MIAN TAUQEER ASLAM, (JUDICIAL MEMBER). The titled three sales tax appeals have been preferred by Revenue/Department assailing the three separate Order-in-Appeal Nos. 703, 704 and 705 of 2013 all dated 26.11.2013 passed by the learned CIR(A), Faisalabad.
2. Briefly, the facts necessary for adjudication of the instant appeals are that during the course of post refund audit of the registered person, for the tax periods May-2012, October-2011 and September-2012, certain discrepancies were detected, on the basis of which three separate show- cause notices all dated 18-03-2013 were issued as to why sales tax refunds claimed by the registered person may not be rejected under section 11(2) of the Act in violation of sections 3, 6, 7, 8, 8a, 10, 22, 23 and 73 of the Act, 1990 read with the Sales Tax Refund Rules, 2006 notified vide SRO 555(1)/2006 dated 05-06-2006, against which explanation tendered by registered person was treated unsatisfactory. Resultantly, adjudication proceedings were culminated in passing of Order- in-Original Nos.17/2013, 19/2013 and 18/2013 all dated 16-05-2013 which were challenged before the learned CIR(A) who accepted the appeals filed by the respondent and now, the revenue- department being aggrieved and discontented with treatment met out by the learned CIR(A), has filed the second appeals before this Tribunal on the grounds as set forth in the memo. of appeal.
3.. The learned DR while arguing on behalf of the department reiterated the contentions already made in the grounds of appeals and assailed the cases on similar charges as levelled earlier in impugned show-cause notices as well as adjudged in adjudication orders by simply stating that the respondent has claimed refund of input tax against the goods which are not used in taxable supplies and not admissible under clauses (h) and (i) of section 8(1) of the Act read with S.R.O.
450(1)/2013 dated 27-05-2013. On the second issue, the learned DR argued that the registered person has claimed refund against unconsumed stocks however, as per section 10 of the Act and Rule 33 of the Sales Tax Refund Rules, 2006, refund is not issued on the basis of purchases or imports but on the basis of consumption of raw material in the relevant tax period.
4. On the other hand, learned AR opposed the departmental appeals mainly on the ground that input tax paid on purchases of taxable goods during the tax periods of May-2012, October-2011 and September-2012 is not hit by the provisions of S.R.O. 450(1)/2013 which was applicable w.e.f. 27th May, 2013 providing a list of items against which a registered person is not entitled to reclaim or deduct input tax. Learned AR further stated that even otherwise said items/goods were put in negative list against which input tax was disallowed was made part of the Statute book by inserting clauses (h) and (i) through Finance Act, 2014 which is also not applicable retrospectively.
In support of his stance, learned AR produced copy of S.R.O. 450(1)/2013 along with judgment of this ATIR vide S.T.A. No.1709/LB/2017 and judgment of Hon'ble Supreme Court of Pakistan reported as (2005 SCMR 492). Learned AR on issue of refund claimed against insurance services has placed reliance on the clarification issued by FBR C.No. 1(5)/FED/2009/167850-R dated 12th December, 2011.
On the second issue, learned AR has explained his view point by maintaining that no doubt, consumption of raw material is a mandatory condition for claiming refund of input tax but the Rule 33 of the Sales Tax Rules, 2006 never provides any restriction and condition of consumption of such raw material in the same tax period against which input tax credit is being claimed as refund. In order to strengthen his contention, learned AR placed reliance on the judgment of ATIR, Lahore reported as (2013 PTD (Trib.) 466) and judgment of Hon'ble High Court, Lahore reported as (GST 2003 CL 598 H. C. Lah).
5. We have heard the arguments advanced by both the rival parties and also carefully gone through the relevant record available on the file as well as case law referred before us on behalf of the taxpayer. There is no denying the fact that input tax paid on cement, paint, Thermopolis, Re- touching Emulsion, consumer panel, SSR, etc is not hit by Notification No. S.R.O. 490(1)/2004 dated 12th June-2004 as the restriction on input tax adjustment or credit thereon was subsequently imposed by way of an amending. Notification No.S.R.O. 450(1)/2013 dated 27th May, 2013. Contrarily, registered person's input tax credits on such items pertain to the tax periods, of October-2011, May, 2012 and September-2012 prior to imposition of such restriction on input tax credit or adjustment.
The provisions of Notification No. S.R.O. 490(1)/2004 dated 12th June, 2004 as stood prior to 27th May, 2013 never debars a registered person from claiming input tax on such goods as alleged in impugned cases. However, any subsequent addition by way of an amending Notification No. S.R.O.
450(1)/2013 dated 27th May, 2013 providing a list of items in respect of which a registered person is not entitled to reclaim or deduct input tax cannot be made operated retrospectively to disallow input tax for any prior period. We are also of the candid view that the amendments made in section 8(1)(a) of the Act by way of inserting clauses (h) and (i) through Finance Act, 2014 cannot be allowed to apply retrospectively when there is no such express or apparent legislative intent to allow any such retrospection. In this regard, it would suffice to refer to the judgments of Hon'ble Supreme Court of Pakistan in case of "Army Welfare Sugar Mills Ltd, and others v. Federation of Pakistan and others" (1992 SCMR 1652), in case of "Government of Pakistan v. Messrs Village Development Organization" (2005 SCMR 492) and in case of "M/s. Anoud Power Generation Limited and others v. Federation of Pakistan and others" PLD 2001 SC 340 wherein it has been laid down as under:- "It is well settled principle of law that the executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely effect or invade upon vested right cannot be applied with retrospective effect."
It is also worthwhile to mention here that Hon'ble Lahore High Court has already set aside the Notification No. S.R.O. 450(1)/2013 dated 27th May, 2013 providing negative list of items against which input tax is not allowed in W.P. No. 4231/2015 dated 10-11-2016 in case of Messrs JDW Sugar Mills Limited v. Deputy Commissioner Inland Revenue and others". The input tax on "insurance services" has been allowed under section 7(1) of the Act being not hit by the provisions of section 8(1)(a) of the Act as in the instant case, the registered person being an exporter, not making any exempt supplies, has wholly used the same for the purpose of taxable supplies and the said services have also not been included in the list of negative items notified under section 8(1)(b) of the Act that is how, the Federal Board of Revenue vide its Letter C.No. 1(5)/FED/2009/167850-R. dated 12th December, 2011 has also clarified that a registered person is entitled to claim adjustment/credit of input tax on insurance services provided by the Insurance Companies.
6. With regard to second issue, we are of the considered view that no doubt, consumption of raw material is a mandatory condition for claiming refund of input tax but the Rule 33 of the Sales Tax Rulers, 2006 never provides any restriction and condition of consumption of such raw material in the same tax period against which input tax credit is being claimed as refund. A registered person is entitled to deduct input tax paid or payable during a tax period for the purpose of taxable supplies made or to be made by him from output tax under section 7(1) C of the Act and in case, input tax credit exceeds output tax due to zero-rated local supplies or exports thereof, its refund is made available under section 10(1) ibid. None of the provisions of section 7(1) of the Act or section 10(1) ibid or even the rules made (sic) thereunder provides for input tax credit/refund on the basis of consumption instead it is on basis of purchases and imports. In case, input tax incurred on purchases or imports exceeds output tax due to zero-rated local supplies or exports thereof, excess amount shall be refunded to registered person under section 10(1) of the Act. Reliance can safely be placed on the judgment of Hon'ble High Court, Lahore in case of "Collector of Sales Tax, Lahore v. M/s. Breeze Industries, Lahore" reported as (GST 2003 CL 598) while dealing with the same issue has held as under:- "The provisions of section 7 of the Sales Tax Act, 1990 are cleared in their tone and tanner that an assessee/registered person is entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made or to be made by him from the output tax which is due from him in respect of that tax period. In other words, the consumption of raw material on which input tax was paid is not directly relatable to the claim of input tax which can be claimed both in respect of the taxable supplies made during that tax period or to be made. For the purpose of adjustment of input tax, it is only the tax period and not the consumption of raw material which is relevant. The intention of law is otherwise clear from the following provisions of section 10 existing at the relevant time and even those as exist today that excess amount can both be carried forward as well as be refunded. In case, the interpretation of the department is accepted then the provisions of section 10 both substituted as well as those presently existing would become redundant. That can hardly be the intention of the law. Therefore, as remarked earlier, we find no justifiable mason to interfere with the impugned order of the Tribunal."
7. The instant issue has already been decided in favour of taxpayer by the Division Bench of Appellate Tribunal Inland Revenue, Lahore in case of "Messrs Magna Textile Industries, Faisalabad v. CIR (Appeals), Faisalabad" reported as (2013 PTD (Trib.) 466). The ratio decidendi in the said judgment is reproduced as under:- "We have gone through the case record and heard the rival arguments and reached to the conclusion that both section 7 and section 10 of the Sales Tax Act, 1990 allow input tax adjustment/refund simply on the payment of input tax. There is no condition of consumption of the goods before taking input tax adjustment or availing refund. The Rule 33 of the Sales Tax Rules, 2006 referred to by the learned DR has to be read and interpreted in harmony with the provisions of section 7 and section 10 of the Sales Tax Act, 1990. "
8. In view of above, we find that the orders impugned by the department being based on facts and strictly in accordance with law do not call for any interference by this Tribunal which are confirmed and upheld. The appeals filed by the department being devoid of any merit D are hereby dismissed.