessing authority.
34. The learned AR argued that the registered person's claim of input tax in the present case cannot be disallowed in view of the Circular letter C.No, 1(115)STJ/2004, dated December 4, 2004 whereby directions were given by FBR to various Collectorates to withdraw the cases at different forums where cases are sub judice on account of out of tax period adjustments. It was also pleaded that in a judgment of the Tribunal reported as (2003 PTD 928 Trib.) out of tax period claim of input tax held to be admissible being a procedural mistake. On the other hands, the learned DR argued that as per first proviso of Section 7(1) of the Sales Tax Act, 1990, registered person can claim the input tax during the period and in six succeeding months and since the registered person has not claimed the input tax in the time frame given by the law, therefore, the alleged input tax cannot be allowed being barred by time.
35. The issue involved is of time-barred input tax adjustment by the registered person and Section 66 of the Sales Tax Act, 1990, provides procedure in such cases and Section 74 ibid provides condonation of time limit, if any. Therefore, the registered person is directed to follow the procedure laid down under Sections 66 and 74 of the Sales Tax Act, 1990, for claiming the input tax on the subject invoices and the department is directed to verify and accept the claim of the appellant, if found valid. On this note this issue is remanded back to the assessing officer for de novo consideration. Orders of the authorities below in this regarding are accordingly vacated.
Inadmissible input tax claimed on Shelters
36. During the course of audit, it is observed that the registered person has claimed input tax at Rs, 14,600,557/- on the purchase of 'shelters' but did not show supplies thereof. According to sub- section 1(a) of Section 8 of Sales Tax Act, 1990 a registered person is not entitled to reclaim or deduct tax paid on the goods or services used or to be used for any purpose other than for taxable supplies made or to be made by him. According to the DR, the amount of input tax was claimed against non-taxable activity, therefore, the same cannot be treated as inadmissible input tax and the registered person contravened the provisions of Sections 3, 6/7, 8(1a), 26 of the Sales Tax Act, 1990. Accordingly, the sales tax amounting to Rs, 12,654,903/-was found recoverable u/s. 11(2) of Sales Tax Act, 1990 alongwith the default surcharge and penal action. On appeal filed, the learned CIR (A) remanded the matter back to the assessing authority for de novo decision in the following manner:--- "I have considered the arguments of AR and perused the record. It is found that the registered person failed to provide the requisite information before the adjudication officer. Howeve; the basis adopted for rejection of the claim of input tax solely on the ground that the registered person failed to provide the information with respect to showing supplied against input tax so claimed is not justified keeping in view the judgment of the Tribunal referred supra.
In view of above, the matter needs verification from record. The matter is referred to the department for verification of documents and record findings accordingly. The registered person is also directed to provide the relevant record for verification."
37. It is contended by the learned AR on behalf of registered person that the learned CIR (A) was not justified to remand the matter back to the assessing officer for de novo decision. It is contended by the AR that it is established principle of law that initial burden of proof is always on the party who alleges contravention of any provisions of law. Reliance in this behalf was placed on the judgment of the Tribunal, reported as 2004 PTD 2898 (Trib), the relevant extract thereof is reproduced below:--- "The other important aspect of this case is that not a single evidence collected by the Department for determining the value of goods has been provided to the appellant whereas on the contrary it is alleged that the appellant has failed to produce satisfactory evidence in support of the value declared by them. This observation of the Adjudicating Officer ignoring the statutory provision of Article 119 of Qanun-eShahadat is surprising as no party can be condemned on the ground that he has failed to disprove the allegation levelled against him. The initial burden of proof is always on the party who alleges such allegations and one cannot depend upon the weakness of case of other side".
38. It is further submitted by the AR that under the provisions of Section 7 of the Sales Tax Act, 1990, a registered person is entitled to deduct input tax for the purpose of taxable supplies made or to be made. Reference is made to the judgment of Hon'ble High Court [(2006) 94 Tax 222 (HC)] and [(2003) 89 Tax 144 (HC)]. In view of the above, it is asserted by the AR that the disallowance of input tax of Rs 12,654,903/- claimed by the appellant against the supply of shelters is contrary to the provisions of law and liable to be deleted.
39. On the contrary, the learned DR supported the order passed by the learned CIR(A) and requests confirmation of the same.
40. We have looked into the matter in its entirety and after due consideration, we find that no exception can be taken to the treatment as accorded by the learned CIR(A) as due to remand of the matter for fresh decision, no serious prejudice is cause to the registered person. The learned CIR(A) is justified to refer the matter back to the department for verification of documents and record and consequent decision accordingly. The registered person is directed to provide the relevant record for verification to the assessing authority. Consequently, the order of the learned CIRCA) in this behalf is maintained.
41. No ground was taken or argued regarding the levy of default surcharge or imposition of penalty, hence the same are maintained in terms of Order-in-Original.
42. Resultantly, preset cross appeals are disposed of in the above manner.