MR. JUSTICE (R) ABDUL MAJEED TIWANA, CHAIRMAN.-(1). This appeal filed by Nishat Mills Limited ^hereinafter called the appellants) against the Collector of Customs, Sales Tax and Central Excise (Adjudication), Faisalabad and two others (hereinafter called the respondents) is directed against the Order-in-Original No. 34-FD/2000, dated 16.12.2000, by which respondent No. 1 directed the appellants to pay sales tax amounting to Rs. 12,11,23,309/- alongwith additional tax under section 34 of the Sales Tax Act, 1990 and a penalty equal to 30% of the amount of tax involved under section 33(4) thereof as it was a case of tax fraud as defined in section 2(37) of the said Act.
2. Brief facts of the case are that the appellants being the leading manufacturers and exporters in the textile sector with its main manufacturing unit located at Faisalabad, were subjected to special audit under section 32-A of the Sales Tax Act, 1990, by the Collector of Sales Tax, Faisalabad (respondent No. 2) for the year 1996-97, 1997-98 and 1998-99. This audit was carried out first by M/s. Saeed Kamran & Company and then by M/s. Ford Rhodes Robson and Morrow, both Chartered Accountants, as the appellants had expressed dissatisfaction over the audit of the former and agreed on the appointment of the latter when they had agitated the matter before the CBR. On the basis of the audit reports of the Chartered Accountants, the Assistant Collector, Sales Tax, Faisalabad, drew up a contravention report and sent up the same to the Collector (Adjudication), Faisalabad who vide show cause notice, dated 9.9.2000, charged the appellants for:-
(i) their massive involvement in purchasing 'flying invoices' with a view to get undeserved refund of input tax, while they actually bought cloth from various (unregistered) dealers/weavers/commission agents without obtaining supporting invoices from them and after making fictitious entries in the record of their unit about the purchase of yarn from different suppliers, they, on the basis of those flying invoices, illegally claimed and obtained input tax refund amounting to Rs. 63486089/- during the period from October, 1996 to September, 1998 and from October, 1998 to June, 1999 which was recoverable alongwith the additional tax of Rs. 170253311/- calculated upto February, 2000;
(ii) belated payment of sales tax and late delivery of sales tax invoices to the ginners for the purchase of cotton from them, which they (appellants), as per law on the subject, were bound to deliver pay orders or certified cheques therefor to them (ginners) at the time of taking delivery of the cotton from them and in this way the appellants during the period from September, 1996 to October, 1996 incurred the liability of paying Rs. 8769106/- as additional sales tax;
(iii) violating SRO 1271(I)/96, dated 10.11.1996, and consequently incurring liability of paying compound additional tax of Rs. 27,06,4186/- as they could not deliver to the ginners, the pay order or bank draft indicating the payment of sales tax prior to their taking delivery of cotton from them;
(iv) their failure to deposit sales tax on treasury challans before taking delivery of cotton from the ginners as required by the amended SRO 1271 (I)/96, and by this omission compound additional tax amounting to Rs. 46898115/- became payable by the appellants for the period from October, 1997 to April, 1998;
(v) not complying with further amended SRO 1271(I)/96 which required the appellants to pay sales tax by demand draft on or before 10th day of the next month on the purchase of cotton and in this way they (appellants) incurred the liability of paying Rs. 11345822/- to the department as additional tax for the month of September, 1998 and up to February, 2000;
(vi) pre-maturely claiming input tax refund and incurring liability to pay Rs. 29,116,360/- as additional tax for the period from September, 1996 upto March, 1997 and then upto February, 2000;
(vii) claiming inadmissible input tax refund:~ (a) on oil and lubricants for their power generating plant amounting to Rs. 3902457/- during the period from May, 1997 to July, 1997; and
(b) on building material, G.L Pipes from August, 1998 to September, 1998 and on machinery, spare parts and chemicals from December, 1997 to June, 1998 total amounting to Rs. 616465/- is recoverable as sales tax alongwith additional tax; selling fixed assets such as textile machinery, plant and machinery, furniture and fixtures, vehicles, scrap without paying sales tax amounting to Rs. 19789906/- during the period from October, 1996 to June, 1999 which amount was recoverable from the appellants alongwith the additional tax;
(ix) receiving advances and making supplies subsequently but not paying sales tax at the time of receipt of such advance and in this way additional sales tax and penalty amounting to Rs.
90,054,517/- was recoverable from the appellants for the period from December, 1997 to June, 1999;
(x) claiming and receiving refund claim on cotton twice on single purchase transaction and for that reason a sum of Rs. 1,890,483/- was recoverable from them for the period from October, 1996 to January, 1997 alongwith additional tax;
(xi) payment of sales tax on certain taxable supplies after erroneously deducting commission in violation of section 6 of the Sales Tax Act, 1990 read with section 2(46)(a) thereof and as such an amount of Rs. 171498/- was recoverable for the period from 1996-97 to 1998-99 alongwith additional tax;
(xii) claiming sales tax refund on zero rated supplies and at the same time claimed refund of sales tax alongwith customs duty (duty draw back) from relevant exporting customs station. The appellants received sales tax refund from the Sales Tax Department for the same period and at the same time sales tax rebate from the Customs Department. So the appellants were bound to pay back either sales tax refund or sales tax rebate claimed and received in addition to sales tax refund alongwith additional tax. In this way the rebate claim received by them from July, 1996 to February, 1997 and to be refunded to the department, comes to Rs. 12,11,23,309/- alongwith additional tax;
(xiii) their inability to furnish to the Special Auditors the reconciliation of sales and purchases between the sales tax and the financial record, the Auditors themselves worked out the reconciliation from the available record as a result of which the difference came to Rs. 37.07 millions from October, 1996 to June, 1999 and the sales tax involved thereon worked out to be Rs.
4.951 million which was recoverable from them alongwith the additional tax; and
(xiv) their failure to pay sales tax on the retail value of supplies at their four retail outlets (where they were paying sales tax at the factory rates) they incurred the liability of paying differential amount of Rs. 2072188/- alongwith the additional tax.
3. The learned Adjudicating officer, after hearing the argument addressed from both side proceeded to record his findings on various charges listed in the show cause notice. With regard to charge No. (i) concerning flying invoices he held that it stood proved against the appellants and directed them to pay sales tax amounting to Rs. 63486,089/- alongwith additional tax under section 34 of the Sales Tax Act, 1990. After holding the appellants guilty of tax fraud, he penalized them under section 33(4) of the said Act and directed them to pay a penalty equivalent to 30% of the sales tax involved. Regarding charge No. (ii), (iii), (iv) and (v) he conceded that the same had been struck down by the High Court in writ petition No. 19375/2000 but acting on the flimsy contention of departmental representative that the Department was filing appeal against the order of the High Court, recorded no findings thereon and left them open till the decision of the appeal by the Supreme Court. On charge (vi) he came to the conclusion that it stood proved but without specifying the amount directed the appellants to pay additional tax in accordance with the provisions of section 34 alongwith penalty equivalent to 3% of the tax involved. So far as charge
(vii) was concerned, he held the receipt of input tax on oil and lubricants inadmissible and directed the appellants to pay Rs. 3902457/- alongwith additional tax besides a penalty of 3 % of the amount of tax involved. Regarding the input tax claimed and received by the appellants on building material, G.L pipes, machinery parts and chemicals, he directed the appellants to pay to the department an amount of Rs. 499.040/- and Rs. 2503766/- as it was illegally received by them.
In fact he could not record any definite findings on this charges and confused the matter. On charge (viii) relating to chargeability of sales tax on the disposal of fixed assets as detailed therein, he held that all the items of fixed assets so mentioned were chargeable to sales tax and directed the appellants to pay the amount mentioned in the charge (Rs. 19789906) to the department alongwith the additional tax and penalty at the rate of 3% minus the amount, if any, already paid by them during Amnesty for which they were to furnish proof within 30 days. On charge (ix) the appellants were directed to furnish security equal to the amount of demanded sales tax on advances on the analogy of the Supreme Court having demanded security from M/s. Maple- Leaf Cement Factory Ltd. In department's appeal against the judgment of the High Court. Charge (x) became infructuous as the appellants had deposited the amount demanded from them. On charges (xi), (xiii) and (xiv) the stance adopted by the appellants was that they had paid the amounts demanded in them. The adjudicating officer conditionally believed their assertion and directed that if they had not paid the disputed amounts, they should pay alongwith additional tax and penalty equal to 3 % of tax involved within 30 days and if they had paid the same, they should provide the proof of such deposit to the Collector who shall carry out necessary reconciliation and adjustment. Fast but not the least was charge
(xii) relating to double refund obtained by the appellants i.e. Rebate on zero rated supplies and also refund of sales tax simultaneously. He, therefore, held the charge as proved but further said nothing as what the appellants were to do. He then proceeded to wind up the case and saying that all the charges had been proved, directed the appellants to pay the amount of Rs. 121123309/- as sales tax alongwith the additional tax under section 34 and penalty equivalent to 30% under section 33(4) of the 1990 Act as it was a case of committing tax fraud as defined in section 2(37) thereof. He, however, did not elaborate as how did he adjudge the aforesaid amount of Rs.
121123309/- as evaded sales tax and how did he impose 30% penalty of the amount of tax involved when on different proved charges he adjudged penalty at the rate of 3% of the amount of tax involved.
4. This appeal continued to be heard on a number of dates of hearing for various reasons, including frequent changes in the constitution of the Bench, whose Members continued to be replaced, mostly on their own requests for personal reasons as also on the objections of the appellants though the Chairman as Member(Judicial) remained the same throughout. It was finally heard on 4.6.2002 by a full Bench consisting of three Members- the Chairman and two Members(Technical) from Karachi Benches of the Tribunal. During the hearing, the appellants were represented by a penal of senior lawyers headed by Raja Mohammad Akram Advocate, while the respondent department was represented by a team of officials/Officers led by Mr. Amer Ahmad, Departmental Representative appointed by the CBR.
Charge No. (i).
5. Opening the address on behalf of the appellants, Raja Mohammad Akram Advocate, briefly stated the factual background of the case, and took up charge No. (i) relating to the "flying invoices", allegedly used by the appellants for availing of undeserved refund or adjustment of input tax. He contended that he, for the first time, happened to hear the phrase "flying invoice" as it found no mention in the legal terminology but if it meant some thing fake, false or fictitious, then the invoices used by the appellants for claiming input tax refund or adjustment during the relevant period were certainly not of that kind or category, rather, those were perfectly valid and genuine documents satisfying all the requirement of law as contained in section 23 of the Sales Tax Act, 1990. He explained that his clients, being the biggest manufacturers of textile in the country, could never belittle themselves by indulging in such like nefarious activities. He elaborated that the appellants, being also the largest exporters of textile, some time could not meet the entire demand of their foreign customers from their own manufacturing units and to meet their requirements they had to purchase yarn from the spinners for getting the quality cloth manufactured from their own trusted weavers to supplement their own manufactured products and those purchases were duly supported by the invoices issued by the spinners which were later lawfully used by them for claiming input tax. According to him, those invoices were duly verified by the officials of the Sales Tax Collectorate, Faisalabad, before they were accepted by them for refund or adjustment of inpurtax and there could be no doubt in their authenticity. To meet the objection of the Special Auditors that the yarn purchased by the appellants from the spinning units and other suppliers had never been brought to the premises of their manufacturing units, nor there was any cogent proof of the payment of the price of yarn purchased by them from the spinners, the learned counsel asserted that his clients purchased yarn from the spinning units and other suppliers through their duly appointed agents who, after purchasing the yarn from the spinners and suppliers, made the payments to them from the money placed at their disposal by the appellants and transported the same from the premises of the sellers directly to the premises of the weaving units for manufacturing the cloth which they some time brought to the premises of appellants' unit for onward dispatch and some time directly transported the same to the Customs Stations for export and it was for that reason that the yarn was not brought to the appellants' unit, nor there was any proof of payment of price of yarn through bank drafts or cheques. With reference to the provisions of section 31 and 39 of the Sales of Goods Act, he submitted that to complete the sale and purchase of the yarn it was not necessary for the appellants to take its physical delivery and bring it to the premises of their unit. He urged that to prove the genuineness of the sale invoices in question, the appellants had with great efforts, procured from 149 spinners and yarn suppliers, who all were registered persons, the certificates vouchsafing the authenticity of the those invoices and if the Tribunal liked to further ascertain their genuineness, it could call their authors and examine them to ensure whether they had actually deposited the sales tax mentioned therein. Finally he pointed out that there was much difference between the periods selected for audit by the two Special Auditors and the conclusion reached by each of them in respect of the quantum of liabilities incurred by the appellants and as such both the audit reports deserved to be discarded especially, for the reasons that the department had not properly reconciled them before launching the adjudication proceedings.
6. The learned departmental representative, on the contrary, vehemently pressing his point of view, submitted that the entire Textile Sector led by the appellants who, claimed themselves and actually appeared to be, the biggest manufacturers and exporters of textile, unfortunately continued to massively indulge in unlawful trade of fake and fictitious invoices which had, on account of their dubious character and absence of any actual connection with the sale and purchase of any goods, acquired the nickname of 'flying invoices'. According to him, these invoices continued to be sold and purchased in the textile market not only by the petty businessman but also big business magnates and as a necessary consequences of this mal-practice on such a large scale the whole textile market, especially in Faisalabad which is the biggest center of textile business in the country, stood plagued and plouted with 'flying invoices'. He argued that these forged and fake documents had wrecked the entire new scheme of sales tax and virtually deprived the Government of its main source of revenue from the textile sector engaged in voluminous export trade.
7. Explaining the meaning of 'flying invoices' he submitted that the manufacturers in the textile sector like the appellants generally purchased yarn at lower rates from the un-registered persons flooding the textile market who, in order to cover these transactions for enabling their customers to claim input tax also manage to provide them with invoices issued in their names after purchasing the same from the spinning units and other registered suppliers on cheaper rates being their regular unregistered customers of yarn. He added that the purchasers of those documents like the appellants later used them for claiming input tax at full rates, thus earning substantial profits by cheating the Government through Sales Tax Authorities, who had no effective means to ascertain the authenticity of those invoices. He elaborated that if the spinners and other registered yarn suppliers had supplied yarn to unregistered purchasers, who were many in the textile market, then they had also to pay to the department further tax at the prevalent rate but in order to avoid payment of further tax they would sell the yarn to the unregistered persons and would issue invoices to the registered persons like the appellants, who would purchase the yarn from the unregistered person but will obtain the invoices from the registered persons. By- this device, according to the learned D.R, the registered suppliers, who would issue invoices to the registered purchasers, would share profits with them because the latter (purchasers) would get the input tax without spending a penny. In this way the department was losing the further tax and the unregistered suppliers of yarn flourished without coming into the tax net and the registered spinners or suppliers earned more profit than they actually paid by way of sales tax but if they issued fake or bogus invoices then they earned much more profits.
8. Commenting on the allegations in the charge, (i) and the findings of the lower forum thereon, the learned departmental representative contended that failure of the appellants to bring any portion of the yarn purchased by them from difference sources into their premises for its utilization for the manufacture of finished textile goods, coupled with the non-availability of any reliable proof of the payment of its price to the suppliers, as noticed by the Special Auditors, was a proof presumptive of the fact that all the invoices allegedly obtained by them from 149 suppliers of yarn, mostly from Faisalabad, were 'flying invoices' and they were rightly burdened with the liability by the adjudicating officer. With regard to the difference between the audit reports of the two Chartered Accountants pointed out by the appellant's counsel, he contended that there was no such difference and both the reports stood duly reconciled by the officer before lodging the contravention report.
9. After considering the above arguments far and against the charge in hand, I am of the view that there was a good deal of substance in the contentions of the learned departmental representative.
Learned counsel for the appellants might not have heard the phrase 'flying invoices' prior to conducting this appeal but it seems to have been in vogue and use in business and trade circles since long and by this time it has gained sufficient notoriety. Learned departmental representative appears to have correctly explained the mode of their coming into existence, their dishonest use by the business community and their injurious effects on the Government revenue. These are obviously paper transactions having no link with the actual transactions they refer to and the nomenclature assigned to them seems to be correctly reflective of what they actually are. The appellants during the relevant period had allegedly been purchasing yarn from different spinning units and other suppliers of these goods, worth billions of rupees for getting the same converted into cloth meant for export as also for home consumption, but, as per their audited record, they seldom brought even an onus of yarn in their manufacturing unit at Faisalabad and elsewhere to supplement their own yarn production for manufacturing cloth, nor they could prove the actual payment of its price to the sellers by any reliable mode of payment through banks and other financial institutions. This fact alone was, therefore, sufficient to conclude that no actual transactions of sale and purchase of yarn ever took place between the appellants and the suppliers and the latter issued tax invoices to the former generally nicknamed as 'flying invoices' at lesser price than their face value which the appellants later utilized for the receipt of full amount of input tax from the Sales Tax Authorities and in this way they fraudulently used them as a huge profit earning device.
10. The lengthy procedure explained by the appellant's counsel as to why and how his clients had been purchasing yarn from 149 outside suppliers in addition to its own production in their spinning- cum-manufacturing units and the mode of cash payment of its price to them through the agents, was nothing but a cock and bull story. The invoices in question were, no doubt, verified and cleared by the concerned staff and officers of the Sale Tax Collectorate of Faisalabad for the payment of input tax claim embodied in them but it did not confer any validity or authenticity on them because either they had considered it a routine matter or they were in league with them in playing the foul game of committing tax fraud by cheating the public exchequer to the tune of billions of rupees. Not only they, but also 149 suppliers of yarn, who later during the pendency of these proceedings issued verifying certificates to enable the appellants to prove the authenticity of the invoices issued by them, also appeared to be equal partners in committing this crime adversely affecting public revenue.
11. As regards the objection of appellants' counsel about the difference in the audit reports of the two Special Auditors forming basis for the initiation of this case against the appellants, there seems to be some over-lapping of the periods between them but it appears to have been reconciled in the charge by arranging one period after the other. To be a little more precise, the report of Saeed Kamran Patel and Co. On this charge related to the period from October, 1996 to September, 1997 and from October, 1997 to September, 1998. During this period the appellants' liability in respect of this charge was assessed at Rs. 46791086/- regarding the principal amount of sales tax and at Rs.
168441586/- by way of additional tax, total being Rs. 21,52,32,672/-. While the report of Ford, Rhodes, Robson and Morrow related to the period from October, 1998 to 30.6.1999 and it assessed the sale tax liability of the appellants on account of inadmissible input tax at Rs. 16695003/-, additional tax at Rs. 1811725/- and penalty at Rs. 925336/-. The aggregate of principal amount of sales tax in both the reports came to Rs. 63486089/- and the aggregate of additional tax therein came to Rs.
170253311/- and in the charge in hand exactly these amounts were demanded from the appellants.
Thus there was no overlapping nor any clash or difference between reports of Special Auditors as the over-lapping period had been reconciled and re- arrranged one after the other. This charge, in our opinion, stood amply proved and we affirm the findings of the trial forum on this charge to the extent of principal amount of sales tax and additional tax but reduce the percentage of penalty from 30% to 10% which shall also include the sum of Rs. 925336/- as worked out by the second Auditor.
Charges No. (ii) to (v).
12. All these charges were struck down by the Hon'ble High Court, vide order, dated 12.10.2000, passed in Writ Petition No. 19875/2000 and if the department has filed an appeal against this order, the parties shall act in accordance with the decision of the Hon'ble Supreme Court and if the department has filed no such appeal, then the aforesaid order of the High Court has attained finality and the charges fall to the ground for good. The findings of the lower forum are modified accordingly.
Charge No, (vi).
13. The learned counsel for the appellants attacked the findings of the adjudicating officer on the grounds that-
(i) this issue had also been decided by the High Court in the writ petition, wherein the vires of rule 6 of SRO 1271(I)/96 were challenged and it was struck down;
(ii) the claim was time-barred under section 36(2) of the Sales Tax Act, 1990;
(iii) out of the two Special Auditors, Ford Rhodes, Robson and Morrow did not raise this issue in their report;
(iv) the manner of quantifying the additional tax and its compounding was unlawful and against the decisions of the High Court and this Tribunal; and
(v) the input tax had been claimed in the period of supply and tax invoice related to the same period which was in conformity with section 7 of the Sales Tax Act, 1990.
14. The learned departmental representative tried to support the findings of the lower forum on this charge, which was not clearly worded, but could not plausibly refute various above- mentioned contentions raised on behalf of the appellants. We, therefore, accepting the above contentions of the appellants' counsel, set aside the findings of the adjudicating officer on this charge.
Charge No. (vii).
15. This charge has two parts-(A) and (B).
On Part (A) the stance of the appellants' counsel was that the claim of input tax herein related to M/s. Nishat Tax, an altogether separate legal entity, having its own registered No. 04- 03-8502-55 and it has nothing to do with the appellants. This contention remained un-refuted from the opposite side and the findings of the lower forum thereon are set aside.
As regards Part (B) relating to inadmissible input tax refund claimed by the appellants on building material amounting to Rs. 1218614/-, on G.L Fittings Rs. 97159/-, on machinery and stores parts and chemicals Rs. 484884/-, total being Rs. 6164657/-, most of the allegations and findings of the lower forum appear to be materially incorrect. Out of various items listed above, no one has been dealt with separately and independently to determine the admissibility or otherwise of its refund claim in the light of law on the subject and with reference to alleged violation of section 8(1) of the 1990 Act read with SRO 1307(I)/97 and SRO 578(I)/98 various matters have been muddled up in the impugned order. It has not been explained as how and in what respect the appellants had claimed inadmissible input tax amounting to Rs. 3902457/- as a result of department's reconciliation and verification, nor it has been elaborated as how and in respect of which items they had unlawfully claimed and obtained Rs. 499040/- and Rs. 2503766/- which they have been directed to pay back besides Rs. 3902457/- alongwith additional tax and penalty. It was rather the appellants' counsel who tried to explain the whole matter. Even the above break up of the claim was furnished by him.
He explained that out of total claim of Rs. 1315773/- in respect of building material and G.L Fittings only a sum of Rs. 499040/- was sanctioned and paid and the remaining amount of the claim was still in dispute. So far as the input tax claim of Rs. 4848884/- in respect of machinery, stores parts and chemicals was concerned, he explained that out of this amount a sum of Rs. 2503766/- was allowed to them which met the parameter of SRO 1307(I)/97 as interpreted by the Hon'ble Supreme Court in 1999 SCM R 1442 wherein it was held that issue of adjustment of input tax was to be resolved with reference to the actual use of input in making of taxable supplies and the criterion of integral part was no longer valid, but even if the criteria of integral part, as relied upon on behalf of the respondents, be taken into consideration, even then the claim of input tax was correctly sanctioned and paid to the appellants and it cannot be taken back from them. In view of the above contention/explanation, the findings of adjudicating officer on this part of the charge are also over-ruled.
Charge No. (viii).
16. This charge relates to the sale of fixed assets during the period from October, 1996 to June, 1999 and their chargeability to sales tax. As per department, these items were chargeable to sales tax but the same was not paid by the appellants. According to the department, textile machinery was chargeable to sales tax of Rs. 7202000/-; plant and machinery to Rs. 4547000/-; furniture and fixture to Rs. 71703/-; vehicles to Rs. 16,74,595/- and scrap to Rs. 6302958/-, total being Rs.
1,97,89,906/-. The learned adjudicating officer with reference to sections 3, 6, 34 and 36 of the Sales Tax Act, 1990 held that the aforesaid aggregate amount of sales tax was recoverable from the appellants alongwith additional tax but gave no supporting reasons for his conclusions. Learned counsel for the appellants challenged these findings while the learned departmental representative tried to support them.
17. By this time, the law regarding the chargeability of sales tax on various kinds of fixed assets mentioned in this charge has been settled and without feeling the necessity of any detailed discussion, suffice is here to say that, excepting the scarp on which the appellants have already paid the sales tax and additional tax by availing of amnesty, all other fixed assets, namely, textile machinery, plants and machinery, furniture and fixture and vehicles during the period in question were not chargeable to sales tax being exempt items. Besides, the show cause notice relating to the period beyond September, 1997 was1 time-barred. Therefore, the findings of the adjudicating officer on1 the charge in hand are modified accordingly.
Charge(ix).
18. This charge relates to the taxability of the advances received by the appellants from their customers for supplying taxable goods. As per findings of the adjudicating officer, which were confirmed even by the appellants' counsel, the matter is before the Hon'ble Supreme Court in an appeal arising out of a judgment of the High Court in Re: "M/s. Mapel Leaf Cement Factory" and the parties are bound to act upon that decision whenever it comes through. So we are nothing to add.
Charge(x).
19. It relates to double refund on cotton allegedly obtained by the appellants. As a result of subsequent reconciliation of accounts, the controversy was mutually settled and the charge dropped on the appellants' assurance that they had already deposited the amount due from them.
Charge (xi).(xiii) and (xiv).
20. Charge (xi) related to exclusion of the commission paid by the appellants on certain transactions from the levy of sales tax, while charge (xiii) pertained to non-reconciliation of record of sales and purchases and financial record. Charge (xiv) concerned with sale of good at retail price at four retail points and payment of sales tax on the basis of factory price, which resulted in less payment of sales tax. The adjudicating officer held all the three charges proved against the appellants but gave no reason therefor. The appellants asserted that they had already paid the entire liability under these charges but the adjudicating officer held that no proof had been brought on the record for payment. He, however, observed that if the amount had been paid as asserted, then the appellant should provide the proof of payment to the Collectorate of Sales Tax, Faisalabad, within 90 days from the date of order and the department was to reconcile the record, failing which the amounts mentioned in these charge recoverable from the appellants. We approve these findings.
Charge(xii).
21. The appellants had allegedly received double payment of refund of sales tax as also of its rebate for their exports simultaneously during the relevant period and they were directed by the adjudicating officer to pay back an amount of Rs. 12,11,23,309/- alongwith additional tax and penalty equivalent to 30% of the amount of tax involved.
22. The learned counsel for the appellants tried to justify the simultaneous receipt of rebate as also refund of sales tax during the same, period, after criticizing the roll of M/s. Kamran Patel and Company as the report of M/s. Ford Rhodes, Robson and Morrow was allegedly silent on this point.
To settle this issue, Rana Atta Ullah, a renowned Consultant, was appointed as a Commission with the consent of the parties. After hearing the parties he submitted his report dated 18.5.2002 followed by an addendum, dated 1.6.2002, confirming the main report. His findings at para. 14(1) are as under:- "The appellants during the period from July, 1996 to December, 1996 received the total refund of Rs.
3,37,71,913/- from the Customs Collectorate on the exported goods which reduced the amount from over 12 Crores as adjudged by the adjudicating officer".
23. In para. 14 of the report, he concluded as under:- "(i) Even, according to the Chartered Accountants, the alleged "double payment" of sales tax refund comes to Rs. 3,48,36,940/- which reduces the amount upheld by the Collector Adjudication, Faisalabad at over Rs. 12 Crores; which obviously includes customs duty and excise duty that have no nexus with this case".
24. Both the parties have accepted the report though the department some what reluctantly with some unspecified reservations as it operates against them on account of haphazardly issued letters and notifications by the CBR especially its letter, dated 29th September, 1996 which was emphatically relied upon by the appellants.
25. At paragraph 20 of the report he further observed as under:- "A perusal of the case records has shown that the Central Board of Revenue while clarifying the questions raised with regard to the applicability of the standard notifications categorically ruled vide letter dated 29th September, 1996 that both zero rating and rebates through SROs were admissible simultaneously if the relevant SRO did not have the condition of not being admissible in cases where zero rating was available. The subsequent letter of the Board dated 7th November, 1997 presented by the department, in my view, has no bearing on the subject case as it referred to the disposal of cases pending on 7th November, 1997. Despite inquiries, the department was not able to produce any document to show that before re-opening the issue in this case and similar other cases, the department had sought any clarifications from the Central Board of Revenue for such re-opening".
26. Relying on this report, we hold that the appellants were justified in claiming and receiving double payment of sales tax refund and its rebate amounting to Rs. 33771913/- which was wrongly stated at Rs. 12,11,23,309/-. This being so, the findings of the lower forum on this charge are also set aside.
27. In view of the above, we partly accept the appeal and charge-wise affirm, modify and set aside the impugned order as under:- Charge (i).
28. This charge stood fully proved to the extent of the principal amount of sales tax and additional tax but with reduced percentage of penalty and we direct the appellants to pay to the department evaded sales tax of Rs. 63486089/- alongwith additional tax of Rs. 170253311/- as calculated upto the year 2000, but reduce the percentage of the penalty from 30% (which seems to be excessive) to 10% which shall also include the penalty of Rs. 925336/- as worked out by the second Auditor.
However, if the appellants are to be prosecuted for tax fraud, their collaborators and abettors in the crime, including the officials/Officers of the Sales Tax Collectorate, Faisalabad, who had been thoughtlessly sanctioning the appellants' claim of input tax based on 'flying invoices', are also to be prosecuted as co- accused but subject to the compliance of all requirements of natural justice.
Charge (ii) to (v).
29. All these charges were struck down by the Hon'ble High Court in the exercise of its constitutional jurisdiction and if the department's appeal is pending against that order before the Hon'ble Apex Court then its decision will have to be complied with by all concerned.
Charge (vi).
30. The findings of the adjudicating officer on this charge are set aside and no liability is outstanding against the appellants.
Charge (vii).Parts-A and B.
31. The findings of the lower forum on these parts of the charges are set aside and no liability is outstanding against the appellants.
Charge (viii).
32. The sales tax alongwith additional tax. Leviable on the scrap having already been deposited by the appellants during amnesty and other fixed assets not being chargeable to sales tax, the appellants stand exonerated of all the charges accordingly.
Charge (ix).
33. The findings of the lower forum that the parties are to await the decision of the Hon'ble Supreme Court in the Maple Leaf Cement case are affirmed.
Charge (x).
34. The controversy embodied in this charge was settled between the parties in due course as a result of reconciliation of accounts and the charge stands dropped.
Charge (xi), (xiii) and (xiv).
35. The stance adopted by the appellants before the trial forum was that they had deposited the entire amount of their liability under these charges and the adjudicating officer passed a conditional order that if they had discharged their liability then the matter should end, otherwise the concerned Collectorate should recover the entire amount alongwith additional tax as envisaged by these charges. We affirm these findings.
Charge (xii).
36. The adjudicating officer held this charge as proved against the appellants but we, on the basis of the report of the Commission, have come to the conclusion that the double payment on account of the refund of sales tax and refund of its rebate obtained by the appellants was justified due to the CBR's own letter, dated 29th September, 1996 and as such the refunded amount, which was Rs. 3,37,71,913, instead of about 12 Crores erroneously demanded by the department, is not recoverable from the appellants. We, therefore, set aside the findings of the adjudicating forum on this charge.