SHAHID MASOOD MANZAR, CHAIRMAN.---This appeal has been filed by the Registered person /taxpayer against the Assessment Order No.02 dated 10-04-2018 passed by Commissioner IR, Zone-VII, Corporate RTO, Lahore on the following grounds: 1) That the order is bad in law and against the facts of the ease.
2) That the officer baselessly alleged the taxpayer for non-deduction of sales tax although the proper information and explanation was provided to the assessing officer.
3) Gross negligence was committed by the officer while passing the orders and alleging the section 73 of Sales Tax Act, 1990 was violated whereas the proper document refuting the assumption were provided to the officer.
4) The officer wrongly alleged the taxpayer for the sale of the asset whereas such sales were never executed.
5) Assumption by the officer regarding concealed waste is baseless as the taxpayer is not involved in any such activity.
6) Gross negligence performed while passing the orders and alleging the sub-rules (2) (f), (8) of Rule Special Procedure (Withholding) Rules, 2007 and the sections 3, 6, 7, 22, 23, 26, 33, 34 and 11(2) of Sales Tax Act, 1990 was violated whereas the proper document refuting the assumption were provided to the officer.
7) That the CIR was not justified while passing the Order, despite the relevant documentation was filed with him.
2. The pivotal facts emanating from the case record are that record of the taxpayer was subjected to audit under the purview of section 25 of the Sales Tax Act, 1990 for tax periods July, 2015 to June, 2016 and upon completion of audit show-cause notice was issued containing certain charges based on audit findings and after hearing passed impugned order, mentioned supra. The charges established through impugned order are as under: i. Non-deposit of Withholding Tax ii. Non-payment against purchases / Violation of Section 73 iii. Violation of Section 73 on supplies / sales iv. Disposal of fixed Assets without charging of sales tax v. Illegal adjustment of Withholding Input tax. vi. Sale of waste / scrape vii. Reduced rate supplies. viii. Late filing of sales tax returns
3. The learned AR of the taxpayer vehemently contested that proper explanation supported by documentary evidences were furnished to the CIR but proceedings were finalized without proper appreciation of facts and examination of record furnished. The learned AR with regard to the charge of non-withholding of sales tax argued that purchases were made from commercial importers against their imports and by virtue of the exclusion clause (xi) of Rule 5 of Sales Tax Special Procedure (Withholding) Rules, 2007 goods imported by commercial importer are out of the purview of application of Sales Tax Special Procedure (Withholding) Rules, 2007. He also placed on record such instances of purchases.
Payments made to suppliers in terms of Section 73 has been contested by the learned AR by stating that all payments were made to the suppliers within prescribed period as provide under section 73. He alleged that department did not examine the suppliers' ledger and bank statements provided during the audit and adjudication proceedings and order was passed whimsically without appreciating the furnished documentary evidences. He put before us ledger accounts to establish factual position in this regard.
The learned AR, sequel to above, contested that all sale proceeds are received through banking channel as per the provisions of section 73 and being basic ingredient of organization's internal controls. In support of his arguments, he furnished party-wise sales ledger and bank statements.
The learned AR on account of sale of fixed assets contended that as such no sale of fixed assets in isolation were taken place rather it was part of transfer of business activity between the two associated undertakings having common ownership as partners, and directors were the same and an internal transactions of certain part of transfer of taxable activity was happened. The learned AR cited the provisions of section 49(2) and argued that alleged transaction of transfer of part of ownership of taxable activity squarely falls within the provisions of section 49(2) as both entities were registered having no tax implication because tax was to be charged under section 4 of the Sales Tax Act, 1990 at Zero percent and a zero rated invoices was to be issued under the provisions of Section 49(2), which is mere a procedural lapse, hence no demand of sales tax default surcharge and penalty was mandated.
The learned AR, regarding charge of illegal adjustment of withholding Input Tax, took stance that as per the requirements of Rule 2(8) of Sales Tax Special Procedure (Withholding) Rules, 2007 buyers' certificates were furnished against alleged instances observed by the department and a few of the certificates were not accepted without assigning any reason and demand against a few transactions were created without mentioning fault or deficiency in the furnished certificates. The learned AR in his defense placed before us all certificates for examination and contended that their sales tax withheld by Withholding Agents was duly been adjusted / claim, as per the provisions of Section 7 read with Rule 2(8) of Sales Tax Special Procedure (Withholding) Rules, 2007, while determining their sales tax liability. Hence he prayed that demand on this account is liable to be deleted.
The learned AR argued that CIR grossly erred by calculating production / generation of scrape / waste and it consequently assumed sale by relying upon and self-devised formula which do not have any sanctity in eyes of law. The learned AR relied upon a reported judgment 1985 PTD 315. The AR argued that sale of scrape / waste did not take place during the tax periods under consideration and sales tax liability was calculated entirely on the basis of presumption and as such the honorable Superior Courts in plethora of judgments has held that tax cannot be charged mere on the basis of presumption or surmises. Hence, he prayed that demand on this account is liable to be deleted.
The learned counsel for appellant contended that CIR has worked out demand created under reduced rates of supplies without examining the detail of supplies submitted by the suppliers during the proceedings. As per the details goods were supplied on reduced rates and standard rates which ever rates was applicable as per the provisions of SRO 1125(1)/2001 dated 31.12.2011. The learned AR also placed before us the detail of such sales transactions.
On account of late filing of returns the AR argued that tax was deposited within due dates and there were some instances where returns were delayed and there was no revenue loss involved, hence, that penalty for late filing of return has been imposed without appreciating Honourable Lahore High Court, Bahawalpur Bench's judgment in Sales Tax Reference vide PTR No.07 of 2016/BWP dated 31-01-2017 wherein Honourable Court held that: "Penalty could be reduced/remitted/waived by the authority in the exercise of jurisdiction conferred upon it by the statute, keeping in view the peculiar facts and circumstances of the case, for various reasons including that there was no mens rea / mala fide or no loss was caused to the Revenue by a taxpayer. Findings based on material available on record that no loss was caused, are essentially findings of facts"
The Hon'able High Court in its reference jurisdiction uphold the orders dated 17.03.2016 passed by ATIR, Lahore wherein penalty imposed under section 33(1) was remitted. The ATIR has also a plethora cases wherein it has been held that where no loss of revenue is involved imposition of penalty is harsh. The learned AR prayed for deletion of penalty.
4. The learned DR on his turn relied upon the arguments as contained in the impugned order and argued that order has been passed in accordance with law.
5. We have heard the arguments advanced by both the rival parties and also carefully gone through the relevant record on the file as well as case-law referred before us on behalf of the taxpayer. The case was primarily been framed around eight charges origination from audit conducted under the purview of Section 25, therefore deliberations most aptly needs to be made on each charge to arrived at a judicious decision.
Appellant's defense on non-withholding of Sales Tax is based on the argument that goods were purchased from commercial importers on which importer supplier had paid value addition tax at import stage and such goods were excluded from the application of the provisions of Sales Tax Special Procedure (Withholding) Rules, 2007 through exclusion clause (xi) of Rule 5 of above Rules. In the impugned order the learned CIR controverted the arguments by holding that those commercial importers were also making local purchases, hence rejected the appellants plea. However, it appears from perusal of the impugned order that CIR did not make any effort to verify whether goods in question fulfill the requirement of exclusion as provided under clause (xi) of Rule 5 of Sales Tax Withholding Rules. It is opined that rejection of evidence on tare presumption that suppliers apart from being importer were also engaged in local purchases is flawed and not acceptable as it is based in entirety on presumption. The Hon'ble Karachi High Court in the case of Messrs Al-Hilal Motors and others v. CST and CE Karachi reported as 2004 PTD 868 wherein there lordship reiterated the time honored judicial principle that there is no room for any intendment and there is no presumption as to tax: Appellant's counsel during the hearing placed relevant record including purchase invoices and suppliers' certificates to demonstrate that goods in question were imported by the suppliers against whose supplies sales tax was not withheld. The ambient facts discussed above leads to ineluctable conclusion that goods in question were imported by the suppliers, therefore the necessary corollary and effect is that the finding rendered by CIR to this effect being contrary to facts, therefore, demand on instant account is deleted.
No doubt, provisions of section 73 were incorporated in the Sales Tax act, 1990 in order to promote documentation of economy and it imposes an obligation on the buyer to arrange payments to the seller by means of crossed cheques, bank drafts, pay-orders or any other banking instrument within 180 days of the tax invoice. In this case, payments in toto have been attributed to a simple stock phrasal violation i.e. "registered person did not make the payment or made payment after expiry of 180 days against purchase invoices" without any bifurcation or sifting of transactions against which payments were not made through banking channels and those of against which payments were made after elapse of 180 days. Impugned order contains three suppliers against whose supplies allegation of non-payment in terms of section 73 has been framed and all of the three suppliers are of prominent corporate sector entities which prima facie per the corporate sectors internal controls would not transact business without involving banking sector. Be that as it may, documents placed before us have placed reliance that purchases have been transacted by means of specified banking instruments as requisitioned under section 73 of the Act but due to certain financial constraints and pecuniary hardships, some payments have not been made within specified time period and were delayed beyond 180 days against the alleged transactions and this act, on part of the appellant is not deliberate and procedural lapse may be owing to some cash flow problem therefore, this procedural lapse and technical omission, entailing no revenue loss at all, is condoned to maintain his inalienable right of input tax and the appellant cannot be deprived of from his statutory right of input tax due to any procedural omissions whatsoever because neither any procedural mistake affect legal entitlement nor this lapse of procedural in nature has caused any prejudice to the department. It is now well-settled principle of law that acts of inadvertence on the part of a taxpayer due to any procedural mistake would not create demand of sales tax. The judgment of Hon'ble Supreme Court of Pakistan in case of "Messrs Pfizer Laboratories Ltd. v. Federation of Pakistan and others" reported as PLD 1998 SC 64 is also on all fours to the case of the appellant wherein it has been held:-- "That there may not be legal liability on the part of a Government functionary to refund any amount received by it as a tax or other levy by virtue of certain special provision under the special law but keeping in view that we are living in a democratic society governed by the rule of law and every moral values, must do what is fair and just to the citizen regardless of legal technicalities."
Suffice to say, liability to pay sales tax is on the supplier under section 3(1)(a) of the Act, which is independent to the provisions of section 73 of the Act as the supplier has to make payment of sales tax at time of filing of sales tax return for a tax period and sales tax has to be paid even in cases of credit transaction as well. It is established beyond any shadow of doubt that deposit of sales tax is independent to that payment under section 73 of the Act, hence, in cases of delayed payments, no revenue loss is involved particularly when the supplier has already paid output tax to the government therefore, demanding refunded amount of input tax back from the buyer despite having it deposited by the supplier in the national exchequer would definitely amount to double taxation not permissible under any law of the land. In nutshell, it is acknowledged that refund of input tax is a substantive right of the appellant which cannot be taken away or withheld on mere some technicalities and procedural lapses whatsoever. Therefore, demand on instant account is deleted.
In subsequence to application of section 73 on purchases, instant matter is about sales ibid. The AR of the respondent reposed his defense on the documentary evidences i.e. ledgers with cheque Nos. copies of banking instruments and bank statement. Credit side of bank statements shows the receipts against sales made to the buyers and evidentiary value of these corroborate with supply record of the appellant. Evidence in instant account squarely propend in favour of the appellant, hence demand is not sustainable, therefore, it is deleted.
As per the impugned order transaction of sale / disposal of fixed assets was occurred between two separate legal persons i.e. appellant and Messrs Escort Advance International (Pvt.) Ltd, admittedly both were working in same premises, but the learned AR of the appellant ascribed it instead of sale of fixed assets transfer of part of taxable activity between the two associated undertakings having common ownership as partners and directors were the same and an internal transactions of certain part of transfer of taxable activity was happened. The AR cited the provisions of section 49(2) which is reproduced as under:
49. Sales of taxable activity or transfer of ownership (1).....
(2) In the case of sale or transfer of ownership of a taxable activity or part thereof to another registered person as an ongoing concern, the taxable goods or part thereof shall be transferred to the new owner through a zero rated invoice and the sales tax chargeable thereon shall be accounted for and paid by the registered person to whom such taxable activity or part thereof is transferred.
Perusal of provisions of Section 49(2) make it abundantly clear that, since both persons were registered with sales tax, only sales tax implication involved therein was to charge sales tax under section 4 of the Sales Tax Act, 1990 and to issue a zero rated invoices instead to charge sales tax under section 3(1) of the Sales Tax Act, 1990 as held by the learned CIR, therefore, we feel no hesitation to declare that sales tax was to be charged under section 4 at the rate of zero percent and since instant transaction did not have any revenue implication and mistake is mere procedural lapse, therefore, demand on instant account is deleted.
With regard to illegal adjustment of withholding input tax perusal of the impugned order reflect that demand has been created on the allegation that appellant furnished deficient certificates in terms of Rule 2(8) of Sales Tax Special Procedure (Withholding) Rules, 2007 but the learned CIR did not assign any objective insufficiency in the certificates which could lead to determine nature of default, therefore it seems that proceedings in instant account has been conducted in slipshod manner. Matter could have been verified and reconciled from the sales tax returns filed by the buyers who furnished the certificates before raising demand. The learned AR in his defense placed before us all certificates for examination and contended that their sales tax withheld by Withholding Agents was duly been adjusted / claim, as per the provisions of Section 7 read with Rule 2(8) of Sales Tax Special Procedure (Withholding) Rules, 2007, while determining their sales tax liability. Dispute on certificates does not fulfill the requirement of Rule 2(8), veracity as per orders was admitted. Contents of the certificates and relevant record as placed before us, shows that suppliers withheld the sales tax and under the circumstances by placing reliance on the documents it is held that appellant has adjusted the withheld sales tax as per the provisions of section 7 of the Sales Tax Act, 1990 read with Rule 2(8) of Sales Tax Special Procedure (Withholding) Rules, 2007, consequently, right of the appellant in instant account cannot be denied, so demand is deleted.
On account of sale of wastage / scrape, the learned CIR framed charge on the primes that appellant has purchased a quantity of "Store and Spares" and relying upon these purchase alleged that sale / supply of worn-out parts were not declared and further stretched presumption that these all purchased parts should have been used in repair and maintenance consequently old one were sold out at presumed value by terming it as market value. Entire proceedings in instant account are fraught of presumption, surmises and wishful mind without any support from legal provision or even it has no backing under the basic accounting cognition. Even purchase of new parts have no direct nexus, under any rational, with supply of old parts Count of presumptions starts from purchase of store and spares and ends at sale of worn-out parts at so called market value. Before raising demand the learned CIR could have verified or quantified the stock worn-out parts on historical basis. By relying on the report judgment in Messrs Al-Hilal Motors and others v. CST and CE Karachi reported as 2004 PTD 868 wherein the Hon'ble Karachi High Court has reiterated the time honored judicial principle that there is no room for any intendment and there is no presumption as to tax, we feel no hesitation to delete the instant demand.
Contents of the impugned order with regard to demand on account of alleged supplies at reduced rates has been perused and relevant documentary details examined and it has been understood that appellant allegedly supplied certain textile items to persons who did not entitle for purchase of textile goods at reduced rates under the provision of SRO 1125/2011 dated 31-12- 2011. It has been noted that CIR neither recorded the identification of the buyers whom he alleged as non-entitled for reduced rates nor any objective reason responsible for his opinion was provided in the impugned orders except that "fabric, jackets, hoods, suits and gloves etc. are made from fire proof fabric normally used by the fire extinguishers". The word normally used is indicative of the fact that an assumption has been drawn to the effect that quoted textile goods are used in fire extinguishers i.e. SRO 1125/2011 dated 31-12-201, therefore demand on instant account is deleted being against the facts available on record and based on presumption.
6. On account of charge of penalty demand on non-filing / late-filing we found that since no loss of revenue was involved and by relying upon judgment of the Honourable Lahore High Court, Bahawalpur Bench cited as PTR No.07 of 2016/BWP dated 31.01.2017, we delete the imposed penalties since the taxpayer has filed the sales tax return and as such no revenue loss was involved.
7. For the reasons recorded supra, appeal is succeeded in the above manners.