MASOOD AKHT AR SHAHEEDI (ACCOUNT ANT MEMBER ).--The instant appeal has been filed on behalf of registered person calling in question the Order No. 197/2017 dated 02-05-2017 passed by the learned CIR(A), Faisalabad.
2. Brief facts of the case are that Inland Revenue Officer (the IRO), on selection of audit by FBR, has conducted audit of appellant's sales tax records for the financial year 2012-2013 which is resulted into certain discrepancies.
On that basis a show-cause notice dated 14.10.2016 was issued as to why an amount of sales tax worth Rs.
8,513,423/- may not be recovered under section 11(3) of the Sales Tax Act, 1990 (the Act) and as to penalty under section 33 may not be imposed in violatio n of sections 2(14), 3, 6, 8(1)(b), 11, 22, 23, 26 and 73 of the Act along with default surcharge under section 34 ibid. Resultantly , adjudication proceedings were culminated in passing of an order dated 19-12-2016 against the appellant. The appellant being aggrieved by the order of DCIR, has filed appeal before the CIR(A) who dismissed the same vide impugned order . Hence, the instant appeal.
3. The learned counsel appearing on behalf of appellant has vehemently contested that DCIR despite admitting of production of all the relevant sales tax records at Page No. 3 of its order did not utter even a single word in this behalf and deliberately and intentionally ignored the same which rendered her whole exercise of adjudication illegal, void and nullity in the eyes of law. On merits, he has apprised the court that the department has no evidence to prove that receipts of money into the bank accounts of appellant were on account of taxable supplies of goods as envisaged under section 3 of the Act and there is no provision in the Sales Tax Act, 1990 purporting to deem the receipt of money to be a sale. On second issue he further asserted in his arguments that observation of suppression of sales has been made out merely on the basis of consumption of electricity units and not on the basis of actual supply of goods. The appellant's contention on the third issue was that no specific penalty on account of wrong filing of sales tax returns is provided under section 33 of the Act hence, imposition of penalty stands highly unjustified and unwarranted under law. At the end, learned counsel forcefully urged that allegations against the appellant are baseless and unfounded because he supplied the polypropylene granules to the registered persons only under the covera ge of proper sales tax invoices issued in terms of section 23 of the Act duly incorporated in his sales register , summary statement and monthly sales tax returns for the periods in question. Conversely , when the learned DR confronted with the situation cited supra, in counter arguments, she has assailed the case on similar grounds and charges as levelled earlier in impugn ed show-cause notice as well as adjudged in consequent orders and has failed to put forth any explanation to justify any deviation from the arguments advanced by the learned AR. She has fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.
4. We have given anxious thought to the averments made by both the rival parties and have carefully perused the orders of authorities below , relevant provisions of law and the case laws cited by the learned counsel for the appellant at the bar. After having taken regard to the facts of the case in its entirety as well as the grounds narrated supra, we are of the considered view that there is no iota of evidence to prove that receipts of money into the bank accounts of the appellant were on account of taxable supplies of goods as envisaged under section 3 of the Act and even there is no provision in the Act purporting to deem the receipt of money to be a sale. The department has failed to establish any nexus of bank receipts appeared in bank accounts of the appellant with that of sales and supplies thereof. It is mandatory for the department to prove that any amount from undisclosed sources is in anyway linked with taxable supplies or in furtherance of taxable activity as under the provisions of section 3 of the Act which is the charging section, sales tax shall be charged, levied and paid on taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him. The credit entries appearing in the bank accounts of the appellant cannot be treated as an amount received on account of taxable supplies or in furtherance of taxable activity particularly when the department has miserably been failed to bring forth any material evidence whatsoever to substantiate its allegation against the appellant by corroborating bank receipts with that of clandestine removal of alleged goods or with any taxable supply thereof. It is well settled law that sales tax imposed on the basis of some assumption or presumption not warranted in law shall always be struck down. Reliance in this regard can safely be placed on the judgment of Hon'ble Sindh High Court, Karachi in case of "Messrs Al-Hilal Motors Stores and other v.The Collector Sales Tax and Central Excise (East) Karachi and others" reported as 2004 PTD 868 .
5. As far as the second issue of suppression of sales is concerned, we have observed that consumption of electricity units might have any nexus with that of production of goods and any correlation in their between could have been made but no direct relationship could be established in electricity with that of sales and supplies of taxable goods. Both the variables are completely independent to each other and as such, no functional relationship could be so established. The impugned demand of sales tax created on the basis of electricity units is illegal and without lawful authority as neither the Sales Tax Act, 1990 nor the Rules made thereunder prescribe any procedure or formulae to calculate liability of sales tax merely on consumption of electricity units. Under section 3(1)(a) of the Act, sales tax is on sale and supply of goods which necessarily D entails 'delivery of goods' or 'receipt of money consideration' and no corroborating evidence for any clandestine removal of goods or for receipts of money consideration has been provided by the department. Under section 2(35) of the Act, the yardstick to charge and levy sales tax E is the sale constituting a taxable activity for a taxable supply . In our considered opinion, provisions of section 3 of the Act do not cover levy of sales tax on the basis of consu mption of electricity units and dispossession and actual transfer of good s 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 prove that the assessee did more production and same has been transferred to another party , sales tax cannot be charged. This is a well settled preposition in many a cases as referred to by the learned counsel like in a judgment already propounded by a Division Bench of this Tribunal in case reported as 2017 PTD (T rib.) 880 .
6. Now coming up to the third issue of wrong filing of sales tax returns, suffice it to say that no specific penalty on account of wrong filing of sales tax return s has been provided under section 33 of the Act however , penalty of five thousand rupees has been mentioned under section 33(1) of the Act for failing to furnish a return within due date. In this regard, learned DR changed her stance and attempted to negate the assertions of the counsel for the appellant by relying upon the provisions of section 33(19) of the Act which provides that any person who contravenes any of the provision of this Act or the rules made thereunder for which no penalty has, specifically , been provided in this section, such person shall pay a penalty of five thousand rupees or three percent of the amount of tax involved, whichever is higher but perusal of record reveals that neither provisions of section 33(19) of the Act was primarily invoked in the impugned show-cause notice nor the same was confronted in the adjudication order nor even in the impugned order , therefore, imposition of penalty worth Rs.50,000/- for wrong filing of sales tax returns is illegal, unwarranted and highly unjustified. It is well settled principle of law that an affected party needs to be confronted with specific provisions of law under which it is intended to be penalized. Since this was not done, the penalty imposed under section 33 of the Act is not sustainable under law. The last but not the least, charge of input tax not allowed under SRO 488(I)/2004 is basele ss and unfounded because the appellant has supplied the polypropylene granules to the registered persons only under the coverage of proper sales tax invoices issued in terms of section 23 of the Act duly incorporated in his sales register , summary statement and monthly sales tax returns for the periods in question and all the payments in respect of alleged transactions have also been received through banking channel as requisitioned under section 73 of the Act, therefore, charge of supplies made to un-registered persons is illegal and unlawful.
7. For what has been discussed hereinabove, the impugned Show-cause notice and Orders of both the authorities below , being devoid legal substance are hereby set aside .
Resultantly the titled appeal is allowed in the manner and to the extent as indicated above.