[The Order was passed by Muhammad Asif, Accountant Member.] The appellant, a private limited company, is engaged in the business of manufacturing and selling of frozen poultry meat and prepared poultry products to food services chains, restaurants, retailers through its own outlets. The products of the appellant are claimed to be as zero rated as per item No, (IV) of SRO 549(1)/2008 dated 11-6-2008.
2. The post refund audit was conducted in this case for the period July, 2009 to June, 2010 and following discrepancies were observed.
1. Claim of inadmissible input tax.
2. Short payment of output tax.
3. Inadmissible adjustment of input tax against fixed assets.
4. Wrong filing of returns.
5. Inadmissible adjustment of SED against purchases.
6. Violation of section 73 of the Sales Tax Act, 1990.
7. Inadmissible input tax claim against advertising.
8. Excess consumption of input tax in the head of Styro Foam Tray.
9. Scrap sales/wastage sales.
10. Excess consumption of input tax.
11. Suppression of sales.
12. Excess adjustment of input tax against fixed assets. Accordingly show cause notice was issued and not finding the reply of the appellant satisfactory, Order-in-Original was passed by the concerned officer of Inland Revenue (OW) and the registered person was directed to pay.
3. On appeal before the learned Commissioner (A) the relief was allowed in respect of input sales on deep freezers and other assets. Rest of the treatment was confirmed. Hence this appeal.
4. In response to call notice Mr. Shahid Pervaiz Jami, Advocate appeared on behalf of the appellant and Samia Ejaz, Additional Commissioner Inland Revenue appeared on behalf of the Revenue. Both of them were heard.
5. The learned AR starting his argument submitted that his case had to be selected for audit under section 72B or in case of any information the Commissioner was empowered u/s 25(2) to authorize an officer of Inland Revenue (OIR) to conduct the audit. As neither of the two conditions were met in this case, the order was illegal to that extent. He placed reliance on (2012) 106 Tax 109 (H.C.
Lah)=2012 PTD 1815 (LHC) and 2013 PTD (Trib) 954.
6. The learned AR further submitted that the poultry products were zero rated vide SRO 549(1)/2008 whereas earlier they were exempted, meaning thereby this SRO entitled the appellant to claim the input tax. For this he referred to FBR budget instructions, 2006, FBR's clarification regarding the refunds of dairy industry and explanatory notes of Chapter II of point 07 and 16.2.
7. He further submitted that post refund audit was conducted under Rule 36 of the Sales Tax Rules, 2006. In his view, the post refund audit had to be confined to verification of input tax payment by respective suppliers and compliance of Section 73 only. He submitted that the concerned OIR exceeded the limits as contained in this Rule and entered into the field/areas beyond.
8. He also argued his case on merits, that would be discussed in the later part of this order but before that we would like to dilate upon the legal arguments.
9. Leqality of the assessment order passed u/s 11(2). It would be apt to reproduce the finding of the Tribunal in the case mentioned supra before proceeding further: "We readily agree with the contention of the appellant that it was a mandatory condition under section 72B of the Act that before conducting an audit of appellant's tax affairs, selection must be made by the FBR. In the instant case, the learned DCIR (Zone-10, has conducted audit or appellant's sales tax records under section 25 of the Act on its own will without any prior selection from the Board on the basis of random or parametric criteria under section 72B of the Act which is illegal and without jurisdiction and it is well-settled law that where the basic statutory notice is illegal and without lawful authority, the whole superstructure built on it would have to fall on the ground automatically and whatsoever proceedings in its consequences in the shape of any show cause notice or adjudication order or appellate order or even recovery notice shall also become illegal, unlawful and without jurisdiction. There is no provision in the Sales Tax Act, 1990 for undertaking any such reconciliation outside the ambit or 'audit proceedings' under section 25 of the Act. For reference, relevant provisions of section 72B of the Act are reproduced herein below:- "72B Selection for Audit by the Board:- (11) The Board may select persons or classes of persons for audit of tax affairs through computer ballot which may be random or parametric as the Board may deem fit.
(2) Audit of tax affairs of person selected under sub-section (1) shall be conducted as per procedure given in section 25 and all the provisions of this act shall apply accordingly.
(3) For removal of doubt it is hereby declared that the Board shall be deemed always to have had the power to select any persons or classes of persons for audit of tax affairs under this section."
By bare reading of above provisions of law it becomes vivid that the provisions regarding selection of audit by the FBR were made mandatory w. e. f 1st July, 2010 therefore, any audit exercise conducted thereafter. Without adhering to due process of law by subordinate tax functionaries without selection of audit by the Board is not only illegal and unlawful but also without lawful competency and legal jurisdiction. Any exercise for audit of tax affairs of a registered person under section 25 of the Act without adhering to due process of section 72B or the Act would tantamount to dire violation and flagrant deviation from the doctrine of "Due process of Law". Hence, impugned action without selection of appellant's case for audit is wholly illegal, without jurisdiction and also utter violation of mandatory provisions of law as the tax functionaries assigned themselves with a jurisdiction not vested in them is the sacred statute book and if it desires to cross the same it would amount to transgress their legal jurisdiction and would equivalent to abuse their powers. It is well-settled principle of law that any exercise conducted without due process of law is illegal, unlawful and without jurisdiction. It is also well- settled and established principle of law that when the Legislature requires the doing of a thing in a particular manner then it is to be done in that manner and all other manners or modes of doing or performing that things are barred as also laid down by the Apex Court of Pakistan in case of "Director, Directorate-General of Intelligence and Investigation and others v. Messrs, Al-Faiz Industries (Pvt.) Ltd." Reported as 2006 SCMR 129 by the Honourable Lahore High Court, Lahore in case of "Messrs Chenone Stores Ltd. V. Federal Board of Revenue and 2 others" reported as (2012)
106 Tax 109 (H.C. Lah)=(2012 PTD 1815) wherein similar situation and identical illegal and unconstitutional and without jurisdiction carried out without proper approval and selection by the Board".
10. We have reproduced the observation of the learned Tribunal in extenso for the better appreciation of the facts of the case before us. It is obvious from the facts of the reported case that the Tribunal placing reliance on the reported judgment of the Honorable Lahore High Court mentioned supra declared the assessment order as illegal. However, the facts in the present case are different. In this case, the audit was conducted under Rule 36 of the S.T. Rules that deals with post refund audit. The Rule regarding post refund audit has been framed by the Federal Government in pursuance of the enabling provisions contained in the Act including Section 50.
Section 50 empowers the Board to make Rules for carrying out the purposes of the Act. Needless to say, for the purposes of the act the audit of cases is also very relevant. In other words, the post refund audit in this case was conducted by the concerned officer under Rule 36. To state the obvious in the above mentioned reported judgments, the legality of post refund audit under Rule 36 was neither discussed nor decided. Therefore, these cases are of no help to the case of the appellant.
11. This observation finds further support from the reading of Section 25(3)
"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."
[underlinedfor emphasis].
It shows that there are other provisions in the Act itself that deal with the subject of audit and they are not subservient to section 72B such as audit u/s 32A, etc. Further, it is pertinent to mention here that the appellant claimed refund in respect of the tax period July 2009 to June 2010, the period under consideration, on the basis whereof the post audit refund proceedings under Rule 36 of the Sales Tax Rules, 2006 were initiated on issuance of refund. If the plea of the appellant to the effect that without prior selection of audit u/s 72B by the FBR, the proceedings u/s 11 of the Act cannot be initiated, then the claim of refund by the appellant would also not be adjusted upon without first invoking the provisions of Section 72B by the Board. Certainly, this would not be the intention of the legislature that a person if not selected for audit, his refund cannot be rejected or accepted u/s 11.
Therefore, in our view the contention of the appellant is totally misconceived and against the norms of interpretation.
The upshot of the discussion is that the audit under Rule 36 is not dependent on selection by the Board under Section 72B. Besides, we have also noted that in the instant case the matter revolves around the construction of SRO 549/2008, more than the scrutiny of the record. Consequently, the contention of the learned AR is repelled.
12. SCOPE OF AUDIT UNDER RULE 36.
For better appreciation, Rule 36 is reproduced as under:- "36. Post-sanction audit of refund claims:- (1) After disposing of the refund claim, the officer lncharge shall forward the relevant file to the Post Refund audit Division for post-sanction audit and scrutiny, which shall, inter alia, include verification of input tax payment by respective suppliers and compliance of Section 73 of the Act.
(2) The officer incharge of Post Refund Audit Division shall send his findings to the concerned Refund Division for further necessary action, as required under the law".
The explanation mentioned in the above Rule "inter alia" clearly shows that the audit under this Rule is not confined to verification of input tax and compliance of Section 73 only. The concerned officer can do the audit on other points also.
Therefore, this argument of the learned AR is also without any substance and hence repelled.
13. Claim of exemption in view of SR0549(I)/2008 Perusal of Serial No, 4, (item Nos. I and XIII included) clearly shows that the tax facility of zero percent has been given on "import and supplies thereof'. There is no ambiguity on this scope that the word "and" used between import and supplies is conjunctive and demands that both the conditions should be simultaneously met.
14. We are not impressed by the arguments of the learned AR that this aspect regarding construction of the SRO was not discussed by the concerned OIR in Order-in-Original. It is an admitted fact that appeal proceedings are continuation of assessment proceedings and if the law has not been applied correctly by the officers below this Tribunal is not restrained from applying the correct law.
15. It is a trite rule that the intention of the legislature is to be gathered from claim reading of the law itself and not on the basis of purposes behind the legislation. As mentioned earlier, the word "and" use between import supplies does not merit any other construction.
16. On merits, the learned AR made the following submissions:- The claim of input tax
16. The learned OIR disallowed the claim amounting to Rs,1,023,112/- on the ground that this was undeclared by the respective suppliers in their sales tax return and the learned Commissioner (A) confirmed this treatment. In our opinion this action of both the officers below is unfair. The appellant cannot force the suppliers to declare the supply to the appellant, however, the appellant is required to file the evidence in the shape of all necessary documents and proof of payments of input tax to claim its adjustment . He is directed to make compliance accordingly.
17. Short paym ent of output tax The learned OIR held that the appellant had made short payment of Rs,7,198/- on supplies as the buyers have declared the purchases from the appellant. The learned AR submitted that output tax was not charged as the products was zero rated. The contention of the learned AR is not acceptable because its products are not zero rated, therefore, the action of the officers below is confirmed.
18. Wrong Filing of Sales Tax Return The learned OIR imposed the penalty for wrong filing of sales tax return under Section 33(19) of the Act on the ground that exempt purchases and supplies were not declared distinctly.
The learned AR submitted that declaration of exempt purchases was meaningless as no specification was involved. This contention is not acceptable because the return form requires that exempt purchases should also be declared. We, therefore, refuse to intervene.
19. Non-paym ent of sales tax against supply of ready to cook items The learned OIR noticed that only non-cooked poultry meat was covered under the zero rated supplies in view of Serial No, 4(i)(PCT Heading 0.2.07) of SRO 549. The learned CIR(A) held that the products of the appellant when cooked either fully or partially, they no more remain non-cooked and thus they are not covered under the definition of non-cooked poultry meat.
20. We are not convinced with the arguments of the learned AR that his products are not ready to cook and hence they are entitled to zero rate facility in view of SR0549/2008 mentioned supra. As we have observed above that the products of the appellant are not zero rated as they are not imported therefore question of cooked or uncooked is immaterial.
21. Short paym ent of output tax The learned AR repeated the same arguments as before learned CIR(A) that no taxable supply was made to M/s. SSGM (Pvt.) Ltd., In his view the supply was zero rated, therefore, charging of this output tax was incorrect.
22. As we have held above that the supply of the appellant are not zero rated, therefore, tax was rightly upheld by the learned CIR(A).
23. As we have already held above that these products of the appellant were ready to cook are not covered in SRO 549(1)/2008 because admittedly they are not imported products but locally produced therefore, this debate is totally irrelevant and the imposition of tax on this scope calls for no interference.
24. Penalty and Additional tax (to be calculated at the time of deposit):- The learned AR placed reliance on the case of DG Khan Cement Company, Ltd., reported as PTCL 2004 CL224(SC) wherein it was held that the imposition of penalty or additional tax was not mandatory and depended on facts of the each case.
25. The Apex Court further held that the imposition of penalty and additional tax (now called surcharge) dependent on the intention of the taxpayer/registered person. If it was willful or 3 passed on mala fide only then additional tax or penalty would be justified. If it was due to difference of opinion on legal provision the additional tax or penalty would not be justified.
26. In this case, the dispute was between the appellant and the respondent on the construction of SRO 549/2008 mentioned supra qua the nature of the poultry products being sold by the appellant.
The appellant's case was that its products were not ready to cook whereas the department felt otherwise. Evidently, this was the matter of interpretation therefore in the light of the judgment of the apex courts, the penalty and additional tax imposed are set aside to the extent of nonpayment of output tax.
27. The appeal is disposed of in the above said manne.