DECISION ' The complainant is a proprietary concern which was engaged in manufacturing plastic and stainless steel knapsacks sprayers, being agricultural machinery, used for the purpose of spraying pesticide and insecticide. The complainant started manufacturing knapsacks sprayers from the year 1992 and claims to have closed his business on 30-4-1995. The complainant was carrying on business in the territorial jurisdiction of Collectorate of Sales Tax, Gujranwala. The said time was exempted from the levy of sales tax from 7-6-1990 under S.R.O. 600(1)/90. Subsequently this exemption was withdrawn by S.R.O. 562(1)/94, dated 9-6-1994. It has been pleaded that the withdrawal of exemption inadvertently could not be noticed by the complainant as well as by other manufacturers of the area including the officials of the Collectorate of Sales Tax. The department issued a show-cause notice, dated 18-10-1995 after the business had been closed on 30-4-1995.
An ex parte order in original was passed against the complainant on 2-3-1996. In this order it was observed that prior to June, 1994, the manufacturers of knapsacks sprayers were claiming exemption from payment of Sales Tax under S.R.O., dated 7-6-1990, however, the Director-General, Investigation, Customs Excise and Sales Tax was of the view that the manufacturers of knapsacks sprayers were not entitled the benefit under the said S.R.O. The complainant was required to submit the details of manufacturer of last five years but it did not respond. After show-cause notice was issued the complainant submitted its reply to the Adjudicating Officer who passed order for payment of Rs,33,201,164, additional tax and surcharge of Rs,56,812,332 and penalty of Rs,25,000. The complainant filed appeal against this order, before the Collector (Appeal) who by his decision, dated 10-9-1998 held that the complainant was entitled to exemption falling under 84.24 81.0 PCT were covered by S.R.O. 600(1)/90- and, therefore, was exempt from levy of sales tax up to 8-6-1994.
It was further held .That the complainants were liable to sales tax in respect of supply knapsacks sprayers from 9-6-1994 and as it was not paid up to June, 1995 without any cogent reason, the appellant are liable to additional sales tax under section 34 of the Act. Hence the order to the extent of imposition of surcharge and penalty was confirmed. The complainant then filed an appeal before the High Court which is pending.
2. The complainant then started another proceeding by filing an application under section 65 of the Sales Tax Act on 13-11-1995 before the C.B.R. Seeking exemption from Sales Tax Act. As no decision was made, the complainant filed Writ Petition No,16420 of 1997 praying that the Federal Government be directed to decide application under section 65 and issue notification accordingly.
The High Court by order, dated 24-7-1997 directed to dispose of the application within one month.
It was further observed that the proceedings under section 65 of the Sales Tax Act were independent of the dispute before the Appellate Authority and writ petition was not barred. The complainant's application under section 65 was rejected by order, dated 13-9-1997, which reads as follows:-- Government of Pakistan Central Board of Revenue (Sales Tax Wing)
Islamabad, the 13th September, 1997.
To, Messrs Agriaid Industries, 33-C, Small Industries Estate-II, Gujranwala.
Subject. Waiver of Sales tax under section 65 of the Sales Tax Act, 1990 regarding agricultural knapsack sprayers. The undersigned is refering to your letter No,Agr/8/97, dated 1st August, 1997 on the subject cited above and to state that on an earlier petition by Messrs Pakistan Agricultural Machinery and Implements Manufacturer Association for exemption of sales tax on agricultural knapsacks sprayers under section 65 of the Sales Tax Act, 1990, the matter was examined in the Board and the case was not found fit for exemption in terms of section 65. Therefore, the Association was advised vide Board's letter of even number, dated 23rd July, 1997 (copy enclosed) to plead the cases at the respective adjudication/Appellate Forums.
2. Thus, the issue of waiver of sales tax on knapsack sprayers under section 6 of the Sales Tax Act, 1990 already stands decided by the Board, as the plea of consideration under section 65 was not acceded to by the Board.
Encl. As above.
(Nisar Muhammad), Secretary (STD), Phone 920940,1,3 Fax 9207470
3. The complainant filed another writ petition against this order wherein it was held the power of waiver of tax under section 65 vests in the Federal Government and not to the C.B.R. Therefore, decision of the Central Board of Revenue was totally without jurisdiction and the complainant's application under section 65 shall be deemed to be 'pending. The Revenue Division of the Federal Government was directed to decide the application within one month. It may be pointed out that Additional Secretary of the Revenue Division is a Member of C.B.R. Who decided the case on 22-3- 2002. While rejecting the application it was observed that the provision of section 65 of the Act authorised the Federal Government to exempt sales tax if there has not been levied or short-levied inadvertently as a result of a general practice subject to the condition that:--
(i) tax was not charged in any or on any supply.
(ii) the registered person did not recover any tax prior to the date of discovery of the tax liability; and
(iii) the registered person started paying the tax from the date of the discovery of the tax liability.
' It was finally observed: "It is conclusively found that the applicants do not qualify for the grant of exemption under section 65 due to the following facts:--
(i) that the tax on knapsack sprayers of heading No,84.24 was charged and collected by at least one person namely Messrs Pak Green Agro Industries, B-2, Sector 14-A, North Karachi, having Sales Tax Registration No,02-03-8424-001-46 during the period from 1st August, 1994 to 1st December, 1994;
(ii) the applicants were, ab initio, not registered persons to ab initio qualify consideration of any exemption under section 65 of the Act; and
(iii) the applicants, contrary to their claim in their application dated 29-10-1995 did not start to charge sales tax on knapsack sprayers.
' The complainant then filed Writ Petition No,19587 of 2000 before the High Court but after the promulgation of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 it withdrew the said petition on 30th October, 2002 and filed this complaint alleging maladministration on the part of the Revenue Division.
4. In response to the notice issued the department submitted its reply where it was denied that no ex parte order was passed as alleged. A written reply was submitted and the order was passed on merit after going through the reply of the complainant. It was further submitted that the appeal was pending before the Lahore High Court. It has been pleaded that although Writ Petition No,16420 of 1997 was disposed of subject to certain conditions the complainant did not deposit tax and surcharge and additional tax as ordered. The Federal Government dismissed the complainant's application on the grounds that at least one person namely Messrs Pak Green Agro Industries, B-2, Sector 14-A, North Karachi, Karachi had paid sales tax during the period from 1st August, 1994 to 1st December, 1994, the complainant was not a registered person to qualify for consideration of an exemption under section 65, the complainant did not start to charge sales tax and the writ petition filed against the order of the Federal Government was pending. It was denied that any maladministration has been committed in deciding the application. All other facts relating to filing writ petitions and appeal are not relevant for the purpose of this controversy.
5. The main and the only controversy before us is the order passed by the Federal Government rejecting complainant's application under section 65 of the Sales Tax Act. From the record produced by the complainant, it is clear that the complainant had filed Writ Petition No,9587 of 2000 challenging the impugned order of the Federal Government but after promulgation of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 it sought permission to withdraw, which was allowed by the High Court. There is no proceeding pending against the said order. So far the pendency of the appeal against order in original is concerned it may be noted that the proceeding under section 65 of the Sales Tax Act is completely independent of the proceeding in appeal. It has been so held by the High Court as stated above. Thus, the pendency of appeal will not be a bar to the filing of this complaint seeking relief against maladministration in deciding application under section 65 of the Sales Tax Act.
6. Learned counsel for the complainant has contended that there are certain preconditions under law, which have to be satisfied before deciding application under section 65. According to the learned counsel for the complainant relief under section 65 can be given where the Federal Government is satisfied that inadvertently and as general practice' tax has not been charged in any area or according to the said practice the amount charged was less than the amount that should have been actually charged. For proper appreciation of the contention of the learned counsel and departmental representative section 65 is reproduced as under:-- "65. Exemption of tax not levied or short-levied as a result of general practice.--- Notwithstanding anything contained in this Act, if in respect of any supply the Federal Government is satisfied that inadvertently and as a general practice:-
(a) tax has not been charged in any area on any supply which was otherwise taxable, or according to the said practice the amount charged was less than the amount that should have actually been charged;
(b) the registered person did not recover any tax prior to the date it was discovered that the supply was liable to tax; and
(c) the registered person started paying the tax from the date when it was found that the supply was chargeable to tax.
' It may, by a Notification in the official Gazette, direct that the tax not levied or short-levied as a result of that inadvertent practice, shall not be required to be paid for the period prior to the discovery of such inadvertent practice."
7. Section 65 starts with non obstante clause. It empowers the Federal Government to issue notification directing that the tax not levied or short-levied due to inadvertent practice shall not be requited to be paid. One limitation is that such notification will relate only for the period prior to the discovery of such inadvertent practice. It should be established that default or failure to 'charge has occurred due to inadvertence and as a general practice which means that it is not the solitary incidence of default but by passage of time has become a practice of non-charging or non- payment or short payment of sales tax. This involves the duty performed by the Sales Tax Officer as well as the units and registered person whose liability is also fixed under the law. This aspect can be determined by making inquiry that the tax has not been charged in any area on any taxable supply or that the amount was less than the amount that should actually have been charged. The inquiry is also to be made that the registered person did not recover any tax prior to the date when it was discovered that the supply was liable to tax and that the registered person started paying the tax from the date when it was found that the supply was chargeable to tax. There seems to be sufficient exercise carried out by the C.B.R. To ascertain whether nonpayment of tax on knapsacks sprayers was prevalent in other Collectorates as well. Such inquiry is to be made by the department to ascertain that the tax has not been charged in any area in respect of the disputed goods.
8. Mr. Mansoor Ali the learned advocate for the complainant contended that the term area should be restricted to Gujranwala Collectorate under whose jurisdiction the complainant is carrying on business. According to learned counsel area does not mean the entire Pakistan. The dictionary meaning the word "area" is a "measure of the size of any surface, a region or part any space set aside for a particular purpose, the range of subject activity or topic". The learned representative for the department referred to a judgment of the Allahabad High Court reported in 1957 All. LJ 343, AIR 1957 All. 340 where referring to the word area used in UP Municipality Act it was held that the entire locality of the municipality falls within the expression area. Reference was made to Ghulam Muhammad v. State PLD 1969 Lah. 767 at pages 778-779 in which the term area as used in West Pakistan Controls of Goonda Ordinance, 1959 was held to mean that it is relatable to the District where the person complained against resides and over which the Tribunal has jurisdiction. It was further observed that the word area is understood to mean the whole District. In similar manner the term "area" of supply under the Electricity Act 9 of 1910 was interpreted to mean area within which the licensee is for the time being has the obligation by his license to supply energy. Therefore, as observed earlier the term "area" is to be interpreted in the context and with reference to the nature of the statute in which it has been used. Sales Tax being an act spreading whole of Pakistan and, therefore, the inquiry should be not to be restricted to the Collectorate within whose jurisdiction the unit is carrying on business alone but even in adjacent and contiguous area as well. However, such inquiry cannot be extended to the whole Pakistan. The term area connotes a limitation in the context of a country. In order to ascertain a general practice one has to go beyond the territorial limits of the relevant Collectorate to find out what treatment was meted out to such supplies. Any given fact can be termed as practice if, it is continued for sufficiently long period and accepted by the parties. The learned counsel has referred to Black's Law Dictionary where "practice" has been defined as "repeated ' or customary action, habitual performance, a succession of act of similar kind". The word "general" has been defined as pertaining to or designating the genus or class as distinguished from that which characterises the species or individual; universal not particularised as opposed to Special. The learned counsel further referred to Words and Phrases by Gabardine Gondola, 18th Volume in which the term "general practice" in the trade has been defined as "the phrase general practice in the trade as used in maximum price regulation means habitual or customary practice amount a trade, known frequently as a custom but more correctly as a usage".
The word "practice" is not a new term. It has been interpreted according to the situation in which and the circumstances in which the practice is to be determined. A solitary instance cannot be a practice. It should be continuous, common and followed for a period of time and adopted by the parties dealing with the matter. According to Mr. Ahmad Kamal the learned representative for the department the general practice is a custom which has prevailed over a period of time. The C.B.R.
Had made extensive survey and inquiry to ascertain the general practice in respect of payment of tax on supply of disputed goods and received reports from various Collectorates. Report. From Peshawar indicates that the unit was ordered to pay sales tax on agricultural spray on 19-9-1995 verbally and written instructions were issued on 19-7-1995. The Multan Collectorate state that there was no unit manufacturing knapsacks sprayer. It was stated that in the past one unit Plestimen Pvt.
Ltd., D.G. Khan was registered for manufacture of knapsacks sprayer. They had manufactured 1,614,200 of knapsacks sprayers since 9-6-1994 and cleared without payment of sales tax. It was on 6-6-1995 that contravention case was made against them. Similar is the report from Mardan. In Hyderabad, Lahore, Rawalpindi, Quetta, Faisalabad and Hub no unit was manufacturing knapsacks sprayers. Further, it seems, on further investigation it was found as is stated in the impugned order that Messrs Pak Green Agro Industries North Karachi, Karachi manufacturing knapsacks sprayer were paying sales tax during the period 1st August, 1994 to 1st December, 1994. This was only and solitary unit throughout Pakistan from whom sales tax was charged. Further after investigation Mr. Zaheer-ud-Din Dar, Secretary (STT), C.B.R. By his letter, dated 17-10-1996 recommended that three manufacturers had approached the Board for waiver of sales tax under section 65 on the plea that the tax has not been charged in any area on any supply. He recommended that on the basis of the reports from various Collectorates, their case appears to be well-founded. However, before taking a final decision the comments of Director-General Investigation (Customs, Sales. Tax and Central and Excise) were solicited. The learned counsel has filed copy of this letter, dated 17-10-1996 alongwith a draft notification dated 13-10-1996 by which exemption was to be granted by the Federal Government. However, this notification was not issued. The Additional Secretary by order, dated 23-2-2000 held that "it is conclusively found that the applicants do not qualify for the giant of exemption under section 65. Reliance was placed on the instance of Pak Green Agro Industry of Karachi, which had paid sales tax during 1-8-1994 to 1-10-1994 and further that the complainant was not a registered person and did not start to charge Sales Tax. It may be noted that throughout the country few factory units were producing knapsacks sprayer and except the one at Karachi no one was charging sales tax. This shows that the sales tax authorities as well as the units did not realise due to inadvertence that after the withdrawal of exemption the units were liable to charge sales tax from the purchasers and deposit with the authorities who were duty bound to levy and recovery sales tax from the manufacturers. None of them realised their duties and liabilities and this all happened because of inadvertence on their part. The period of default for charging sales tax ranges for 9-6-1994 till 18-10-1995 when the show-cause notice was issued. According to Mr. Ahmad Kamal this is too short a period to establish a practice. However, it has to be seen whether the act of not charging sales tax continued for quite some time considering the duties of the officials who ought to have noticed within few months, but it was allowed to continue for more than 16 months. This process continued for such period without any let or hindrance and non-action on the part of the Sales Tax Authorities confirmed the belief in the mind of the units that they are not liable to charge sales tax. This observation finds support from various reports, particularly report from Mardan Collectorate. The Multan Collectorate also allowed clearance of goods and issued show-cause notice on 6-6-1995. At Peshawar which is nearer to the Gujranwala Collectorate first verbally and formally units were instructed on 19-12-1995 regarding chargeability of sales tax on knapsacks sprayers. It was in view of these facts that on 17th October, Mr. Zaheer-ud-Din Dar had recommended the case for exemption of such units. This clearly shows that at least in areas continuous, adjacent or nearer to Gujranwala where complainant is located a practice had developed inadvertently not to charge the sale tax. One solitary instance in the far away area in Karachi cannot be enough to dislodge or discredit the inadvertent practice, which had generally developed. This actually establishes the practice of not charging sales tax, which continued till 18- 10-1995 when a show-cause notice was issued. But as the complainant had closed the factory on 30-4-1995 the question of charging sales tax on coming to know of the chargeability did not arise.
The complainant had not charged any tax prior to the date of knowledge that supply was taxable.
There is no evidence on record that the complainant had recovered any tax prior to date of discovery that the supply was liable to tax. This is not the allegation made against them therefore, this conclusion is irrelevant and based on no evidence.
9. The refusal on the ground that the complainant was not registered person and thus, did not qualify for exemption is not valid. The observation is contrary to law. The learned counsel for the complainant has referred to subsection (25) of section 2 of the Sales Tax Act, which defines 'registered person" as "a person who is registered or is liable to be registered under this Act". The definition of "registered person" covers two categories of persons (i) a person who is registered and
(ii) a person who is liable to be registered. Therefore, whenever the term "registered person" is used it will refer to these two categories. Where intention to refer to anyone of these persons it should be specifically stated as a person who is registered" or a "person who is liable to be registered". In section 65(c) reference is to the registered person and not to a person who is registered. Thus the term registered person will not refer to one already registered or the one liable to be registered but to both. The object of section 65 is to provide relief to the persons who have not wilfully defaulted in charging sales tax but it so happened due to inadvertence and as a general practice in the area.
Therefore, where any ambiguity is noticed it is resolved in favour of the assessees. In my view clause (c) of section 65 is not restricted to a person who is registered but it refers to both categories of person mentioned in the definition of "registered person". Thus, exemption cannot be refused on the plea that complainant is not a registered person. The complainant had closed its unit on 13-4-1995, therefore, the question of charging from the date if was known that the tax was chargeable does not desire.
10. From the above discussion it is clear at the impugned order is contrary to law based on no evidence and admits to maladministration. It is, therefore, recommended that:--
(i) Notification under section 65 of the Sales Tax Act can be issued exempting the complainant from payment of sales tax for the period 9-6-1994 td 30-4-1995 when the business was closed.
(ii) Compliance to be reported within 30 days.