1. ORDER: CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).--(1). The titled sales tax and federal excise appeals have been preferred on behalf of registered person calling in question the impugned consolidated Order Nos, 13 & 14, dated 27.03.2017, passed by the learned CIR(A), Lahore.
2. Facts of the case, as gathered from the appeal papers and rival arguments, are that information was received that the appellant a manufacturer, was involved, in tax evasion by way of under declaration of value of supply of its products/goods and parking of additional amount (actual receipt - declared receipt) of consideration received against actual value of supply. Allegedly this amount was parked in bank accounts titled as M/s. Bismillah Trading Corporation, M/s. Bismillah Enterprises and M/s. Master Traders. These entities were allegedly owned by employees of the appellant and the bank accounts of the said entities were in fact operated by chief executive of the present appellant.
3. On the basis of these charges, the sales prices declared by the appellant were disregarded and case was made out on the basis of price lists allegedly belonging to the appellant company, obtained from some retailers dealing in the appellant's products. The declared value of per unit price of each and every product was compared with the price list for the relevant period and on this basis it was observed that for the under reference period, the actual value of supply came to Rs, 58,398. million vis-a-vis declared value of Rs, 35,715 million. The said value of supply has been worked out on the basis of 'whole sale/sale price' per unit mentioned in price lists allegedly issued by M/s. Orient Group of Companies for the relevant periods. The whole case is therefore regarding the value of supply, declared by the appellant and the value determined by the Department in respect of various products manufactured by the company.
2. 4.On the basis of above, the impugned order No, 03/2016/6946, dated 16.03.2016, was passed by the assessing authority, whereby he ordered recovery of an amount of Rs, 3,710,295,446/-, extra tax of Rs, 171,857,553/- and special excise duty of Rs, 150,296,736/-, along with default surcharge and penalty. Being aggrieved, the registered person preferred appeals before the CIR(A) which were disposed of by him vide impugned order Nos, 13 & 14, dated 27.03.2017. Hence these appeals.
3. 5.During hearing, the learned ARs appearing on behalf of the appellants, inter alia; challenged the legality of the said valuation exercise. He also submitted that the so-called liability determined by the Department was absolutely incorrect, baseless, unsubstantiated, whimsical, arbitrary, illegal and void. The gist of his arguments, so far as they pertain to valuation, was as under: (a)That the so-called price lists were neither notified by the appellants nor were published/printed by the appellants as the company does not print any such notified prices nor is legally required to do so as it is not a retailer. Such price lists are at times printed by the shop- keepers to satisfy the potential customers regarding their profit margins. In this regard he pointed out inherent contradictions in the said price lists, such as different monograms, different fonts, different names of the company e.g Orient Group of Industries, Orient Electronics (Pvt) Ltd etc etc which, according to him, testifies to the fact that these price lists have not been printed/published or circulated by the appellants. In fact some alleged price lists also mention sale prices of cameras which are neither produced nor sold by the appellants. In any case, only uncertified photo copies of these price lists were produced before Commissioner (Appeals) and original price lists were never produced. The shopkeepers from whom 'the price lists were obtained have also given affidavit that these price lists do not belong to Orient Electronics (Pvt) Ltd and are only used by them to satisfy the customers about their profit margins.
(b) That the whole case is made out on the basis of whole sale prices/invoice prices as mentioned in those price lists. He demonstrated, on the basis of one such price list, that if price is worked out, as has indeed been worked out by the Department, the sales tax paid whole sale/sale price of manufacturer becomes higher than the retail price mentioned in the same price list. He submitted that it is neither feasible nor indeed possible, for the whole sale price/invoice price to be higher than the retail price in any industry.
4. This is neither logical nor practicable. How is it possible that the retail price of an air conditioner, on which, it is sold to the final consumer, is Rs, 49,200/- whereas the whole sale/sale price of manufacturer on which the alleged demand has been worked out is Rs, 51,603/-? He submitted that he has conducted an exercise on the basis of the so-called price list which, reflects that tax paid whole sale price/invoice price is invariably higher than the final retail/consumer price. One such working was also provided during hearing to substantiate the same. He submitted that the authenticity of the so-called price list is extremely doubtful and proves beyond shadow of doubt that these price lists were never published or printed by the appellant. On this basis, he submitted that the case has been made out on suppositions, presumptions, conjectures and surmises.
(c) Continuing with his arguments, he submitted that the matter essentially relates to valuation of the products manufactured and supplied by the appellants. It has been alleged that the value on which sales tax has been paid by the appellant is lower than the actual value of supply which has been worked out by the Department on the basis of the so-called price lists. The appellant on the other hand has disowned the price lists and shown that on the face of it, the price lists were incorrect and invalid. He took us to various clauses of section 2(46) of the Sales Tax Act, 1990 to say that in case of dispute of valuation, only a valuation committee comprising representatives of the trade and Inland Revenue constituted by the Commissioner could determine the value of supply.
5. He relied on the judgment of the Hon'ble Lahore High Court in Writ Petition No, 24827/2012 to argue that the only legal recourse available with the Department was to constitute a valuation committee in terms of section 2(46)(e) of the Act. Since this was not done, the alleged liability was without jurisdiction, coram-non-judice, void & illegal and remains, whimsical and arbitrary.
(d) He further submitted that no nexus of the appellants has been established with the alleged accounts in the name of Bismillah Trading. Corporation. Bismillah Enterprises and Master Traders.
6. These were separate entities, who have filed their income tax returns which are stilt valid and in the field.
7. 6.On the basis of, inter alia, these legal and factual arguments, he submitted that the orders of the authorities below be annulled, being without jurisdiction.
8. 7.The learned Counsels/Legal Advisors/DRs appearing on behalf of the department, on the other hand, contended that it is a case, of tax fraud perpetuated through mis-declaration of value which was established on the basis of bank accounts of benami business entities and the price lists which belong to the appellant. During hearing they copiously quoted from the show cause notice, order-in-original and the Order of the Commissioner to assert that it is a case of tax fraud and nexus has been established between the appellants and the three entities mentioned above. He submitted that the case was covered by section 2(46)(a) and (b) of the Act and, therefore, section 2(46)(e) is not applicable to the present case. therefore, no Valuation Committed was required to be constituted. He further submitted that the appellant was a manufacturer-cum-retailer and, therefore, required to notify its sale prices.
9. 8.We have examined the case record and also examined, the working of tax liability on the basis of the price lists. It is observed that if the whole sale/sale prices mentioned in the said price lists are taken for calculation of sales tax from a manufacturer, as has actually been done by the Department, the sales tax paid whole sale/sale price becomes higher than the retail price/consumer price mentioned on the same very price lists. These price lists therefore cannot be used for the purposes of calculation of sales tax liability so far as the present appellants are concerned. It is also on record that entire liability has first been worked out on the basis of these price lists and then proportionately assigned to section 2(46)(a) and (b) of the Sales Tax Act, 1990.
10. Same is the case with regard to amounts received in accounts of three entities mentioned above. It has been accepted even in the show cause notice that interbank transfers were not excluded from the tax liability worked out against the appellants on the basis of the accounts of the said entities. It is accepted, for the sake of the argument, that the departmental viewpoint is correct regarding the nature of these accounts tax liability cannot still be worked out on the basis of the said accounts as the department itself is not sure about the amount involved.
11. 9.We have also examined the issue whether the appellant is a manufacturer-cum-retailer or a manufacturer-cum-wholesaler/ importer. We have not been persuaded by the argument of the department that since the appellant has around 20 service centres/ sales centres it has become a retailer, specially in view of the fact that sales to wholesalers/retailers are made from these sales/service centres.
12. 10.Finally, in the final analysis, since this is a dispute regarding valuation of the products manufactured and sold by the appellant, the only recourse available to the department, if it has sufficient reasons to believe that the value of supply has not been correctly declared in the invoice, is to approach the Valuation Committee comprising representatives of the trade and officers of Inland Revenue under section 2(46)(e) of the Act Section 2(46)(a) & (b) no longer remain applicable in such dispute.
13. 11.Reliance in this regard is placed on the judgment of the Hon'ble Lahore High Court in Writ Petition No, 24827/2012 which is applicable to the present case. It was held by the Hon'ble High Court that: "From the resume brought forth above, it is clear that the department took a different view of the value of supply which in its opinion had not been correctly declared in the invoice. If this was the case set up against Pepsi and the dispute merely relates to the value of supply, will it not be legitimate to say that it is precisely these circumstances which give rise to the applicability of clause (e) of sub-section (46) of section 2 of the Act, 1990. Is this not a situation which is fit for engaging the provisions of section 2(46) of the Act, 1990.
14. The officer issuing the First Show Cause Notice has demised his case on the basis of section 12(1) of the Act, 2005 read with section 2(46) of the Act, 1990. This is evident from a reading of paragraph 12 of Second Show Cause Notice. By relying on these provisions, the Second Show Cause Notice alleges that a certain amount was incurred on account of advertising and marketing expenses on behalf of Pepsi by the Bottlers under CAMA during the period between July, 2008 to December, 2011. Thus, what comes out starkly from a holistic reading of the Second Show Cause Notice is the entire reliance of the department on the provisions of section 12(1) of the Act, 2005 and section 2(46) of the Act, 1990. If these were the two provisions which formed the foundation of the case set up by the department, it is incredulous and irrational that the department leapfrogged to the issuance of a notice under section 14 of the Act, 2005 read with section 11 of the Act, 1990.
15. The title of section 12 of the Act, 2005 is "Determination of value for the purposes of duty." Thus, the value is to be determined in accordance with sub-section (46) of section 2 of the Act, 1990.
16. Further; the determination has to be construed in the context and setting of section 2(46) wherein different tests have been given for determining the value of supply. These tests have to be applied by the supplier and the value of supply determined thereby. Sub-section (46) of section 2 of the Act, 1990 is in the nature of guidelines issued to the suppliers for determining and assessing the value of supply and contemplates different scenarios. Although, clause (e) of sub-section (46) of section 2 has been included in the definition clause, in my opinion, it constitutes a substantive provision and the intention of the legislature is clearly to make an effort to ascertain the correct value through a body set up in terms of clause (e) of sub-section (46) by the name of Valuation Committee. This comprises representatives of the Trade and the Inland Revenue and is constituted by the Commissioner, Inland Revenue. I have no doubt in my mind as to the purpose of the setting up of the Valuation Committee. The legislative intent is also not in doubt and is clearly culled out upon a holistic reading of the provisions of the Act, 2005 and the Act, 1990. The primary purpose of settling up a Valuation Committee seems to be to spare the registered person, as also all other persons liable to the payment of duties of excise, the rigors of section 14 of Act, 2005 which deal with the recovery of unpaid duty or of erroneously refunded duty or arrears of duty etc. Sections 12 and 14 of the Act, 2005 have different connotations and deal with separate situations. The tenor of section 12 is with regard to the assessment of duty of excise. The learned counsel for the department contended that section 12 related to the self-assessment by the person liable to duty and does not concern itself with the assessment to be made by the department. This contention is nuanced and has no legal legs to stand up. By mere fact that section 12 makes a reference to section 2(46) of the Act, 1990 is sufficient to nullify the contention raised by the learned counsel for the department Clause (e) of sub-section (46) of section 2 of the Act, 1990 is all about assessme nt to be done ay the department independent of the assessment done by the person liable to duty. To reiterate, the Commissioner will set up a Valuation Committee, if there is sufficient reason to believe that the value of supply has not been correctly declared in the invoice."
12. As conceded by the DR, no valuation committee was constituted by the Commissioner in the present case. The case is therefore not only based on presumptions and suppositions, but is also without any support of law so far as valuation is concerned. The entire valuation exercise carried out by the Directorate General of Intelligence & Investigation (Inland Revenue) was, therefore, coram non-judice, illegal and without lawful authority & jurisdiction and cannot be sustained. Superstructure built on the said valuation exercise/contravention report, therefore, also cannot sustain. Needless to say that the Orders-in-Original was exparte as demonstrate from the case record. Considering the above facts, the orders of the authorities below are set aside with the following directions:-- (i)Commissioner Inland Revenue, LTU, Lahore shall constitute a Valuation Committee under section 2(46)(e) of the Act comprising representative of the trade and of Inland Revenue which will consider all relevant facts and data to arrive at the assessable value/open market prices of the products manufactured and supplied by appellants; and (ii)after the Valuation Committee has determined the value differential, if any, show cause notice shall be issued accordingly for recovery of short paid duties and taxes.
17. 13.The appeals are disposed of in the above terms. No direction, is, however, being made on other grounds of appeal so that no prejudice is caused to the either party in proceedings before the Valuation Committee and adjudication/appellate authorities.