MRS. AMBREEN ASLAM, JUDICIAL MEMBER.--- By this order we intend to dispose of above titled appeal filed by the appellant/Registered Person against the impugned Order-in-Appeal No, STA/56/L TU/2016/42 dated 28.03.2016 passed by the learned CIR (Appeals-I) , Karachi. The appellant/Registered Person agitated on the following grounds of appeal reproduced as under:-- a. That it is submitted that the Order dated 28-03-2016 is contrary to the facts as well as the law and, therefore, no amount is due or payable by the Appellant as falsely alleged by the Respondent. b. That the allegations contained in the Notices dated 09.02.2015 and 02.03.2015 are completely baseless, misconceived and unfounded. c. That the Respondent has erred in law and misapplied and misinterpreted the provisions of Chapter XI of Rules, 2007. d. That the Respondent has incorrectly assumed that using gas as direct energy source for production other than electricity is not permissible under the Rules, 2007 This is contrary to Rule 58F of Chapter XI of Rules, 2007 which otherwise permits use of gas and other energies in the manufacturing process. The assertions of the Respondent to the contrary are incorrect, misleading and unsustainable. As such, the impugned Order is liable to be set aside. e. That the Respondent ,has wrongly concluded that as per Rule 58H of Chapter XI of Rules, 2007 the Appellant is not permitted to use natural gas as direct energy source for production. f. That the Respondent has wrongly held that it is mandatory to only use electric power in order for the Appellant to quality under the special sales tax regime prescribed under Chapter XI, of Rules, 2007. g. That the Respondent has failed to appreciate that the use of natural gas and other source of energies for the purpose of reheating furnaces were in use even prior to the Rules, 2007 This fact was in the back mind of legislature while formulating the Rules, 2007 which is why Rule 58F was introduced. h. That the Respondent has very conveniently ignored the general practice of all re-rolling mills in the country , including the. Appellant, which are operating their respective furnaces on gas for the purpose of reheating the billets and converting the same into bars. i. That it makes no sense or logic to requi re rolling mills to operate their heating furnaces through electricity in order to qualify under Chapter XI of the Rules, 2007 when in fact there are no electricity based furnaces in Pakistan or elsewhere in the world. Such an interpretation of Chapter XI of the Rules, 2007, would lead to the frustration of the special sales tax regime, That even the expert opinion of Metallurgical Consultant., confirms that there is no installation world over where furnaces use electricity for reheating the steel billets. This is due to technological constrains in using electricity for reheating billets and the Respondent is well aware of the same, however , the Respondent has been deliberately disregarded this crucial aspect. k. That the Respondent has failed to appreciate that the Appellant is paying 17% sales tax on the consumption of natural gas in reheating furnace for which no input adjustment is allowed. Hence the allegation that the Appellant is circumventing the law and evading payment of sales tax liability is negated on this ground alone. l. That the Appellant is entitled to remain in the special regime as provision of Rule 58F of Chapter XI of the Rules, 2007 clearly apply in the case Appellant. m. That the Appellant has fully explained and amply demonstrated that it has not committed any illegality or tax evasion and there is no cause to disqu alify the Appellant from falling under the special sales tax regime as prescribed under Chapter XI of Rules, 2007 n. That the disqualification of the Appellant from remaining under the special regime and being made liable to make the payment of sales tax in normal regime is arbitrary , illegal, mala fide and contrar y to the provisions of the Rules, 2007 and Act, 1990. o. That the Respondent has erred in law and wrongly concluded that the amended wording of Rule 58F i,e, "whether operating on electric power , natural gas or any other source of energy" is for the persons using gas for their gas generators to generate electricity as per Rule 58Ha of the Rules, 2007 . This is patently incorrect and misconceived. p. That the Appellant has an excellent track record as a taxpayer and has otherwise paid huge sums by way of taxes / duty. No amount of sales tax is lawfully due against the Appellant. It has unanswerable case on merit yet it is being coerced and subjected to demand for huge amount on misconceived grounds. Even otherwise the entire proceedings are malicious and unwarranted and have adversely affected its business as well as the good name and reputation of the Appellant. q. That the unlawful recovery which the Respondent have desperately embarked upon in order to meet their arbitrary targets is completely destructive of the lawful business such as the Appellant. The Appellant is being forced to pay huge amount which is not due under the law. The sole objective of this exercise is to meet their revenue targets by any means whatsoever and statutory powers are being grossly abused to achieve that objective. r. That the Respondent has drawn patently incorrect and unsustainable inferences and conclusion from the facts, which are not sustainable in the eyes of the law and are, therefore, liable to be struck down. s. That is submitted that the Respondent has embarked on unlawfully recovering amount from the Appellant which is not due under the law ."
2. Brief facts of the case, as gathered from the record, are that the appellant is registered Firm, engaged in the business of manufacturing of steel reinforcement bars (Re-Rolling Mill). The sales tax liability of the appellant is governed by the special sales tax regime prescribed under Chapter XI of Sales Tax Special Procedures Rules, 2007 (herein after the Special Procedures) to the Sales Tax Act, 1990. As per Clause 58H of Chapter XI (Special Procedure for Payment of Sales Tax by Steel Melters, Re-Rollers and Ship Breakers) of Sales Tax Special Procedures Rules, 2007, the steel re-rollers (having a single electricity meter) are required to discharge sales tax liability on the basis of consumption of electricity units as per electric meter installed at the rate of rupees four (up to May 2014) and rupees seven (from June 2014) per electricity unit. Meaning thereby , the process of re-rolling i,e, heating/re-heating through furnace and other mills operating is to be carried out through electricity only for discharging of actual sales tax liability .
3. The appellant being a Re-Roller Mill' having single electricity meter . Even second electricity meter is not permissible for discharging of its sales tax liability as per the provisions of Rules 58H, Chapter XI of the Special Procedures. An investigation was carried out that the major portion of manufacturing process i,e, Blast Furnace is not operated through electricity , which is the violation of Rule 5811 and this action of appellant is nothing but to avoid payment of actual sales tax liability on the basis of consumption of electricity units in the manufacturing process, which was causing loss to national exchequer during the tax process.
4. The appellant while replying that all re-rolling mills use gas for heating their furnaces (which are rehearing furnaces for billets and not billet production are or induction furnaces as pre-supposed by show-cause notice) as they are not melters and hence no electri c furnaces is installed at any re-rolling mill. He denied the charges raised on the basis that it had done nothing in violation of provisions of Special Procedures and has rightly discharged its liability through electricity bills of single electricity connection and that gas has always been used as source of energy for heating of furnace all over Pakistan even before introduction of Special Procedures. The Deputy Commissioner-IR while passing the Order-in-Original had refused the contention of the appellant and raised demand of sales tax after allowing adjustment of sales tax paid by the appellant.
5. Being aggrieved and dissatisfied with the Order-in-Original dated 31.12.2015, the appellant preferred appeal before the learned Commissioner-IR (Appeals-I) Karachi who, after considering facts and circumstances of the case, maintained the Order-in-Original.
6. Again feeling aggrieved and dissatisfied with the impugned order of the learned CIR (Appeals-I) Karachi, the appellant has come up in appeal before this Tribunal.
7. On date of hearing, Mr. Muhammad Umer Akhund, Advocate appeared on behalf of appellant while Mr. Raja Israr, represented on behalf of the Respondent/Department.
8. The learned counsel for the appellant submitted that the Order-in-Appeal dated 28-03-2016 is contrary to the facts as well as law not only allegations contained in the notices dated 09.02.2015 and 02.03.2015 are baseless but also the Department misapplied and misinterpreted the provisions of Chapter XI of Rules, 2007 in isolation of remaining Rules of Special Procedures. As per learned counsel he is entitled to rain in the special regime as provision of Rule 58F of Chapter XI of the Rules, 2007 which clearly applies in this case and he vehemently argued that nowhere in the Special Procedure Rules, use of gas has been prohibited for re-rollers. He further stated that the DCIR has failed to appreciate that this a fact that Melters and re-rollers of steel all over Pakistan has always been using cheap sources of energy for heating furnace like Furnace oil, gas. Further stated that expert opinion of Metallurgical Consultants confirms that there is no installation world over where furnaces use electricity for reheating the steel billets and the appellant.
9. The learned counsel argued that the amended wording of Rule 58F i,e, "whether operating on electric power , natural gas or any other source of energy" is for the persons using gas for their gas generators to generate electricity as per Rule 58Ha of the Rules , 2007. This is patently incorrect and misconceived. He concluded that therefore, treatment of the DCIR of declaring payment of sales tax by appellant as per the provisions of Special Procedures in violation of the Rules and creating a very huge demand of sales tax on the basis of assumption or any un-explained working is totally illegal un-warranted and against the spirit of the Special Procedures. It is therefore, prayed to quash the Order-in-Original along with Appeal order which is not sustainable in the eyes of law .
10. On the other hand, the learned D.R. strongly opposed the contentions submitted by the learned counsel for the appellant and supported the orders passed by the officers below . It is argued that the order passed by the learned CIR (Appeals) is legal, lawful and in accordance with the relevant provisions of Sales Tax Act. The learned CIR (Appeals) has thoroughly discussed all facts and circumstance of the case while maintaining the Order-in-Orginal.
It is, therefore prayed that the orders passed by the of ficers below may kindly be maintained.
11. We have heard the learned representatives from both the sides and have perused the impugned orders of the authorities below and have gone through the available record. To decide the instant appeal question before us is whether impugned order requires interference?
12. Precisely grumble of the taxpayer is that the officer created illegal tax demand by issuing show-cause notice as the taxpayer pays its tax liability under the Rule 58H of Chapter XI of Special Procedure Rules, 2007 on the basis of consumption of electricity units as per electric meter at the rate of rupees (7%) seven percent per unit. Whereas the stance of the department is that the taxpayer is require to pay sale tax liability only on one electricity meter and usage on second electricity meter and usage of other gas alternative disqualifies the taxpayer to remain in the Special Procedure regime.
13. Keeping in mind contentions of respective side it would be more advantageous that we shall evaluate the case of parties in the light of Rule 58H of Chapter XI of Sales Tax Special Procedures Rules, 2007 for the sake of convenience the relevant part of said rule is being reproduce as under:-- 58H. Payment of tax.-(1) Every steel-melter , steel re-roller , composite units of melting, re-rolling and MS cold drawing and composite unit of steel melting, re-rolling having a single electricity meter , excluding units operated by sugar mills or other persons using self-generated electricity shall pay sales tax at the rate of nine rupees per unit of electricity consumed for the production of steel billets, ingots and mild steel (MS) products excluding stainless steel, which will be considered as their final discharge of sales tax liability .
Provided that the rates of sales tax on the basis of electricity consumption prescribed in (1) and (2) shall only be applicable to units consuming electric power supplied by public sector electricity distribution companies and Messrs K-Electric Limited.
(2) Payment of tax by steel melters, re-rollers, composite unit of melting, re-rolling and MS cold drawing and composite units of melting and re-rolling shall be made through electricity bills along with electricity charges:
14. From the above rule we accumulated that every steel-melter , steel re-roller and composite unit of steel melting re-rolling shall pay sales tax at the rate of nine rupees per unit of electricity consu med for production steel billets, ingots and mild steel products excluding stainless steel, as their final discharge of sales tax liability , it further says that the rates of sales tax would be charged on the basis of electricity consumption , prescribed in rules (1) and (2) shall only be applicable to units consuming electricity power supplied by public sector electric distribution companies.
15. To more clear our understanding we emphasize here that Rule 58H is specifically contrive with the business of steel-melter , steel re-roller it also explicit that every steel-melter , steel re-roller and composite unit of steel melting re-rolling having single electricity meter pay tax at the rate of (nine) rupees per unit of electricity consumed for the production of specified products excluding stain less steel.
16. Considering above prospects in mind we feel it is better to assimilate the commerce of the taxpayer as per facts of the case the taxpayer is manufacturer of steel reinforcement bars and the taxpayer uses modern hot re-rolling technology for the manufacturing activity so also for the purpose of reheating the billets the taxpayer does not use electricity for the purpose of reheating instead of electricity the taxpayer use furnaces and gas. In this context record reveals that the department physically verified the manufacturing plants of the taxpayer and found that the reheating process was being operated on natural gas (supplied by Sui Southern Gas Company) and the process of melting and manufacturing of steel reinforcement bars was not found in process through electricity such extracted facts are available on record. The rout of contention in the instant case between the parties is that the taxpayer has installed only one electricity meter and the taxpayer is not using the electricity for the purpose of reheating process and for the said purpose taxpayer is using gas as source of energy for heating of furnace whereas the department insisting that the liability of sales tax is to be discharged through single electricity meter .
17. It is established fact that the taxpayer is using gas as fuel for heating furnace for melting or re-rolling of steel as evident from the Commissioner's order at page number 07 and line number 25 that physical inspection was carried out by the department, since it has come on record that the taxpayer is using gas as source of energy for re- heating furnace for further processing, so we feel necessary to discuss here rule 58F for the sake of convenience relevant part is reproduce as under: 58F. Application.---The provisions of this Chapter shall apply to--
(a) Steel melting units, steel re-rolling units, composite units of melting and re-rolling and composite units having complete facility of melting, re-rolling and MS cold drawing, whether operating on electric power , natural gas or any other source of energy and regardless of the type of electricity connection;
18. From the above rule we gather that this provision would apply to steel melting units, steel re-rolling units, composite, units of melting and re-rolling and composite units having complete facility of melting, re-rolling and MS cold drawing, whether operating on electric power , natural gas or any other source of energy and regardless of the type of electricity connection. So as per our standing this provision deals with A applicability and laid down the categories of provisions to whom it will apply safely we could say Rule 58F has introductory significance whereas provision 58H specifically deals with payment of tax by the steel melter , steel re-roll er, it further clarifies the mode of payment, so also deals with excluding entities and also emphasize that the stain less steel products are excluded.
19. This provision has also conditional clause which appear with expression provided, that phrase emphasize that the rates of sales tax on the basis of electricity consumption (emphasize by us) shall only be applicable to units consuming electricity power supplied by public sector electricity companies. So to sum up the case, we are of the view that the authorities below misinterpreted the law as the taxpayer using electricity for main activity and for take into process of main activity , taxpayer using gas for furnace heating process and for usage of gas he declaring purchase along with sales tax paid on such purchase.
20. Keeping in mind facts and circumstances, we are of the view impugned order requires interference therefore, the same is set aside. In result, appeal of the taxpayer accepted.
21. Appeal stands disposed of f in the manner as indicated above.