MR. ZAFAR-UL-MAJEED, MEMBER (TECHNICAL).-(1). This appeal is directed against order in original No. 50/2000 dated 21.08.2000 passed by the Additional Collector-II (Adjudication), Lahore. By this order, the learned adjudicating officer has adjudged a demand of sales tax amounting to Rs.
48,64,200/- alongwith additional tax and penalty of Rs. 3,94,491/- against M/s. Coca-Cola Export Corporation, Lahore. The demand has been adjudged on account of following charges.-
(i) Incorrect input tax adjustment amounting to Rs. 43,125/- claimed by the appellants during the period 7/98 to 11/99. The adjustment of tax on purchases made in the previous months was made subsequent to the relevant tax period.
(ii) Incorrect input tax adjustment amounting to Rs. 19,24,170/- claimed during the period 7/98 to 11/99. The adjustment of tax against bills of entry relating to previous months was made subsequent to the relevant tax period.
(iii) Non payment of sales tax amounting to Rs. 28,96,905/- on sale of office equipment and fixed assets during the period 7/98 to 11/99.
2. The appellants case is that the alleged default in respect of the charges specified at (1) and (2) in the preceding para do not fall within the definition of "evasion" and is, therefore, outside the ambit of recovery under section 36 of the Sales Tax Act, 1990. The input tax adjustment was correctly claimed against tax paid on imports/local purchases though subsequent to the month in which it was to be claimed under the law. According to the appellants, there is no loss of revenue on this account and if the demand is confirmed, it would amount to double taxation which is not allowed under the law. In support of their contention, they, have quoted the judgment of this Tribunal's Karachi Bench in Sales Tax Appeal No. K-35 of 1998 whereby, in a short order, it has been held that an assessee is entitled to claim adjustment of input tax paid in one tax period against out put tax of a subsequent tax period and consequently, no default would arise against an assessee if adjustment is not claimed in the relevant tax period.
3. Regarding non payment of tax on sale of office equipment and fixed assets, the appellants contention is that a collective, reading of section 3 of the Sales Tax Act, 1990 and the definitions of "supply" and "taxable supply" clearly shows that the levy of sales tax is attracted by only those transactions which are in furtherance of business of a registered person. As it is neither their business to sell these items nor they are registered importer, manufacturer, wholesaler distributor or retailer of such items, they are not liable to pay tax on sale thereof. In support of their contention, they have quoted a clarification given by the Ministry of Law, according to which; "The sale, auction or otherwise disposal of goods, moveable/fixed assets including land, building, plant and machinery, equipment or vehicles by registered person shall not be chargeable to sales tax, if, such disposal is beyond the normal and continuous supply as a business activity of such person and more particularly when there was no value addition to the goods or for which the input tax was not allowed".
The appellants have also quoted a judgment of this Tribunal's Karachi Bench in Sales Tax Appeal No. K-193/2000 (PTCL 2001 CL. 83) whereby it has been held that sales tax is not chargeable on the disposal of items of fixed assets.
4. The learned departmental representative opposed the appeal pleading that according to section 7 of the Sales Tax Act, 1990, input tax adjustment in respect of the tax paid on imports as well as local purchases can be made only in the same tax period and, therefore, adjustment made by the appellants in subsequent months was illegal. He further pleaded that the sale of fixed assets and office equipment was chargeable to tax being part of the appellants business activity as sale proceeds of these items were duly recorded in their accounts. The clarification of Ministry of Law is an inter official communication between the Ministry and the C.B.R, which was not final. In support of his contention, he produced a copy of CBR's letter C. No. 3(54)STP/99(Pt.I), dated 12th April, 2001.
5. We have gone through the records of the case and considered the submissions made by the appellants and the departmental representative. There is no force in the appellants arguments that input tax adjustment can be made after the relevant tax period and there is no bar to this effect under the law. According to section 7 of the Sales Tax Act, 1990 a registered person is entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made, or to be.
Made, by him from the out put tax due from him in respect of that tax period. If however, input tax adjustment is not claimed within the relevant tax period, a claim for refund could be filed within a period of one year in terms of section 66 ibid. Therefore, in view of these clear provisions of law, adjustment of input tax made after the relevant tax period by the appellants was not admissible and the demand raised on this account vide impugned order is lawful. The precedent quoted by the appellants i.e. Karachi Bench's order in Sales Tax appeal No. K-35 of 1998 is a short order which, in the absence of detailed judgment, cannot be relied upon.
6. As regards demand of tax on the sale of office equipment and fixed assets, we find that the plea taken by the appellants in this regard is also without merit. According to section 3 of the Sales Tax Act, sales tax is chargeable on any taxable supply made by a registered person in the course of furtherance of a taxable activity carried on by him. The term "supply" as defined in section 2(33) includes sale lease or other disposition of goods in furtherance of business carried out for consideration. Thus the sale of taxable goods by a registered person for a consideration in the course of his business is according to these provisions of law, chargeable to sales tax regardless of the fact whether or not the same are manufactured by him. Sale of these items is part of the appellants business as the sale proceeds have admittedly been shown in the accounts of the appellant company. In the judgment in Sales Tax Appeal No. K-193/2000 (PTCL 2001 CL. 83) quoted by the appellants in support of their contention, the Hon'ble Karachi Bench has based its conclusions mainly on an opinion furnished by the Ministry of Law which has been reproduced in para 3 of this order. This opinion of the Ministry of Law is in the nature of an inter departmental communication in response to a reference made by the CBR, the contents of which are not on record. According to CBR's letter C. No. 3(54)STP/99(Pt.I), dated 12th April, 2001, the CBR has not agreed with the opinion and referred the matter to the Ministry of Law for re-consideration. The aforesaid opinion of the Law Ministry cannot, therefore, be treated as final. We have given due consideration to the facts of this case, the law on the subject and find that the sale of office equipment and other fixed assets is chargeable to sales tax being a taxable transaction. However, sales tax being a single stage levy, it will not be appropriate to charge sales tax on the sale of goods which are not entitled to input tax adjustment in terms of section 8(l)(b) of the Sales Tax Act.
The respondents are, therefore, directed to work out the appellants liability on sale of fixed assets/office equipment accordingly.
7. The appeal is accepted to the above extent and the impugned order is amended accordingly.
MR. JUSTICE (R) ABDUL MAJEED TIWANA, CHAIRMAN.--(1). As a result of the audit of the accounts of the appellant company carried out for the period from July, 1994 to November, 1999, the Additional Collector-II (Adjudication) Central Excise and Sales Tax, Lahore, the respondent herein, vide show cause notice, dated 30.6.2001, charged the company for the evasion of sales-tax-
(a) .Amounting to Rs. 295375/- during the period from July, 1998 to November, 1999 by wrongly claiming input tax paid on local purchases in the month succeeding the month in which it was to be claimed;
(b) amounting to Rs. 2574950/- during the period from July, 1998 to November, 1999 by wrongly claiming input tax paid on imported purchases in the month succeeding the month in which it was to be claimed;
(c) amounting to Rs. 504329/- during the period from July, 1998 to November, 1999 on account of nonpayment of sales tax on the sale of scrap such as drums, plastic cans, glass and jars etc;
(d) amounting to Rs. 2392576/- during the period from July, 1998 to November, 1999 on account of non-payment of sales tax on the sale of old tyres and used items of furniture etc; and
(e) amounting to Rs. 2392576/- during the period from July, 1998 to November, 1999 on account of non-payment of sales tax on the disposal of fixed assets.
In this way the appellants allegedly evaded a total sales tax amounting to Rs. 58,95,944/- by contravening various provisions of the Sales Tax Act, 1990.
2. In reply to the above mentioned various charges, the appellant company through its consultant took up the position as under:- i. With regard to charges (a) and (b) they asserted that there was no evasion within the meaning of section 36 of the Sales Tax Act, 1990 because there was no collusive or deliberate act on their part to evade tax, nor it was short levied or erroneously refunded and the deduction of input tax in the month subsequent to the month of tax period was not covered by the aforesaid section, nor did the Government suffer any loss of revenue on account of such deduction, rather, the demand embodied in these charges amounted to 'double taxation'. They quoted the decision of Karachi Bench of the Tribunal in Appeal No. 35 of 1998 in support of the contention that a taxpayer could lawfully adjust the input in the subsequent month.
Ii. As regards charge (c), it was asserted that the disputed amount of Rs. 1,28,714/-, spreading over a period from October, 1994 to October, 1999 (and not Rs. 5,04,329/- as alleged in the charge) was paid by availing of amnesty and in any event it was a case of mis-construction within the meaning of section 36(2) of the said Act, which prescribed a period of three years and the demand for the period from October, 1994 to 10th July, 1997 was time-barred.
Iii. So far as charge (d) was concerned, the amount allegedly evaded was Rs. 5,04,329/- during the period from August, 1994 to May, 1999 (instead of Rs. 23,92,576/- during the period from July, 1998 to November, 1999 as alleged in the charge). The appellants, besides pressing into service the bar of limitation regarding the period prior to July, 1997, also challenged the chargeability of sales tax regarding the items mentioned therein as the same were neither a 'supply' nor "taxable supply" nor 'supply of goods' as defined in the said Act to attract the application of section 3 thereof. In support of this contention they quoted the advice of Ministry of Law and also the precedent of Karachi Bench of CEAST in Appeal No. K-35/98.
Iv. Regarding charge (e) above, the appellants indicated the period of alleged evasion from March, 1995 to March, 1999 (instead of July, 1998 to November, 1999, as mentioned in the charge) and again quoted the advice of Law Division and a precedent of Karachi Bench of the Tribunal in appeal No. 25/2000 in support of their contention in connection with the non-chargeability of sale tax.
3. In the impugned order, the learned adjudicating officer, with regard to charge (a) demanding a sum of Rs. 2,95,375/-, accepted the claim of the appellants to the extent of Rs. 2,52,250/- on the ground that the input tax was claimed during the tax period, and demanded the payment of the remaining amount of Rs. 43,125/-. Similarly regarding charge (b), he accepted the claim of the appellants to the extent of Rs. 1,37,489/- for the above said reason and Rs. 5,13,291/- having been already deposited by the appellants before the issuance of show cause notice, total being Rs.
6,50,771/-, out of Rs. 25,74,950/- and demanded the payment of remaining amount of Rs.
19,24,170/-. He, however, accepted the full claim of the appellants in respect of charge (c) by conceding that the entire amount of Rs. 128714/- actually due, instead of erroneously claimed sum of Rs. 504329/- on account of typographical mistake, had been paid by them under amnesty and dropped this charge.
4. As regards charges (d) and (e) figuring in the show cause notice, the learned adjudicating officer, instead of referring to these charges, erroneously referred to paras 2(a) and 2(c) and concluded that the goods in question were taxable and were supplied by a registered person in furtherance of his business. He rejected the advice of Ministry of Law on the ground that it was an inter-official communication between the Ministry and the CBR and it could not be made a basis for the interpretation of law and the same had not been notified and circulated by the CBR. He declined to attach any importance to the decision of the Appellate Tribunal, Karachi for the reason that detailed arguments were not available therein. He, however, conceded that the demand of Rs.
2392576/- raised in charge (d) was a typographical mistake and the actual amount due was Rs.
504329/-. He recorded no definite finding on charge (e).
5. Ultimately, in view of the above conclusions, he directed the appellants to pay the aggregate sum of Rs. 48,64,200/- (instead of Rs. 5895911/- as originally demanded in the show cause notice) as sales tax under section 36(1) of the said Act in addition to the leviable tax under section 34 thereof (additional tax). He also imposed on them a penalty of Rs. 1,51,285/- under section 33(2)(a) regarding paras 2(c)(a)(e) of the show cause notice and a sum of Rs. 2,43,210/- under section 33(2)(c) of the said Act regarding the entire tax payable. Aggrieved by this order, the appellants came up in appeal to this Tribunal.
6. We have heard both the parties at length and perused of the record, salient features whereof have been reflected in the above resume. It is obvious that neither the show cause notice was prepared with care, nor the impugned order was written attentively. Many discrepancies were pointed out by the appellants in their reply to the show cause notice and by their consultants during the hearing before the adjudicating officer, who in the impugned order happened to make no less mistakes and wrong references than those embodied in the show cause notice. To be more precise, in para. 6 of the impugned order, the learned adjudicating officer amended charges 2(c) and 2(d) on the ground of typographical mistake in the show cause notice by saying that in the former charge, instead of figure 1,28,714/- which was actually payable, the figure 5,04,329/- was erroneously written and in the latter charge instead of figure 5,04,329/- the figure 23,92,576/- was erroneously written and these mistakes were brought to the notice of the appellant's consultant during the course of hearing and he agreed to these corrections. This was a mis-statement of facts on the part of adjudicating officer. It was rather the appellants' consultant who had brought correct figures and duration of defaults to the notice of the adjudicating officer by exposing the carelessness or mala fide of their opponents. In fact the adjudicating officer tried to cover up his own weakness, or that of his predecessor-in-office, in drawing up a flagrantly discrepant show cause notice which he termed 'typographical mistakes'. This could rebound on the entire prosecution case and could damage it extensively had the appellants themselves not stated the correct position in their reply to the charges in the show cause notice and during the hearing. In these circumstances the case of the prosecution could be thrown out or it could be remanded but instead of following either of these courses, I would favour a decision on merits in order to cut short the controversy between the parties in the larger interest of expeditious justice, after leaving it to the C.B.R to take notice of the poor performance of the adjudicating officer.
7. I now fake up various charges listed in the show cause notice, excepting charge (c) which stands entirely settled at the end of adjudication by the forum below. Charges (a) of (b) relate to belated deduction/adjustment of input tax by the appellants from the output tax in respect of certain local and imported purchases. The learned adjudicating officer had reduced the demand of the department in charge (a) from Rs. 295375/- to Rs. 43125/- and in charge (b) from Rs. 2574950/- to Rs. 1924170/-. However, it is not clear from the impugned order as to which months the belated adjustments pertained and what was the quantum of each adjustment and how many total adjustments the appellants had made. In the absence of this date, neither the additional tax, nor the penalty cap be calculated despite the fact that for the procedural lapse of belated adjustments at least some penalty would have been payable by the respondents to compel the compliance of the provisions of section 7 of the 1990 Act. It may be mentioned here that there was no justification for the department to demand the payment of the entire amount of input tax belatedly adjusted by the appellant as they had claimed it as a matter of right conferred on them by section 7 ibid itself, coupled with section 10 providing for carrying over the unadjusted excess' input tax and its refund besides their right of recovery u/s 66 of the Act. Such demand clearly amounted to double taxation which was an illegal exaction. Thus, the entire demand embodied in charges (a) and (b) of the show cause notice and, as adjudged in the impugned order is mis- conceived, illegal and unenforceable. In reaching this conclusion I also have the support of the judgment of the Karachi Bench of the Tribunal in Sales Tax Appeal No. 67 of 2000 and S.T. Appeal No. 194 of 2000.
8. As regards charge (d) and (e), the former relates to charging of sales tax on the sale of old tyres and furnitures etc., which the latter pertains to levy of sales tax on the fixed assets. There is good deal of divergence between the views of the Karachi Bench and Lahore Bench of the Tribunal on this point. The former was of the view that the sale of goods such as old tyres of vehicles and fixed assets were not subject to the levy of sales tax as their disposal was neither a 'taxable activity' nor it was carried on in 'furtherance of business, trade or manufacture' within the meaning of section 3 of the said Act, nor it constituted 'supply' or 'taxable supply' in furtherance of business within the connotation of section 3 ibid because the company was not carrying on business in these items.
9. Similar question arose in a number of appeals pending before the Lahore Bench of the Tribunal which, vide judgment, dated 11.7.2001, disposing of 16 similar appeals, held that the sale of plants, machinery, furnitures, office equipment etc. Was taxable but the sale of vehicles and such other goods, which were not admissible for input tax deduction in terms of section 8(1 )(b) of the Act, was not taxable. With regard to additional tax and penalty, it was held that since the controversy between the appellants and the department related to interpretation of different legal provisions, the additional tax and penalty imposed by the adjudicating officers were not chargeable and were waived. I would have followed this view as I was a party to this judgment as Chairman/Member (Judicial) of the Bench but meanwhile this very question has been decided by a Division Bench of Honourable High Court of Sindh in Special Sales Tax Appeal No. 62 of 2001, decided on 13.9.2001, (Collector, Customs, Central Excise and Sales Tax, Karachi West Vs. Novartis Pakistan Ltd.) (PTCL 2002 CL. 50) arising out of 12 similar appeals filed by the Department. Since this decision is binding not only on the Karachi Bench of the Tribunal but also on all its Benches in the country, I am, therefore, also bound by it until it is set aside or modified by the Honourable Apex Court or its operation is suspended by that august court on appeal filed by the department. Approving the view of Karachi Bench of the Tribunal it has been held that no sale tax on the disposal of fixed assets was payable by the registered persons. Following this dictum, I hold that the appellants herein were not liable to pay sales tax on fixed assets mentioned in charges (d) and (e) nor they were liable to pay on certain goods mentioned therein on which deduction of sales tax was not admissible in terms of section 8(l)(b) of the said Act, nor they were liable to pay any amount of additional tax and penalty despite the fact that there was a procedural lapse on the part of the appellants by not claiming the input tax during the tax period provided in section 7 of the Act because section 36 thereof did not provide any penalty for such an eventuality.
10. In view of the above I would accept the appeal and set aside the impugned order to the extent it relates to charges (a), (b) (d) and (e). Since charge (c) stood already settled at the adjudication stage I would not disturb the findings recorded thereon.
11. Since a material difference of opinion has arisen between the judgment proposed by me as Chairman/Member (Judicial) and the one proposed by Mr. Zafar-ul-Majeed, Member (Technical), the appeal is referred to Mr. Masood A. Dahar, Member (Technical) of Islamabad Bench-II for his decisive opinion. The appeal should be placed before him.
MR. MASUD AHMAD DAHER, MEMBER (TECHNICAL).-(l). I have heard both the parties, examined the record and perused the facts of the case as well as the judgement pronounced by the Hon'ble Apex Court. These very issues have been deliberated and adjudged by the Division Bench of Hon'ble High Court of Sindh (SPL. Tax Appeal No. 62 of 2001) (PTCL 2002 CL. 50) which decided on 13.9.2001, in 12 similar appeals filed by the Department. There is hardly any point left on which further elaboration or judgment needs to be made.
2. I therefore fully agree with the judgement recorded by Hon'ble Justice (Retd) Abdul Majeed Tiwana. The Order-in- Original No. 50/2000 dated 21.8.2000, is set aside. The appeal is accepted.
ORDER: JUSTICE (R) ABDUL MAJEED TIWANA, CHAIRMAN.-(1). In view of the majority opinion, the appeal is accepted and the impugned order is set aside.