MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER.---This Sales Tax Appeal has been filed by the Appellant/Taxpayer against the order No, 53-S, dated 20.05.2016 passed by the Commissioner Inland Revenue (Appeals), Quetta on the following grounds:--
1. That the Appellant has submitted an affidavit of Mr. Imdad Ali Mirani, Finance Director, Sukkur Electric Supply Company, Sukkur which fully explains the genesis of Rs, 12,246,119,442. The aforesaid affidavit also comprises a detailed statement which shows the genesis of this figure. In fact, Rs, 7,223,172,649 were the amount of sales tax not realized from consumers by the Hyderabad Electric Supply Company (the HESCO) when the SEPCO was carved out of the HESCO's jurisdiction. The aforesaid statement annexed with the affidavit of Mr. Imdad Ali Mirani also gives month wise addition to this amount from January 2012 to June 2014. Thus the figure of Rs, 12,246,119,442 is completely and justifiably linked with the sales tax billed to the consumer and paid to the Government of Pakistan but not realized from consumers. The main reason for this non-recovery is the poor collection of electricity bills which also includes the amount of sales tax not realized from consumers.
1.2 The appellate authority has attached gospel truth status to the misinterpretation of the audited accounts but has not at all examined the clarification of the relevant entries by the SEPCO's Auditors, M/s. Riaz Ahmad and Company, Karachi who have categorically disproved the charges of non-payment of the sales tax amounting to Rs, 12.246 Billion in the letter dated 06-05-2016 addressed to the Commissioner Inland Revenue (Appeals), Quetta/Sukkur. The relevant part of this letter is reproduced below:- "CLARIFICATION REGARDING SALES TAX NOT YET REALIZED Refer to the appeal filed by Sukkur Electric Power Company Limited "the company" against Order- in-Original No, 21/2015 dated 15-7-2015 passed by the DCIR audit unit-I, Zone-I, regional tax office Sukkur regarding recovery of sales tax amounting to Rs, 12.246 billion not yet realized.
We submit that we "Riaz Ahmad and Company Charted Accounts" are auditors of Sukkur Electric Power Company Limited for the Financial Years 2011-2012, 2012-2013 and 2013-2014. We state that the company charges and collects sales tax from consumers of electricity on billing basis under Rules 14(1) of the Sales Tax Special Procedure Rules, 2007 reproduced below:- "14. Filing of returns and deposit of sales tax.---In case of WAPDA and KESC, sales tax levied and collected under rule 13 during a tax period shall be deposited on 'accrual basis' i,e, the amount of sales tax actually billed to the consumers or purchasers for the tax period."
And there appears to be some confusion as to the following entries in the financial statement of the company for the year ended on 30th June 2014:-
(i) Note 10. TRADE AND OTHER PAYABLES on Page 22 of the Audited Accounts---Sales tax not yet realized = Rs,12,246,119,442.
(ii) Note 16. ADVANCES AND OTHER RECEIVABLES on page 27 of the Audit Accounts---Sales tax not yet realized = Rs,12,246, 119,442. We draw attention of your good self to the fact that the credit of the sales tax not yet realized of Rupees 12,246,119 million disclosed in note 10 of the financial statements of the company is a contra of corresponding debit "sales tax not yet realized" disclosed in note 16 to the financial statements.
This does not represent the sales tax liability payable to the Federal Board of Revenue (FBR).
Therefore, the figure Rs, 12.246 Billions (Rupees 5.023 billion related to consumers and Rupees 7.223 billion transferred to SEPCO by HESCO) in fact relates to the sales tax billed to the consumers while this amount has not been paid by the consumers to the SEPCO because the recovery position of the SEPCO is very poor. We further explain the actual treatment of sales tax payment along with monthly sales tax return in the books of accounts of the Company and its presentation in the annual financial statements as under: The Company has a practice to record monthly sales tax paid along with sales tax return separately under the account head "Advance General Sales Tax Paid (Code 1002000)" instead of debiting the "Sales Tax Not Yet Realized". This cumulative "Advance General Sales Tax Paid" is grouped under Trade debts (Not 15) for presentation in the financial statements. As at 30 June 2014, trade debts disclosed in note 15 to the financial statements comprise of outstanding energy charges receivables from consumers and Advance General Sales Tax Paid to FBR along with monthly sales tax returns. Advance General Sales Tax Paid adjusted with Sales Tax Not Yet Realized on realization of receivables from consumers. We emphasize that the interpretation placed on the accounting entries and presentation in the financial statements by the tax officers is neither warranted nor could it overrule the law." 1.3 It is emphasized that this pattern of accounting showing the sales tax deposited in the State exchequer but not paid by the electricity consumers in the Column "Sales Tax not yet realized", has been prescribed by WAPDA and is being followed in all the DISCOs. Copies of financial statements for the period ending 30-06-14 relating to 3 other power distribution companies are enclosed where similar columns show the sales tax not yet realized from the consumers.
(i)Copy of Financial Statement of Multan Electric Power Company Ltd. 2013-2014.
(ii)Copy of Financial Statement of Quetta Electric Supply Company Ltd. 2013-2014.
(iii)Copy of Financial Statement of Faisalabad Electric Supply Company Ltd. 2013-2014.
1.4 The averments made in the affidavit have not been disputed by a counter affidavit and hence these averments stand legally proved/admitted. It has been held that vide 1986 CLC 1408-- M.Farooq Memon v. Government of Sindh through its Chief Secretary, Karachi---Non-filing of counter affidavit to controvert facts stated in petition, held, would amount to admission of averments made in such petition. Similarly it was decided in 1986 CLC 745---Anwar Ali and 9 others v. Chief Engineer, Irrigation, Sukkur Zone, Sukkar and 2 others---Facts stated in petition when not controverted by counter affidavit, it would, held, be accepted as established. It has also been held vide 1999 MLD 90---Abdus Salam Butt v. lqbal Razzaq Butt and 5 others that affidavit is considered sufficient prima facie proof and if not rebutted by cogent evidence, it becomes conclusive proof. It was further held in 2001 MLD 1257---Mst. Bushra Sadiq v. Karachi Development Authority through Director General and others that statement supported by an affidavit ought to be accepted unless rebutted by another statement on oath. It can thus be safely concluded that the impugned Assessm ent Order and the Orderin-Appeal are not substantiated by the true facts and applicable law as the appellant has established that Rs,12.246 Billion in fact relate to the Sales Tax which the appellant has to receive from its consumers. Resultantly the subject case is unlawfully based on presumptions, intendment and misinterpreted entries in accounts. Reliance is placed on:-- i.2015 PTD 1010 (Supreme Court of Pakistan)---AL-Hamza Ship Breaking Co. and 14 others v.
Government of Pakistan through Secretary Revenue Division, Ministry of Finance, Islamabad and others---Tax has to be collected in accordance and only in accordance with law. ii.2004 PTD 868 ---Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise and another Sales tax liability could not be assessed/imposed solely on the basis of Bank statements of the registered person without any corresponding taxable supply made in the course of taxable activity. iii.2016 PTD (Trib.) 445---Messrs Sarhad Restaurant, Lahore v. CIR (Appeals-Ill), Lahore---No room for any intendment existed and there was no presumptions as to tax---In absence of any deeming provisions, Revenue was required to establish that a transaction fell within parameters of taxable_ supplies or in furtherance of any taxable activity failing which sales tax imposed on basis of some assumption or presumption not warranted in law should always be struck down. iv.2012 PTD (Trib.) 478---Messrs Peacock Restaurant v. CIR, LTU, Islamabad etc. ---Passing an order on the basis of conjecture is not correct at law. v.2008 PTD 103---Haji Sultan Ahmed v. CBR, Islamabad and 5 others---Law requires that tax must be levied or charged in clear, unambiguous and specific terms. vi.2013 PTD (Trib.) 2130---Messrs Siddique Enterprises, Faisalabad v. CIR (Appeals) RTO, Faisalabad---Income tax return including financial statements of a registered person was neither specified as sales tax record under S.22 or any other provision of Sales Tax Act, 1990 nor was he legally bound to produce record of income tax return in response to show-cause notice issued to him under S. 25 thereof ---Data of income tax return could be used to determine correctness of data provided by registered person in sales tax return, but same could not be used for calculating sales tax liability against him---Impugned assessment of sales tax was illegal---Principles. vii.2008 PTD (Trib.) 541---Sales Tax Appeal No, 295/LB of 2007-- Income Tax record could not be made basis for adjudging the liability under Sales Tax Act, 1990---Appeal was accepted by setting aside the order as a result of which the show-cause notice was set aside by the Tribunal viii.2012 PTD (Trib.) 453---The CIR, Faisalabad v. M/s Kamal Fabrics, Faisalabad---Any order which does not contain substantial reason and does not show that it is passed on objective consideration shall always be treated as illegal, void, arbitrary and a result of misuse of authority vested in the public functionary.
1.5 The Company record payment / adjustment of output tax against input tax separately under the account head "Advance General Sales Tax Paid" creating asset, instead of reducing the liability by debiting the "Sales Tax Not Yet Realized". This cumulative "Advance General Sales Tax Paid" is grouped under Trade debts for presentation in the financial statements. Advance General Sales Tax Paid is offset with Sales Tax Not Yet Realized on realization of receivables from consumers. In nutshell, sales tax asset and sales tax liability are overstated in the financial statements. In order to determine the actual sales tax payable / refundable, one has to offset advance sales tax (asset) with the sales tax not yet realized (liability). Scheme of journal entries is produced below for understanding: At the time of billing of consumers: Trade Debts A/c Dr Sales A/c Cr Sales tax not yet realized A/c Cr At the time of filing of sales tax return at each month end: Advance Sales tax paid A/c Dr Bank/Input tax A/c Cr At the time of realization of bills from consumers: Bank A/c Dr Trade Debts A/c Cr Sales tax no yet realized A/c Dr Advance Sales tax paid A/c Cr From the above scheme of journal entries, it is visible that sales tax charged to consumers in their respective monthly bills is properly adjusted against input tax and surplus, if any, is paid along with monthly return.
Burden of Proof is on the Department That the Appellant has established by detailed statements and record as to how Rs, 12.246 Billions are linked with the sales tax deposited in the State treasury but not recovered from the consumer to whom it was billed. It is evident that in such circumstances the burden of proof is on the Department to prove beyond reasonable doubt that this amount in fact relates to certain suppressed/concealed supplies. The Sales Tax is levied on taxable supplies of goods under Section 3 of the Sales Tax Act, 1990. The argument given in the impugned Order-in-Appeal that the record is kept with the taxpayer is not tenable because the Department can always seek/examine all relevant record relating to payment of sales tax. It has been held vide 2010 PTD 592---Collector of Sales Tax and Federal Excise v. Messrs Abbott Laboratories (Pakistani Ltd., Karachi---To bring the subject to charge and levy of tax the burden is upon the Revenue to establish that the said subject is chargeable to tax. It has also been held vide 2008 PTD 2025---Messrs Abbasi Enterprises and another v. Collector of Sales Tax, Peshawar and 3 others---The burden of proving that the taxable supply has been made by a registered person in the course or furtherance of any taxable activity carried on by him is on the department. It is decided vide 2011 PTD (Trib.) 808---Messrs Pakistan Water and Power Developments Authority (WAPDA) Large Taxpayers Unit, Lahore and 2 others--- The onus to show that the transaction was chargeable to tax was squarely on the Department. It is thus evident that the department has failed to counter appellant's stance that the alleged short paid Sales Tax of Rs, 12.246 Billion is fact the amount which the SEPCO has to receive from its clients and it is not at all payable to the FBR.
3. Interpretation favorable to the taxpayer is to be adopted - Doubt to be resolved in favour of taxpayer:- That the Appellant has proved that the alleged short paid sales tax amount of Rs, 12.246 Billion & in fact relates to the sales tax not received by the Appellant from the electricity consumers. It is evident that blind misinterpreted reliance on an entry in the audited accounts is not warranted especially when the misinterpreted explanation of such entry has been categorically belied by an affidavit of Finance Director, SEPCO with detailed statement and explanatory letter by the Appellant's Auditors who have audited the accounts. It is emphasized that the Department is solely relying on misreading of the audited accounts and such reliance is absolutely unjustified when the Auditors who have undertaken the audit, explain the genesis of different entries candidly rejecting the inference drawn by the department.
4. New e-filing system of sales tax return The misinterpretation of two entries in the audited accounts is fully established by the aforesaid affidavit and the clarification letter by the Auditor. The computerized system of billing installed in the SEPCO's office is incapable of dumping certain electronic bills to be issued to the consumers in the category which is outside the scope of billing of sales tax to the consumers and payment thereof to the Government under Rule 14(1) of the Sales Tax Special Procedure Rules, 2007.
5. Audit The Sales Tax Act, 1990 prescribes a procedure for selection of a taxpayer for audit purposes and our contention as to the Appellant's audit having been conducted without conforming to the relevant legal requirements have not been rebutted. It is well settled law that question of law can be raised at any stage and the observation in the impugned order that this objection was not raised at the original stage is not tenable. It was held by the Supreme Court of Pakistan in a case titled 2005 PTD 480--Caltex Oil (Pakistan) Ltd. v. Collector, Central Excise and Sales Tax and others---A question of law arising out of the facts of the case relating to the fundamental issues involved therein, even if was not raised before the lower forum, can be allowed to be taken before higher forum.
6. Show-Cause Notice and Order-in-Original relates to more than five years The Appellant had argued that the subject case relates ALSO to tax liability linked with the period beyond the 5 years limitation prescribed under Section 11 of the Sales Tax Act, 1990. As explained above, the amount of Rs, 12.246 Billion is the accumulated figure of sales tax not paid by the consumers of electricity. And even that figure also relates to the period more than 5 years in the past. This argument has been overruled in the impugned Order-in-Appeal by the suggestion that there is no time limitation for recovery of unpaid Sales Tax. It has been held vide 2010 PTD 251--- Messrs Gulistan Textile Mills Ltd. Karachi v. Collector (Appeals) Customs, Sales Tax and Federal Excise, Karachi and another that issuance of show-cause notice more than five years after alleged default in filing of sales tax return was barred by period of limitation and therefore, entire proceedings emanating from this show-cause notice stand extinguished being not maintainable in law. It was also held vide 2012 PTD (Trib.) 1040---Commissioner (Legal Division) Inland Revenue (RTO), Faisalabad v. Messrs Zahid Jee Fabrics (Pvt.) Ltd. Faisalabad---Phrase "shall be served with a notice within five years of the relevant date" conveyed the intention of the legislature that show cause notice and issuance of the same within five years, was a mandatory requirement for an action under section 36 of the Sales Tax Act, 1990---Even if there was a good case for creation of liability, he will not be dragged in. It is thus evident that sales tax liability beyond 5 years limitation period is untenable.
6.2 This issue has also been rejected in the Order-in- Appeal on the ground that it was not raised at the initial stage. As explained in Para 5, a question of law can be raised at appeal stage.
7. No Default surcharge and penalty where there is no evasion/non- paym ent of due sales tax The SEPCO/HESCO have paid full amount of Sales Tax as declared in the Sales Tax returns for the period under consideration and there is no outstanding amount of sales tax payable under the law.
The Appellant is not liable to pay default surcharge and penalty provided at S. Nos, 5 and 6 of the Section 33 of the Sales Tax Act, 1990 as there is no evasion of sales tax and no loss of revenue is involved. It is further submitted that imposition of un-quantified penalty is not tenable. The Respondent No, 1 has not examined this issue at all
8. Case law quoted in the Additional submissions has not been examined No a single judgment has been examined in the impugned Order--in-Appeal while the Appellant has submitted and explained 36 judgments in support of his case. It is settled law that the principles of law enunciated by Superior Courts are binding on lower judicial, fora under Articles 189 and 201 of the Constitution of the Islamic Republic of Pakistan.
9. The Appellant craves to grant of permission to raise additional grounds at the time of hearing and also explain if any further points are raised by the department.
PRAYER In view of the above submissions, it is humbly prayed that the show-cause notice. Assessment Order and impugned Order-in-Appeal passed by the Respondents may kindly be set aside. It is also prayed that the operation of the impugned Assessment Order/Order-in-Appeal No,53S dated 20-05-2016 may be suspended.
2. Brief facts of the case are that Messrs Sukkur Electric Power Company Limited, Sukkur as a distributor of electrical energy engaged in the supply of electrical energy to the registered and unregistered persons. The perusal of the audited accounts of the Messrs Sukkur Electric Power Company Limited, Sukkur having NTN: 3801689-3 revealed that Messrs Sukkur Electric Power Company Limited, Sukkur had an outstanding liability payable of Sales Tax to the tune of Rs,17,158,836,157/-. The figure mentioned supra reflected in Note 10 and Note 16 of the audited accounts for the tax period from July, 2013 to June, 2014 to the tune of Rs, 12,246,199,442/- and Rs, 4,916,636,715/-respectively; Note 10 mentions the same as Sales Tax not realized and Note 16 mentions General Sales Tax receivable. The cumulative liability to the tune of Rs, 17,158,836,157/- during the above said tax period duly reflected in the audited accounts was payable by the M/s. Sukkur Electric Power Company Limited, Sukkur, nonetheless, the same was short paid by Messrs Sukkur Electric Power Company Limited, Sukkur. Thus contravened the provisions of sections 3, 6, 11, 22, 23 and 26 of the Sales Tax Act, 1990 and short payment of sales tax at Rs,17,158,836,157/- in violation of sections referred above was liable to be recovered under section 11(2) along with default surcharge (to be calculated at the time of payment) under section 34(1) besides the imposition of penalty as provided at S. Nos,05 and 06 to the table given in section 33 of the Sales Tax Act, 1990. This amount was charged by the DCIR vide Order-in-Original dated 02-07-2016 in the following manners; "20. The perusal of the record and the summary of the sales tax paid for the tax period from January, 2012 to June, 2014 viz-aviz accretion in the liability do not match and reveals staggering difference. The total Sales Tax paid after adjusting output tax from input tax is Nil, whereas, the accretion in the sales tax liability declared with the immediately preceding tax year is Rs,2,048,840,930/-. The contention of the taxpayer that no sales tax liability is payable as per sales tax return cannot be accepted in the face of the facts that the R/P himself has declared the Sales Tax liability to the tune of Rs, 12,246,119,442/- under the Head trade and other payable to the audited accounts. The R/P's assertion that the department needs to focus on sales tax issues on the basis of sales tax returns, as per law is not tenable in the face of the diametrically different declaration in the audited accounts, which reflects the financial position of the company. The contention of adjusting entry, contra entry and no sales tax payable merely mentioning in the audited statements is not tenable as per substantive law and accounting principles, hence, rejected. Thus the tax liability to the tune of Rs,12,246,119,442/- is payable by the R/P as per his own declaration."
3. Being aggrieved with the order of the DCIR, the taxpayer/ appellant filed appeal before the Commissioner (Appeals), who vide his B order dated 20.05.2016 upheld the impugned order and dismissed the appeal in the following words; "5. On the basis of the above, I find that the impugned Order-in-Original has rightly pointed out and established the outstanding payable amount of sales tax from the audited annual accounts of the appellant, which are considered the most authentic records. Therefore, I am inclined to hold that the Order-in-Original is correct, both on legal and factual basis and the same needs no interference. As such, the appeal filed by the appellant is hereby dismissed being devoid of merit and the Order-in-Original is upheld."
4. Being dissatisfied with the order of the Commissioner (Appeals) the taxpayer/appellant has come up to this forum for redressal of his grievances.
5.On the date of hearing, Mr. Hussain Ahmed Shirazi, Advocate appeared on behalf of the taxpayer while Mr. Farhan Badar Solangi, D.R attended the case on behalf of the department.
6.The learned A.R. of the taxpayer discussed and argued upon the above grounds filed by the taxpayer. During the course of hearing, the learned A.R. filed following written statements and relied on case laws mentioned in it; "WRITTEN ARGUMENTS IN APPEAL UNDER SECTION 46 OF THE SALES TAX ACT, 1990 AGAINST THE ORDER-IN-APPEAL NO.53S DATED 20-05-2016 PASSED BY THE RESPONDENT NO.1 SALES TAX NOT YET REALIZED Respectfully sheweth:- 1.Rs. 1,224,611,942 in fact relate to amount already deposited by SEPCO/HESCO in the State exchequer but not paid by the consumers - Affidavit - Explanation by the Appellant's Auditors - Pattern of accounting prescribed by WAPDA and followed by other Power Distribution Companies That the affidavit of Mr. Imdad Ali Mirani, Finance Director, Sukkur Electric Supply Company, Sukkur fully explains the genesis of Rs, 12,246,119,442. The averments made in the affidavit have not been disputed by a counter affidavit before the Commissioner Inland Revenue (Appeals), Quetta and hence these averments stand legally proved/admitted. The contents of affidavit are reproduced hereunder for ready reference; "AFFIDAVIT Subject: Appeal filed by M/S Sukkur Electric Power Company Ltd., (the SEPCO) against Order-in- Original No,21/2015 dated 15-07-2015 passed by the Deputy Commissioner Inland Revenue, Audit-I, Zone-I, Regional Tax Officer, Queens Road, Sukkur.
1. That I, Imdad Ali Son of Muhammad Saleh, RIO Village Masso Khan Awan holding CNIC No, 45102- 1426955-3 DO HEREBY SOLEMNLY DECLARE AND AFFIRM AS UNDER:
2. That I am qualified Cost and Management Accountant (ACMA).
3. That I am working as Finance Director (Additional Charge) in Sukkur Electric Power Company Ltd. (SEPCO) since 2012.
4. That I was actively associated in the audit of accounts of the SEPCO for the Financial Years 2011- 2012, 2012-2013, 2013-2014 by Riaz Ahmed & Company, 108- 109, 1st Floor, Park Avenue, Block-6 P.E.C.H.S, Shahrah-e-Faisal, Karachi and three Audit Reports (the Audit Reports) were finalized for the aforesaid financial years.
5. That the SEPCO charges and collects sales tax from the consumes of electricity on billing basis under Rules 14(1) of the Sales Tax Special Procedure Rules, 2007 reproduced below: "14. Filing of returns and deposit of sales tax. ---In case of WAPDA and KESC, sales tax levied and collected under rule 13 during a tax period shall be deposited on 'accrual basis' i,e, the amount of sales tax actually billed to the consumers or purchasers for the tax period "
6. That the SEPCO had paid the entire amount of sales tax relatable to the electricity bills of consumers to the Government and I have not come across any instance where sales tax payable by electricity consumers has not been deposited in the State Exchequer.
7. That there appears to be some confusion as to the following entries in the Audit Reports for the financial year ended on 30th June 2014:-
(i) Note 10. TRADE AND OTHER PAYABLES on page 22 of the audit report----Sales tax not yet realized = Rs, 12,246,119,442
(ii) Note 16. ADVANCES AND OTHER RECEIVABLES on page 27 of the Audit Report---Sales tax not yet realized - Rs,12,246,119,442 A show-cause notice was issued wrongly attributing the above figures to the sales tax not realized from the consumers and hence not deposited in the State Exchequer. Ultimately the Order-in- Original No,21/2015 dated 15-07- 2015 determined the sales tax liability of Rs, 12.246 Billions on the false pretext that this amount relates to sales tax not realized from the consumers and not paid to the Government.
8. That the figure Rs, 12.246 Billions in fact relates to the sales tax billed to the consumers and deposited in the State Exchequer while this amount has not been paid by the consumers to the SEPCO because the recovery position of the SEPCO is very poor. It is further added that the figure of Rs, 12.246 Billions is bifurcated as follows:- (i)Amount deposited by the SEPCO in State Exchequer but not realized from the consumers of the SEPCO = Rs, 5,022,946,792 (ii)Amount of similar sales tax transferred to the SEPCO by the HESCO at the time of incorporation of the SEPCO = Rs, 7,223,172,649 (A copy of detailed statement is enclosed)
9. That in view of the aforesaid explanation it is deposed that the amount of Rs, 12.246 Billions in fact is the sales tax already deposited in the State Exchequer but not realized by the SEPCO from electricity consumers. Deponent Verified on oath at Sukkur on this 26th day of April, 2016 that the contents of the above 9 paras are true and correct to the best of my knowledge, information and belief. "
Reliance is placed on:-- i. 1986 CLC 1408 - M. Farooq Memon v. Government of Sindh through its Chief Secretary, Karachi--- Non-filing of counter affidavit to controvert facts stated in petition, held, would amount to admission of averments made in such petition. ii. 1999 MLD 90---Abdus Salam Butt v. lqbal Razzaq Butt and 5 others that affidavit is considered sufficient prima facie proof and if not rebutted by cogent evidence, it becomes conclusive proof iii. 2001 MLD 1257---Mst. Bushra Sadiq v. Karachi Development Authority through Director General and others that statement supported by an affidavit ought to be accepted unless rebutted by another statement on oath. qv. 1986 CLC 745---Anwar All and 9 others, v. Chief Engineer, Irrigation, Sukkur Zone, Sukkar and 2 others---Facts stated in petition when not controverted by counter affidavit, it would, held, be accepted as established.
1.2 The Appellate authority has attached gospel truth status to the misinterpretation of the audited accounts but has not at all examined the clarification of the relevant entries by the SEPCO's Auditors, M/s Riaz Ahmad and Company, Karachi who have categorically disproved the charges of non-payment of the sales tax amounting, to Rs, 12.246 Billion in the letter dated 06-05-2016 addressed to the Commissioner Inland Revenue (Appeals), Quetta/Sukkur.
1.3The pattern of accounting showing the sales tax deposited in the State exchequer but not paid by the electricity consumers in the Column "Sales Tax not yet realized", has been prescribed by WAPDA and is being followed in all the DISCOs. Copies of financial statements for the period ending 30-06-14 relating to 3 other power distribution companies have been enclosed.
1.4 No presumptions or intendment as to tax - Tax liability based on misinterpretation of entries in accounts The subject case is unlawfiilly based on presumptions, intendment and misinterpreted entries in accounts and hence untenable. Reliance is placed on:- i. 2015 PTD 1010 (Supreme Court of Pakistan)---AL- Hamza Ship Breaking Co. and 14 others v.
Government of Pakistan through Secretary Revenue Division, Ministry of Finance, Islamabad and others---Tax has to be collected in accordance and only in accordance with law. ii. 2004 PTD 868---Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise and another---Sales tax liability could not be assessed/imposed solely on the basis of Bank statements of the registered person without any corresponding taxable supply made in the course of taxable activity. iii. 2016 PTD (Trib.) 445---Messrs Sarhad Resturant, Lahore v. CIR (Appeals-III), Lahore---No room for any intendment existed and there was no presumptions as to tax---In absence of any deeming provision, Revenue was required to establish that a transaction fell within parameters of taxable supplies or in furtherance of any taxable activity failing which sales tax imposed on basis of some assumption or presumption not warranted in law should always be struck down. iv. 2012 PTD (TRIG.) 478---Messrs Peacock Restaurant v. CIR, LTU, Islamabad etc.---Passing an order on the basis of conjecture is not correct at law. v. 2008 SCMR 402 ---Haji Sultan Ahmed v. CBR, Islamabad and 5 others---Law requires that tax must be levied or charged in clear, unambiguous and specific terms. vi. 2013 PTD (Trib.) 2130---M/s Siddique Enterprises, Faisalabad v. CIR (Appeals) RTO, Faisalabad--- Income tax return including financial statements of a registered person was neither specified as sales tax record under 5.22 or any other provision of Sales Tax Act, 1990 nor was he legally bound to produce record of income tax return in response to show-cause notice issued to him under S. 25 thereof ---Data of income tax return could be used to determine correctness of data provided by registered person in sales tax return, but same could not be used for calculating sales tax liability against him---Impugned assessm ent of sales tax was illegal---Principles. vii.2008 PTD (Trib.) 541---Sales Tax Appeal No, 295/LB of 2007---Income. Tax record could not be made basis for adjudging the liability under Sales Tax Act, 1990---Appeal was accepted by setting aside the order as a result of which the show cause notice was set aside by the Tribunal. viii.2012 PTD (Trib.) 453---The CIR, Faisalabad v. M/s Kamal Fabrics, Faisalabad---Any order which does not contain substantial reason and does not show that it is passed on objective consideration shall always be treated as illegal, void, arbitrary and a result of misuse of authority vested in the public functionary. Annex 12 ix. 2017 PTD (Trib.) 880---Messrs Mashallah Paper Board Mills, Faisalabad---Sales -tax imposed on the basis of some assumption and presumption not warranted in law shall always be struck down.
1.5 Explanation of accounting procedure The Company records payment/adjustment of output tax against input tax separately under the account head "Advance General Sales Tax Paid" creating asset instead of reducing the liability by debiting the "Sales Tax Not Yet Realized". This cumulative "Advance General Sales Tax Paid" is grouped under Trade debts for presentation in the financial statements. Advance General Sales Tax Paid is offset with Sales Tax Not Yet Realized on realization of receivables from consumers. In nutshell, sales tax asset and sales tax liability are overstated in the financial statements. In order to determine the actual sales tax payable / refundable, one has to offset advance sales tax (asset) with the sales tax not yet realized (liability). Sales tax charged to consumers in their respective monthly bills is properly adjusted against input tax and surplus, if any, is paid along with monthly return.
2. Burden of Proof is on the Department Appellant has established by detailed affidavit, statements, expert evidence and record as to how Rs, 12.246 Billions are linked with the sales tax deposited in the State treasury but not recovered from the consumer to whom it was billed. In such circumstances the burden of proof is on the Department to prove beyond reasonable doubt that this amount in fact relates to pertain suppressed/concealed supplies. Reliance is placed on:-- i. 2010 PTD 592---Collector of Sales Tax and Federal Excise v. Messrs Abbott Laboratories (Pakistan)
Ltd., Karachi---To bring the subject to charge and levy of tax, the burden is upon the Revenue to establish that the said subject is chargeable to tax. ii. 2008 PTD 2025---Messrs Abbasi Enterprises and another v. Collector of Sales Tax, Peshawar and 3 others---The burden of proving that the taxable supply has been made by a registered person in the course or furtherance of any taxable activity carried on by him is on the department. iii. 2011 PTD (Trib.) 808---Messrs Pakistan Water and Power Development Authority (WAPDA), Lahore v. CIR Large Taxpayers Unit, Lahore and 2 others---The onus to show that the transaction was chargeable to tax was squarely on the Department.
3. Interpretation favorable to the taxpayer is to be adopted -Doubt to be resolved in favour of taxpayer:- It is settled law that in tax statutes, interpretation favorable to the taxpayer is to be adopted in case of doubt. Reliance is placed on:- i. 1993 SCMR 274 = 1993 PTD 69---Mehran Associates Limited v. CIT, Karachi wherein it was held that a fiscal provision of a statute is to be constructed liberally in favour of the taxpayer and in case of any substantial doubt; the same is to be resolved in favour of the citizen. ii. 2003 PTD 760/2004 STR 369---Messrs Hinopak Motors Limited v. Federation of Pakistan wherein it was held that even if there is any ambiguity, it is to be resolved in favour of the assessee, because of the cardinal principle of the interpretation of tax statutes, that, an assessee is to be taxed by a clear and unambiguous language and if there is any ambiguity or doubt, it is always to be resolved in favour of an assesse. iii. 1996 PTD 489---Rijaz (Pvt) Ltd. v. Wealth Tax Officer, Lahore wherein it was held that It was observed that according to the well-accepted principles of interpretation the doubt has to be resolved in favour of the citizen. iv. 2003 PTD (Trib.) 2525---Appeal No, 1600/LB/2001 wherein it was held that the benefit of doubt always goes in favour of the accused/respondent and never to the prosecution. v. (sic)
4. New e-filing system of sales tax return and computerized record of the SEPCO The computerized system of billing installed in the SEPCO's office is incapable of dumping certain electronic bills to be issued to the consumers in the category which is outside the scope of billing of sales tax to the consumers and payment thereof to the Government under Rule 14 (1) of the Sales Tax Special Procedure Rules, 2007.
5. Audit The subject case was initiated on the basis of the Show-Cause Notice dated 25-05-2015 which states the background of the case as:- "The perusal of audited accounts of Messrs Sukkur Electric Company Limited, Sukkur, reveals that you Messrs Sukkur Electric Company Limited, Sukkur, have an outstanding Sales Tax liability to the tune of Rs, 17,158,836,157/- which is payable by you." The Sales Tax Act, 1990 prescribes a procedure for selection of a taxpayer for audit purposes and our contention as to the Appellant's audit having been conducted without conforming to the relevant legal requirements have not been rebutted. It is pleaded that the self-assessed amount of tax due by the taxpayer in its sales tax returns can only be altered through fresh assessment of tax under Section 11, subject to the process of selection of a taxpayer through audit. The Sales Tax Act, 1990 and the procedure prescribed thereunder vide Sales Tax General Order No, 3 of 2004 dated 12- 06-2004 require mandatory compliance with various formalities to conduct audit of a registered person. Our case has not been selected for audit under Section 25 or Section 72-B of the Sales Tax Act, 1990 and hence the Show-Cause Notice dated 25-05-2015 being coram non judice and without lawful authority, superstructure built on the same falls flat. It is well settled law that question of law can be raised at any stage and the observation in the impugned appellate order that this objection was not raised at the original stage is not tenable. Reliance is placed on:- i. 2005 PTD 480 (Supreme Court of Pakistan)---Caltex Oil (Pakistan) Limited v. Collector, Central Excite and Sales Tax and others---A question of law arising out of the facts of the case relating to the fundamental issues involved therein, even if was not raised before the lower forum, can be allowed to be taken before higher forum. ii. 2005 PTD 1---Messrs LESCO v. The Federal Board of Revenue and others-- The self-assessed amount of tax due by the taxpayer in its sales tax returns can only be altered through fresh assessm ent of tax under section 11, subject to the process of selection of a taxpayer through audit. iii. 2014 PTD 1807--- Taj International (Pvt.) Ltd. and others v. The Federal Board of Revenue---Self- assessm ent system and tool of audit, its scope and mechanism---The tax regulators monitor self- assessm ent system through neutral and impartial tool of audit under section 72B. There is no other mechanism under the Act to lift the veil of self-assessment, protecting the monthly tax return filed by the taxpayer. Once the case of a taxpayer is selected for audit under section 72B, the return is closely scrutinized and on completion of audit if any of the grounds under section 11 are attracted, an assessm ent order is passed against the taxpayer, adjudicating the actual tax liability-- Inquiry or investigation can be initiated on the basis of "information or sufficient material" received by the Commissioner against a taxpayer under proviso to section 25(2) of the Act. iv. 2015 PTD (Trib.) 1777---Messrs Arif Ehsan Printers v. Commissioner Inland Revenue Appeals) RTO, Faisalabad--- Assessm ent of tax---conduct of audit---In the present case, Authority had conducted audit of the appellant/registered person under S. 25 of the Sales Tax on its own, without any prior selection from the Federal Board of Revenue, on the basis of random selection from the Federal Board of Revenue, on the basis of random or parametric criteria under S. 72B of the Sales Tax Act, 1990, which was illegal and without lawful authority. vi. 2015 PTD (Trib.) 1050--- M/s Flame Trend v. Commissioner Inland Revenue (Appeal-Ill), RTO, Lahore---No notice under Ss.25, 38 & 72-B of Sales Tax Act, 1990 was issued to registered person as per law to assume jurisdiction of the case---Impugned Show Cause Notice being coram non judice, and without lawful authority, superstructure built on the same should fall flat. Orders of the both the authorities below, being illegal and void ab initio were cancelled. vii.2013 PTD (Trib.) 954---Messrs Decent Textiles, Faisalabad v. Commissioner (Appeals) Inland Revenue (RTO), Faisalabad--Audit exercise carried out by the DCIR not only without prior selection by the Federal Board of. Revenue under S. 72B of the Sales Tax Act, 1990 but also without lawful notice for requisition of sales tax record under S. 25(1) of the Sales.
Tax Act, 1990 and proper authorization of Commissioner for audit under S.25(2) of the Sales Tax Act, 1990. Whole audit exercise was illegal, unlawful and without legal jurisdiction.
6. Show-Cause Notice and Order-in-Original relate to more than five Years 6.1 The Appellant had argued that the subject case relates ALSO to tax liability linked with the period beyond the 5 years limitation prescribed under Section 11 of the Sales Tax Act, 1990 and is void. This argument has been overruled in the impugned Order-in-Appeal by the suggestion that there is no time limitation for recovery of unpaid Sales Tax. Reliance is placed on:- i. 2010 PTD 251---Messrs Gulistan Textile Mills Ltd., Karachi v. Collector (Appeals) Customs, Sales Tax and Federal Excise, Karachi and another that issuance of show Cause notice more than five years after alleged default in filing of sales tax return was barred by period of limitation and therefore, entire proceedings emanating from this show-cause notice stand extinguished being not maintainable in law. ii. 2012 PTD (Trib.) 1040---Commissioner (Legal Division) Inland Revenue (RTO), Faisalabad v. M/s. Zahid Jee Fabrics (Pvt.) Ltd. Faisalabad---Phrase "shall be served with a notice within five years of the relevant date" conveyed the intention of the legislature that show-cause notice and issuance of the same within five years, was a mandatory requirement for an action under section 36 of the Sales Tax Act, 1990---Even if there was a good case for creation of liability, he will not be dragged in. It is thus evident that sales tax liability beyond 5 years limitation period is untenable.
6.2 This issue has also been rejected in the Order-in-Appeal on the ground that it was not raised at the initial stage. As explained in Para 5(Annex 21), the Supreme Court of Pakistan has held vide judgment titled 2005 PTD 480 (Supreme Court of Pakistan)---Caltax Oil (Pakistan) Limited v.
Collector, Central Excise and Sales Tax and others that a question of law can be raised at appeal stage.
7. No Default surcharge and penalty where there is no evasion/non-payment of due sales tax The Appellant is not liable to pay default surcharge and Renalty provided at S. Nos, 5 and 6 of the Section 33 of the Sales Tax Act, 1990 as there is no evasion of sales tax and no loss of revenue is involved. It is further submitted that imposition of un-quantified penalty is not tenable. The Respondent No,1 has not examined this issue at all. Reliance is placed on:-
(i) 2004 PTD 1179 (S. C.)---D. G. Khan Cement Company Ltd. v. Federation of Pakistan wherein it was held that where nonpayment of the sales tax within tax period was neither willful nor it could be construed to be mala fide evasion of payment of duty, the recovery of additional tax as penalty or otherwise was not justified in law.
(ii) 2009 PTD (Trib.) 500---Messrs Shahmurad Sugar Mills v. The Collector of Customs, Sales Tax and Federal Excise, Hyderabad wherein it was held that there is no justification to impose additional tax and penalty where there is no willful default or mala fide.
(iii)2002 PTD (Trib.) 300---Nestle Milk Pak Ltd. v. Addl. Coll. (Adj.) Multan, wherein it was held that where the controversy between the department and the appellants relates to interpretation of different legal provisions the imposition of additional tax and penalty has no justification.
(iv) 2006 PTD (Trib.) 196---Messrs Cherat Cement v. Collector of Customs, Sales Tax and Central Excise (Adjudication) Rawalpindi wherein it was held that where there is no willful evasion of tax imposition of additional tax or penalty is not justified.
(v) PTCL 1995 CL 415---Messrs Lone China (Pvt.) Ltd. v. Additional Secretary, Ministry of Finance, C.B.R., Karachi wherein it was held that where the petitioner did not act malafidely with the intention to evade the tax, the imposition of penalty of an additional tax and surcharge is not justified.
8. Case law quoted in the Additional submissions has not been examined Not a single judgment has been examined in the impugned Order-in-Appeal while the Appellant has submitted and explained 36 judgments in support of his case. It is settled law that the principles of law enunciated by Superior Courts are binding on lower judicial fora under Articles 189 and 201 of the Constitution of the Islamic Republic of Pakistan. Reliance is placed on:- 2015 PTD (Trib. 1 1174--- Amtex Limited, Faisalabad v. CIR(A), RTO, Faisalabad and another---There is onerous duty on the part of adjudicating and appellate authorities to discuss all issues and dispose off what has been argued otherwise, it will be tainted with mala fide and malpractice putting a speck on its function---A judgment of High Court in-rem is extendable to the cases involving similar facts and circumstances even though they may not be parties to the case before a competent court of law.
9. The other detailed submissions made in the Memo of Appeal are reiterated but not reproduced for the sake of brevity.
PRAYER In view of the above submissions, it is humbly prayed that the show-cause notice, Assessment Order and impugned Order-in-Appeal passed by the Respondents may kindly be set aside. It is also prayed that the stay granted for 60 days in this case on 27-05-2016 may kindly be extended till the decision of this case."
6. On the date of hearing of the case, the learned D.R. also filed following written reply to the arguments of A.R; "Departmental Comments against the memo. of appeal under section 46 of the Sales Tax Act, 1990 against the Order-in-Appeal No,535 dated: 20.05.2016 passed by the Honourable Commissioner (Appeals) Hyderabad.
1. Matter of record 1.2 Matter of Record.
1.3 Perception of any accounting entry by WAPDA will not overrule GAAP/ IFRIS, Companies Ordinance, once any amount is appearing as liability as sale tax payable then its interpretation has to be made and has been made as per GAAP and is established accounting convention.
1.4 Not admitted, sales tax payable as per audited accounts interpreted as on the basis of GAAP and accounting convention and it was not based on perception and intendment.
2. Department fully supports its own idea. It was proved beyond doubt that sales tax payable was a liability as reflected in the balance sheet and upheld by the CIR (A). Therefore, no comments are required by case law reliant by the appellant.
3. As there is no issue of interpretation of law or statute, therefore, the question of favorable consideration does not arise. It is an issue of simple disclosures in the accounts where the taxpayer collected sales tax but failed to pay the same in the Government treasury. Therefore, action of the department was fully justified.
4. Self ascertained and tax is to be charged on the basis of principles laid down in the statues and not on the basis of entries made in the accounts irrespective of the fact that such accounts are maintained electronically or otherwise.
5.
25. Access to record, documents, etc.- (1)A person who is required to maintain any record or documents under this Act or any other law shall, as and when required by Commissioner produce record or documents which are in his possession or control or in the possession or control or in the possession or control of his agent; and where such record or documents have been kept on electronic dal, he shall allow access to the officer of Inland Revenue authorized by the Commissioner and use of any machine on which such data is kept.
(2)The officer of Inland Revenue authorized by the Commissioner, on .the basis of the record, obtained under subsection (1), may, once in a year, conduct audit: Provided that in case the Commissioner has information of sufficient evidence showing that such registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner, to conduct an inquiry or investigation under section 38: Provided further that nothing in his subsection, shall bar the officer of Inland Revenue from conducting audit of the records of the registered person if the same were earlier audited by the office of the Auditor- General of Pakistan.
(3) After completion of Audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section
(5) Notwithstanding the penalties prescribed in section 33, if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge voluntarily, whenever it comes to his notice, before receipt of notice of audit, no penalty shall be recovered from him: Provided if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with default surcharge during the audit, or at any time before issuance of show-cause notice he may deposit the evaded amount of tax, 5 default surcharge under section 34, and twenty five per cent of the penalty payable under section 33: Provided further that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with 5 default surcharge after issuance of show-cause notice, he shall deposit the evaded amount of tax, default surcharge under section 34, and full amount of the penalty payable under section 33 and thereafter, the show cause notice, shall stand abated.
Explanation.---For the purpose of sections 25, 38, 38A, 38B and 45A and for removal of doubt, it is declared that the powers of the Board, Commissioner or office of Inland Revenue under these section are independent of the powers of the Board under section 72B and nothing contained in section 72B restricts the powers of the Board, Commissioner or Officer of Inland Revenue to have access to premises, stocks, accounts, record, etc. under these sections or to conduct audit under these sections.
11. 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 office of Inland Revenue shall, after a notice to show cause to such person, make an order for assessm ent 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 p[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 this Act for reasons other than those specified in subsection (1), an officer of Inland Revenue shall after a notice to show-cause to such person, make an order for assessment of 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 sections 33 and 34,
(3) where by reason of some collusion or deliberate Act any tax or change 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 fund erroneously made shall be served with the notice requiring him to show cause for payment of the amount specified in the notice.
(3)Where, by reason of any inadvertence, error or misconstruction may tax or charge has not been levied or made or has been short- levied or has been erroneously refunded, the person liable to the amount of tax or charge 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 levied 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 default specifying the grounds of 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 provided 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 ninety 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 in subsection (1), where a registered person fails to file a return, an 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 his section, the expression - relevant date II 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 is refund.
72B. Selection of audit by Board.-
(1) The Board may selects persons or classes of persons for audit of tax affairs through computer allot which may be random or paramtric as the Board may deem fit. (2) Audit of tax affairs of persons selected under subsection (1) shall be conducted as per procedure given in section 25 and all the provisions of this Act shall apply accordingly. (3) For the removal of doubt, it is hereby declared that the board shall be deemed always to have had, the power to select any persons or classes of persons for audit of tax.
Case laws discussed 2015 PTD 1 Messrs LESCO v. FBR This case law relates to section 11-A of the Sales Tax Act, 1990. In this case law Court tries to impose restrictions which has not been imposed in the legislature (Indian Supreme Court)
Case law is based on issue of 11A not 11 therefore, observation of court for section 11 are not ratio decidendi but the obiter decta which is not binding.
2014 PTD 1807---Messrs Taj International (Pvt.) Ltd. v. FBR This case law is irrelevant.
2015 PTD (Trib.) 1050 Messrs Flame Trend v. Commissioner Inland Revenue (Appeals-III), RTO, Lahore discussed the issue of fake/flying invoices, facts and circumstances are different does not match with any case laws.
6. That the appellant's contention regarding more than five years is not correct and it is within the time limitation under section 11(5) of the Sales Tax Act, 1990. The appellant's stance regarding limitation on transfer of liability to the SEPCO from HESCO at the time of incorporation at Rs, 7,223,172,649/- does not have any relevance regarding time limitation of issuance of show-cause notice is discussed at Point - 4(b) of the order of Commissioner (Appeals) Sukkur.
PRAYER In view of the above stated position, it is, prayed that this Hon'ble Tribunal IR Karachi may graciously be pleased to reject the appeal and pass the order for recovery, otherwise the Department will suffer an irreparable loss as the matter is related to and connected with recovery of a huge legitimate government revenue payable by the Appellant."
7. However, the learned A.R. submitted following Additional Written Arguments to rebut the department's comments; "ADDITIONAL WRITTEN ARGUMENTS TO REBUT DEPARTMENT'S COMMENTS SUBMITTED ON 30-08- 2016 IN APPEAL UNDER SECTION 46 OF THE SALES TAX ACT, 1990 AGAINST THE ORDER-INAPPEAL NO.53S DATED 20-05-2016 PASSED BY THE RESPONDENT NO.1- SALES TAX NOT YET REALIZED Respectfully sheweth:-
1. The Departmental Comments submitted on 30-08-2016 are self-contradictory. These comments comprise of 3 1/4 pages while 2 pages have been exclusively used in Para 5 thereof to verbatim reproduce Sections 25, 11 and 72-B of the Sales Tax Act, 1990 without any observation or explanation !
2. That the Departmental Comments in Paras 1, 1.2, 1.3, 1.4, 2 and 3 rely on GAAP (Generally Accepted Accounting Principles - a collection of commonly-followed accounting rules and standards for financial reporting), IFRS (International Financial Reporting Standards - designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries), audited accounts, balance sheet and disclosure in the accounts while. Para 4 thereof contradicts these observations by stating:-- "4. Self ascertain and tax is to be charged on the basis of principles laid down in the statutes and not on the basis of entries made in the accounts irrespective of the fact that such accounts are maintained electronically or otherwise."
Accordingly the Department's comments in Para 4 fully endorse the viewpoint of the Appellant as it is stated that the tax is to be collected keeping in view the principles laid down in the law and not on the basis of entries made in the accounts.
3. That the Appellant has relied on 34 judgments in the written arguments and copies thereof were provided to the Departmental Representative on - 23-08-16. The Department has only commented on 3 judgments thus admitting the applicability, of remaining 31 judgments - Even the comments on the 3 judgments are not tenable as discussed in Para 11 of these Additional arguments.
4. The Department in its comments dated 30-08-2016 on Para 1 and Para 1.2 of the Memo of Appeal has only commented that these Paras are "matter of record" while the SEPCO have explained in detail in these Paras that Rs, 12,246,119,424 in fact relate to amount already deposited by SEPCO/HESCO in the State exchequer but not paid by the consumers.
5. The concept of going concern and accrual accounting system being followed by the SEPCO is of Generally Accepted Accounting Principles (GAAP). As per accrual system of the GAAP, SEPCO has filed the returns of GST for the following years.
Sr.
No.Tax Year Sale of ElectricityGST BilledGST Return 1 FY 2011-12 10,921 M 1,747 M 1,747 M 2 FY 2012-13 26,374 M 4,220 M 4,220 M 3 FY 2013-14 25,727 M 4,613 M 4,613 M The billing and recovery position of the SEPCO for the last two years are as under: YEAR BILLING COLLECTION % OF [RS IN M] [RS IN M] COLLECTION 2012-13 33,022 17,711 53.6 2013-14 33,933 19,885 58.6
6. The Respondent No,.1 has based his decision on the financial statement (for the year ending on 30 June 2014) of the Appellant prepared by the Auditors of the Appellant (M/s. Riaz Ahmad and Company, Karachi) but has IGNORED the clarification of the relevant entries by the Auditors of the Appellant. The same Auditors of the Appellant have firmly disproved the charges of non-payment of the sales tax amounting to Rs, 12.246 Billion in the letter dated 06-05-2016 addressed to the Commissioner Inland Revenue (Appeals), Quetta/Sukkur.
7. At Para 1.4 of the Memo. of Appeal (page 7 of the paper book), the Appellant has relied on a number of judgments wherein non-filing of counter affidavit to controvert facts stated in the petition is considered as admission of averments made in such petition. The Department has not commented on the judgments relied upon by the Appellant.
8. The Respondent/Department with mala fide intention has not commented on Paras 1.5. We have explained in detail the accounting procedure adopted by the SEPCO at Para 1,5 of the Memo. of Appeal.
9. The Respondent No,1 in his comments at Para 2 has stated that sales tax payable was a liability as reflected in the balance sheet. These comment of the Respondent are contradictory with the comments of the Respondents at Para 4.
10.The Appellant at Para 5 on Page 13 of the Memo. of Appeal contended that the audit of the Appellant is conducted without conforming to the legal requirements and is unlawful. The Department at Para 5 of the Comments have not rebutted the stance of the Appellant. Rather they have quoted sections 25, 11 and 72B of the Sales Tax Act, 1990. The Department has ONLY commented on 3 judgments relied upon by the Appellant which relates to the legal requirements of conducting the audit of a registered person which are fully applicable to the case of the Appellant and are discussed below:-- a) PTCL 2014 CL 710---Messrs LESCO v. The Federal Board of Revenue etc. It has been pleaded by the Department that this case relates to Section 11A and not Section 11 of the Sales Tax Act, 1990 and hence not applicable. The Departmental Comments simply mention Indian Supreme Court in a bracket without any reference to the citation of a case and thus it is not possible to comment on an untraceable and unidentified judgment. Our 1973 Constitution is essentially based on the principle of separation of powers where the legislature makes the law, courts interpret the law and the executive enforces the law. Under Articles 189 and 201 of the 1973 Constitution the principle of law laid by the courts are binding on all subordinate tribunals. In our opinion the court has promulgated a principle of law relating to audit in this judgment as follows:-- "The self-assessed amount of tax due by the taxpayer in its sales tax returns can only be altered through fresh assessment of tax under section 11, subject to the process of selection of a taxpayer through audit." b)2014 PTD 1807---Taj International (Pvt.) Ltd. and others v. The Federal Board of Revenue.
The Department has only commented that this case law is irrelevant and no reason has been given at all to substantiate this comment. However it was held in this judgment that inquiry or investigation against a registered person can only be initiated on the basis of "information or sufficient material" received by the Commissioner against a taxpayer under proviso to section 25
(2) of the Act i,e, the procedure for Audit as provided in sections 25 and 72-B of the Sales Tax Act, 1990 is to be adopted. c)2015 PTD (Trib.) 1050---Messrs Flame Trend v. Commissioner Inland Revenue (Appeal-III), RTO, Lahore--- The departmental comments have objected that facts and circumstances of the two cases are different. However we are relying on this judgment on a point of law relating to Audit. In this case, the Adjudicating Authority passed order under sections 11(2) and 2 (37), without issuing notices under sections 25 and 38 of the Sales Tax Act, 1990 and directed registered person to pay the remaining amount of sales tax along with default surcharge and penalty. Similarly, in our case no notice under Section 25 or Section 72B of the Sales Tax Act, 1990 was issued to the Appellant. The case law relied upon is therefore applicable to the facts of our case as the issue decided in this judgment by the Tribunal is that prior notice under section 25 or Section 72B is mandatory for conducting audit of the registered person.
11. At Para 6 of the Comments, the Respondent No, 1 has stated that the Appellant's contention regarding more than five years is not correct and it is within the time limitation under section 11(5) of the Sales Tax Act, 1990. It is argued that it is clearly mentioned in Section 11(5) that no order under this section shall be made by an officer of the Inland Revenue unless a notice to show-cause is given within five years. Therefore, Appellant's contention that the show cause notice is hit by limitation is correct. However it is a fact that a portion of the "sales tax not yet realized" of Rs, 7,223,172,649/- by the HESCO relates to more than 5 years in the past.
12. The detailed submissions made in the Memo of Appeal dated 2'4-05-2016 and Written Arguments dated 23-08-2016 by the Appellant are reiterated but not reproduced for the sake of brevity. PRAYER In view of the above submissions, it is humbly prayed that the show-cause notice, Assessment Order and impugned Order-in-Appeal passed by the Respondents may kindly be set aside."
7. On the other hand, Mr. Farhan Badar Solangi, D.R vehemently opposed the contentions/grounds made by the counsel of the taxpayer. He argued that the order passed by the learned CIR(A) is well within the framework of law and carries no illegality, irregularity or infirmity in it
8. We have heard the arguments advanced by both the representatives and have also perused the available record of the case. We are of the view that the Order-in-Original has been passed for the period from January 2012 to June 2014 (30 Months) whereas sum treated as unpaid Sales Tax liability is upto 30-06-2014. This includes unpaid liability (if said so) of predecessor HESCO prior to January 2012. The period of Order-in-Original covers the amount unpaid Sales Tax to Rs, 5,022,946,775 and balance amount falls outside the periodical scope of impugned Order-in- Original. The balance amount of Rs,7,223,172,649 is not covered by the present Order-in-Original as it relates to the period upto December, 2011.
9. Without prejudice to above, we called for information in respect of revenue recognition, Sale's Tax payments and accounting treatment of some relevant B/f entries. This reveals the following position; SUKKUR ELECTRIC SUPPLY COMPANY For the period from January-2012 to June 2014 Sales Tax Receivable in A/c 12,249,119,442 Sales Tax Liability in A/c 12,249,119,442 Op. Balance. As on 31- 12-2011C/Balance As on 30th June, 2014 A/c Note 10.13 7,223,172,649 12,246,1 19,442 A/c Note 16.2 7,223,172,649 12,246,1 19,442 For the period from January 2012 to June 2014
(i) Amount of Revenue billed. Rs, 64,429,869,816
(ii) Revenue Recognition. Rs, 64,639,999,264 (iii)Sales Tax Payable. Rs, 10,580,132,195 (iv)Sales Tax Input Claimed. Rs, 15,470,430,536
(v) Net Amount of Sales Tax Paid. Rs, (4,890,298,341)
(vi)Revenue recognized but not received (Receivable)Rs, 30,395,162,125 (vii)Sales Tax Paid/Offered but not received from customers.
(Receivable)Rs, 5,022,946,792 10.We are also convinced of taxpayer's accounting presentation in para-1.5 page-6 of this order.
This is an accepted arrangement in the case of parallel entities like Multan Electric Supply Company (MESCO), Quetta Electric Supply Company (QESCO) and (FESCO) Faisalabad Electric Supply Company.
On the contrary, department has not been able to rebut the same despite the fact that case heard on 11.08.2016, 23.08.2016 and 30.08.2016 and ample opportunities were granted.
11. In the context of foregoing and mainly relying on the judgment of. Hon'ble Sindh High Court reported as 2004 PTD 868 and 2013 PTD (Trib.) 2130 particularly when the two officers below relied on accounts and subsequently failed to dislodge the explanation of taxpayer, we set aside the impugned order with the directions to the concerned OIR having jurisdiction over the instant case, to re-examine the impugned claim of payment of sales tax in the light of above discussion and allow the claim of payment strictly in accordance with law on merit to the extent of examination and verification of evidence of payment made by SEPCO to the government treasury during the relevant tax period involved in the order-in-original.
12.Last but not the least it would be a better course to select the case for Audit for any period in terms of section 25 of the Sales Tax Act and thoroughly examine the pattern of accounting disclosure, matching it with monthly Sales Tax returns and reasons for absolute adjustment of input against output with no value addition despite substantial activities of the entity. Besides this, the DCIR may also obtain Audit reports under section 25 of parallel entities at Faisalabad, Multan and Quetta if any.
Appeal is allowed as above.