SARFRAZ ALI KHAN, JUDICIAL MEMBER. Through instant appeal, the taxpayer/registered person has assailed the Appellate Order No.76 dated 09.06.2021 passed by the learned Commissioner Inland Revenue (Appeals-II), Multan under section 45B of the Sales Tax Act, 1990 ('the Act').
2. Facts of the case in brief are that during scrutiny of record of the appellant/registered person, it was found to have claimed/adjusted inadmissible input tax amounting to Rs. 1,146,872 during tax periods 08/2019, 01/2020, 05/2020 and 06/2020 on purchase of office equipment, mineral water, travel sets, soaps and sugar. Based on alleged violation of various -provisions the Act, said Mount of sales tax was found recoverable from the appellant in terms of section 11(2) of the Act. Therefore, a show-cause notice was issued requiring the appellant to explain as to why sales tax amounting to Rs. 1,146,872 should not be recovered from him along with default surcharge under section 34 and penalty under section 33 of the Act. Reply furnished by the appellant was found unsatisfactory, therefore, the learned DCIR ordered recovery of aforesaid amount of sales tax along with default surcharge and penalty through Order-in-Original No 03/2021 dated 13.04.2021.
3. On appeal, the leaned CIR (Appeals) vide appellate order dated 09.06.2021 upheld the order-in- original for the reasons recorded therein. Against the treatment meted out to the appellant further appeal has been filed before this Tribunal on various grounds as set out in the Memorandum of appeal.
4. In response to hearing notice, Mr. Mumtaz-ul-Hassan, Advocate tendered appearance as the learned Authorized Representative (AR) of the appellant and pleaded the grounds of appeal. It was contended that the orders of authorities below were illegal and against facts of the case. It was explained that the appellant being a Government company cannot be assumed to have claimed input tax on items used for any purpose other than for .making taxable supplies. Learned AR added that input tax was lawfully claimed on purchase of goods which were unavoidable to complete the process of distribution of electricity. It was further contended that burden to prove that goods under consideration were not used in taxable activity was on the Revenue. However, impugned order was passed without discharging this onus. Lastly, it was argued that the learned CIR (Appeals) was not justified to confirm the order-in-original without adjudicating grounds taken before him and without considering record produced during appeal proceedings. In support of his contentions, learned AR furnished copies of relevant sales tax invoices.
5. Learned DR on the other hand supported the impugned order by contending that input tax was rightly disallowed being inadmissible under section 8(1)(a), (f), (g), (h) and (i) of the Act.
6. We have given due consideration to the opposing stance of the parties and carefully perused the available record. Before proceeding further, it will be useful to reproduce relevant part of section 8 of the Act, which reads as under: "8. Tax credit not allowed.---(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on -
(a) the goods or services used or to be used for any purpose other than for taxable supplies made or to be made by him (b)...............................................................
(c)................................................................
(ca).............................................................
(caa)...........................................................
(d)...............................................................
(f) goods and services not related to they taxable supplies made by the registered person
(g) goods and services acquired for personal or non-business consumption
(h) goods used in, or permanently attached to, immoveable property, such as building and construction materials, paints, electrical and sanitary fittings, pipes, wires and cables, but excluding pre-fabricated buildings and such goods acquired for sale or re-sale or for direct use in the production or manufacture of taxable goods;
(i) vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969), parts of such vehicles, electrical and gas appliances, furniture furnishings, office equipment (excluding electronic cash registers), but excluding such goods acquired for sale or re-sale,"
7. On the strength of clauses (a), (f), (g), (h) and (i) of subsection (1) of section 8 reproduced above, learned DCIR issued show cause notice under section 11(2) of the Act in this case in respect of input tax claimed on purchase of office equipment, mineral water, travel sets, soaps and sugar from four suppliers. However, as per reply along with sales tax invoices submitted by the appellant, the input tax involved was found in respect of following items: a) Chain Pulley Block 3 Ton b) Topcon easy/Auto station with metallic tripod etc. c) Shoes (Security Staff Uniform) d) Heaters, main filters, Filter D gases chamber, Oil rubber pipe, Control panel with all electric accessories. Door denting with lock, Draw bar, Pump motor, Wheel hub, Pumps/motor, 3-phase motor service with new bearings. Main breaker, Pipes for pressure gage, vacuum pump etc.
8. The learned DCIR, however, disallowed input tax on all the above items with the observation that these items were not directly involved in the supply of electricity. He further observed that under clauses (a), (f), (g), (h) and (i) of subsection (1) of section 8, input tax adjustment was not admissible on goods permanently attached to immovable property such as building material including cement, bricks, paints, varnishes and distempers etc., wires, cables, ordinary electrical and sanitary fittings, vehicles and their parts, office equipment, entertainment and goods for personal use. It is thus observed that the impugned order was passed on grounds other than those confronted through the show-cause notice, and is, therefore, not maintainable on this score alone.
Reliance can be placed on a case reported as 2018 PTD (H. C. Lah.) 253 wherein the honourable High Court held as under.
"Where the order of adjudication that is eventually made is based on a ground which was not mentioned in the show-cause notice, that order would be palpably illegal and void on the fact of it."
9. We have further noted that the learned DCIR failed to establish how the items purchased by the appellant fell within the categories of goods permanently attached to immovable property, or building material, or goods for personal use etc., or any of the specific category listed in clauses (a), (f), (g), (h) and (i) supra. We agree with the submissions made at the bar that initial burden to prove chargeability was on the Revenue, which does not appear to have been discharged in this case.
10. We have also examined details of goods and services provided by the appellant along with the details of utilization in the taxable activities which is placed in the record, and find that the same do not come within the ambit of above quoted provisions of the Act and the learned DCIR failed to substantiate and correlate the disallowance of input tax with the above provisions of the Act. It has been held in a number of cases that the provisions of section 8(1)(a) of the Act authorize deduction for all such input tax that relates to goods that contribute directly or indirectly in furtherance of taxable activity. In this regard, reference may be made to judgment of this Appellate Tribunal, first one is of Coca Cola Beverages reported as 2012 PTCL CL 475 wherein the learned bench of this Appellate Tribunal has held that the provisions of section 8(1)(a) of the Act authorize deduction for all such input tax that relate to goods that contribute directly or indirectly and even remotely towards furtherance of taxable activity. If the department's stance is considered it would imply that no input tax adjustment is available to registered persons other than raw materials and goods direct part of manufacturing and obvious result would be that the entire superstructure of VAT mode of taxation would crumble down. In another judgment of this Tribunal reported as 2007 PTD 2391 it had been held that input adjustment claimed by PTC on machinery spare parts and fork lift truck is lawful in terms of the provision of section 7 read with section 8(1)(a) of the Act. The ATIR had deduced that once a registered person establishes that the goods in question on which input tax has been paid were used or to be used directly or indirectly for the purpose of manufacture or production of taxable goods or for taxable supplies made or to be made by him then he becomes entitled to the deduction of the said input tax. Further reliance in this regard can be placed on cases reported as 1999 PTD (H. C. Lah.) 2174, 1999 PTD (SC Pak) 1892 and 2005 PTD (H. C. Pesh)
2012.
11. In view of the foregoing discussion, we hold that assessment order as well as appellate order impugned before us in respect of adjustment of input tax were passed on the basis of wrong assumption and application of law and incorrect appreciation of facts. We therefore, accept the appeal of the registered person and set aside both the orders of authorities below.
12. This order consists of (06) pages and each page bears my signature. Appeal allowed. revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.