NAZIR AHMAD, (CHAIRMAN).---The titled further appeal filed at the instance of the registered person has been directed against the Order-in-Appeal No. 88/2014 dated 16.10.2014 recorded by CIR (Appeals), Gujranwala.
2. The facts in brief leading to the instant appeal are that the registered person of the instant case was charged with violation of the provisions of Section 8B of the Sales Tax Act, 1990 (hereinafter called 'the Act') and failure to deposit the sales tax amounting to Rs.1,047,813/- for the tax period May 2012 to October 2012. Therefore, adjudication proceedings were initiated by way of issuance of show-cause notice, which culminated in passing of Order-in-Original No.39/ST/2014 dated 13.02.2014 creating a tax demand of Rs.1,047,813/- under section 11(2) along with penalty equal to 100% of tax evaded under section 33(11)(13) and default surcharge under section 34(1)(c) of the Act.
Aggrieved by the said treatment, the registered person preferred appeal before CIR (Appeals), Gujranwala, who allowed partial relief to the registered person by reducing the amount of penalty to 5% of the amount of tax involved in terms of section 33(5) of the Act whereas rest of the treatment was upheld. Discontented with the treatment meted out by the first appellate authority, the registered person came up in further appeal before this Tribunal, which was placed before the Division Bench of this Tribunal for hearing on 07.10.2016 comprising of two learned Members namely Ch. Anwar-ul-Haq, Judicial Member and Masood Akhtar Shaheedi, Accountant Member. During the course of hearing, it was brought to the notice of the Division Bench by the learned counsel appearing on behalf of the registered person that on the issue under consideration divergent views have been taken by Division Benches of this Tribunal from time to time in the following cases:-- i) ATIR otter dated 20.11.2014 recorded in the case of M/s. New Age Cables (Pvt.) Ltd., wherein it was held that for committing procedural laps by claiming 100% input tax instead of 90% as required under section 8B of the Act, the registered person is liable to pay default surcharge and penalty in lieu of utilizing money of exchequer for the specified period. ii) ATIR order dated 04.04.2016 recorded in the case of M/s. Faraz Food (Pvt.) Ltd., wherein the learned Division Bench followed the decision record in the case of M/s. New Age Cables (Pvt.) Ltd. iii)ATIR order dated 07.03.2016 recorded in the case of M/s. Paracha Chemical Industries, Faisalabad, wherein the learned Judicial Member proposed to delete the penalty and additional tax but the learned Accountant Member in his turn put a dissenting note, as a result of which, the case was referred to the Referee Member, who while resolving the controversy agreed with the observation of learned Judicial Member.
3. In view of above divergent views taken by the Division Benches of this Tribunal, Ch. Anwar-ul- Haq, learned Judicial Member referred the matter to the Honourable Chairman for constitutional of Larger Bench to decided the following proposed questions:-- i) "Whether the registered person is liable to any default surcharge and penalty in alternative of recovery amount against admittedly committed default under section 8B of the Sales Tax Act, 1990." ii) "Whether in the facts and circumstances of the case, this Tribunal may attribute redundancy to the provisions contained in section 8B of the Sales Tax Act, 1990?"
4. The Honourable Chairman by entertaining the proposal made by learned Judicial Member constituted this Larger Bench to resolve the controversy.
5. The learned counsel appearing on behalf of the registered person has furnished before us a list of following cases wherein conflicting decisions have been taken by the Benches while resolving the issue under consideration, case to case summary of which is reproduced hereunder:-
(i) 2015 PTD (Trib.) 990
5. We have heard the arguments put-forth by the learned representatives of both the sides and have carefully gone through the available record. After due consideration, we are convinced with the submissions made by the learned DR at the bar. The learned DR produced before us a copy of the certificate issued by Central Registration Office where the taxpayer's status appears as "Manufacturer/ Importer/Exporter". The learned DR also produced before us a screen shot of status of application appearing on Registration Management System filed by the taxpayer and perusal of the same reveals that the taxpayer intends to drop its manufacturing category and department required some physical verification. All these prove contrary to the taxpayer's stance that they are commercial importer. Furthermore, perusal of the record shows that the taxpayer is engaged in the import of air-conditioner parts such as compressor, expansion vales and communication cables and also purchased locally manufactured products like PVC cables, flexible duct, strap rolls, filling gas, cylinder, temperature controller, gate valve, ball valve, M.S seam less pipes. All such parts are obviously used in manufacturing of an air conditioner. Here, we deem it expedient to reproduce Section 2(17)(a) of the Sales Tax Act, 1990, which reads as under:-
2. Definitions--In this Act, unless there is anything repugnant in the subject or context,- (17)"manufacturer" or "producer" means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include -
(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner:
6. From the perusal of above definition of "manufacturer" or "producer" provided in law and in view of the above observation made by us, it is clear that the taxpayer's business activity falls in the definition of "manufacturer", hence, the taxpayer is under legal obligation to only adjust input tax to the extent of ninety percent of the output tax. Here, we reproduce the relevant section 8B of the Sales Tax Act, 1990, which reads as under:- 8B. Adjustable input tax.---(1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period:
7. In view of the clear-cut statutory stipulation, the taxpayer being a manufacturer shall not be allowed to adjust input tax in excess of ninety percent of the output tax for the period under consideration. Since, the taxpayer contravened the said provision of law, the assessing authority has rightly ordered recovery of sales tax amount of Rs.3,207,386/- along with default surcharge and penalty which is hereby upheld. The order of the learned CIR(A) is accordingly vacated to that extent.
(ii) S.T.A. No.1108/LB/2014 order dated 20.11.2014 reported as 2016 PTD 711
6. On merit, it is contended by the learned AR that the registered person has not committed any tax fraud or no loss of revenue has occurred in the case as the taxpayer has only committed procedural lapse by claiming 100% input tax adjustment instead of 90% required to be claimed in terms of section 8B(1) of the Sales Tax Act, 1990.
7. We have looked into the matter and after due consideration, we are in agreement with the submissions of learned AR that no loss of revenue is occurred in the present case nor any allegation of tax fraud is levelled against the registered person. The registered person has committed a procedural lapse by claiming 100% input tax adjustment instead of 90% of out output tax as required under section 8B of the Sales Tax Act, 1990. Under the law on next 30th June, the registered person is ultimately entitled for refund of the differential amount. Under such circumstances, we find that recovery of principle amount of Rs.16,012,741/- from the registered person is unjustified which is hereby deleted, subject to the payment of default surcharge upto 30th June, 2012 and minimum penalty of Rs.10,000/- in terms of section 33(5) of the Act, being inevitable as the taxpayer has defaulted the provisions of section 8B of the Sales Tax Act, 1990.
(iii) S.T.A. No.1492/LB/2014 order dated 20.11.2014 In the instant case, for adjusting input tax in excess to 90% of output tax in terms of section 8B(1) of the Act read with S.R.O. 647(1)/2007 dated 27.06.2007, the registered person was ordered to pay the principal amount of sales tax along with default surcharge as well as penalty. In Appeal the learned CIR (Appeals) vacate the whole demand of sales tax whereas adjudged recovery of penalty of 5% of amount of tax involved under section 33(5) of the Act as well as default surcharge.
In further appeal before this Tribunal, the learned Judicial Member of the Division Bench finding that the learned CIR (Appeals) himself vacated whole amount of sales tax and nothing left payable by the registered person, termed the imposition of penalty as well as default surcharge to be utter violation of Law and ordered deletion of the same. When the case was sent to the learned Accountant Member for countersignatures, he put a dissenting note by holding that claim of 100% input tax adjustment instead of 90% of output tax is procedural laps, therefore, recovery of principal amount from the registered person is not justified but imposition of penalty and default surcharge for defaulting the provision of section 8B of the Act is justified. As a result of controversy between the learned Members of the Division Bench, the matter was referred to the Referee Member, who while resolving the controversy, the learned referee Member agreed with the observation of the learned Judicial Member that there is no justification for levy of default surcharge and imposition of penalty.
(iv) S.T.A. No.892/LB/2016 order dated 18.09.2017
5. We have heard both sides and have perused the available record. There is no denying of the fact that issue has already been duly settled in favour of the registered person by this Tribunal and now this Bench being bound by the earlier judgments, so by respectfully following the ratio settled in 2016 PTD (Trib.) (sic) and 2016 PTD (Trib.) 1515, the principle amount of tax demand of Rs.993,377/- along with default surcharge are hereby deleted. Orders of the authorities below are accordingly vacated/cancelled to that extent. As regard recovery of penalty of Rs.10,000/-, we find no reason to intervene in this behalf which is accordingly upheld.
S.T.A. No.519/LB/2015 order dated 21.12.2017
7. In this case, only departmental objection is that the input tax was not claimed in accordance with the procedure prescribed under section 8B(1) of the Sales Tax Act, 1990 for which denial of input tax on technical plea tantamount to burdening the registered person with sales tax which is not only contrary to the statutory provisions but also against the norms of justice. In this regard this Tribunal consistently disapproved the recovery of principal sales tax amount along with default surcharge. Since, the learned CIR(A) has already deleted the recovery of principal sales tax amount, therefore, we also delete the recovery of default surcharge amount of Rs.243,632/-.
However, the recovery of penalty is upheld being inevitable as the registered person has defaulted the provisions of section 8B of the Sales Tax Act, 1990. Resultantly, the orders of the authorities below regarding recovery of default surcharge are cancelled and that of recovery of penalty are upheld.
Initiating arguments learned AR submits that there was no justification for the learned CIR(A) to maintain the recovery of principal sales tax amount along with default surcharge. Explaining his view point he submits that as per provision of section 8B(1), the registered person is entitled to adjust 90% input tax against output tax liability payable during a tax period. He contends that the registered person has committed a procedural lapse by claiming 100% input tax adjustment instead of 90% of output tax. Further contends that in terms of clause (2) of section 8B, on next 30th June, the appellant was ultimately entitled for refund of differential amount, hence, there was no justification to order recovery of principal sales tax amount along with default surcharge. In support of his arguments, the learned placed reliance on a number of case law of this Tribunal.
6. Conversely, the learned DR supported the orders of the authorities below and submitted that as per provisions of section 8B, the registered person is bound to claim input tax to the extent of ninety percent of output tax in a tax period and was mandatory upon him to deposit the ten percent of output tax in government treasury. Since, the registered person has failed to adhere to the provisions of section 8B, the assessing officer was justified to order recovery of defaulted principal sales tax amount along with default surcharge and penalty.
7. We have considered the arguments of both sides and perused the available record including the case law relied upon by both the parties. The whole controversy revolves around the provision of section 8B of the Act. Here, we deem it apt to reproduce the relevant provision of section 8B which reads as under:- "8B. Adjustable input tax.---(1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period: Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or capital goods: Provided further that the Board may, by notification in the official Gazette, exclude any person or class of persons from the purview of subsection (1) ........................................................................
(2) A registered person, subject to subsection (1), may be allowed adjustment or refund of input tax not allowed under subsection (1) subject to the following conditions, namely:--
(i) in the case of registered persons, whose accounts are subject to audit under the Companies Ordinance, 1984, upon furnishing a statement along with annual audited accounts, duly certified by the auditors, showing value additions less than the limit prescribed under subsection (1) above; or
(ii) In case of other registered persons, subject to the conditions and restrictions as may be specified by the Board by notification in the official Gazette.
(3) The adjustment or refund of input tax mentioned in sub-section (2), if any, shall be made on yearly basis in the second month following the end of financial year of the registered person.
(emphases provided)
As per subsection (1) of section 8B above, the registered person was required to claim input tax adjustment at ninety percent of the output tax. In this case before us, the registered person had adjusted hundred percent input tax of its output tax sales tax liability. However, subsection (2) of section 8B allowed the registered person to adjust or claim rend of the input tax not allowed under subsection (1) [i.e. remaining ten percent] subject to some conditions, as laid down in the said subsection (2). However, as per subsection (3) the adjustment of input tax of 10 percent shall be on yearly basis in the 2nd month following the end of financial year, meaning thereby, that the ten percent of carry forward tax shall ultimately be adjusted after the end of the financial year. In other words the 10 percent tax which is the property of the register person will remain his asset and in the result of adjustment it may be refunded to him. We are of the considered opinion that although the registered person has not fulfilled the requirement of adjustment of input tax as A provided under subsection (1), however, this is a procedural lapse on the part of the registered person, however, as the remaining ten percent of the input tax was later on liable to be adjusted or refunded to the registered person in terms of subsection (3), there is no loss of revenue to the Department for excess adjustment of input tax. Since the excess adjusted ten percent input tax belongs to the registered person which has to be refunded by the department to the registered person in terms of subsection (3) in the second month following the end of the financial year, therefore, we are of the viewpoint that the appellant has only violated the procedure laid down in section 8B and adjusted the input tax in excess to the ninety percent of the output tax, hence, the department cannot recover ten percent excess adjusted input tax which the registered person had already paid to the department and the same was ultimately required to be refunded or adjusted in terms of subsections (2) and (3).
8. In our considered opinion, subsection (I) of section 8B only provides procedure for adjustment of input tax and it does not deal with the entitlement or dis-entitlement of input tax. Section 8 of the Act, deals with the disentitlement of input tax. If we read Rule 34 of the Sales Tax Rules, 2006 in juxta position with section 8B of the Act, it follows that section 8B does not deal with any further charge as section 8B only provides admissibility of adjustment of input tax to the extent of ninety percent.
Claim of excess adjustment of input tax [which finally belongs to the registered person at later stage] does not come under the purview of tax fraud as defined under section 2(37) of the Act, therefore, the department cannot recover the excess adjusted input tax which they finally required to pay back to the registered person at some later stage.
9. Similarly, the department cannot demand default surcharge under section 34 from the registered person as we have already held in the pre para that department has not sustained any loss of revenue, hence, the Registered Person is not liable to pay any additional tax. The default committed by the registered person do not fall within the definition of 'evasion' and also that there was no mala fide intention to defraud the department as only allegation here is the procedural lapse which can be condoned, therefore, demand of additional tax under section 34 is not justified.
Moreover, the department as per subsection (3) is also bound to make adjustment in the second month of the end of the financial year on yearly basis which in the instant case has not been done rather the proceedings have been initiated after quite a long time, therefore, the demand of default surcharge after the stipulated time period is patently illegal. Keeping in view this legal position the default surcharge can only be imposed for the period of 2 months after the end of the financial year. Therefore, the demand of default surcharge under section 34 in this case is restricted to said period and rest of the default surcharge calculated for the rest of the period is deleted being illegal and unjustified.
10.However, we are of the firm opinion that the registered person is liable to penal action as it has not fulfill the procedure as laid down in subsection (1) of section 8B. If the registered person is not penalized for this procedural lapse, the provision as contained in section 8B would become redundant. Hence, we are of the view that the learned CIR(A) has rightly order imposition of penalty as provided under subsection (5) of Section 33 of the Act and we hereby maintain the same.
11.Appeal of the registered person succeeds in the above terms.