MR. SARFRAZ ALI KHAN, JUDICIAL MEMBER. (1). The titled sales tax appeal pertaining to the tax periods relevant to July 2009 to June 2010 has been preferred at the instance of Revenue against the order-in-appeal No. 01/A-11/2013 dated 27.08.2013 by the learned Commissioner Inland Revenue (Appeals-II), Lahore whereby in the first step the accepted the sales tax appeal of the registered person by vacating the demand of sales tax of Rs. 498,469 and Special Excise Duty (SED) of Rs.
31,154 along with the default surcharge and penalty imposed by the learned DCIR Audit-03, Zone- VII, RTO-II Lahore under section 34 and section 33 respectively of the Sales Tax Act, 1990 (the "Act" hereinafter). The learned First Appellate Authority in the later part of the appellate order deleted the demand amounting to Rs. 2,159,490 on account of sales tax and Rs. 134,968 being SED. This has brought the Department before this honorable Tribunal in second appeal by adopting the following grounds of appeal: i. That the order of the learned Commissioner (Appeals-II) Lahore was contrary to law and against the facts of the case. ii. That the learned CIR (A) was not justified to vacate sales tax of Rs. 498.469 and SED of Rs. 31,154 along with default surcharge and penalty because the registered person had claimed inadmissible input tax and issued tax invoice to its buyer, M/s Hussain Cotex Pvt Ltd who was non- filer and that the tax was not deposited in the government exchequer. iii. That the learned CIR (A) was not justified to delete the sales tax of Rs. 2,159,490 and SED of Rs.
134,968 because the same was charged on account of variation in stock.
2. The Department was represented by Mr. Zubair Khan, DR while Mr. Adeel Tariq advocate appeared as the learned authorized representative for the registered person. The DR for the reasons stated in the Order-in-Original requested that the relief granted in the impugned order by the learned CIR (A) be overruled and the order of the OIR be restored. He did not raise any new point or case law in his favour. The learned AR on his turn at the very outset assailed the DCIR's Order-in-Original as unlawful which was rightly overturned by the learned CIR (A). AR also argued that the Show Cause Notice was issued under the provisions of Sales Tax Act, 1990. SED levied under the provisions of under section 3A of the Federal Excise Act, 2005. Order in Original also passed under the provisions of Sales Tax Act, 1990. No Show cause Notice was issued under the provisions of Federal Excise Act, 2005. That show cause notice as well as order-in-original is against the law because proceeding under the Sales Tax Act and Federal Excise Act cannot be taken jointly. AR further argued that the SED levied under Notification No. 655(I)/2007 and the said SRO issued on 29-06-2007 whereas the Section 3A of the Federal Excise Act, 2005 become law on 30-06-2005.
The notification was void ab-initio. He placed on record Judgement of the Sindh High Court in re: Sakrand Sugar Mills Ltd. Vs. Federation of Pakistan and others, reported as PTCL 2014 CL. 154.
3. The first issue under dispute (Unlawful input adjustment) is that the OIR through her order-in- original has made the allegation that although the registered person had issued tax invoice in the name of its buyer, M/s Hussain Cotex Pvt Ltd., the said buyer (i.e. M/s Hussain Cotex Pvt Ltd.) was a non-filer and the presumption was that the sales were actually made to someone else and that the tax was not deposited in the government exchequer. On this basis the input adjustment to the extent of Rs. 498,469 was denied to the RP and demand of SED of Rs. 31,154 along with default surcharge and penalty was also raised. In the first appeal the learned CIR(A) did not agree with the treatment meted out by the OIR and agreed with the AR that the onus to pay under section 3(3)(a) of the Sales Tax Act, 1990 was on the supplier i.e. the RP and the RP had discharged his liability.
Since the question of inadmissibility of the input tax did not arise in the circumstances, he dubbed the OIR's action as bald and vacated the demand of sales tax of Rs. 498,469 and SED of Rs. 31,154 along with default surcharge and penalty.
4. After hearing the rival parties and examining the orders of the lower authorities we agree with the learned CIR (A) in that even if the registered person had actually made supplies to someone else and not to M/s Hussain Cotex Pvt Ltd it hardly mattered under the circumstances because the liability of sales tax was fully discharged by the RP being the supplier as required by section 3(3)(a) of the Sales Tax Act, 1990. We are conscious of the fact that the instant appeal pertains to tax periods relevant to July 2009 to June 2010 when "further tax" under section 3(1A) of the Sales Tax Act, 1990 was not in the field. Thus it did not matter whether supplies were made to a registered person or an unregistered person. The Department's appeal on the issue is quite preposterous and the ground is rejected.
5. The second issue under dispute is Suppression of sales on account of variation in stock The learned OIR through her show cause notice under section 11(2) of the Sales Tax Act, 1990 confronted the RP with penalty of Rs. 50,000 under S. No. 9 of section 33 of the Sales Tax Act, 1990 for non- production of the stock statement. However after the RP furnished the stock statement before her, she without any further communication imposed the sales tax of Rs. 2,159,490 and SED of Rs.
134,968 by stating in the order-in-original that it was charged on account of variation in stock.
Since the demand was raised without due confrontation, it was deleted by the learned first appellate authority on legal basis as well as on merits.
6. In the proceedings before us the learned DR did not add anything worthwhile "Except repeating the assertions by the OIR in her order-in-original. The AR reiterated his arguments as taken before the first appellate authority and strongly agitated against the demand raised by the learned OIR without the mandatory confrontation as required under section 11(2) read with section 11(5) of the Sales Tax Act, 1990. Additionally he placed reliance upon the famous judgment by the honorable Supreme Court of Pakistan reported as "The Collector Central Excise & Land Customs & others v.
Rahm Din" [1987 SCMR 1840] - Paragraph-7 "However, we are of the opinion that it is not necessary to determine this question of law in the facts of the present case as this petition can be disposed of on the short ground that the order of adjudication being ultimately based on a ground which was not mentioned in the show-cause notice, the order was palpably illegal and void on the face of it."
7. We have considered the rival arguments, perused the orders of the authorities below and studied the judgment by the honorable Supreme Court of Pakistan which is on all fours with the present case. It is patently clear from the OIR's order-in-original that the RP was confronted with imposition of penalty for not submitting the stock statement, but eventually after the receipt of the stock statement from the RP, the OIR raised huge demand of sales tax of Rs. 2,159,490 and SED of Rs.
134,968 without any further notice for absolutely different reasons. Thus we hold that the learned CIR (A) was fully justified to delete the sales tax of Rs. 2,159,490 and SED of Rs. 134,968 because the same was charged without due confrontation.
8. The most important point in this case is that Show Cause Notice as well as order-in-original were issued under the provisions of Sales Tax Act, 1990 and there is no controversy on this point. Even Appeal in hand is also preferred under the provisions of Sales Tax Act, 1990. SED is imposed under the provisions of Federal Excise Act, 2005. SED has been levied without issuing of Show Cause Notice under the relevant provisions of Federal Excise Act. In fact the Departmental Authorities during the Sales Tax proceeding in the same Show cause Notice demanded the SED, which is not justified. Even none of the provision of the Federal Excise Act was mentioned in the Show Cause Notice. The SED levyable under the provisions of section 3A of the Federal Excise Act is a separate levy under a separate Act and require separate proceedings. Since SED has been imposed without taking cognizance of the same, therefore, is not warranted under the law and liable to be set aside.
9. The instant appeal filed by the Revenue is dismissed and disposed of in the way and manners as indicated above.
This order consists of (04) pages and each page bears my signature.