ABDUL AZIZ MEMON, MEMBER (JUDICIAL).- This is an appeal from order dated 27-8-1997 whereby the Collector (Appeals) Customs and Central Excise Southern Zone, Karachi, has upheld the order of Superintendent, Sales Tax Circle-1, Karachi (East).
2. Briefly, the facts of the case are that the appellants are manufacturers of cosmetics. The goods produced by them are subject to sales tax. They pay sales tax and submit monthly returns regularly. The Superintendent Sales Tax (respondent No.2) however, issued a notice to them alleging that they had deducted input tax amounting to Rs. 3,03,734/37 from output tax of Rs.
1,46,616.62 during the tax periods of July to September, 1995 in disregard of provisions of section 7 of the Sales Tax Act, 1990 (hereinafter referred to as the "Act") read with Standing Order No. 1/95.
3. The appellants in their reply to the notice affirmed that the deductions were made in accordance with law. However, after hearing the appellants respondent No. 2, held that the appellants had wrongly deducted input tax mentioned above during the said tax periods inasmuch as they had to deduct input tax proportionate to the raw material consumed in the manufacture of supplies made during these tax periods by his order dated 7-5-1996. Against this order the appellants preferred an appeal before the learned Collector (Appeals) (respondent No. 1) but it was dismissed by the order which is now impugned before this Tribunal.
4. We have heard Mr.S.U. Mirza the learned representative for the appellants and Mr, Ashfaq Ahmed, Senior Auditor Sales Tax (East) Karachi, appearing on behalf of the respondent.
5. The first and fore-most submission of the learned representative for the appellant is that respondent No.2 had no power to issue show-cause notice in this particular case. The notice was purportedly issued under section 11 of the Act. Under that provision a notice could be issued only when a registered person does not file a return or the amount of tax shown as payable in the return is not correct, ln this case the returns were admittedly filed. The correctness of amount of tax shown payable in the return is also not disputed. Thus the very basis on which the notice could be issued does not exist in the instant case. The entire proceedings before him were, therefore coram non judice and all the subsequent proceedings carried on were similarly without jurisdiction and nullity in the eye of law.
6. ln order to appreciate the above-mentioned contention it will be convenient to reproduce section 11 of the Act which read as under: "11.- If a registered person does not file a return or the amount of tax shown as payable in the return is not correct an officer of the Sales Tax Department, not below the rank of Superintendent Sales Tax, shall make an assessm ent of the tax and the registered person shall, subject to any other liability under the Act, pay the amount so assessed within fourteen days of the communication of the assessm ent order."
7. A plain reading of Section 11 would show that the two conditions on the basis of which a show- cause notice could be . issued by respondent No.1 are absent in this case. The stand taken by the learned respondent that this was a case of assessm ent does not appear to be correct. We are therefore inclined to hold that the Superintendent Sales Tax had acted in excess of his powers when he issued the show- cause notice and all the subsequent proceedings taken by him on the basis of said notice were without lawful authority and as such of no legal consequence.
8. The learned representative for the appellants next submitted that the appellants had purchased raw material required for the manufacture of the taxable supply in bulk and paid sales tax on it at once. Since it was deductible from taxable supplies made by the appellants over a period in future it became a tax credit which was to be adjusted from the output tax as soon as it become due.
There is nothing in section 7 of the Act to suggest that the appellants can deduct only such amount as input tax as is commensurate with sales tax paid on the raw material consumed in the finished goods supplied during a tax period. The Section does not place a limitation on the power of appellant to deduct the input tax which has become so deductible. The interpretation sought to be placed on Section 7 by the respondents would render sub-section (1) of Section 10 of the Act redundant. He has also referred to the letter of Central Board of Revenue in which it is pointed out that the form of monthly returns does not provide for the column where the amount of input tax carried forward from the previous tax period in terms of section 10 of the Act is to be mentioned; and suggested that it can be shown in the blank column appearing below the column in which exempted goods are shown.
9. Mr. Ashfaq appearing for the department has however, submitted that standing order No.1 of 1996 issued by the Collector Sales Tax (East) Karachi supports the view taken by the learned respondents.
10. We have given anxious thought to the above- mentioned submissions and examined the record, ln. order to appreciate the arguments of the parties it will be proper to reproduce Section 7 which runs as under:- "7. Determination of tax liability For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deduct input tax from the output tax that is due from him in respect of that period and to make such other adjustment as are specified in Section 9".
11. Examination of the above-mentioned provision would show that it postulates the determination of tax liability in respect of taxable supplies made during a tax period which according to the definition of term tax period is one month, lt does not deal with determination of amount of input tax which may be deducted from output tax. The Section does not place any limitation on the power of the registered person to deduct input tax it may be seen that while input tax is paid when raw material required for the manufacture of finished goods is received by a registered person the output tax is leviable when a taxable supply is made. The raw material so purchased may be consumed in the manufacture of "taxable goods" in a short span of time but the supply of these goods to consumers may take a longer time. Should the manufacturer then wait for adjustment of the "input tax" in it entirety till all of the finished goods are sold? ln our view this practice would put additional burden on the registered person inasmuch as he will have to pay output tax while the input tax is due from the Government. This would be against normal practice of credit and debit of accounts. Besides it will require the registered person to maintain elaborate accounts so as to enable him to work out the amount of actual input tax on the supplies made during a tax period. If it is "a tax credit, which in our view, it is, the output tax shall have to be deducted in full as soon as it becomes due.
12. This view finds support from sub-section (1) of Section 10 of the Act and its first proviso which, it will be convenient to reproduce:- "10. Excess amount to be carried forward: (1) Subject to the provisions of sub-section (2), if in relation to a tax period the total deduction of input tax and other adjustments as specified in Section 9 exceed the output tax, the excess amount shall be carried forward by the registered person to the next tax period and shall be treated as input tax for that tax period: Provided that if the excess amount is not fully covered by the tax payable during a period of six months following the tax period in which the credit first arose, the balance outstanding at the end of that period shall be refunded to the registered person as may be prescribed".
13. A plain reading of this sub-section will show that if interpretation of the respondent is accepted, there may be no occasion to carry forward the amount of input tax inasmuch as only so much of input tax as has been paid our raw material consumed in the manufacture of finished goods could be adjusted as output tax. This would render sub-section (1) of Section 10 redundant, lt is cardinal principle of law that redundancy cannot be readily attributed to the legislature. The view propounded by the learned representative for the appellant finds further support from first proviso sub-section (1) of section 10 which entitles the registered person to carry forward input tax for a period of six months following the tax period in which the credit first arose. This proviso will also be redundant if interpretation placed on it by the department is accepted. The construction we propose to place on these provisions finds further support from the letter C. No. 1(9)GST-1/90, dated 22-1 - 1991 which was written by Central Board of Revenue to Collector Central Excise and Sales Tax Karachi referred to in earlier part of this order.
14. To achieve the result propounded by the respondents one will have to add some such words as "equal to the amount of sales tax paid on raw material consumed in the manufacture of taxable supply made during that tax period" between words "input tax" and "from the output tax that is due"; but where the language of a statute unmistakably points to a meaning, presents no difficulty in understanding, injection of words of one's own choice would clearly amount to impermissible intermeddling with the legislative intent and purpose, lt is also an accepted principle of interpretation that when there are two interpretations possible then the one which is favourable to the citizen must be adopted.
15. The learned representative for the appellant had raised this point before the learned respondent No.2 who was of the view that "sub-section (1) of Section 10 relates to subsection (2) of the Section and applies to refund of input tax to exporters. This view is on the face of it, misconceived. Section 10 conceives of two situations: one postulates the adjustment and refund of input tax in cases of ordinary registered persons, and the other relates to refund of input tax to exporters, ln the former case the amount of input tax not covered, by output tax shall be carried forward for a period of six months where after it shall be refunded as prescribed by rules, whereas in the latter case the amount of input tax not covered by the output tax shall be refunded to the exporter in such manner as may be determined by the Board.
16. For the reason stated above we are satisfied that the appellant had correctly deducted the input tax from the output tax. The appeal is therefore allowed and the impugned order is set aside.