The captioned appeal has been filed by the above named taxpayer, Registered Person (hereinafter called the appellant), through Messrs S.M. Law Associates, Karachi against Order No,16 of 2014 dated 22-12-2014, passed by Commissioner Inland Revenue (Appeals-V), Karachi.
2. Precisely stated, the facts of present case as gathered from available record are that the department while scrutiny of data available in Integrated Tax Management System (Income Tax and Sales Tax Returns of the appellant), considered that the appellant as a registered person has been engaged in the business of manufacturing and supply of ready-mix concrete (RMC) during the period 2009 to 2013, which is a taxable supply as per provisions of Section 3 of Sales Tax Act, 1990 but the appellant failed to declare and charge/levy/pay sales tax payable thereupon.
Accordingly, Deputy Commissioner-IR, Audit Unit-04, Zone-I, RTO-II, Karachi, issued a Show-Cause Notice vide C.No, IR/ Audit/-04/ST/2013-14/4531 dated 17-05-2014 to the appellant and proceedings initiated vide Show-Cause Notice were culminated in charging Sales Tax at Rs,331,308,177/- vide an ORDER-IN-ORIGINAL dated 12-06-2014 under section 11(2) of the Sales Tax Act, 1990. However, the period wise breakup of Sales Tax Liability as given in the Show-Cause Notice was as under:-- S.No. Period Sales Value as Per Sales Tax ReturnSales Value as Per Income tax returnDifference Short Paid amount Recoverable 1 2009 NIL 448,358,279 448,358,279 71,737,325 2 2010 NIL 412,199,144 412,199,144 65,951,863 3 2011 NIL 315,954,807 315,954,087 53,712,317 4 2012 NIL 367,035,066 367,035,066 58,725,611 5 2013 NIL 582,108,017 582,108,017 93,137,283 2,125,655,313 2,125,655,313 343,264,398 Being aggrieved of order-in-original, the appellant filed first appeal before Commissioner Inland Revenue (Appeals-V), Karachi, who vide his Order No, 16 of 2014 dated 22-12-2014 rejected the appeal by confirming the order-in-original. Feeling aggrieved of the decision of CIR (A), the appellant has preferred present appeal before this Tribunal.
3. We have heard the parties at length. We have also examined the available record and case law relied upon by the parties. Ld. AR of the appellant has also placed written synopsis of his arguments on record as well as a soft copy. The arguments of Ld. AR are reproduced here as below:-- "1. That the ORDER-IN-APPEAL No, 16/2014 dated 22-12-2014, passed by Respondent No, 1 is arbitrary, oppressive, without any justification and is not based on the proper appreciation either of the facts of the issue or of the law on the subject.
2. That the ORDER-IN-APPEAL NO. 16/2014 dated 22-12-2014 passed by the Respondent No,1 is also against the good conscience, natural justice, fair play and is also against the laws of equity.
3. That the impugned Order-in Appeal No, 16/2014 dated 22-12-2014, has been passed without opportunity of being heard as on the date of hearing i,e, 22-12-2014, the appellant has requested for an adjournment vide its letter dated 22-12-2014, the Order-in-Appeal is silent about such letter of adjournment and without giving any reason the order-in-appeal has been passed which is against the principle of "Audi Alteram Parterm" i,e, no person shall be condemned without being heard as held in various judgment by apex court e.g."a. Affording of an opportunity is a prerequisite for taking a penal action.
CIT East Pakistan and 2 others v. Aswa b Ali and others [1976 SCMR 226] "It is an elementary principle of law that no person can be subject to an obligation without affording him an opportunity to show cause. Similarly, an order favoring a person passed by a competent authority cannot be varied to his disadvantage without hearing him." b. An order affecting the rights of a party can't be passed without an opportunity of hearing to that party.
CIT East Pakistan v. Fazlur Rahman and Saeedur Rahman, [PLD 1964 SC 410] "We do not think the mere absence of a provision as to notice can override the principle of natural justice that an order affecting the rights of party cannot be passed without an opportunity of hearing of that party. Yet it cannot be said that it is not necessary to hear the parties affected in a proceeding under Section 115, C.P.C. The fact that the proceedings are judicial or quasi-judicial in nature is sufficient to entitle a party to a hearing in the absence of specific provision to the contrary." c. No adverse order should be passed against a. Party without affording an opportunity to meet the case.
Karachi Textile Dyeing and Printing Works, Karachi v. Commissioner of Income Tax (Central), Karachi.
[1984 PTD 150]'
"No party can be condemned on basis of evidence or information adduced behind his back and without any notice to him. It is true that technicalities of Evidence Act cannot feller the exercise of power of the Assessing Authority but rule of justice demands that before any adverse order penalty or liability is passed or imposed upon a party he should be afforded full opportunity to meet the case and rebut the evidence used against him".
That the Order passed by learned Commissioner-IR (Appeals-V)
Karachi; is based on presumption/legal fiction and without considering relevant law point necessary evidence, and project his performance in raising is his promotion, it violates the fundamental principles of Natural justice as laid down by the Superior Courts.
5. That the impugned Order-in-Appeal dated 22-12-2014, passed by the Respondent-I, is beyond the prescribed maximum time-limit of 120 days under 2nd Proviso of subsection (2) of Section 45-B of the Sales Tax Act, 1990, more over the learned Commissioner-IR(Appeals-V) Karachi has neither fixed any extended period nor has in the instance case recorded any reason for processing of order after 60 days. Even if the learned Commissioner-IR (Appeals-V), Karachi, has fixed may extended period the Order-in-Appeals being passed after laps of 120 days would have become time-barred. Reliance has been placed on:-
(i) 2013 PTD 537 Zamindara Paper Mills v. CIR (Legal Division) R.T.O. Wherein it was held that order was passed beyond the prescribed limitation of 120 days as it was dispatched and received after more than 220 days from the issuance of show-cause notice.
(ii) 2007 PTD 430 -- Messrs Sabir Daud Exports v. Secretary, Revenue Division, Islamabad - wherein it was held that mere passing of an order in the file'is not enough and the crucial date to determine the time of judgment is the date when the order is dispatched to and received by the concerned party.
(iii) 2009 PTD 762 -- Messrs Tanveer Weaving Mills v. Deputy Collector Sales Tax - wherein it was held that Order-in-Original was not valid for having been passed after expiry of 90 days provided under S.36 of the Sales Tax Act, 1990.
(iv) 2008 PTD 60 -- Messrs Super Asia Mohammad Din Sons (Pvt.) Ltd. v. The Collector of Sales Tax, Gujranwala wherein it was held that once limitation had started to run and had come to an end the assesses had acquired a vested right of element of assessment by lapse of time.
(v) 2008 PTD 1379 - Messrs Siddiqui Sons Denim Mills (Pvt.) Ltd. v. Secretary, Revenue Division, Islamabad.
(vi) 2007 PTD 1317 -- Messrs Qasim Cotton Ginners v. Secretary, Revenue Division, Islamabad.
(vii) PTCL 2005 CL 841 -- CBR/Sales Tax Department v. Messrs Pace International, Rawalpindi.
(viii) PTCL 2010 CLC 1134 Messrs Zeenat Printing and Dyeing Gujranwala v. The Collector of Sales Tax and General Excise, Lahore.
(ix) 1992 SCMR 1898 - Federation of Pakistan v. Messrs 16rahim Textile Mills Ltd., wherein it was held that due consideration was given as to whether the respondents should not pay the short-levied duty and whether the State should suffer in public finance. But the cardinal principle of law is that all are equal before law, whether citizens or State. Secondly if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts. Thirdly, while construing a financial statute, its terms are strictly to be followed.
(x) 2009 SCMR 1126 -- Messrs Dewan Cement Ltd. v. Collector of Customs and Sales Tax and another wherein it was held that where the show-cause notice is time-barred the merits of the case need not be discussed.
6. That the Appellant is registered under Sales Tax Act, 1990, as , an Importer having STRN:1750681001555 and engaged in providing Ready Mix Concrete (hereinafter referred to as RMC) which is non-taxable and is batched/mixed at our hatching plant, wherefrom through mixer/stirrer tanks mounted on transit trucks, it without becoming an independent product (i,e, capable of being weighed, scaled, stored), in a continued process is poured/placed in an un-set form into the required constructing structure of the building, where it becomes an integral part of the building structure which is attached to earth and as such always been an immovable property. If the timings as required for said pouring into building structure are missed or delayed RMC becomes hardened and of no use i,e, totally wastage and thus not saleable.
7. That a Show-Cause Notice under section 11(2) of the Sales Tax Act, 1990, issued vide C.No,IR/AUDIT-04/ST/2013-14/4531 dated:17.05.2014, was served upon the Appellant, wherein it was intimated that during scrutiny of the Income Tax data available with them the Appellant is observed to be registered as a Manufacturer of Concrete Ready mix which is liable to sales tax.
Further that since the Appellant not paid sales tax on the same, accordingly Appellant was charged for recovery of sales tax to the tune of Rs,343,264,398/- not paid since the year 2009 to 2013.
8. That since the Appellant is a bona fide and loyal taxpayer, thus in order to suffice the matter through his AR replies dated:09.06.2014 and 11.06.2014, properly replied to the show-cause notice, wherein the Respondent No,] was apprised of the fact that the show-cause notice served by him on the instant issue is based on assumption, surmises, besides totally misconceived as well, resultantly the Appellant has been leveled with a baseless and un-lawful charge for non-payment of Sales Tax on RMC, which is non-taxable. The entire reply made by the AR of Appellant was well in conformity with the facts of the issue and legally substantiated as well, besides appropriate arguments were also advanced by the AR at the time of hearing of the case and Respondent No,1 was also requested to himself inspect/view the entire process/operation as submitted before him, but he also ignored the said request.
9. That the Respondent No,3 was appraised of the fact that the show-cause notice has been issued under section 11(2) of The Sales Tax Act, 1990, relating to default period from July-2008. Whereas, under the provisions of section 11(5) thereof, a show-cause notice under section 11 can only be served within five years from the relevant date of default. As such your said notice relating to the period prior to May-2009 is barred by time. Besides, the figures relating to the tax period 2013 are also not correct and have been mentioned as Rs,582,108,017/- instead of Rs, 532, 108, 017/-
10. The Respondent No,3 was also informed that in order to make the things understand in better and clear, it was explained that Concrete is an essential building material used in construction work and is the composition in dry form comprising of gravel, sand and cement, whereas the water is added therein, as and when it is needed to be consumed. After addition of water it is termed as Ready Mix Concrete (hereinafter called RMC) but it remains in an un-set form. Evidently as is transparent from the name RMC, it is readily available mixed concrete i,e, after water is added thereto.
11 The Respondent No,3 was also apprised in detail that for the purpose of construction work, RMC is an essential requirement, particularly for the roof, beams, foundations, columns, pillars, etc., of the building structure being constructed. Basically RMC is consumed in the following forms: a. Firstly it is pertinent to record here that determining the classification of anything under Harmonized Commodity Description and Coding System (hereinafter referred to as HCD&CS/Nomenclature/PCT) is essentially required for the levy of Sales Tax or otherwise in pursuance of Note-2 of the Sixth Schedule to The Sales Tax Act, 1990. Accordingly the General Rules for the interpretation of the Harmonized System the classification of Goods in Nomenclature are to be governed by the Principles set out therein. The HCD&CS/Nomenclature/PCT sets out a systematic form of the Goods handled in International Trade. RMC is consumed for the manufacturing of Articles/ Goods like RMC Blocks, Slabs, Pre-fabricated Structural Components for Buildings, Pillars, Beams, Posts, Girders, Railings, Stair Treads, etc., which are pre-tasted or prefabricated in re-usable molds. These Articles/Goods (not the RMC itself) fall under 'leading No,68.10 of Harmonized Commodity Description and Coding System (HCD&CS/ Nomenclature/PCT)
(copy attached as Annexure-E). It is important to note that a perusal of the main Heading 68.10 reveals that it covers Articles of Cement, of Concrete or of artificial stone and nowhere it speaks of coverage of RMC therein. Here it is pertinent to inform you that after recasting/pre-fabricating, these articles are specially cared and kept in a controlled environment and then transported to construction site for placing in its position. It is also pertinent to inform you that in Harmonized Commodity Description and Coding System/Nomenclature there is no product/goods exist/ specified as RMC. The Appellant is .Not engaged in the manufacturing or pre fabricating or pre- casting in re-usable molds, any of the article/goods of Cement or Concrete or RMC as covered and specified under above stated HCDCS/ Nomenclature Heading 68.10. Such type of RMC consumption is made by the persons engaged in the manufacturing and supply of above said articles of RMC. b. RMC is also very rarely consumed in constructing the structure of single stored very small scale houses by obtaining/batching the same manually with orthodox methods i,e, through application of labors at the construction site. In this situation the continuity of the process of obtaining/batching the RMC is not retarded or ceased, whereas it is completed after the so obtained/batched RMC in required quantity is poured/placed in the constructing structure of the building. c. RMC is also commonly consumed in constructing the structure of buildings/houses being constructed by the Constructors/ Contractors by obtaining the same using stirrers/mixers at the construction site. In this situation also the continuity of the process of obtaining/batching the RMC is not retarded or ceased and it is completed after the so obtained RMC, in required quantity, is poured/placed in the constructing structure of the building.
With a view to facilitate the mega projects in construction industry, a modern technology of centrally obtaining/batching the RMC also exists which ensures continuous, consistent and un- interrupted communication of high quality RMC in a fresh state which results in maximizing the output efficiency. In said technology, RMC in required quantum, is obtained/batched at any other place in batching plant, where firstly the cement, gravel and sand are mixed in dry form and finally the water is added just before the operation of pouring or placing it at construction site, so as to start the chemical reaction for the purposes of initial setting which lasts for very limited time of 45 minutes only. This means that within 45 minutes, RMC is to be shifted into transit truck having stirrer/mixture tank mounted over it, where the process of stirring/mixing in the tank continues till the pouring/placing of RMC into the structure of building being constructed. In this manner RMC, in un-set form in a continuous process is transported to construction site, where operation of pouring/placing the same into the required structure of building is carried on. Here also it is pertinent to note that in case of any mis-timings or delay, as stated above, in pouring in any structure, the said RMC becomes hardened and of no-use at all i,e, wastage and not saleable. The Appellant through the said modern technology is engaged in the batching of RMC at a distant batching plant which is delivered to various sites in mixer/stirrer tanks mounted on Trucks in an un- set form for pouring/placing the same into the structure of building being constructed, where it becomes an integral part of the building structure which is attached to earth and as such always been an immovable property. In the interest of natural justice and to arrive at an appropriate conclusion the Respondent. No,1 was requested that all the above stated operation can be inspected/viewed at pre-fixed date and time at the venue of the Appellant, but he paid no heed to it and ignored the request. IT CAN ALSO BE ARRANGED NOW IF THIS HONORABLE FORUM DESIRES. In this modern technology also, the continuity of the process of obtaining/batching the RMC is not retarded or ceased and it is completed after the so obtained/batched RMC in required quantity is poured/placed in the constructing structure of the building. Particularly focusing the mega projects, the said type of modern technology for obtaining/batching RMC is used extensively, as it offers numerous advantages in comparison to all the other methods.
12. In support of explaining the RMC few definitions were also cited before the Respondent No,1, which are reproduced under: Mixed but un-set concrete brought to site from a batching plant, usually in an agitating truck.
(Ref: The Penguin dictionary of building by James H. Maclean and John S. Scott)
Concrete that is mixed at a distant batching plant and carried to the site in truck mixer.
(Ref: Dictionary of Engineering by John Scott)
RMC is batched in central plants and delivered to various sites in trucks usually in mixers mounted on the trucks. Concrete may be kept workable for as long as 1.5 hours by slow revolving the mixer.
(Ref: Standard Handbook for Civil Engineers, 3rd Edition by Frederick S. Merril; Editor and published by McGraw /Hill International edition)
RMC batched in central plant and delivered in a fresh state.
(Ref: Cement and Concrete Terminology American Concrete Institute ACI 116R-00)
RMC is delivered for placing from a central plant and it offers numerous advantages: (i) Close quality control of batching reduces the variability of desired properties; (ii) Use on congested sites or in highways, where there is little space for mixing plant and aggregate stock piling; (iii) Use of agitator trucks to ensure preventing segregation and maintaining workability.
(Ref: Concrete Technology by A. M. Neville: & J. J. Brooks, International Student Edition).
RMC is concrete that is batched in a batching plant, according to a set recipe, and then delivered to a work site, by truck mounted in-transit mixers.
(Ref: http://en.Wikipedia.Org/wiki/Ready-mix concrete)
13. The Respondent No,3 was also informed that all the RMC used Articles/Goods like RMC Blocks, Slabs, Pre-fabricated Structural Components for Buildings, Pillars, Beams, Posts": Girders, Railings, Stair Treads, etc., which are pre-tasted or pre-fabricated in re-usable molds (not the RMC itself), fall under Heading No, 68,10 of Harmonized Commodity Description and Coding System (HCD&CS/Nomenclature/PCT), Since these RMC-used Articles/Goods are manufactured at some other place and brought to the construction site for placing at its required place in constructing structure of the building, as such these RMC-used Articles/Goods (but not the RMC itself) are capable of being weighed, scaled, stored and shifted, and are moveable in nature and accordingly fall under the definition of GOODS as envisaged under section-2(12) of the Sales Tax Act, 1990, and thus liable to the levy of Sales Tax under section 3 thereof The Respondent No,3 was also apprised of the fact that RMC, as defined and explained above, may be obtained by batching at construction site or alternately may be brought in an un-set form from central batching plant usually in tank mixers/stirrers mounted on the transit trucks under a continuous process of stirring/batching. After the same is poured/placed into the required constructing structure of the building, RMC, without becoming an independent product (i,e, capable of being weighed, scaled, stored), becomes an integral part of the building structure which is ,attached to earth and as such always been an immovable property, thus not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid, thus not liable to the levy of Sales Tax.
15. In addition to all the above submissions and discussions the Respondent No,3 was also apprised of the fact that by referring the decision of Honorable High Court of Lahore in W.P. No,500 of 1975 (Sh. Fazal Elahi Limited v. Federation of Pakistan) (1988 MLD 524) which has been upheld by Honorable Supreme Court of Pakistan in WP-561 of 1978 (1988 PTD (Trib.) 264), read with Sales Tax Circular No,01 of 1988 (copy attached as Annexure-F). In pursuance of the above stated ruling on 'Manufactureset through binding judgments of the Superior Courts of Law and implemented by Board as well, RMC is unambiguously ruled out from the scope of the definition of "Manufacture" and, therefore, does not qualify to be a manufactured product or article or goods, since it is not capable of being weighed, scaled, packed or stored and is also not capable to supply after becoming hardened on being pacified. Further, it is also crystal clear that the mechanism of obtaining the RMC (whether by batching at construction site or by being brought in an un-set form from central batching plant usually in tank mixers/stirrers mounted on the transit trucks and pouring/placing of the same into the required constructing structure of the building it becomes an integral part of the building as an immovable property) is un-ambiguously a continuous process, and thus also not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid. Accordingly, it is not liable to the levy of Sales Tax. It is pertinent to mention that construction of such buildings/ structures, whether using RMC prepared at site or using RMC brought through mixer/stirrer trucks, are covered by Construction Services falling under Item No,9824.0000 to the Second Schedule of the Sindh Sales Tax on Services Act, 2011, which is liable to Sindh Sales Tax at the applicable rates on the gross value thereof.
16. The Respondent No,3 was accordingly apprised of the fact that in view of the foregoing submissions and discussions, it is an unambiguously established fact that Ready Mix Concrete
(RMC) is neither a manufactured product/article/goods nor covered by the definition of GOODS as defined under section 2(12) of the Sales Tax Act, 1990, and as such is not liable to the levy of sales tax under the Act, ibid.
17. Although the Respondent No,3 was apprised of all the legally substantiated facts over the issue, but surprisingly the Respondent No,3 not taking into consideration the facts narrated by Appellant and just determining the liability on the basis of Income Tax records and presumption passed impugned Order dated:12.06.2014, thereby ordering the recovery of liability of Sales Tax, along with default surcharge besides imposition and recovery of penalty also.
18. That the action of Respondent No,3 of passing Order dated:12.06.2014 on the basis of Income Tax Return, is contrary to the judgments of Superior Courts wherein it has been held that "The income tax information has to be used to determine the correctness of information furnished by a registered person in the sales tax return and it has not to be used for the purpose of calculation of sales tax liability against the registered person" (referred case law: Messrs-Siddique-Enterprises-v.
Commissioner (Appeals) 2013 PTD (Trib.) 2130 and various other decisions referred thereto). As such above said impugned Order dated:12.06.2014 is against the said binding judgments of Superior Courts.
19. The Respondent No,3 has erred in terming the RMC as Taxable, Supply in the entire impugned Order dated:12.06.2014, without determining the classification of the same under appropriate heading of HCD&CS/ Nomenclature/PCT read with Note-2 of the Sixth. Schedule to The Sales Tax Act, 1990. He has also erred in referring thereto the Sales of Goods Act, 1930, which is not relevant, since specific definition of GOODS exists under section 2(12) of The Sales Tax Act, 1990. Moreover, Sales of Goods Act, 1930, is referred in case there arises any dispute/ conflict in relation to sales of goods, which is resolved in the manner and according to the terms, conditions and procedure as envisaged therein. However, in the interest of natural justice for the purpose to get extensive explanation for appropriate conclusion thereof, The General Clauses Act, 1897 is to be referred. In order to get explanation/definition of Immovable property and moveable property, the definitions as envisaged under sections 3(25) and (34) of the General Clauses Act, 1897, are very clear, and accordingly when the product RMC without becoming an independent product (i,e, capable of being weighed, scaled, stored), through a continued process is poured/ placed in an un-set form into the required constructing structure of the building, where it become an integral part of the building structure which is attached to earth and as such always been an immovable property, thus not-covered by the definition of GOODS as defined under section 2(12) of the Act, ibid, thus not liable to the levy of Sales. Tax. It is pertinent to note that in case of any mis-timings or delay in pouring the RMC into the required building structure, it becomes hardened and of no use i,e, wastage, and accordingly also not saleable.
20. The Respondent No,3 has erred in mis-interpretation of and citing only the portion of his choice in Sheikhoo Sugar Mills Limited v. Government of Pakistan (2001 SCMR 1376 = 2001 PTD 2097 (which spell out the statutory provision as was envisaged at the time prior to amendment through Finance Act, 2008). Whereas, it has to be perused conjunctively in detail, wherein going onwards it reveals that it has also been hold therein that "Definition Clause of Taxable Activity i,e, section 2(35) has used the words, means and includes, but simultaneously other impressions used in this clause as well as in clause 2(41) have to be takerinto consideration broadly to the objects for which Act has been promulgated". As such portion of the judgment as quoted in the impugned Order dated:12.06.2014 passed by Respondent No, 1, does not serve the purpose, besides said improper- citation by Respondent No,1 is also contrary to the Board's clarification issued in context to the definition of "Taxable Activity" as defined under Section 2(35) of the Sales Tax Act, 1990, vide C.No,3(62)STP/97-PT.2 dated: 05.06.98 (Copy attached as Annexure-G), wherein the Board has clarified that a registered person may be involved in an economic activity which is not taxable under Sales Tax Aet, 1990. Those supplies cannot be subject to Sales Tax only because he is a registered person. As such firstly it is essential to ascertain whether RMC falls under the definition of GOODS as envisaged under Section 2(12) of the Sales Tax Act, 1990. In case of affirmation thereto, only then determining the classification of the same under HCD&CS/Nomenclature/PC7readwith Note-2 of the Sixth Schedule to The Sales Tax Act, 1990 is essentially required to levy the sales tax or otherwise, which the Respondent No,1 in his impugned order has nowhere ascertained or discussed or determined the classification of RMC.
21. The clarification issued by FBR vide C.No,1(5)FEB/2005 (Pt)/ 62633-R dated:24.04.2014 under the signatures. Of Mr.Zulfigar Hussain Khan, Chief (ST&FE-Policy) addressed to Chief Commissioner, IR, Lahore with CC to all Chief Commissioners RTOs/LTUs, has been taken to be basis of passing out the said impugned Order by the Respondent No,1. The said clarification specifically focuses the exemption as were available under Entry S.No,35 of the Sixth Schedule to the Sales Tax Act, 1990, to "cement blocks"," building blocks of cement including ready mix concrete blocks"; whereas it is quiet in relation to determine the classification of Ready mix Concrete (RMC) under HCD&CS/ Nomenclature/PCT read with Note-2 of the Sixth Schedule to The Sales Tax. Act, 1990. Further that suddenly in an un-usual manner in the last line it says that legally speaking no exemption to ready mix concrete was ever available. As such Respondent No,1 has erred in passing impugned Order on the basis of said un-clear clarification by ignoring all the other clarifications issued by the Board, and judgments passed and rulings set-out by Superior Courts of Law including Honorable Supreme Court of Pakistan, as referred to in the reply made our AR.
22. That from above it is crystal clear that the Respondent No,3 failed to establish that the RMC is taxable goods, which is contrary to the judgments passed by the Honorable HighCourts of Islamabad (Abbassi Enterprises v. Collector of Sales Tax Peshawar) 2008 PTD 2025 and Karachi (Collector ST&FE v. Messrs Abbott Laboratories) (2010 PTD 592) wherein the burden of proof has been held upon the Department to establish that the subjected item is liable to the levy of tax.
23. The Respondent No,3 has also erred in not taking into consideration the under mentioned judgments, referred to in the reply of Appellant's AR, of the Honorable Superior Courts of law, wherein even the articles of RMC (girders, slabs, railings, posts etc.) pre-fabricated at the construction site for use in construction of flyovers/bridges have been held not liable to sales tax in pursuance of the definitions of GOODS under section 2(12) of the Sales Tax Act, 1990 and Taxable Activity under section 2(35) of the Act, ibid. It has also been held therein (Usmani Associates v. CBR) that "in case the Petitioner could have created at the intermediary stage an independent marketable product which could be sold in the market and therefore, he would be liable to be registered and to pay sales tax": Here it is pertinent to record that RMC without becoming an independent product (i,e, capable of being weighed, scaled, stored), brought in un-set form from central batching plant usually in tank mixers/stirrers mounted on the transit trucks under a continuous process of stirring/batching, at the construction site where the same is poured/placed into the required constructing structure of the building and becomes an integral part of the building structure which is attached to earth and as such always been an immovable property, thus not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid, thus not liable to the levy of Sales Tax: a Messrs Usmani Associates v. CBR and others 2001 PTD 2982 b. Messrs Sarwar and Co. v. Collector ST Multan 2006 PTD 162
24. The Respondent No,3 was also apprised of the fact that since the show-cause notice relates to RMC, which is not taxable, as explained above. Thus there is no mala fide intention on the part of Appellant to conceal the revenue, such the imposition of penalty in impugned ORDER dated:12.06.2014 is not only harsh but also oppressive. It was added that there are several judgments/decisions passed by the Honorable Superior Courts are on record where under the taxpayer, if not acted malafidely with the intention to evade the tax, then the additional tax/ default surcharge and imposition of penalty has been held not justified and, therefore, quashed/ remitted, implementation of which in the instant case is also attracted.
25. That in pursuance of various several judgments passed by Superior Honorable Forums, few are quoted below, the recovery and imposition of penalty as has been ordered in the impugned ORDER dated:12.06.2014 No,03 of 2013 is not only unjustified, but also contrary to these judgments: Messrs D. G. Khan Cement v. Federation of Pakistan etc. 2004 SCMR 456 = 2004 PTD 1179 Messrs New Greens Hotel v. Deputy Collector (Adjudication) CE & ST 2003 PTD (Trib.) 1473 Messrs Shahmurad Sugar Mills v. Collector CE & ST 2009 PTD (Trib.) 476.
26. That since the levy, collection and payment of sales tax is based on value-added system, thus the Respondent No,3 has also erred in not providing the statutory right of the Appellant to avail the admissibility of input tax against the output tax liability adjudged through impugned Order dated:12.06.2014 and accordingly has also over-ruled the principles of natural justice.
27. Respondent No,1 has again erred in not ordering/allowing the statutory right of Appellant as envisaged under the provisions of Section 65 of the Sales Tax Act, 1990, since as a general practice during the impugned period no sales tax has been charged/paid in any area on RMC.
The said Show-Cause Notice and Orders passed by the Respondents Nos. 1 and 3, are defective, incomplete as it contained un-printed charges as mentioned from its para (5) at page (19), 'without necessary evidence. The Show-Cause Notice is this "ab-initio void" at that Show-Cause Notice have no legal validity and the charges are framed in this notice are also without jurisdiction and lawful authority and no legal effect. The reliance is placed 1996 SCMR 153.
28. That Respondent No,3 has again erred in passing the impugned Order dated:22.12.2014, since anything (RMC in the instant case) cannot be taxed only because it does not find mentioned in the Sixth, Schedule to the Sales Tax Act, 1990 and that too without determining whether that said thing (RMC in the instant case) comes under the ambit of the definition of GOODS as defined under section-2(12) or not, and also not determining the classification of the same under HCD&CS/Nomenclature/PCT read with Note-2 of the Sixth Schedule to The Sales Tax Act, 1990, besides also not determining whether or not, they said thing (RMC in the instant case) is a manufactured product in pursuance of Sales Tax Circular No,01 of 1988.
29. That on the test of judicial scrutiny the Respondent No,3 failed to understand the facts of the case, by not paying any heed to the submissions made before him and arguments advanced by the AR of Appellant at the time of hearing and accordingly passed the impugned Order dated:22.12.2014 without any legal justification. He also erred in passing said Order dated 22.12.2014 by ignoring the legal facts of the issue, the binding judgments passed by the Superior Courts of Law including Honorable Supreme Court of Pakistan and binding circulated instructions of the Board issued on the basis of rulings set-out through binding judgments passed by the Superior Courts of Law including Honorable Supreme Court of Pakistan.
30. That the whole exercise, as stated above, was conducted by the. Respondent No,1 with a pre-set mind and thus is illegal, ultra-virus and is also not based on the proper appreciation either of the facts of the case or of the law on the subject.
31. That the Appellant craves permission to add and/or alter or amend and/or plead additional grounds to above submissions at any time or at the time of hearing or thereafter.
32. The most important factor of this matter is that without determining the classification of anything under HCD&CS/ Nomenclature/PCT (RMC in the instant case), as essentially required in pursuance of Note-2 of the Sixth Schedule to The Sales Tax Act, 1990, anything (RMC in the instant case) cannot be taxed only because it does not find mentioned in the Sixth Schedule to the Act, ibid; and it (RMC in the instant case) cannot be taxed keeping in view that by pouring in the beams/roofs/pillars/building structure etc. The same becomes an integral part of immovable property which does not come under the ambit of the definition of GOODS as defined under section-2(12) of the Act,1990; and it (RMC in the instant case) cannot be taxed in pursuance of the decision of Honorable High Court of Lahore in W.P. No,500 of 1975 (Sheikh Fazal Ellahi Ltd. v.
Federation of Pakistan) 1988 MLD 524 which has been upheld by the Honorable Supreme Court of Pakistan in W.P.561 of 1978, 1988 SCMR 2103 read with Sales Tax Circular No,01 of 1988, since the same (RMC) is an intermediary/semi- finished thing and not a manufactured product in marketable/supply condition and cannot be marketed or supplied in the same state condition; and c. It (RMC in the instant case) cannot, be taxed in pursuance of Board's clarification in context to the definition of "Taxable Activity" as defined under Section-2(35) of the Sales Tax Act, 1990, issued vide C.No,3(62)STP/97-PT.2 dated:05.06.98, wherein the Board has clarified thata registered person may be involved in an economic activity which is not taxable under Sales Tax Act, 1990.
Those supplies cannot be subject to Sales Tax only because he is a registered person; and it (RMC in the instant case) cannot be taxed in pursuance of Board's clarification issued vide C. No, 1(5)FEB/2005(Pt)/ 62633-R dated:24.04.2014, since the same has been issued without any lawful authority or legal footings, thus cannot and also does not over rule the Board's legally substantiated clarification issued earlier in this context vide C.No,3(15)STL&P/99 (Pt)/ 133626-R dated:20.08.2009.
Ld. AR of the appellant placed his further argument before us, which are also reproduced here as under:-
1. That a Show-Cause Notice under section 11(2) of the Sales Tax Act, 1990, issued vide C. No, IR/AUDIT-04/ST/2013-14/4531 dated 17-05-2014, was served upon the Appellant, after the period of 5 years, why the Respondent are waiting compilation of 5 years. No Show-Cause Notice was served upon under section 36(2) of the Act; the said Section was omitted. On 30-06-2012, in which the. Limitation of 3 years has been provided, List of Judgments of Hon, able Supreme Court of Pakistan and High Court of in the issue of time- barred is placed on as under:--
(i) Messrs Dewan Cement Ltd v. Collector of Customs, 2009 SCMR 1126 (SC)
(ii) The Collector of Customs v. K&A Industries, 2006 PTD 537
(iii) Messrs XEN Shahpur Division v. Collector of Sales Tax, 2008 PTD 1973 (SC)
No opportunity of hearings was provided by the Respondent-I and violating the ruling of Hon'ble Supreme Court of Pakistan titled, Babar Hussain Shah v. Mujeeb Ahmed Khan reported 2012 SCMR 1235, PLD 2014 SC 232, which are read as under:--
2. Although from the very inception the concept of fair trial and due process has always been the golden principles of administration of justice but after incorporation of Article 10-A, in the Constitution of Islamic Republic of Pakistan, 1973 vide 18th Amendment,, it has become more important that due process should be adopted for conducting a fair trial and order passed in violation of due process may be considered to be void'.
3. That the impugned Order-in-Appeal dated 22-12-2014, passed by the Respondent-I, is beyond the prescribed maximum time-limit of 120 days under the 2nd proviso of subsection (2) of Section 45-B of the Sales Tax Act, 1990, more over the learned respondent, has neither fixed any extended period, nor has in the instance case recorded any reason for passing of order after 60 days. Even if the Respondent-I, has fixed may extended period, the respondent being passed the ORDER after laps of 120-Days would have become time-barred. Appeal was filed on 03-07-2014, whereas the order was passed on 22-12-2014. Reliance has been placed on:-
(i) Hon'ble Appellate Tribunal, Lahore-Bench vide STA # 436/LB/ 2012, in the case Messrs Taj Packages, Lahore v. The CIR (Appeals-II), Lahore has accepted the appeal on the ground that Order was passed beyond the limitation of 120 days under section 45-B of the Sales Tax Act, 1990, by the CIR-Appeal, Lahore, the findings are recorded as under:- "6. We have heard the learned representative from both sides and perused the impugned orders of the officers below, the case law and provisions of law referred and the available record of the case.
We have observed that in the case decided by the Tribunal in S.T.A. No, 290/LB/2010, it was held that from perusal of subsection (2) of Section 45-B of the Sales Tax Act, 1990, it transpires that the appeal in this case was to be disposed by the Commissioner within 120 days from the date of its institution, whereas the appeal in the present case has been decided after a lapse of almost 197 days from the date of issue of Order-in-Original 07/2011 dated 07-08-2011. The prescribed period of 120 days stood expired and no evidence tc the effect that the CIR(A) himself extended the limitation before the expiry of prescribed limitation. Was placed before us by the learned DR. Be that as it may hit by limitation of 120-days"
"As the impugned orders being passed after the lapse of statutory period has been held to be without jurisdiction, the remaining issues do not need to be dealt with as per the principles laid down in the case of Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and others 2001 SCMR 838 Ready mix Concrete (RMC) is an essential building material used in construction work is the composition in dry form comprising of Gravel, Sand and Cement, whereas the water is added just before the operation of pouring or placing it at construction site, for very limited time of 45 minutes only. This means that within 45 minutes RMC, is to be shifted into transit truck having stirrer/mixture tank mounted over it. Here it is also pertinent to record here that in case of any mis-timings or delay, as stated above, of pouring in any structure this said RMC becomes hardened and of no-use at all i,e, wastage and not saleable or marketable i,e, its supply and transaction thereof is matured only after RMC is poured or placed in the required structure, where it becomes a part of said immovable property and thus not comes under the definition of GOODS as defined under Section 2(12) of the Sales Tax Act, 1990.
5. That many other Companies in Pakistan engaged in the business of RMC are not paying sales tax on RMC being not taxable. Since-throughout the Pakistan no sales tax has been paid on RMC, as such the Appellant is entitled for grant of benefit under Section, 65 of the Sales Tax Act, 1990, The Hon'ble Supreme Court of Pakistan, in the identical case Messrs Caltex Oil (Pakistan) Ltd. v.
Collector CE &ST reported as 2005 PTD 480 has ruled that the question relating to the entitlement of petitioner for grant of benefit under section 65 of the Sales Tax Act, 1990 was kept open by the Tribunal and also by the High Court for decision by the departmental authorities in their discretion without realizing that said authorities by holding the petition guilty the grant of such benefit therefore, both the Tribunal and the High Court having not determined this question failed to exercise the jurisdiction, the para 8H of the judgment is reproduced here:- "The perusal of record would show that the Collector concerned initiated the process of issuing show-case notice raising the presumption that petitioner was responsible for evasion of sales tax, therefore, no useful purpose would be served in undertaking the exercise of approaching the Collector for grant of benefit of Section 65 of Sales Tax Act, 1990. In the light of facts and circumstances of the case and the observation of the Tribunal and also of the High Court on the question, it would be essential for the Tribunal to examine the scope of Section 65 ibid, and give clear verdict in the matter. It is correct that Federal Government is competent to exempt the sales tax in a case which is covered by the provisions of Section 65 of the Sales Tax Aa, 1990 but the question regarding the entitlement of the benefit of said section would need determination by an independent forum and we are of the view that the Tribunal having not attended the above fundamental question, has failed to exercise the jurisdiction vested in it and further the High Court while affirming the judgment of Tribunal, also committed the same error. We, therefore, without commenting on the merits of the case in either way, lest it may not prejudice the case of either party, are inclined to remand the case to the Customs, Excise and Sales Tax Appellate Tribunal, Karachi for decision of the following questions:-
(a) Whether the sales tax was included in the price of the products fixed by the Federal Government or it was required to be charged separately on the supplies?
(b) Whether the notice was issued in accordance with law or not and if it was not issued as per requirement of law and was vague,. . What would be the effect?; and
(c) Whether in the given facts and circumstances of the case, the provisions of Section .65 of the Sales Tax Act, 1990, would be in lockable or not?
It is also pertinent to record here that determining the classification of anything under Harmonized Commodity Description and Coding System (hereinafter referred to as II,CD&CS/Nomenclature/PCT) is essentially required for the levy of Sales Tax or otherwise in pursuance of Note-2 of the Sixth Schedule to The Sales Tax Act, 1990. Accordingly the General Rules for the interpretation of the Harmonized System the classification of Goods in Nomenclature are to be governed by the Principles set out therein. The HCD&CS/Nomenclature/PCT sets out a systematic form of the Goods handled in International Trade. RMC is consumed for the manufacturing of Articles/ Goods like RMC Blocks, Slabs, Pre-fabricated Structural Components for Buildings, Pillars, Beams, Posts, Girders, Railings, Stair Treads, etc., which are pre-tasted or prefabricated in re-usable molds. These Articles/Goods (not the RMC itself) fall under Heading No,68.10 of Harmonized Commodity Description and Coding System (HCD&CS/ Nomenclature/PCT)
(copy already provided aw memo of appeal as Annexure-E). It is important to note that a perusal of the main Heading 68.10 reveals that it covers Articles of Cement, of Concrete or of artificial stone and nowhere it speaks of coverage of RMC therein. Here it is pertinent to inform you that after pre- casting/pre-fabricating, these articles are specially cared and kept in a controlled environment and then transported to construction site for placing in its position. It is also pertinent to inform you that in Harmonized Commodity Description and Coding System/Nomenclature there is no product/goods exist/specified as RMC. The Appellant is not engaged in the manufacturing or pre fabricating or pre-casting in re-usable molds, any of the articles/goods of Cement or Concrete or RMC as covered and specified under above stated HCDCS/Nomenclature Heading 68.10. Such type of RMC consumption is made by the persons engaged in the manufacturing and supply of above said articles of RMC.
7. The Respondent No,3 was also informed that all the RMC used Articles/Goods like RMC Blocks, Slabs, Pre-fabricated Structural Components for Buildings, Pillars, Beams, Posts, Girders, Railings, Stair Treads, etc., which are pre-casted or pre-fabricated in re-usable molds (not the RMC itself), fall under Heading No,68.10 of Harmonized Commodity Description and Coding System (HCD&CS/Nomenclature/PCT). Since these RMC-used Articles/Goods are manufactured at some other place and brought to the construction site for placing at its required place in constructing structure of the building, as such these RMC-used Articles/Goods (but not the RMC itself) are capable of being weighed, scaled, stored and shifted, and are moveable in nature and accordingly fall under the definition of GOODS as envisaged under section-2(12) of the Sales Tax Act, 1990, and thus liable to the levy of Sales Tax under section 3 thereof.
8. The Respondent No,3 has erred in terming the RMC as Taxable Supply in the entire impugned Order dated: 12.06.2014, without determining the classification of the same under appropriate heading of HCD&CS/ Nomenclature/PCT read with Note-2 of the Sixth Schedule to The Sales Tax Act, 1990. He has also erred in referring thereto the Sales of Goods Act, 1930, which is not relevant, since specific definition of GOODS exists under section 2(12) of The Sales Tax Act, 1990. Moreover, Sales of Goods Act, 1930, is referred in case there arises any dispute/conflict in relation to sales of goods, which is resolved in the manner and according to the terms, conditions and procedure as envisaged therein. However, in the interest of natural justice for the purpose to get extensive explanation for appropriate conclusion thereof, The General Clauses Act, 1897 is to be referred. In order to get explanation/definition of Immovable property and moveable property, the definitions as envisaged under section 3(25) and (34) of the General Clauses Act, 1897, are very clear, and accordingly when the product RMC without becoming an independent product (i,e, capable of being weighed, scaled, stored), through a continued process is poured/placed in an un-set form into the, required constructing structure of the building, where it becomes an integral part of the building structure which is attached to earth and as such always been an immovable property, thus not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid, thus not liable to the levy of Sales Tax. It is pertinent to note that in case of any mis-timings or delay in pouring the RMC into the required building structure, it becomes hardened and of no use i,e, wastage, and accordingly also not saleable.
9. The Respondent No,1 has as erred in finis-interpretation of and citing only the portion of his choice in Sheikhoo Sugar Mills Limited v. Government of Pakistan (2001 SCMR 1376 = 2001 PTD 2097), which is only a plain reading of the statutory provisions of Section 2(35) as was existent prior to amendment through Finance Act, 2008. Whereas, it has to be perused conjunctively in detail with onward ruling of the Apex Court in para-8B of the judgment, ibid, wherein it has been held therein that "Definition Clause of Taxable Activity i,e, section 2(35) has used the words, means and includes, but simultaneously other impressions used in this clause as well as in clause 2(41) have to be taken into consideration broadly to the objects for which Act has been promulgated".
Accordingly keeping in view that since the Sales Tax Act,1990, has been promulgated for the levy and collection of sales tax on GOODS liable to sales tax and not on the GOODS not liable to sales tax and anything which is not covered by the definition of GOODS as envisaged under Section 2(12) of the Act, ibid. A perusal of said judgment (para-9 thereto specifically referred) reveals that the Apex Court has ruled out that during the process of manufacture anything obtained if identifiable and marketable then sales tax is attracted on the same, whereas in the instant case RMC is neither independently identifiable nor capable of being weighed, scaled, stored and also not marketable, since its supply/sale and transaction thereof is matured only when it is poured/placed appropriately in the required structure of building, where it becomes an integral part of the immovable property and not covered by the definition of the GOODS in the Act, ibid, as stated above. As such portion of the above said Apex Court judgment as quoted in the impugned Order dated:12.06.2014 passed by Respondent No,1, does not serve the purpose, besides said improper- citation by Respondent No,1 is also contrary to the Board's clarification issued in context to the definition of "Taxable. Activity" as defined under Section 2(35) of the Sales Tax Act, 1990, vide C.No,3(62)STP/97-PT.2 dated:05.06.98 (Copy already provided with the memo of appeal as Annexure-G), wherein the Board has clarified that a registered person may be involved in an economic activity which is not taxable under Sales Tax Act, 1990. Those supplies cannot be subject to Sales Tax only because he is a registered person. As such firstly it is essential to ascertain whether RMC falls under the definition of GOODS as envisaged under Section-2(12) of the Sales Tax Act, 1990. In case of affirmation thereto, only then determining the classification of the same under HCD&CS/Nomenclature/PCT read with Note-2 of the Sixth Schedule to The Sales Tax Act, 1990 is essentially required to levy the sales tax or otherwise, which the Respondent No,1 in his impugned order has nowhere ascertained or discussed or determined the classification of RMC.
10. It is added that a perusal of said judgment (Para-9 thereto specifically referred) reveals that the Apex Court has ruled out that during the process of manufacture anything obtained if identifiable and marketable then sales tax is attracted on the same, whereas in the instant case RMC is neither independently identifiable nor capable of being weighed, scaled, stored and also not marketable, since its supply/sale and transaction thereof is matured only when it is poured/placed appropriately in the required structure of building, where it becomes an integral part of the immovable property and to covered by the definition of the GOODS in the Act, ibid, as stated above. As such portion of the above said Apex Court judgment as quoted in the impugned Order dated: 12-06-2014 passed by Respondent No, 1, does not serve the purpose, besides said improper- citation by respondent No, I is also contrary to the Board's clarification issued in context to the definition of "Taxable Activity" as defined under Section-2(35) of the Sales Tax Act, vide C.No,3(62)STP/97-PT.2 dated 05-06-98 (Copy already provided with the memo of appeal as Annexure-G), where the Board has clarified that a registered person may be involved in an economic activity which is not taxable under Sales Tax Act, 1990. Those supplies cannot subject of Sales Tax only because he is a registered person, As such firstly it is essential to ascertain whether RMC falls under the definition of GOODS as envisaged under Section 2(12) of the Sales Tax Act, 1990.
In case of affirmation thereto, only then determining the classification of the same under HCD&CS/ Nomenclature/PCT read with Note-2 of the Sixth Schedule to The Sales Tax Act, 1990 is essentially required to levy the sales tax or otherwise, which the Respondent No,1 in his impugned order has nowhere ascertained or discussed or determined the classification of RMC.
11. The clarification issued by FBR vide C.No,1(5)FEB/2005(Pt)/62633-R dated:24.04.2014 under the signatures of Mr. Zulfiqar Hussain Khan, Chief (ST&FE-Policy) addressed to Chief Commissioner, IR, Lahore with CC to all Chief Commissioners RTOs/LTUs, has been taken to be basis of passing out the said impugned Order by the Respondent No,
1. The said clarification specifically focuses the exemption as were available under Entry S.No,35 of the Sixth Schedule to the Sales Tax Act, 1990, to" cement blocks"," building blocks of cement including ready mixconcrete blocks'; whereas it is quiet in relation to determine the classification of Ready mix Concrete (RMC) under HCD&CS/ Nomenclature/PCT read with Note-2 of the Sixth Schedule to The Sales Tax Act, 1990. Further that suddenly in an un-usual manner in the last line it says that legally speaking no exemption to ready mix concrete was ever available. RMC in the instant case cannot be taxed in pursuance of Boards said clarification, which has been issued without any lawful authority or legal footings, thus cannot and also does not over rule the Board sealer legally substantiated clarification in this context issued vide C.No,3(15)ST-L&P/99 (Pt)/33626-R dated: 20.08.2009, wherein it has been clarified that SINCE RMC BECOMES PART OF IMMOVABLE PROPERTY AND FALLS OUTSIDE THE DEFINITION OF GOODS IN TERMS OF CLAUSES (12) AND (39) OF SECTION 2 OF THE ACT, THE SAME IS NOT LIABLE TO SALES TAX. As such Respondent No,1 has erred in passing impugned Order on the basis of said un-dear clarification by ignoring all the other clarifications issued by the Board, and judgments passed and rulings set-out by Superior Courts of Law including Honorable Supreme Court of Pakistan, as referred to in the reply made by the Appellant. More over.
12. That from above it is crystal clear that the Respondent No,1 failed to establish that the RMC is taxable goods, which is contrary to the judgments passed by the Honorable High Courts of Islamabad (Abbassi Enterprises v. Collector of Sales Tax Peshawar) (2008 PTD 2025) (H. C.
Islamabad) and Karachi (Collector ST&FE v. M/s. Abbott Laboratories) (2010 PTD 592) (H. C.
Karachi) wherein the burden of proof has been held upon the Department to establish that the subjected item is liable to the levy of tax.
13. The Respondent No,1 has also erred in not taking into consideration the under mentioned judgments, referred to in the reply of Appellant's AR, of the Honorable Superior Courts of law, wherein even the articles of RMC (girders, slabs, railings, posts etc.) pre-fabricated at the construction site for use in construction of flyovers/bridges have been held not liable to sales tax in pursuance of the definitions of GOODS under section 2(12) of the Sales Tax Act, 1990 and Taxable Activity under section 2(35) of the Act, ibid. It has also been held therein (Usmani Associates v. CBR) that "in case the Petitioner could have created at the intermediary stage an independent marketable product which could be sold in the market and therefore, he would be liable to be registered and to pay sales tax". Here it is pertinent to record that RMC without becoming an independent product (i,e, capable of being weighed, scaled, stored), brought in unset form central batching plant usually in tank mixers/stirrers mounted on the transit trucks under a continuous process of stirring/batching, at the construction site where the same is poured/placed into the required constructing structure of the building and becomes an integral part of the building structure which is attached to earth and as such always been an immovable property, thus not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid, thus not liable to the levy of Sales Tax:-- a. Messrs Usmani Associates v. CBR and other 2001 PTD 2982 and b. Messrs Sarwar and Co: v.
Collector ST Multan 2006 PTD 162
14. In addition to above the most important factor of this matter is that without determining the classification of anything under HCD&CS/Nomenclature/PCT (RMC in the instant case), as essentially required in pursuance of Note-2 of the Sixth Schedule to The Sales Tax Act, 1990, anything (RMC in the instant case) cannot be taxed only because it does not find mentioned in the Sixth Schedule to the Act, ibid; and a. It (RMC in the instant case) cannot be taxed keeping in view that by pouring in the beams/roofs/pillars/building structure etc. The same becomes an integral part of immovable property which does not come under the ambit of the definition of GOODS as defined under section-2(12) of the Act,1990; and b. It (RMC in the instant case) cannot be taxed in pursuance of the decision of Honorable High Court of Lahore in W.P. No,500 of 1975 (Sheikh Fazal Ellahi Ltd.; v. Federation of Pakistan) 1988 MLD 524 which has been upheld by the Honorable Supreme Court of Pakistan in W.P. 567 of 1978 (1988 SCMR 2103) read with Sales Tax Circular No,01 of 1988, since the same (RMC) is an intermediary/semi-finished thing and not a manufactured product in 'marketable/supply condition and cannot be marketed or supplied in the same state condition; and Ld. DR while arguing on behalf of the respondent department, reiterated the facts embodied in two orders below. Ld. DR while defending the orders contended that both the orders below are legally just and correct. Ld. DR contended that the appellant's argument that its product is not an independent manufactured product as it could not be weighed, scaled and stored, hence not falling within purview of goods or it is not taxable goods; does not carry any weight. Ld. DR contended that the appellant's product very much falls within the definition of goods because it is manufactured at certain given ratio or formula and supplied to the clients in accordance with certain quantity and revenues are collected accordingly. It is vendible, marketable and capable of selling to clients on demand. Ld. DR read over the provisions of Sections 3, 2(25), 2(35) and 2(41) of The Sales Tax Act, 1990 and so also referred to the Sixth Schedule thereof. Ld. DR also referred to the FBR's clarification issued on 24.04.2014 (available on record). Ld. DR in this context contended that the appellant is a Registered Person and Section 2(35) defines that taxable activity means any economic activity carried on by a person whether or not for profit, and includes an activity carried on in the form of a business, trade or manufacture and an activity that involves the supply of goods. Per Ld. DR, Section 2(41) stipulates the definition of 'Taxable Supplywhich means a supply of taxable goods made by the persons as specified therein, other than a supply of goods exempt under Section 13. The Sixth Schedule to the Sales Tax Act, 1990 contains the list of goods which are exempt from the levy of Sales Tax thereon their import and supply and there is no mention of appellant's product. FBR letter dated 24.04.2014 specifically focuses the exemption as were available prior to amendment through Finance Act, 2011, under Entry at S.No,35 of the Sixth Schedule to the Sales Tax Act, 1990, to "cement blocks", "building blocks of cement including ready mix concrete blocks", whereas it is quiet immaterial to determine the classification of Ready mix Concrete (RMC) under HS Code/PCT while reading Note-2 of the Sixth Schedule to the Sales Tax Act, 1990. In the last line of said letter it is said that legally speaking no exemption to ready mix concrete was ever available. It is further clarified and directed therein that the instructions issued thereto are for guidance with the request to proceed further in the matter as per Law. Ld. DR also placed reliance upon case Law reported as Sheikhoo Sugar Mills Limited v. Government of Pakistan 2001 PTD 2097 = 2001 SCMR 1376 wherein definition under section 2(35) Taxable Activity has been discussed. Ld. DR contended that as the appellant is a Registered Person and RMC is not included in the VIth Schedule to the .Sales Tax Act, 1990, therefore, the appellant has been rightly held liable to levy and pay Sales Tax on RMC and the appellant has intentionally committed tax fraud and has evaded the tax and caused substantial loss to the revenue. The appeal of the appellant is liable to be dismissed as being devoid of merit.
4. We have given anxious thought to the above stated facts, submissions and arguments advanced by both parties and have also perused the available record and relevant law. Basically the issue is a matter of fact relating to the levy of sales tax or otherwise on Ready mix Concrete
(RMC) which in terms of GOODS, is not found classified anywhere under the Harmonized Commodity Description and Coding System (HS Code) and the Pakistan Customs Tariff (PCT) based on the said HS Code. In our humble opinion we can sum up the above facts, the proceedings and the arguments of parties; in fewer simple and concrete points. Mr. Shafqat M.
Sagar Advocate of the appellant during his arguments on 19-03-2015, mainly emphasized on the following points:-- 1) That the treatment meted out to the appellant vide order-in-original and impugned order dated 22-12-2014, is arbitrary, oppressive, without any justification and is not based on the proper appreciation either of the facts or of issue in taw on the subject.
2) That the order-in-original and impugned order dated 22-12-2014, are also against the good conscience, natural justice, fair play and against the laws of equity.
3) That the impugned Order dated 22-12-2014, has been passed without opportunity of being heard as on the date of hearing i,e, 22-12-2014, the appellant has requested for an adjournment vide its letter dated 22-12-2014, the Order-in-Appeal is silent about such letter of adjournment and without giving any reason the Order-in-Appeal has been passed which is against the principle of "Audi Alteram Parterm": It violates the fundamental principles of Natural justice as laid down by the Superior Courts.
4) That the Order passed by Ld. CIR (Appeals-V). Karachi, is based on presumption/legal fiction and without considering relevant law point, necessary evidence, and product's nature, and performance.
5) That the impugned Order dated 22-12-2014, is beyond the prescribed maximum time-limit of 120 days under 2nd Proviso of subsection (2) of Section 45-B of the Sales Tax Act, 1990, more over Ld.
CIR (A) has neither fixed any extended period nor has in the instance case recorded any reason for processing of order after 60 days. Even if the learned Commissioner-IR (Appeals-V), Karachi, has fixed may extended period the Order-in-Appeals being passed after laps of 120 days would have become time-barred.
6) That the Appellant is registered under Sales Tax Act, 1990, as an Importer having STRN: 1750681001555 and engaged in providing Ready Mix Concrete (RMC) which is non-taxable matter.
But in the Show-Cause Notice under section 11(2) of the Sales Tax Act, 1990, vide C. No, IR/AUDIT- 04/ST/2013-14/4531 dated 17.05.2014, on the instant issue it was intimated that the same has been issued during the scrutiny of the Income Tax data available with the department.
7) That the Show-Cause Notice under section 11(2) of the Sales Tax Act, 1990, issued vide C. No, IR/AUDIT-04/ST/2013-14/4531 dated 17.05.2014, on the instant issue is based on assumption, surmises, besides totally misconceived as well, resultantly the Appellant has been leveled with a baseless and un-lawful charge for non-payment of Sales Tax on RMC, which is non-taxable.
Besides, the figures relating to the tax period 2013 taken from IT returns of the appellant are also not correct and have been mentioned as Rs,582,108,017/- instead of Rs,532,108,017/- therein.
8) That the show-cause notice has been issued under section 11(2) of the Sales Tax Act, 1990, relating to default period from July 2008. Whereas, under the provisions of Section 11(5) thereof, a show-cause notice under section 11 can only be served within five years from the relevant date of default. As such said notice for its being related to cut off date i,e, the period prior to May 2009 is illegal as barred by time.
9) That the order-in-original is illegal and unilateral as being silent upon many factual, legal and logical points raised by the appellant through its AR's replies dated 09.06.2014 and 11.06.2014, as compliance to the show-cause notice.
5. Ld. AR during arguments more emphatically challenged the legality of show-cause notice thereby contending that the very show-cause notice is illegal as being in violation of law and facts.
Ld. AR contended that although present case of appellant is in no way a case of tax fraud or tax evasion, nonetheless, prior to amendment in the year 2012, the Section 11 of Sales Tax Act, 1990 was, only meant for assessm ent purposes where only the return being an assessment order was to be examined with specific purposes to ascertain the short payment of tax or question relating to refund claimed. Section 11 till then was not applicable in the cases of alleged tax fraud and alleged tax evasion. For the purposes of tax fraud or tax evasion appropriate section was 36 of Sales Tax Act, 1990 which after the amendment in the year 2012 was intermingled with the Section 11 thereby extending the scope of Section 11 for the cases of tax fraud and tax evasion. Ld. AR further submitted that Section 36 provided limitation of 3 years for taking action against the case of tax fraud and tax evasion however the section 11 provided this limitation up to the period of five years. Ld. AR contended that in view of both the sections, the show-cause notice is time barred and thus illegal ipso facto. Hon'ble Superior Courts have laid in number of cases. That any edifice built on an illegal foundation would be equally illegal how high so ever it may be.
6. For the purpose of adjudication in judicious manner, these points can further be summarized. By thorough and proper appraisal of all the points/grounds raised and mainly argued by Ld. AR on behalf of the appellant, we frame the following points for our determination in order to resolve multifarious objections of the parties:-- A) Whether the Show-Cause Notice issued to the appellant is illegal? If not then; B) Whether the product/material in question i,e, RMC is not a taxable commodity as goods/supply subject to sales tax? If not then; C) Whether the order in original is illegal and not sustainable for being in contravention of facts and law? If not then; D) Whether the impugned order passed by Ld, CIR(A) is illegal and against the principles of natural justice? If not then; E) What should the order be?
6. We firstly deal with the point No,
1. We have perused the Show-Cause Notice C.No,IR/AUDIT- 04/ST/2013-14/4531 dated May 17, 2014. The Notice is shown to have been issued under section 11(2)of the Sales Tax Act, 1990. Addressed to the appellant, it reads as under:-- "Whereas, during the scrutiny of data available in integrated Tax Management System (Income Tax and Sales Tax Returns), it has been observed that you are registered as manufacturer of Concrete ready Mix which is liable to Sales Tax under section 3 of the Sales Tax Act, 1990; while your sales tax returns reveal that you are not paying sales tax on the supplies of ready mix concrete. Reconciliation of your Sales Tax. Returns and Income Tax returns is tabulated as follows:- - S.No. Period Sales Value as Per Sales Tax ReturnSales Value as Per Income tax returnDifference Short Paid amount Recoverable 1 2009 NIL 448,358,279 448,358,279 71,737,325 2 2010 NIL 412,199,144 412,199,144 65,951,863 3 2011 NIL 315,954,807 315,954,087 53,712,317 4 2012 NIL 367,035,066 367,035,066 58,725,611 5 2013 NIL 582,108,017 582,108,017 93,137,283 2,125,655,313 2,125,655,313 343,264,398 Therefore, the amount of sales tax involved to the tune of Rs,343,264,398/- of the sales supplies not paid by you is in violation of sections 2(46), 3, 6, 22, 33, 26 and 73 of the Sales Tax Act, 1990 and same is recoverable under section 11(2) of the Sales Tax Act, 1990 along with default surcharge and penalty (to be calculated at the time of payment) under sections 34 and 33 of the Sales Tax Act, 1990 respectively.
3. Accordingly, you are called upon to show-cause notice under section 11(2) of the Sales Tax Act, 1990 as to why the amount of sales tax at Rs, 343,264,398/- calculated as above, should not be recovered from you as envisaged under sections 11, 33(13) of the Sales Tax Act, 1990 along with default surcharge and penalty under sections 34 and 33 of the Act, ibid respectively.
4. .
5. ..
We have gone through order in original passed by Ld. Deputy Commissioner-IR, Audit Unit-04, Zone-I, RTO-II, Karachi vide Order-in-Original dated 12-06-2014, in which it is concluded as under:- "Besides above, since the registered person M/s Lucky Paragon Ready mix Ltd, have evaded the sales tax amounting to Rs,331,308,177/- and violated provisions of Sections 2(46), 3,6, 7, 8, 22, 23, 26 and 73 of the Sales Tax Act, 1990, 1 order to recover amount of the Sales Tax evaded at Rs,331,308,177/- along with penalty and default surcharge in accordance with the relevant provisions of Sales Tax Act, 1990, including Sections 33 and 34 of the Act".
Perusal of impugned order shown that Ld. Commissioner Inland Revenue (Appeals-V), Karachi, who vide his Order No, 16 of 2014, dated 22-12-2014, ordered as under:-- "Keeping in view the detailed discussion in the preceding pages, I am of the opinion that the OIR has rightly treated supply of "ready-made mix" (RMC), as taxable activity under the provisions of Section 3 of the Act and no specific exemptions was admissible in the Sixth Schedule or any other specific SRO/Letter/Notification of FBR,therefore the appeal being devoid of merits is hereby rejected."
We have given anxious thought to the submissions and arguments advanced by both parties and have also perused the available record and relevant law. Basically the issue is a matter of fact relating to the levy of sales tax or otherwise on Ready mix Concrete (RMC) which in terms of GOODS, does not found classified anywhere under the Harmonized Commodity Description and Coding System (HS Code) of the World Customs Organization (WCO) and the Pakistan Customs Tariff (PCT) based on the said HS Code. As we have taken to verify the legal sanctity of the Show Cause Notice (SCN) firstly, therefore, we defer all other points of determination for the time being. In our humble opinion there are following considerable facts in the context of legal sanctity of the Show-Cause Notice in question:- A) The SCN dated 17-05-2014, under section 11(2) of S.T.A., 1990, has alleged the fraud and tax evasion on the part of registered person on account of non-levy of sales tax on the product supplied by the appellant known as Ready Mix Concrete (RMC). The SCN however, does not contain any reference to any provision of Sales Tax Act, 1990 or the item number of any Schedule attached thereto or any PCT heading reference to suggest the legal position of the taxability of the product known as RMC although the product/term is not totally alien or foreign to the legislative authorities.
The term seems to have been inserted at Serial/item No,35 in the 6th Schedule for the first time in the year 2008, thereby exempting the same under section 13(1) of the Sales Tax Act, 1990. The position of serial/ item No, 35 of the 6th Schedule is as under:-- YEAR DESCRIPTION HEADING 2006 Cement Blocks 6810.1100 2007 Building Blocks of Cement 6810.1100 2008 Building blocks of cement including ready mix concrete blocks6810.1100 2009 Building blocks of cement including ready mix concrete blocks6810.1100 2010 Building blocks of cement including ready mix concrete blocks (Proposed to be taxed under the Reformed General Sales Tax Bill, 2010)6810.1100 2011 Building blocks of cement including ready mix concrete blocks. (Serial No. 35 Omitted by FA 2011)6810.1100 2012-2014 (i) Capping Cement Nil/Empty By FB 2014 @ S.No. 108 3214,1050 YEAR DESCRIPTION HEADING 2006 Nil Nil 2007 Nil Nil 2008 Nil Nil 2009 Nil Nil 2010 Nil Nil 2011 Nil Nil 2012 to 2015 @ Sr. No.33 Cement sold in retail packing Respective heading Now let us see what is meant by fraud under Sales Tax Act, 1990. It Is defined under Section 2(37) which reads as under:- Section 2(37) "tax fraud" means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused) -
(i) doing of any act or causing to do any act; or
(ii) omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; or
(iii) Falsifying or causing falsification the sales tax invoices in contravention of duties or obligations imposed under this Act or rules or instructions issued thereunder. With the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods or overstating the entitlement to tax credit or tax refund to cause loss of tax; Section 2(39) "taxable goods" means all goods other than those which have been exempted under section 13; Section 2(41) "taxable supply" 'means a supply of taxable goods made by an importer; manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the, rate of zero per cent under section 4; Section 2(43) "tax period" means a period of one month or such other period as the Federal Government may, by notification in the official Gazette, specify; In view of the given definitions and above stated vague and uncertain situation of allegations of tax fraud or tax evasion against the appellant; it impliedly becomes clear that non-levy and non- payment of sales tax on RMC by the appellant was neither a tax fraud nor a tax evasion but to the greater extent justified due to past practice and inadvertence on the part of concerned authorities as visualized under Section 65 of the Act, 1990. The benefit of any such inadvertence is legally extendable to the taxpayer/registered person and this aspect has not been IC considered by Ld.
DCIR while issuing the subject notice.
B) When suggestively found that this is not a case of Tax Fraud or tax evasion then, there comes the question of applicability of Section 11 of the Act, 1990 in the instant case for relevant tax periods as it stood at that time. The provisions of Section 11 of the Act, 1990 however, had not been remaining the same throughout. Section 11 had undergone certain amendments during this period.
Let us see its comparative position herein below:-- As it stood applicable since 2009 till July 2012As Amended by Finance Act-2012 As Amended by Finance Act-2013 and 2014
11. Assessment of Tax.---
(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of taxz actually payable, an officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with sections 33 and 34 Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate.
(2) Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this11. Assessment of tax and recovery of tax not levied or short-levied or erroneously refunded:-
(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with section 33 and 34.
Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate.
(2) Where a person has not paid the tax due on supplies made by him or has made short payment or has11. Assessment of Tax and Recovery of Tax not levied or Short levied or erroneously refunded.
(1) Where a person who is required to file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with section 33 and 34.
Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate.
(2) Where a person has not paid the tax due on supplies made by him or Act for reasons other than those specified in subsection (1) an officer of Inland Revenue shall make an assessment of sales tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with section 33 and 34.
(3) (***)
(2) No order under this section shall be made by an officer of Inland Revenue unless a notice to show cause is given within five years to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard: Provided that order under this section shall be made within one hundred and twenty days of issuance of show-cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing , fix provided that such extended period shall in no case exceed sixty days.
Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding thirty days shall be exclude from the computation of the period specified in the first provisio. (Added vide Finance Act, 2009.
(5) Notwithstanding anything in subsection (1) where a registered person fails to file a return, an officer of Inland Revenue, not below the rank of Assistant Commissioner,claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in subsection (1), and officer of Inland Revenue shall, after a notice to show cause to such person, make and order for assessment of tax actually payble by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with section 33 and 34.
(3) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show cause for payment of the amount specified in the notice.
(4) Where by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to any the amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show cause for payment of the amount specified in the notice: Provided that, where a tax or charge has not been levided under this subsection, the amount of tax shall be recovered as tax fraction of the value of supply.
(5) No order under this section shall be made by an officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person inhas made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in subsection (1), and officer of Inland Revenue shall, after a notice to show cause to such person, make and order for assessment of tax actually payble by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with section 33 and 34.
(3) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show cause for payment of the amount specified in the notice.
(4) Where by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to any the amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show cause for payment of the amount specified in the notice: Provided that, where a tax or charge has not been levided under this subsection, the amount of tax shall be recovered as tax fraction of the value of supply.
(5) No order under this section shall be made by an officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person in shall subject to such conditions as specified by the Central Board of Revenue, determine the minimum tax liability of the registered person. default specifying the grounds on which it is grounds on which it is intended to proceed against him Tax shall take into consideration the representation made by such person and provided him with an opportunity of being heard: Provided that order under his section shall be made within one hundred and twenty days of issuance of show-cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed impiety days: Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso.
(6) Notwithstanding anything contained in subsection (1), where a registered person fails to file a return, and officer of Inland Revenue, not below the rank of Assistant Commissioner, shall subject to such conditions as specified by the Federal Board of Revenue, determine the minimum tax liability of the registered person.
(7) For the purpose of this section, the expression relevant date means-
(a) the time of payment of tax or charge as provided under section 6; and
(b) in a case where tax or charge has been erroneously refunded, the date of its refund.] default specifying the grounds on which it is grounds on which it is intended to proceed against him Tax shall take into consideration the representation made by such person and provided him with an opportunity of being heard: Provided that order under his section shall be made within one hundred and twenty days of issuance of show-cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed impiety days: Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso.
(6) Notwithstanding anything contained in subsection (1), where a registered person fails to file a return, and officer of Inland Revenue, not below the rank of Assistant Commissioner, shall subject to such conditions as specified by the Federal Board of Revenue, determine the minimum tax liability of the registered person.
(7) For the purpose of this section, the expression relevant date means-
(a) the time of payment of tax or charge as provided under section 6; and
(b) in a case where tax or charge has been erroneously refunded, the date of its refund.]
7. The SCN is issued under section 11(2) of S.T.A., 1990 on 17-05-2014 for the period from tax years 2009 to 2013 without specifying the month or quarter during July 01, 2008 to June 30, 2013. The SCN does not show as to under what provision of the appellant's product is liable to sales tax viz. Any reference to concerned Schedule or its item number or the PCT code mentioned thereat. The show-cause notice is defective, since for the recovery of sales tax relating to the period 01.07.2012 as per the law applicable at that time i,e, Section 36(2) for the purpose is not found invoked therein and instead the provisions of section 11(2) which took effect from 01.07.2012 have been made applicable for the period relating prior to statutory insertion of the same under the Act, ibid.
8. Further, the figures as mentioned in the show-cause notice were derived from the Income Tax Returns of the Appellant. The Appellant contended that this act on the part of Respondent No,2 is contrary to the Judgment passed by the Appellate Tribunal-Lahore (Messrs Siddique Enterprises v.
Commissioner Appeals, 2013 PTD (Tr(b.) 2130), wherein it has been held that the Income Tax information has to be used to determine the correctness of information furnished by a registered person in the sales tax return and it has not to be used for the purpose of calculation of sales tax liability against the registered person. Our attention was also invited to the provisions of Section 65 of the Sales Tax Act, 1990, which reads as under:-- Section 65. Exemption of tax not levied or short levied as a result of general practice.?
Notwithstanding anything contained in this Act, if in respect of any supply the Federal Government is satisfied that inadvertently and as a general practice:
(a) tax has not been charged in any area on any supply which was otherwise taxable, or according to the said practice the amount charged was less than the amount that should have actually been charged;
(b) the registered person did not recover any tax prior to the date it was discovered that the supply was liable to tax; and
(c) the registered person started paying the tax from the date when it was found that the supply was chargeable to tax; it may, by notification in the official Gazette, direct that the tax not levied or short levied as a result of that inadvertent practice, shall not be required to be paid for the period prior to the discovery of such inadvertent practice.
9. We find force in the argument of Ld. AR of the Appellant that the Appellant was served with a defective show-cause notice suffering from vagueness. A vague show-cause notice fails to meet the fundamental legal requirements and therefore demand created as a result thereof is not sustainable (2011 PTD (Trib.) 808). Further, a vague show-cause notice does not stand the test of judicial scrutiny in terms of Honorable Supreme Court of Pakistan in judgment (Messrs Caltex Oil (Pakistan) Ltd. v. Collector of Sales Tax and others 2005 PTD 480, wherein it has been held that show-cause notice carrying the defect of vagueness may not stand to the test of judicial scrutiny.
It has been held in 2008 PTD 60 - Messrs Super Asia Mohammad Din Sons (Pvt.) Ltd. v. The Collector of Sales Tax, Gujranwala that once limitation had started to run and had come to an end the assesses had acquired a vested right of element of assessment by lapse of time.
10. We have put our heart and soul to come to judicious conclusion in the present case. In our humble opinion the show-cause notice dated 17-05-2014 is clearly illegal for being contrary to referred legal provisions as well as the facts of present case. We, therefore, feel no hesitation in holding that the show-cause notice dated 17-5-2014 issued to the appellant in the present case is illegal and void because the present case of the appellant does not come within the preview of tax fraud and tax evasion as defined under section 2(37) of the Sales Tax Act 1990. The proper 'Section during the relevant tax period in such a situation would have been Section 36 which provided the limitation of three years and any action beyond the period of three years in that case would have been time barred. The subject show-cause notice is even barred by time in the perspective of section 11 as it provided the period of limitation up to five years which in the present case comes to be cut off in May 2009. However the show-cause notice dated 17-05-2014 involves the period from July 2008, therefore, it is again barred by time even under section 11(5) ibid, therefore, in our humble opinion the show-cause notice dated 17-05-2014 issued to the appellant in the present case is illegal, void and unsustainable in the eyes of law for being issued under inappropriate provision of law and for being barred by time. The entire edifice built on this very show-cause notice dated 17- 05-2014 is declared to be illegal, therefore, both the orders passed by authorities below on the basis of said show-cause notice are held to be illegal and unsustainable in the eye of law.
11. As we have given our finding on the legal ground which has decided the fate of present case, therefore, we feel no need for discussing and giving our finding in respect of other points of determination framed as above. We get support in this regard from the dictum of Hon'ble Supreme Court of Pakistan laid down in the case reported as 2009 SCMR 1126 - Messrs Dewan Cement Ltd. v.
Collector of Customs and Sales Tax and another wherein it has been held that "where show-cause notice is time-barred the merits of the case need not be discussed".
12. Accordingly we accept the appeal and annul the 0-in-0 dated 12.06.2014 and impugned Order No, 16/2014 dated 22.12.2014.