JUSTICE (RETD.) ABDUL MAJEED TIWANA (CHAIRMAN).-- This appeal is directed against the order, dated 24.5.2000, by which the learned Additional Collector, Sales Tax, Lahore, directed the appellants herein to pay sales tax amounting to Rs. 1949425/- alongwtih additional tax besides a penalty of Rs. 874713/-. He also imposed a penalty of Rs.50000/-, on the Chief Executive of the appellant company.
2. Sales Tax Audit Division, Lahore, on the inspection of appellants sales tax record for the years 1996-97 and 1997- 98, detected zero-rated invoices valuing Rs. 15595391/- issued during the period from June, 1997 to March, 1998 in respect of certain goods produced and supplied by them to an official agency in Azad Jammu and Kashmir, without paying sales tax of Rs. 1949425/- on them. On the report of detecting agency, the adjudicating officer issued show-cause notice to the appellants, demanding the payment of the said amount of evaded sales tax alongwith additional tax besides proposing the imposition of penalties under the relevant provisions of law.
3. The appellants contested the notice, inter alia, on the ground that the goods were supplied to the Department of Local Government and Rural Development, Government of Azad Jammu and Kashmir and since the Territory of Azad Jammu and Kashmir was not a part of Pakistan, the goods so supplied were exported tp a foreign country and no sales tax was leviable on the zero-rated export of goods under Sections 3 and 4 of the Sales Tax Act, 1990 which law applied only to Pakistan and not to Azad Jammu and Kashmir and no penal provision thereof was contravened.
4. During the course of hearing before the adjudicating officer, the appellant's counsel mainly reiterated the aforesaid contentions with reference to PLD 1985 S.C. (AJK) 762 and PLD 1966 S.C. 88.
These contentions were not dealt with exhaustively by the adjudicating officer, rather, the question of Azad Jammu and Kashmir being a foreign territory was not even touched by him and confirming his discussion only to the provisions relating to zero-rating in Section 4 of the Sales Tax Act, 1990 and noncompliance of Section 131 of the Customs Act, 1969, held the charge as proved and burdened the appellants with the liability indicated in the opening paragraph of this judgment. To be more precise, after reproducing the provisions of Section 4 ibid, he came to the conclusion that under second proviso to this section since the goods supplied by the appellants in Azad Kashmir were not entered for export under Section 131 of the Customs Act, 1969, they could not avail of the concession of zero-rating export and were chargeable to the statutory rate of sales tax. The aforesaid second proviso seems to have been misinterpreted and incorrectly applied by him because it excludes the application of the zero-rating concession contained in Section 4 ibid only if the supply of goods are entered for export under Section 131 of the Customs Act, 1969 but they are not exported while in the instant case the goods allegedly supplied by the appellants to the official agency in Azad Jammu and Kashmir were never entered under Section 131 of the said Act of 1969 for export, the legal consequence of which will be examined in due course.
5. Learned counsel for the appellants with reference to Constitutional provisions enumerating the territories constituting Pakistan, Sections 3 and 4 of the Sales Tax Act, 1990, and the case-law referred to above besides PLD 1965 S.C. (A.J. And K) 62 have vehemently contended before us that the Territory of Azad Jammu and Kashmir not being one of the territories constituting Pakistan, and the Sales Tax Act, 1990, being applicable only to Pakistan and not being applicable to Azad Jammu and Kashmir, the goods supplied by the appellant to an official agency in Azad Jammu and Kashmir were not liable to be taxed under the 1990 Act. He has urged that even if this Act was, by any stretch of imagination, so applicable, the supply in question constituted export which under Section 3 thereof was not taxable but even if it was taxable, it was zero-rated and the appellants were justified in not paying sales tax on the goods supplied.
6. The learned D.R. Has, on the contrary, contended with reference to an authority of the Lahore High Court reported as "M/s. Tehseen (Pvt.) Ltd. Lahore v. Additional Collector of Customs Dry port, Rawalpindi" (1998 PTD 2561) that the sales tax was leviable under the 1990 Act even if the goods were sold to an official agency in Azad Jammu and Kashmir which is neither a foreign territory nor goods could be deemed to have been exported as no legal formalities for export had been completed.
7. After perusing the case file in the light of the arguments addressed at the bar, we are inclined to agree with the contention of the appellants' counsel based 'on case-law that legally speaking Azad Jammu and Kashmir is a disputed foreign territory being not a part of Pakistan. However, we find that there is no material before us as to the details of the sale transactions entered into during the period from June, 1997 to March, 1998 between the appellants and the official agency of Azad Jammu and Kashmir, nor there is any proof of actual dispatch of goods by the appellants as consignors from their manufacturing concern in Pakistan and their receipt by the said agency as consignees at some destination in Azad Jammu and Kashmir which was all the more necessary when the prosecution case, as it appears from the opening para of the impugned order, was that the goods 'were not actually exported', In fact the record is so deficient that one cannot even make out as what kinds of goods were involved and in which quantity and for this omission the appellants are to blame.
8. Despite all this, let us presume that the appellants manufactured some goods and they old the same to the official agency in the liberated part of the .State of Jammu and Kashmir and actually dispatched them to some destination in that part of the State but the question arises: whether it constituted a lawful export? Imports and exports of goods in or from Pakistan are regulated by the Imports and Exports (Control) Act, 1950 and the Customs Act, 1969, and rules made and statutory notifications and orders issued thereunder. Chapter XIV of the Customs Act, 1969, prescribes detailed procedure for exportation, shipment and re-landing of goods and the appellants do not seem to have complied with any requirement thereof, including Section 131 thereof which has specifically been mentioned by the learned adjudicating officer in the impugned order. When confronted with this aspect of the case, the learned counsel for the appellants has come-up with the explanation that in the absence of any official machinery in Pakistan for the export of goods to Azad Jammu and Kashmir, the appellant could not take recourse to anybody and they directly exported the goods to the buyers in the said territory. This is not a satisfactory explanation for non- compliance of the provisions of the above-mentioned Chapter of the Customs Act, 1969. From the perusal of the above-quoted ruling of the High Court known as 1998 PTD 2561, we gather that Pakistan Customs Authorities had established a state warehouse at Bhimber (Azad Kashmir) which was working under the supervision of the Rawalpindi Customs Authorities and goods in that case, after their safe transportation from Karachi Port to Rawalpindi Dry port, were deposited in the said warehouse with the permission of dryport Customs Authorities before they were ex-bonded by the importer at Bhimber. Though in the absence of the applicability of the Customs Act, 1969, to Azad Jammu and Kashmir it was doubtful as how the Pakistan Customs Authorities could establish warehouse at Bhimber in Azad Kashmir and how Rawalpindi Customs Authorities could supervise it, yet it could not be argued by the appellants' counsel that no official machinery or arrangement existed in Pakistan for the exportation of goods by the appellants to their buyers in Azad Jammu and Kashmir and they directly exported the goods without complying with the requirements of law on the subject. They could easily approach the Customs Authorities at Rawalpindi and on their refusal to allow export of goods to the said territory, they could take recourse to the writ jurisdiction of the High Court or pay the duty and taxes, including the sales tax, if demanded, under protest and later could claim its refund but they did not adopt this course and incurred the liability they are now struggling against, for their thoughtless act.
9. In view of the above, there is no substance in the appeal and the same is dismissed. However, the amount of penalty being excessive, the same is reduced from Rs.874713/- to Rs.200,000/- and the entire amount of personal penalty of Rs.50000/- imposed on the Chief Executive of the appellant company is waived.