CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).---The titled sales tax appeal has been preferred by the taxpayer under section 46 of the Sales Tax Act, 1990 calling in question the impugned Order- in-Appeal No,220/2016 dated 01-03-2016 passed by the learned Commissioner Inland Revenue (Appeals), Faisalabad pertaining to Tax Periods 11/2013 to 01/2015 have agitated the respective grounds for the tax periods as set forth in the memo. of grounds of appeal.
2. Briefly stated facts of the case are that the registered person is engaged in the business of sales of imported goods and falls under FTR vide S.R.O. No,645(1)/2007 dated 27-06-2007. He added that in compliance of letter dated 09-07-2015, it was explained in detail before the respondent that at Government collected at import stage tax at the rate of two percent of the value of goods imported by commercial importer in addition to the tax chargeable under subsections (1) and (2) of section 3 of the Act and therefore no sales tax shall be charged from the said importers on subsequently supply of goods imported by them. He further added that as per Rules 58A, 58B, 58C 58D and 58E titled as Special Procedure for Payment of Sales Tax by Importers are deals the such situation as the registered person. However, while passing the Order-in-Original the adjudicating officer has not considered the submission made by the registered person. Therefore, charge levelled in the show-cause notice is held established and recoverable under sections 11(2) and 11(3) of the Sales Tax Act, 1990.
3. Feeling aggrieved from the Order-in-Original appellant filed appeal before the Commissioner Inland Revenue (Appeals), RTO, Faisalabad, whereby the appeal instituted on behalf of the appellant was disposed-off with the following words; "The appeal on the other hand is found devoid of any merit and is thus rejected and the impugned order is allowed to rednain in the field accordingly". Being dissatisfied with the treatment meted out by the first appellate authority; hence this appeal has been preferred before the Appellate Tribunal by the appellant.
4. Learned Council of the appellant has contended that the treatment meted out by both the authorities below is erroneous and without application of judicial mind and it is liable to be annulled. He has further contended that the unit of the registered person falls under FTR and is not required to pay any further tax as at import stage value added tax has already been charged by the customs authorities. Also all the proceedings under sections 11(2) and 11(3) may please be declared illegal as per the decision of higher appellate forums. On the contrary the learned DR appearing on behalf of the department has supported the impugned order passed by the adjudicating authority for the reasons recorded therein.
5. We have heard the arguments put forth by the rival parties of both the sides and have carefully gone through the available record.
6. For facility, sections 7(A) and 71 of the Act, S.R.O. No,645(I)/2006, Rule 58B and Rule 58B(2) are reproduced as under:-- "7A, Levy and collection of tax on specified goods on value addition.--
(1) Notwithstanding anything contained in this Act or the rules made there under, the Federal Government may specify, by notification in the official Gazette, that sales tax chargeable on the supply of goods of such description or class shall, with such limitations or restrictions as may be prescribed, be levied and collected on the difference between the value of supply for which the goods are acquired and the value of supply for which the Goods, either in the same state or on further manufacturer, are supplied.
(2) Notwithstanding anything contained in this Act or the rules made there under, the Federal Government may specify, by notification in the official Gazette, that sales tax chargeable on the supply of goods of such description or class shall, with such limitations or restrictions and procedure mentioned therein, specify the minimum value addition required to be declared by certain persons or categories of persons, for supply of goods of such description, or class as may be prescribed, and to waive the requirement of audit or scrutiny of record if such minimum value addition is declared."
"71, Special procedure.-- (1) Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette prescribed special procedure for scope and payment of tax, registration, book keeping and invoicing requirements and returns, etc; in respect of such supplies as may be specified therein." "58B. Payment of sales tax on account of minimum value addition.-- (1) The sales tax on account of minimum value addition (hereinafter referred to as value addition tax in this Chapter) shall be levied and collected at import stage on goods as specified aforesaid at the rate of three per cent of the value goods in addition to the tax chargeable under section 3 of the. Act or a notification issued thereunder."
"58B(2). The value addition tax paid at import stage shall form part of input tax, and importer shall deduct the same from the output tax due for the period, subject to limitations and restrictions under the Act, for determining his net liability. The excess of input tax over output tax shall carried forwarded to the net tax period as provided in section 10 of the Act."
"58C(1). In no case, the refund of excess input tax over output tax, which is attributable to tax paid at import stage, shall be refunded to a registered person."
"SRO. 645(1)/2007.- In exercise of the powers conferred by subsection (5) of the section 3 of the Sales Tax Act, 1990 read with section 7A thereof, and in supersession of Notification S.R.O.
468(1)/2007, dated the 9th June, 2007, the Federal Government is pleased to direct that sales tax shall be levied and collected at import stage at the rate of two per cent of the value of goods imported by commercial importers in addition to the tax chargeable under subsections (1) and (2) of section 3 of the said Act and thereafter no sales tax shall be charged from the said importers on subsequently supply of goods imported by them."
6. A combined reading of these provisions makes it clear that these relate to allowance of tax credit to a registered person. In other words, an importer is held entitled to deduct import tax paid during a tax period for the purposes of taxable supplies made, from the output and the value addition tax paid at the import stage shall from part of the input tax. The only caveat is that the refund of excess input tax over output tax shall not be refunded to a registered person.
7. Reliance was made on a judgement of Honourable High Court Lahore in a case reported as 2016 PTD 346 (Lahore High Court); their Lordship has held that:-- "15. When provisions of sections 7, 7(A), 8 and 10(1) of the Act and S.R.O. No,645(1)/2006 are read in juxta position it becomes quite clear that registered person covered under SRO No,645(1)/2006 is to pay the final tax due on fixed value addition and not on "minimum value addition", therefore, the petitioner would not be entitled to any such refund or set off of input tax paid by petitioner in relation to purchase of further goods and services used in further value addition undertaken by the petitioner under section 7 of the Sales Tax Act, 1990. Further, the question of adjustment of input tax and consequently refund of the petitioner under the regime of SRO No,645(1)/2006 is not tenable. The liability under SRO No,645(1)/2006 should be considered to be a final tax liability."
8. By placing reliance on a judgment of Honourable Lahore High. Lahore in a reported as 2016 PTD 152; their Lordship has held that:-- "25. The fact in Amreli Steel (Pvt.) Ltd. and others v. Federation of Pakistan and others (2004 PTD 2930) and the issue of law involved was also distinct in the present case. However, the following observations are relevant:-- " The matter of fact is that, the vast majority of business transactions in Pakistan belongs to undocumented/unorganized sector and therefore in order to bring such section into the tax net, it was incumbent to evolve a formula and devise the methods whereby they could brought into the tax net in a pragmatic manner. In order to cater this necessity, the Legislature in its wisdom enacted section 7A and in pursuance thereof, the Federal Government framed the rules contained in Chapter 12 of the Rules for the purposes of determining value to supply in the undocumented/unorganized sector."
26. In view of above, the petition is accepted. The impugned notices issued by the respondent in respect of the payments of value addition tax are hereby declared without lawful authority and of no legal effect. The demand for the payment of value addition tax vide demand show-cause notices is also set-aside."
9. As regard 'the issue of notice under sections 11(2) and 11(3) of the Act. For sake of facility the said section is reproduced as under:-- Subsections (2) and (3) of section 11 of the Sales Tax Act 10.(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 deterniine 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 a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show-cause for payment of the amount specified in the notice.
10. Provision of section 11 stipulate different conditions for issuance of notice under section 11 of the Act; firstly, the registered person fails to file the return; secondly the registered person has not paid the tax due on supplier or made short payment or has claimed input tax credit or refund which is inadmissible; thirdly specific charge of collusion or deliberate act" was levelled in the subject show-cause notice and fourthly any inadvertence, error or misconstruction, any tax or charge has not been levelled. In absence of any detail or proper allegation regarding the above situations if assessm ent is made subsection (2) or (3) of section 11 and there are reasons to believe that any of the aforementioned defects exists in assessment of tax. The impugned order dated 10- 07-2015 under sections 11(2) and 11(3) of the Act, which is misconceived; as under the law, the adjudicating authority is required to apply his mind cautiously and to indicate the registered person under section 11(2) or 11(3) under what reason; its assessment of tax is sought; as assessm ent of tax in a case to some extents a penal action; so the registered person be prepared to meet the consequences of an assessment of tax.
11.Reliance was made on a judgment of the Honourable Supreme Court of Pakistan in a case of Assistant Collector Customs, Dry Port, Peshawar and others v. Messrs Khyber Electric Lamps MFG Co. Ltd., Peshawar reported as 2001 SCM R 838; their Lordship has held that:-- "Show-cause notice notices under subsections (2) and (3) of Section 32 of the Act are two distinct and separate types of notices as different grounds and different period for service of notice in each subsection has been prescribed. Under subsection (2) for non-levy, short levy or erroneous refund, specific allegations of any collusion between assessee and the Customs Staff has to be levelled with proper particulars in the show-cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy, short levy or erroneous refund is done due to inadvertence, error or misconstruction then show-cause notice to the importer has to be served within six months of the non/short levy. If such specific particular are not stated in the notice, the notice would be vague and would not be consonance with the requirement of subsections (2) and (3) of the Section 32 of the Act. The show-cause notices dated 16-07-1995 and 29-08-1995 in Civil Appeals Nos,1360 to 1361 of 1997 do not speak that respondents made the declaration/statement knowingly or having reason to believe that they were untrue/false in any particular. Section 32 of the Act to show that the declarant had the knowledge or had the reason to believe that declaration or statement made by him was untrue/false and in absence of such allegation notice would be vague and would not be in accordance with law."
12. As the notice prima facie is defective and the error is not curable as it does not indicate the reason to reassess the already assessed tax in the hands of the registered person. Hence, the impugned show-cause notice, being illegal ab initio, the proceedings initiated on the basis of the said notice are set aside.
13.Keeping in view the above discussion and the case laws cited supra, the impugned orders of the both the authorities below are illegal and void ab initio are hereby cancelled. This being so, appeal filed by the registered person is accepted as prayed for.