MR. S.M. KAZIMI, MEMBER (TECHNICAL).-(l). This judgment disposes of the appeal filed by M/s. Cherat Electric Limited, Nowshera, against the Sales Tax Order-in- Original No. 69/2001 dated 29.09.2001 (despatched on 09.10.2001) passed by the Deputy Collector (Adjudication), Peshawar.
2. Briefly, the facts of the case are that during the course of audit of records of M/s. Cherat Electric Company Limited, Nowshera, it was observed that the said registered person had incorrectly adjusted input tax totaling at Rs. 222,160/- paid against 8 sales tax invoices of August to December, 1999, and of April, 2000, in the Sales Tax Returns for the respective next months (as per the details annexed to the Deputy Collector (Adjudication)'s Show Cause Notice C. No. ST(DC.ADJ- 30)/2001/299 dated 23.06.2001) in breach of the provisions of section 7 of the Sales Tax Act, 1990.
The Deputy Collector (Adjudication), therefore, issued a notice on 23.06.2001 requiring M/s. Cherat Electric Company Limited to show cause why the said amount of Rs. 222,160/- should not be recovered from them besides the additional tax payable under section 34 ibid and also why penal action should not be taken against them. After hearing the parties, the Deputy Collector (Adjudication) decided the case and passed the impugned Order-in-Original No. 69/2001 holding that the adjustment was made in breach of the provisions of section 7 of the Act and, therefore, M/s. Cherat Electric Company Limited should pay the principal amount of sales tax (Rs. 222,160/-) alongwith the additional tax, to be calculated till the actual date of deposit of dues. Hence, this appeal.
3. During the course of hearing before us, Qazi Waheeduddin, learned Counsel for the appellant, has placed reliance on the following judgments :--
(a) CEASTAT, Karachi's judgment dated 7.10.2000 in S.T. Appeal No. 67/2000 allowing such a delayed input tax adjustment, (Input tax of February, 1999 adjusted in the tax return for March, 1999);
(b) CEASTAT, Karachi's judgment dated 12.05.2001' in S.T. Appeal No. 194/2000 allowing such a delayed input tax adjustment,, (input tax of November, 1997 to June, 1999, but adjusted in months subsequent to the aforesaid respective tax periods);
(c) CEASTAT, Lahore Bench-I's judgment dated 1.8.2001 in S.T. Appeal No. 784/LB/2001 showing difference in opinion between the Member (Technical) and the Member (Judicial)/Chairman of CEASTAT, Lahore. The appeal was referred to the Member (Technical), Islamabad Bench, for decisive opinion who decided only the issue of chargeability of sales tax of "fixed assets" in terms of Honourable Sindh High Court's Judgment dated 13.9.2001 passed in Special Sales Tax Appeal No. 62 of 2001 but he kept silent on the specific issue of inadmissibility of input tax adjustment in tax returns subsequent to the returns to which the input tax invoice relates. However, still both the Member (Technical), Islamabad and the Chairman/Member (Judicial), Lahore, concluded on 05.12.2001 that the impugned Order-in-Original No. 50/2000 dated 21.8.2000 was set aside and that appeal was accepted; and
(d) Supreme Court of Pakistan's judgment dated 19.3.1991 in Civil Appeal No. 29-K of 1985 (PTCL 1992 CL. 23) holding that imposition of penalty is illegal where the evasion of duty was not wilful.
4. Besides the citations as aforesaid, the learned Counsel for the appellant argued that the input tax adjustment is a vested right of a registered person and cannot be denied on grounds of technical or procedural nature. No loss to the exchequer is caused by the registered person by delaying input tax adjustment, and, on the contrary, the exchequer gains in such a situation. He complained that in many cases, the suppliers delayed issue of formal invoices and hence the delays. He prayed that such procedural delays be condoned and input tax adjustments, as already made, be regularized.
5. The learned Departmental Representative and the representative from the Collectorate argued that the impugned order is correct in law as it relates to the tax adjustment made in a tax period not relevant to the tax invoices of that very period. They argued that the Government/State does not intend to deprive a registered person of the input tax paid by him but in case he cannot make its adjustment in the tax return for the relevant period in terms of section 7 of the Sales Tax Act, 1990, he should claim refund of such an amount in terms of section 66 ibid. When relief is legally admissible under section 66 of the Act, illegal and unlawful input tax adjustment in breach of section 7 ibid cannot be regularized. They prayed for dismissal of the appeal on merits and in terms of clear dictates of law.
6. Having heard the parties and on perusal of the relevant citations and reasons, we find that this case relates to a period subsequent to 01st July, 1998 and section 7(1) of the Sales Tax Act, 1990, presently reads as follows:- "7. Determination of tax liability:-(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, 1[, subject to the provisions of section 73,] be entitled to deduct input tax paid 2[during the tax period] for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9.".
1. ", subject to the provisions of section," insetted through Finance Ordinance, 2001.
2. "during the tax period" inserted through the Finance Ordinance, 1998."
7. The aforesaid provisions of section 7(1) prescribe that while determining tax liability for a tax period, the registered person shall be entitled to deduct input tax paid by him from the output tax due from him in respect of that period. However, after 01.07.1998, because of the amendment made through the Finance Act, 1998, inserting the words "during the tax period" after words "entitled to deduct input tax paid", the Legislature restricted the registered tax payers' entitlement of such input tax deduction to only such of the tax invoices as have been paid during that very period to which the tax return relates. The intention of the said amendment was also clarified in the C.B.R.'s letter C.
No. 1/10-STB/98 dated 12.06.1998 regarding "Sales Tax Budget Day Instructions for the Budget 1998- 99" (published in most of Sales Tax Law Compilations), paragraph 18 of which reads as hereunder:- "18. Amendment has been proposed in section 7 of the Act whereby input adjustment can only be claimed in the return of the relevant tax period only. In case it is not claimed in the relevant tax period, the same can be claimed as refund under section 66 of this Act."
8. In view of paragraphs 6 and 7 foregoing, we' are unambiguously clear that legislative amendments in section 7(1) took place w.e.f. 01.07.1998 and, therefore, the cases or decisions relating to the tax period prior to 01.07.1998 do not form valid precedents for decision of this case relating to the period of August, 1999 to December, 1999, and April and May, 2000. Moreover, the judgments by our learned brothers, whether in Karachi or Lahore Bench, even if these relate to input tax adjustment for a tax period subsequent to July, 1998, will not form a good precedent unless it has specifically taken into account the aforesaid specific legislative amendment in section 7(1), as made through the Finance Act, 1998. The words "tax period" are defined under section 2(43) of the Act as "a period of one month" and the tax return (under section 26) for that tax period has to be filed by the due date (as defined in clause 9 of section 2) indicating purchases and supplies made during that tax period in terms of section 26 read with section 7(1) and other relevant provisions of the Sales Tax Act, 1990. The said 1998 amendment is very specific in terms of objective and it creates a tax discipline for a tax period. A registered person is expected to comply with the provisions of law. Arguments of loss and gain to the exchequer is of no consequence. Whenever limitation is prescribed, it has to be adhered to. If, the suppliers did not issue tax invoice or if they issued belated back-dated invoices, as pleaded by the appellant, confirmation from the suppliers should be produced by the appellant for verification by the Department w hether the suppliers too entered these supplies in the tax period subsequent to the period to which these relate as per the suppliers tax invoice. No such evidence has been produced and there is no force in such an argument. Whether a procedural lapse or procedural delay, there is no doubt that input tax adjustments in this case were not claimed by the appellant, in terms of their entitlement under section 7(1) of the Act, in the tax return for the tax period relevant to the respective tax invoices, as specified in the annex to the Show Cause Notice. Therefore, the appellant exceeded the limit of their entitlement as provided under section 7(1) of the Act and committed an unlawful act of making inadmissible tax adjustments. The law or the exchequer does not deprive them of their claim to receive back the input tax paid by them, but it should be done by them as per the tax discipline provided for under the limitations and conditions prescribed by the law. If they fail to avail of their entitlement under section 7(1) of the Act in a tax return for the relevant tax period, they should, at their discretion, avail of the facility under section 66 ibid.
9. For the reasons given above, we hold that the input tax adjustments made by the appellant, after the 1998 amendment in Section 7(1) of the Act, in the tax returns subsequent to the relevant tax period, were not lawful for the tax periods to which the appeal relates and, and therefore, were inadmissible. A lenient view has already been taken by the Adjudicating officer by not imposing any penalty on the appellants in view of. This being not an evasion case. A further leniency is allowed and we direct that if the appellants deposit to the satisfaction of the Collector of Sales Tax, Peshawar, the whole of dues of principal amount of tax involved in this case on any date prior to the 30th March, 2002, the whole of the additional tax involved in this case shall stand remitted. In case, the appellants Tail to do so by the abovespecified date, the additional tax, as; prescribed under section 34 of the Sales Tax Act, 1990, Shall remain payable by them to be recovered by the Collectorate alongwith the principal amount of sales tax due.
8. The impugned order is modified to the above extent only and the appeal stands disposed of accordingly.
9. Announced.