MRS. SEEMA IMRAN, JUDICIAL MEMBER --- The above captioned appeal has been filed by the appellant/department against the order in Appeal No, STA/67/LTU/2012, dated 15.05.2012 passed by the Commissioner Inland Revenue (Appeals-I), Karachi on the following grounds:---
2. That Commissioner IR (Appeals-0, Karachi, passed impugned order No, STA/67/LTU/2012, dated 15.05.2012, without taking into consideration and incorporating the view-points and affording proper opportunity of hearing.
3. That the department made out case of excess adjustment of input tax Rs, 11,035,206/- for violation of Sections 8B, 3(1), 22(1)(e), 23 and 26 of the Sales Tax Act, 1990. The wrongly adjusted input tax was rightly declared inadmissible and ordered to be recovered by the assessing officer vide order No, 03/92/2012, dated 08.03.2012.
4. That the respondent No, 02 has claimed/adjusted input tax disregarding the provisions of Section 8B of the Sales Tax Act, 1990, Under Section 88 Ibid a registered person is entitled to claim/adjust input tax against the output tax to the extent of ninety percent of output tax, sub-section (1) of Section 8B of the Sales Tax Act, 1990, is reproduced here for ready reference: 8B. Adiustable input tax.---(1) Notwithstanding anything contained In this Act, In relation to a tax period, a registered shall not be allowed to adjust input tax In excess of ninety percent of the output tax for that period: Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply In case of fixed assets or capital goods: Provided further that the Board may, by notification in the official Gazete, exclude any person or class of persons from the purview of sub-section (1).
In terms of above, the Respondent No, 2 is bound to claim input tax to the extent of ninety percent of output tax in tax period, and was mandatorily required to deposit the ten percent of output tax in government treasury.
Contrary to that explicit provision of Section 8B of the Sales Tax Act, 1990, Respondent No, 02 had adjusted the entire input tax from their output tax and no payment of sales tax was deposited in the relevant tax periods.
5. That Respondent No, 2 in its finding at Para-2 of page 5 of the order held that:- "It Is without any doubt that Section 8B does not deal with the entitlement of Input tax. The only Section of the Sales Tax Act which provides disentitlement of Input tax credit is Section 8. This Section 8B disallows the admissible Input to be adjusted in excess of ninety percent of output in a tax period. It does not deprive the entitlement. Dictionary meaning of "entitlement" is "emergence of a right" or to give a right to and apex Courts in a number of cases have held that once a right emerges It cannot be deprived."
The above findings is totally against sub-section (1) of Section 89 which starts with the over-riding non-obstante clause, as shown below: "Notwithstanding anything contained in Att, In relation to a tax period, a registered shall not be allowed to adjust Input tax in excess of ninety percent of the output tax for that period."
In the above-quoted sub-section, the presence of the over-riding non-obstante clause and mandatory words like "shall not be allowed leaves no room for the registered persons to employ or attach any other definition to restrict the operation of Section 88. Furthermore, the peculiarity of Section 88 by virtue of the non-obstante clause makes it independent and irrespective of the provisions of Section 7 and Section 8 of the Act and for that very reason all other conflicting provisions of law. It may further be added that after fulfilling certain pre-requisites of law [as provided in sub-section (2) of Section 8B] the registered persons are &lowed to claim the unclaimed amount of input tax [as in sub-section (1)] in the second month following the end of the Financial year (sub-section (3) of Section 88), hence the registered person is not deprived of its right to claim the admissible amount of tax.
However, it may be seen that every right is enjoyed within the four corners of law and here also the registered persons are bound by the process of law to claim their right.
7. That Commissioner IR (Appeals-1) admitted that the respondents (last Para of the order) have violated the procedure laid down in Section 88 of the Sales Tax Act, 1990 and adjusted the input tax in excess of ninety percent of output tax, which was not allowed to him in terms of Section 8B, and yet again made a great error by holding that no revenue loss to the exchequer is observed. This conflicting Para is against the observation made by CIR (Appeal-I) with itself and the provision of sub-sections (2) and (3) of the Section 88 of the Sales Tax Act, 1990, which prescribed the procedure, authority and time for admissibility of input tax. By the very operation of law, the admissibility of input tax has been made conditional and procedural according to Section 88 and no one can create any right of the respondent in the presence of express provisions of law [which is itself admitted by the CIR (A)].
In this regard the clear, unambiguous, overriding and explicit language of Section 88 is re-produced below for easy understanding: 8B. Adjustable input tax.---(1)Notwithstanding anything contained in this Act, in relation to a tax period, a registered shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that period: Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or capital goods: Provided further that the Board may, by notification in the official Gazette, exclude any person or class of persons from the purview of sub-section (1).
(2) A registered person subject to sub-section (1) may be allowed adjustment (or refund) of input tax not allowed under sub-section (1) subject to the following conditions, namely:---
(I) In the case of registered persons, whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing' a statement alongwith annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed under sub-section (1) above; or
(ii) In case of other registered persons, subject to the conditions and restrictions as may be specified by the Board by notification in the official Gazette.
(3) The adjustment or refund of input tax mentioned in sub-section (2), if any, shall be made on yearly basis in the second month following the end of the financial year of the registered person.
7. That the learned CIR (Appeal-I) has not given cogent reason/findings while passing its order on this point and has passed non-speaking order by only narrating the view-point of the respondents."
2. Being aggrieved with the treatment meted out by the DCIR, the tax-payer/Respondent filed appeal before the Commissioner (Appeal), who vide his order dated 15.5.2012 decided the first appeal in the following words:- "I have gone through the record of the case written and verbal submissions of both the parties and came to the conclusion that the entire case is based upon the issue, whether the provisions of Section 88(1) of the Sales Tax Act, 1990 hit the entitlement of input tax in excess of ninety percent of the output tax or not.
It is without any doubt that Section 88 does not deal with the entitlement of input tax. The only Section of the Sales Tax Act which provides disentitlement of input tax credit is Section 8. This Section 88 disallows the admissible input to be adjusted in excess of ninety percent of the output in a tax period. It does not deprive the entitlement.
Dictionary meaning of "entitlement" is emergence of a right" or to give a right to and apex Courts in a number of cases have held that once a right emerges it cannot be deprived.
I am therefore, of considered opinion that in this instant case, the appellant has violated the procedure laid down in Section 88 of the Sales Tax Act, 1990 and adjusted the input tax in excess to ninety percent of output tax, which was not allowed to him in terms of Section 88. However, as the officer has not framed any case regarding otherwise inadmissibility/entitlement of input tax adjusted by the appellant and the appellant was allowed to adjust the same at any later stage in terms of sub-sections (2) and (3) of Section 88 of the Act, no revenue loss to the exchequer is observed.
' I therefore, confirm the order of the DCIR to the extent of recovery of default surcharge, to be calculated at the time of payment, from the appellant under Section 34 of the Sales Tax Act, 1990 on the input tax adjusted in excess to the amounts they were allowed to adjust in each tax period of the financial year mentioned in show- cause notice and Order-in-Original and penalty of five percent imposed' on the amount adjusted in excess to ninety percent in each above-stated tax period in terms of Section 33(5) of the Sales Tax Act, 1990."
3. Being dissatisfied with the order of the Commissioner (Appeal), the appellant/department came up to this forum for redressal of his grievances against the order of the CIR(A).
4. On the date of hearing, Mr. Abdul Wahid, D/R appeared on behalf of the Appellant/department and Mr. Ajeet Sundar, Advocate attended on .Behalf of the Respondent/tax-payer.
5. The learned DR argued that the Commissioner IR (Appeals-I), Karachi, Passed impugned order No, STA/67/LTU/2012, dated 15.05.2012, without taking into consideration and incorporating the view-points and affording proper opportunity of hearing. He further argued that the department made out case of excess adjustment of input tax Rs, 11,035,206/- for violation of Sections 8B, 3(1), 22(1)(e), 23 and 26 of the Sales Tax Act, 1990. The wrong adjusted input tax was rightly declared inadmissible and ordered to be ordered by the assessing officer vide order No, 03/92/2012, dated 08.03.2012.
6. The DR contended that the tax-payer has claimed/adjusted input tax disregarding the provisions of Section 8B of the Sales Tax Act, 1990 Under Section 8B ibid a registered person is entitled to claim/adjust input tax against the output tax to the extent of ninety percent of output tax (sub-section (1) of Section 8B of the Sales Tax Act, 1990).
In terms of said section, the Respondent No, 2 is bound to claim input tax to the extent of ninety percent of output tax in tax period, and was necessarily required to deposit the ten percent of output tax in government treasury.
Contrary to the explicit provision of Section 8B of the Sales Tax Act, 1990, Respondent No, 2 had adjusted the entire input tax from their output tax and no payment of sales tax was deposited in the relevant tax periods.
7. He further contended that the tax-payer in its finding at Para-2 of page 5 of the order held that: "It is without any doubt that Section 8B does not deal with the entitlement of input tax. The only Section of the Sales Tax Act which provides disentitlement of input tax credit is Section 8. This Section 8B disallows the admissible input to be adjusted in excess of ninety percent of output In a tax period. It does not deprive the entitlement. Dictionary meaning of "entitlement" is "emergence of a right" or to give a right to and apex Courts in a number of cases have held that once a right emerges it cannot be deprived."
The above finding is totally against sub-section (1) of the Section 8B which starts with the over-riding non- obstante clause as, shown below:- "Notwithstanding anything contained in Act, in relations to a tax period, a registered shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that period."
8. In the above-quoted sub-section, the presence of the over-riding non-obstante clause and mandatory words like "shall not be allowed" leaves no room for the registered persons to employ or attach any other definition to restrict the operation of Section 8B. Furthermore the peculiarity of Section 8B by virtue of the non-obstante clause makes it independent and irrespective of the provisions of Section 7 and Section 8 of the Act and for that very reason all other conflicting provisions of law. It may further be added that after fulfilling certain pre-requisites of law [as provided in sub-section (2) of Section 8B] the registered persons allowed to claim the unclaimed amount of input tax [as in sub-section (1)] in the second month following the end of the Financial year [sub-section (3) of Section 8B], hence the registered person is not derived of its right to claim the admissible amount of tax. However it may be seen that every right is enjoyed within the four corners of law and here also the registered persons are bound by the process of law to claim their right.
9. The learned DR contested that the Commissioner IR (Appeals-I) admitted that the respondents (last Para of the order) have violated the procedure laid down in Section 8B of the Sales Tax Act, 1990 and adjusted the input tax in excess of ninety percent of output tax, which was not allowed to him in terms of Section 8B, and yet again made a great error by holding that no revenue loss to the exchequer is observed. This conflicting Para is against the observation made by CIR (Appeal-I) with itself and the provision of sub-sections (2) and (3) of the Section 8B of the Sales Tax Act, 1990, which prescribed the procedure, authority and time for admissibility of input tax. By the very operation of law, the admissibility of input tax has been made conditional and procedural according to Section 8B and no one can create any right of the respondent in the presence of express provisions of law [which is itself admitted by the CIR (A)]. In this regard the clear, unambiguous, over-riding and explicit language of Section 8B is re-produced below for easy understanding:--- 8B. Adjustable input tax.--- (1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that period: Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or capital goods: Provided further that the Board may, by notification in the official Gazette, exclude any person or class of persons from the purview of sub-section (1).
(2) A registered person subject to sub-section (1) may be allowed adjustment (or refund) of input tax not allowed under sub-section (1) subject to the following conditions, namely:---
(I) In the case of registered persons, whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing a statement alongwith annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed under sub-section (1) above; or
(ii) In case of other registered persons, subject to the conditions and restrictions as may be specified by the Board by notification in the official Gazette.
(3) The adjustment or refund of input tax mentioned in sub-section (2), if any, shall be made on yearly basis in the second month following the end of the financial year of the registered person.
10. He further contested that the learned CIR (Appeal-I) has not given cogent reasons/findings while passing its order on this point and has passed non-speaking order by only narrating the view-point of the respondent.
Accordingly, he prayed that this Hon'ble Tribunal IR Bench may graciously be pleased to declare the impugned order passed by the learned CIR(A), Karachi not sustainable in law, otherwise the appellant department will suffer irreparable loss, as the matter is related to and connected with recovery of legitimate government revenue payable by the Respondents.
11. On the other hand, Mr, Ajeet Sundar, Advocate vehemently opposed the contentions made by the DR. He argued that the order passed by the learned CIR(A) is well within the framework of law and carries no illegality, irregularity and infirmity in it. The learned A.R. Referred to his appeal against the levy of surcharge and penalty in the context of order of this Tribunal, vide ITA No, 112/KB/2012, dated 18.11.2013 adjudicated the appeal of tax-payer in the following words:--- "The next issue before us if the levy of penalty and default surcharge on deferred payment of difference of sales tax liability in terms of Section 88 of the Sales Tax Act. We concur with the findings of learned CIR(A) that, laid down procedure was not adopted by the tax-payer. Thus in the context of reported judgments PLD 2002 Supreme Court 630, 2010 PTD 1515 and judgment of this Tribunal vide STA No, 154/KB of 2011, dated 07.09.2012, due balance of probability tilt towards the tax-payer particularly in the light of case reported as 2013 107 Tax 232 Trib. Therefore, the levy of penalty and surcharge emanating from Order-in-Original dated 08.03.2012 is set aside."
12. Moreover, the learned A.R. Referred Section 8B read with Rule 34 of the Sales Tax Rules, 2006 and submitted that combined reading of both would leave no doubt that Section 8B does not deal with any further charge. According to him this Section simply disallowed admissibility of adjustment of input tax in excess of 90% of the output tax in a tax period.
13. We have heard the representatives from both sides and have pursued the orders of ACIR, CIR(A) and available record of the case. The position of claimed input/output for the tax years (July 2008 to June 2012) reads as under:- Period 08/09 Value Addition09/10 Value Addition10/11 Value Addition11/12 Value Addition Input 80,495,549 Less 103,160,830 6.516% 120,195,638 1.56% 129,499,620 Less Output61,231,233 110,352,061 122,102,952 123,491,709
14. This reveals that value addition as envisaged in Section 8B is always less in the preceding and succeeding periods. No explanation whatsoever is available in respect of tax-payer's recourse to Sections 8B(2) and 8B (3).
Moreover, tax-payer has not been able to prove his eligibility to qualify for concession to Sector (7) S.R.O.
647(1)/2007 dated 27th June, 2007.
15. The learned AR referred and relied upon two un-reported decisions of this Tribunal, vide STA No, 3/KB/2014, dated 29.01.2014 in the case of A.S. Paper Products and STA No, 154/KB/2011, dated 07.09.2012 in the case of Decent Enterprises; both the orders conclude that mere claim of input tax in excess of 90% had not caused loss of revenue.
Following is the relevant text of the order:--- "4. Learned Counsel for the Applicant in this regard had placed before this Bench the decision of this Tribunal reported as 2013 PTD (Trib.) 379 wherein it has been held that when the main levy failed the imposition of penalty or additional tax also failed specifically in these circumstances where no mala fide are spelt out on the part of the Appellant. In another decision placed before this Bench reported as 2010 PTD (Trib.) 1515 it has been held that the alleged default do not fall within the definition of 'evasion' and ousted the ambit of recovery under Section 36 of the Sales Tax Act, 1990 hence no penalty or additional tax can be imposed in this case. It is observed that where there is no loss to the national exchequer and there are allegations only regarding procedural lapse which is condonable, the offence in penalty were not culpable under Section 33(2)(cc) of the Sales Tax Act. Learned Counsel for the Appellant has also placed before this Bench order of this Tribunal dated 07.09.2012 in STA No, 154/KB/of 2011 in the case of Messrs Decent Enterprises v. The ACIR Karachi wherein it has been held that contention of the tax-payer has been accepted that in case of available refund of earlier period, the non-payment of 10% tax and adjustment of 100% of input tax has caused no loss to the Government Exchequer, therefore,-default surcharge and penalty were deleted.
5.........
6. After considering the submissions from both the sides we are of the view that In this case like above-referred cases there Is no loss of revenue and the revenue authority has failed to establish that the Intention of the Appellant was to evade the tax due. Therefore, the Impugned orders of the officers below imposing tax default and penalty are vacated and the Appeal filed by the Registered Person is allowed."
16. Further we have made following arithmetic analysis of relationship of input and output as envisaged in Section 8B of the Sales Tax Act, 1990 in the light of order-in-original:--- a. Output Rs, 110352,061/- (A) a. 10% of output, this amount has been charged by the ACIR as short levy Rs, 11,035,206/- (B) i. Input claimed by the Tax- payer Rs,103,160,830/- (C) i. Standard claim as per law should have been (90% of A)Rs, 99,316,855/- (D)
The Officer has further charged Sales Tax of Rs, 11,035,206/-, and if this amount added either towards actual output or actual input, the relationship of 100:90 still remains unachieved.
17. We understand from the express provision of law is that in the instant case, tax-payer has claimed an excess in input to the tune of Rs, 3,843,975/- (103,160,830 - 99,316,855) and the Assessing Officer should have disallowed the claim for the period under consideration for the purpose of input adjustment or refund subject to its allowance in terms of Sections 8B(2) and 8B(3) of the Sales Tax Act. We are further of the view that Section 8B does not create any further charge; rather it not only ensures minimum value addition but also restricts the claimed input with its corollaries like adjustment or refund either temporarily during the year/period or permanently. Thus the provisions of Section 8B authorize the department to the excessive input and places the tax-payer under obligation to claim it subsequently subject to fulfilment of legal requirements. In the instant case, for the period under consideration, the STAAR is also capable to raise objection and impede the excessive claim. There has been no evidence of any effort on the part of tax-payer in terms of Section 66 of the Sales Tax Act, 1990. Following case-laws are relied in respect of our dilation on Section 8B of the Sales Tax Act, 1990:
(I) STA No, 1108/LB/14. Dated 20th November 2014 "We have looked Into the matter and after due consideration, we are in agreement with the submission of learned AR that no loss of revenue Is occurred in the present case nor any allegation of tax fraud is levelled against the registered person. The registered person has committed a procedural lapse by claiming 100% input tax adjustment instead of 90% of output tax as required under Section 8B of the Sales Tax Act, 1990. Under the law on next 30th June is ultimately entitled for refund of differential amount. Under such circumstances, we find that recovery of principal amount of Rs, 16,012,741/- from registered person is unjustified which is hereby deleted...."
(ii) STA No, 1506/LB/2014, dated 13th January, 2015 "9. It has also been observed that the only departmental objection that the input tax was not claimed in accordance with the procedure prescribed under Section 88(1) of the Sales Tax Act, 1990 for which denial of input tax on technical plea tantamount to burdening the tax-payer with sales tax which is not only contrary to the statutory provisions [may be referring Section 71] but also against the norms of justice, therefore, the same is deleted."
18. Given the facts, we uphold the findings of CIR(A) on the issue and disapprove the treatment meted out by ACIR.
However, findings of this Tribunal vide I.T.A. No, 112/KB/2012, dated 18,11.2013 on appeal of the tax-payer would remain undisturbed as the earlier order disposed of appeal of tax-payer on the issue of default surcharge and penalty only. The present appeal of the department falls.