CH. SHAHID IQBAL DHILLON, JUDICIAL MEMBER.---The titled appeal at the instance of learned Commissioner IR, Zone-III, Faisalabad before this ATIR; Lahore is filed against Order-in-Appeal No, 506/2012 dated 15-11-2012.
2. Briefly facts of the case as succinctly ascribed on record and also put forth during the course of hearing by the Inland Revenue are that on scrutiny of sales tax record for the period from December-2009 to June-2010, it is purportedly revealed firstly that the respondent has received sales tax refund of Rs, 74,005/- against electricity bills which neither contain sales tax registration number nor the name of registered person on it. Secondly, the registered person has also received refund of Rs, 52,984/- against the invoices of chemical namely caustic soda without its consumption in manufacturing process as this chemical is not being used by the other units engaged in similar kind of business. Thirdly, the respondent has allegedly received refund of sales tax worth Rs, 295,534/- against excessive and unrealistic consumption of chemicals which has not been actually consumed to the extent of its use as claimed by the respondent in his manufacturing process.
3. During further probe of record as claimed by Inland Revenue, it has ostensibly detected that the respondent has shown more production instead of its actual capacity so as to claim and to receive excessive refund of sales tax thereon. In view of what has been stated above, recovery of refunded amount of sales tax in its aggregate which works to Rs, 422,523/- is made adjudged by Inland Revenue under the provisions of section 11(2) of the Act through its Order-in-Original No, 02/2012 dated 09-06-2012. Being aggrieved, the registered person at the first instance has filed an appeal before the Commissioner of Appeals, Faisalabad who has accepted it just on legal plane that once any amount of sales tax is refunded, its recovery can't be adjudged under section 11(2) of the Act instead it was to be made under section 36(1) in case of tax fraud or under section 36(2) ibid in all other cases as remained applicable during the period inquestion through its Order-in- Appeal No, 506/2012 dated 15.11.2012. Hence, the instant appeal has been filed by the department before this Tribunal under section 46 of the Sales Tax Act, 1990.
4. None appeared on behalf of the department to defend the order of taxation officer whereas the counsel for respondent has veheme-itly contested the charges levelled in impugned show-cause notice as are also adjudged in consequent order are illagel unlawful and void ab initio as much as recovery of sales tax cannot be made adjudged under section 11(2) of the Act as it is always providing for 'assessm ent of tax' without invoking provisions of section 36(1) or 36(2) ibid, he asserted. Impugned show-cause notice for recovery of illegal and unlawful amount of sales tax received as refund by the respondent is admittedly issued under section 11(2) of the Act without invoking provisions of section 36 ibid which renders it void, ultra vires and nullity in eye of law and any order passed thereon is also illegal and unlawful. This is what the learned CIR(A) has held in his order by relying upon the judgment of Hon'ble Lahore High Court, Lahore in case of Messrs lnam Packages, Lahore v. Appellate Tribunal Customs, Central Excise and Sales Tax, Custom House, Lahore and 2 others as reported at 2007 PTD 2265.
5. We also re-endorse the judgment of learned CIR(A) on the basic issue of jurisdiction which has illegally been assumed under section 11(2) of the Act as once any amount of sales tax is refunded, its recovery can only be made under section 36 of the Act as remained prevalent during the period in question.
6. Even otherwise on merits, each of three issues is discussed in detail herein below. Firstly, learned AR has forcefully assailed that input tax paid is deductible from output tax due under the General Scheme of Sales Tax as envisaged in section 7 of the Act. Evidence has established the factum of payment of input tax on electricity bills particularly when it also contains registration number of the respondent but not its name on it, even then input tax paid thereon is refundable to the respondent from his output tax due under section 7 of the Act. The alleged electric bills do contain registration number of the respondent therefore, these are eligible for input tax adjustment or as the case may be its refund in terms of the Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rules, 2000 through Notification No, S.R.O. 124(1)/ 2000 dated 15-03-2000 as stood amended through Notification No, S.R.O. 344(1)/2002 dated 15.06.2002 whereby, the condition that "the bill is in the name of the registered consumer" was omitted with effect from 15.03.2000 as such input tax adjustment or refund thereof was admissible to the respondent if only his registration number is contained on electric bills in terms of amended provisions of the Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rules, 2000. In this regard, reliance by learned counsel of respondent is placed on the judgment of Appellate Tribunal Inland Revenue in case of The Commissioner IR (Zone-11), R.T.O., Karachi v. Messrs H.R. Cotton Industries, Karachi as reported at [2001 PTD (Trib.) 2712]. The relevant extract as under:-- "It is observed that the order passed by the learned Commissioner (Appeals) is very much within the framework of law and he directed the Department to allow the-input tax paid by the registered person on account of utility bills. It is now well-settled principle of VAT type sales taxes that input tax paid at an earlier stage is deductable from the tax liability arising from the paym ent of output tax, and section 7 of the Sales Tax Act, 1990 supports this point of view. From the record, it is evident that the taxpayer had paid input tax irrespective of the fact whether the bills were in his name or not. The evidence establishes that the fact of payment of input tax and the same is refundable to the taxpayer from his output tax. In these circumstances, I do not find any illegality or irregularity in the impugned order, the appeal as such does not merit consideration and the same is accordingly rejected."
7. Despite above, on the issue of non-mentioning of sales tax registration number on the electricity bills which is not a case at instance, has already been declared a procedural lapse and therefore, the adjustment on this technical ground cannot be deprecated. The learned AR of the registered person has relied upon the very important judgment of Hon'ble Lahore High Court Lahore in case of Messrs D.G. Khan Cement Company Limited, Lahore v. The CIR (Legal Division) R.T.O. Multan as reported at [2013 PTD (Trib.) 777] wherein, it is specifically held that even, "Non-mentioning of sales tax registration number on the bills is at most a procedural lapse and therefore, the adjustment on this technical ground cannot be deprecated." In view of these quoted judgments, we are unable to disallow sales tax refund sanctioned on the strength of electricity bills which do contain registration number of the respondent therefore; appeal of the Revenue is declined on this issue.
8. Secondly, the charges of inadmissible sales tax refund received on the invoices of caustic soda are not maintainable as its use in bleaching process of dyed denim cut pieces/rags of textile fabrics has been alleged without any proper evidence and cogent reasons. Question of use of caustic soda in bleaching process can only be resolved if one should know first what is caustic soda?
9. The caustic soda in its generic chemistry is known as "Sodium Hydroxide" (NaOH) which is obtained, for example, by causticising sodium carbonate with milk of lime or by electrolyzing sodium chloride. Caustic soda can be presented as an aqueous solution or an anhydrous solid means either in solid form or in liquid form but its solid sodium hydroxide attacks the skin and destroys the mucous membranes and its liquid form is not as much as dangerous as its solid form.
In any case it is used for washing and also stimulates the process of bleaching of textile fabrics or rags thereof, the counsel has asserted. It is, therefore, held that sales tax paid thereon is/was admissible for refund as use of caustic soda E for washing and for stimulating bleaching process is an established fact and Inland Revenue has nothing tangible on record to controvert the same.
10. Thirdly, another charge of declaring excessive production and exaggerated consumption of chemicals for receiving excessive tax credit or refund thereof is again unfounded and unlawful because in manual process of bleaching of rags, no machinery or mechanical technique is involved and cut pieces/rags of fabrics is bleached manually in water tanks/hodies and put to sundry before its sale and supply as explained by the counsel of respondent. It is astonishing that in absence of any plant and machinery or any mechanical technique involved in process of bleaching of rags, how officials of Inland Revenue determined production on basis of manual process and made a comparison of its rated production capacity with that of actual one and in the same vein, has also observed excessive consumption of chemicals for excessive tax credit or refund thereon. Learned counsel for the respondent has asserted that sales tax paid on purchases of such chemicals as alleged has duly been transacted through banking channel and its consumption in bleaching process cannot be questioned until and unless its clandestine removal and/or receipt of money consideration in its respect is proved on record and no corroborating evidence of the same has been provided without which the charge of declaring excessive production vis-a-vis excessive consumption of chemicals and in turn excessive input tax credit remains in thin air and is of no legal effect.
11. In view of above, it is established that the whole exercise is carried out merely on surmises and presumptions for which there is no room particularly in the fiscal matters. It very much derives its force from the judgment of a Division Bench of this Appellate Tribunal, Lahore chaired by his Lordship Mr. Justice (R) Khawaja Farooq Saeed as a Chairperson in S.T.A No, 134/LB/2009 dated 06.02.2010 in case of "Collectorate of Sales Tax, Faisalabad v. Messrs Azhar Corporation (Pvt.) Ltd., Faisalabad as its relevant extract given in the body of impugned order of the CIR(A) is reproduced as under: "Be that as it may, section 3 would not cover the capacity to produce and the supply as defined in the aforementioned section. The dispossession and actual transfer of the goods by the manufacturer to the other party is a basic requirement to bring the goods within the charge.
Unless, the department is in a position to establish that the assessee did more production and the same has been transferred to another party, sales tax cannot be charged. The estimate, however, strong it may be unless is based upon evidence and reasons to believe cannot lead to creation of a new charge. The departmental case is based upon hypothetical calculations without any proof."
12. In view of what has been discussed hereinabove, we are bound to appreciate the judgment given by learned CIR(A) on the issue of jurisdiction and also reconfirm the same. Even on merits, we have discussed each of three issues on its due length and have found that none of these, can sustain even on its factual grounds as well because each of it is framed on falsification of facts on record and is based on surmises and presumptions to which this Tribunal can not make it to stand without any legs therefore, the appeal filed by the department is rejected being devoid of any merits on legal as well as factual substance.