Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs PAKISTAN WATER AND POWER DEVELOPMENT AUTHORITY (WAPDA), LAHORE VS Respondent: C.I.R. LARGE TAXPAYERS UNIT, LAHORE and 2 others
Court Name: Appellate Tribunal Inland Revenue Judge(s): Khawaja Farooq Saeed, Abdul Rauf Title:Messrs PAKISTAN WATER AND POWER DEVELOPMENT AUTHORITY (WAPDA),
LAHORE vs C.I.R. LARGE TAXPAYERS UNIT, LAHORE and 2 others Case No.: S.T.A. No,1197/LB of 2009 Date of Judgment:2010-10-07 Reported As: 2011 PTD (Trib.) 808 Result: Order accordingly Judgment (i) Sales Tax- on supply of scrap: Rs,33 ,831,850 Rs,3,408,526 (ii) Sales Tax on supply of fixed assets Rs,13,878,917 (iii) Duplicate claim of input tax Rs.5,177,508 (iv) Sales Tax on supply of printed material Rs.85,547,748 (v) Input Tax claimed on purchases from de- registered/suspected/closed unitsRs.1,392,892 Rs.39,494,111 (vi) Excess claim of input tax Rs.116,520,117ORDER This appeal arises from the Order-in-Appeal No,103/ST/2008 dated 24-12-2008, passed by the Collector of Sales Tax (Appeals), against the Order-in-Original No,43 of 2008 dated 24-5-2008 pertaining to financial year 2005-2006 i,e, 12 tax periods from July, 2005 to June, 2006. 2. Facts giving rise to the appeal, briefly stated, are that the Assistant Director Audit Division-I, Large Taxpayer's Unit (LTU), Lahore, conducted audit of the appellant for the financial year 2005-2006 and on the completion thereof audit report was prepared, the Additional Collector (Legal) LTU, Lahore, on the basis of this audit report issued a show-cause notice dated 3-5-2008 to which the appellant raised legal objections and sought time for reply on factual aspects of the case. The Additional Collector, however, did not allow further time and passed the Order-in-Original No,42 of 2008 on 24-5-2008 creating Sales Tax demand along with default surcharge and penalty against the appellant as detailed below:--
---
## Page 2
(vii) Inadmissible input (tax) Pakistan WAPDA FoundationRs,9,254,948 (viii) Non-payment of Sales Tax on Miscellaneous IncomeRs,30,709,297 (ix) Non-payment of Sales Tax on Other Electric RevenueRs.689,380,681 Rs.68,907,681 (x) Non-payment of Sales Tax on Overhead RecoveryRs.1,736,207,156 (xi) Non-payment of Sales Tax on Repair, Testing and Inspection FeeRs.1,940,934,128 (xii) Non-Payment of Sales Tax on Other Income- Energy TariffsRs.20,026,830 (xiii) Non-payment of Sales Tax on Receipts against Deposit WorkRs.1,955,640 (xiv) Non-payment of Sales Tax on Receipts against Deferred CreditsRs.2,942,637 (xv) Non-payment of Sales Tax against Advances from CustomersRs.31,010,345 Rs.135,083 (xvi) Inadmissible Input Tax under sections 7 and 23Rs.3,879,985 (xvii) Inadmissible Input Tax under sections 8(1)(a) (xviii) Inadmissible Input Tax under section 8(1)(b) (xix) Inadmissible Input Tax LPGCL (xx) Non-payment of Output Tax (xxi) Inadmissible Input Tax pointed out vide Third Party Verification
3. Being aggrieved, the Registered persons preferred appeal before the Collector (Appeals), but could succeed only partly. Controversy regarding items at serial Nos.i- Sales Tax on supply of scrap, iii- duplicate claim of input tax, vi-excess claim of input tax and xvi- inadmissible input tax under section 7 was resolved. The Collector (Appeals) deleted the demand of Sales Tax on supply of printed material and the Sales Tax Department did not file appeal against the said deletion. Thus the above said five points were settled between the parties and are, therefore, not subject-matter of this appeal. The learned Collector (Appeals), however, confirmed the Sales Tax demand of Rs,39,494 111 as inadmissible claim of input tax on behalf of Pakistan WAPDA Foundation whereas issues forming the bases of demand of Sales Tax in respect of remaining 15 heads were remanded to the Collectorate. The demand on account of default surcharge was confirmed and it .Was held that penalty was also not warranted in the case. 4. Being still dissatisfied the Registered Person was come up in further appeal before us agitating the issues on which appeal could not succeed at the 1st stage. 5. Initiating the arguments on behalf of the appellant, the learned A.R. Of the appellant vehemently contended that the dominant object of the impugned Order-in-Original was to create demand with a view to adjusting the refund of the appellant to meet the revenue targets. An inchoate and vague show-cause notice dated 3-5-2008 was served upon the appellant on 8-5-2008 for compliance on 10-5-2008. The appellant pointed out that the notice was not self-contained and what to speak of compliance, it was not possible to comprehend it unless the relevant material was sorted out with the office of the respondent. It was also pointed out that it was very difficult to make compliance within the given time because collection of data/information from offices of the registered person scattered all over the country was impossible. It was also submitted that
---
## Page 3
complicated questions of law had to. Be thrashed out for which the appellant needed advice and representation by a qualified counsel. Appellant, therefore, requested for reasonable time to understand the issues and make compliance. The Adjudication Officer, however, allowed only 7 daystime and on further request allowed another week. On 24th May, 2008, the counsel for the appellant filed partial reply, raising jurisdictional objections, and sought some further time for preparing the brief on merits of the case. The Adjudication Officer, however, declined the request and passed the Order-in-Original on the same day i,e, 24th May, 2008, which was served upon the appellant on 30-5-2008, providing one month's time for filing appeal against it. Before the expiry of the time for filing the appeal i,e, 30-6-2008, the Sales Tax Department adjusted the refunds of Rs,1,364,939,605 and Rs,329,824,870, respectively due to the appellant vide refund orders RPO No,14 of 2008 and RPO No,15 of 2008. 6. The learned AR pointed out that the observation of the learned Collector (Appeals) that the amount of pending refund of Rs,1,694,764,475 was adjusted on expiry of the appeal period was ex- facie contrary to the facts obtaining on record. 7. It was further argued that before adopting the coercive measures of adjusting the refund of the appellant, the Department was required to issue notice under section 48 of the Sales Tax Act, 1990. Besides, in complete disregard of section 45B(4), which provided that on payment of 15% of the demand, the taxpayer would be entitled to statutory stay of six months, about 41% of impugned demand was adjusted even before the expiry of appeal period. Another amount of sanctioned refund of Rs,1,542,362,401 was adjusted on 27-4-2009 vide RPO No,4 of 2009 despite the fact that the first Appellate Authority had remanded the case on 24-12-2008 and no tax demand was in the field. Thus, the sanctioned refund of Rs,3,237,126,876 was illegally adjusted to meet the revenue targets. It was vehemently contended that the entire exercise was tainted with mala fide. Reliance was placed on para. 11 of the judgment of the Hon'ble Supreme Court of Pakistan reported as [(1999) 80 Tax 30 (SC Pak)] in the case of Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others, relevant part of the reference is reproduced hereunder for the sake of reference:-- "The perusal of these facts and circumstances also leads us to believe that the extraordinary zeal was being shown by the respondents to somehow charge the appellant-company with the amount of deductions made along With the additional tax and penalty. In our view, such demand is otherwise than in accordance with law and we cannot also help to .Observe that such demand was being made by an impatient department with a view to achieving the target of recovery of revenue and, therefore, in our view the demand was mala fide as well." Reference was also made to the judgment of the Hon'ble Supreme Court of Pakistan cited as PLD 1965 SC 671 in the case of Abdul Rauf and others V. Abdul Hameed Khan and others in support of the principle of law: "Mala fide act was by its nature an act without jurisdiction". 8: The authorized representative of the appellant further submitted that the learned first Appellate Authority had no jurisdiction to remand the case nor was it justified to do so. The show-cause notice did not spell out allegations by giving basic facts, attracting the charge of Sales Tax under the charging provisions, while the initial burden to show that the transactions subjected to tax were covered by the charging provisions was on Revenue. Reliance, in this context, was placed on the following judgments:- 1991 SCMR 2374 = 1991 PTD 999, 1996 SCMR 1470, 2008 PTD 1563 (Lahore High Court) and 2004 PTD 868. 9. It was stressed that the impugned demand, based on invalid show-cause notice, was unlawful and liable to be set aside. Reliance was placed on the judgments cited as 2005 PTD 480 (SC Pak), PLD 1989 Lahore 47 (affirmed by the Hon'ble Supreme Court in the judgment cited as 1992 SCMR 1898).
---
## Page 4
10. Vehemently agitating against the order passed by the first Appellate Authority, the learned AR pointed out that the learned Collector (A) did not confine himself to appeal proceedings and unjustifiably going beyond his domain grafted additional original adjudication to the impugned appellate order. 11. It was pointed out by the learned AR that the learned first Appellate Authority proceeded on erroneous assumptions of law and facts. The entire appellate order was based on stretched interpretations of the Sales Tax Special Procedure Rules, 2007, issued vide S.R.O. No,480(I)/2007 dated 9th June, 2007 instead of the Sales Tax Special Procedure Rules, 2005 issued vide S.R.O. No,522(I)/2005, dated 6th June, 2005 which were in force during the relevant tax periods. This was done, the learned AR argued, on the stated presumption that there was no material change between both the sets of Rules, although even a cursory reading of both the sets of Rules indicated that the scheme of charge of Sales Tax on electricity and its collection was entirely different under both the sets of Rules. Clause (t) of sub-Rule (1) of Rule 33 of the Sales Tax Special Procedure Rules, 2005, was omitted in the Sales Tax Special Procedure Rules, 2007. Similarly, the definition of electric power under 2005 Rules confined the charge of Sales Tax to the power supply by a person to the consumers only. The omission of this definition was made with a view to expanding the scope of the charge. Besides, under the 2005 Rules Sales Tax was levied and collected on cash collection basis (Rules 36) while under 2007 Rules it was deposited on accrual basis. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1992 SCMR 710 to highlight that "Indeed, the mere fact that the legislature enacts an amendment is of itself an indication of an intention, as a general rule, to alter the pre-existing law". It was maintained that the same principle was applicable to the amended Rules. Thus the academic discussion by the learned Collector (Appeals) with reference to the Special Procedure Rules, 2007, which were not retrospectively applicable to the financial year 2005-2006, was misdirected and misplaced. 12. With reference to the specific heads of the impugned demand, the learned AR advanced the following arguments:-- SALES TAX ON THE SUPPLY OF FIXED ASSETS AT Rs,3,408,526: -- (i) It was submitted that no allegation was specified in the show cause notice. The basic facts as to what fixed assets were supplied and to whom were they supplied are not ascertainable from the notice as these were mere presumptions? How the given facts attracted the charge of the Sales Tax is also not established from the notice. Even the reply of the appellant to Audit Report under section 25(3) of the Act that it was adjustment of inter departmental old transactions, which did not attract charge of Sales Tax, was not considered. The original para of the Audit Report was mechanically copy pasted without even mentioning the contention of the appellant. The learned AR submitted that the impugned demand is thus based on an invalid show-cause notice--- concealing more than revealing anything; on the basis of such facts, the learned AR contended that the impugned Order-in-Original was liable to be set aside but the learned Collector (Appeals) instead of setting aside the demand remanded it with irrelevant reference to exemption under the Sixth Schedule of the Act. Thus, the burden of proof was illegally shifted from the Revenue to the appellant. The allegation was based on presumptions, while initial burden of proof to show that the transaction being in the nature of sale of goods was chargeable to tax under the Act was on the Revenue. Reliance in this context was placed on the judgment of the Hon'ble Karachi High Court reported as 2004 PTD 868. To further support the point that the demand of Sales Tax was based on a vague show-cause notice and, therefore, not sustainable, reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 2005 PTD 480 (SC Pak). . INPUT TAX CLAIMED ON PURCHASE FROM DE-REGISTERED/ SUSPECTED/CLOSED UNITS Rs,85,547,748:--
---
## Page 5
13. The show-cause notice did not provide the details of parties and their status during the relevant period, nor were the details of transactions confronted. The learned Collector (Appeals), however, obtained the details from the respondent-Department during appeal proceedings and based the impugned appellate order thereon. The learned AR of the appellant pointed out that even the present "active" status of the parties mentioned by the Collector (Appeals) in the appellate order does not justify the impugned demand under the head. Party-wise details of the taxpayers, obtained from, F.B.R. Pakistan e-portal dated 25-8-2010 indicate that the following taxpayers are active and F.B.R. Itself allows purchases from such active taxpayers:-- Sr. No. Parties Name Sales Tax Registration No. (i) Amin Brothers Engineers Pak (Private) Limited 0406681000491 (ii) Nimbus Engineering Corporation (Pvt.) Ltd. 0402681100182 (iii) Highland Ceramics 0903691000619 (iv) Chaudhry Steel Re-Rolling Mills(Pvt.) Ltd. 0303721317119 (v) Office Automation Group 0391999965037 Messrs Fizan Associates has been shown as suspended taxpayer while the date of its suspension has not been specified. It was further submitted that the show-cause notice did not even specify whether the parties were suspected or deregistered. Unless, the show-cause notice confronted the fact that some particular supplier was deregistered in the relevant period or the input tax invoices availed by the appellant were fake in terms of section 8(1)(d) of the Sales Tax Act, 1990---not only show-cause notice was rendered invalid but the demand of Sales Tax raised on its basis could also not be treated as lawful. The impugned show-cause notice suppressed all material details, as the details would not justify demand of Sales Tax. The learned AR of the appellant emphasized that the entire exercise was undertaken just to give a semblance of legality to illegal revenue collection for meeting the Revenue Targets. EXCESS CLAIM OF INPUT TAX OF RS.1,392,892 (FAUJI KABIRWALA):-- 14. It was submitted that the learned first Appellate Authority was not legally justified to remand the case under the head when the Department had itself withdrawn the allegation. Our attention was drawn by the learned A.R. To the Reconciliation Report at page 130 of the appeal (Paper Book) which was the basis of the settlement of five heads of demand between the parties, and at Serial No,4 the Auditors had dropped the allegation. It was urged that there was no justification for remanding the allegation of excess claim of input tax of Rs,1,392,892 as the allegation had admittedly been rebutted and resolved. INADMISSIBLE INPUT TAX IN THE CASE OF PAKISTAN WAPDA FOUNDATION RS.39,494,111: (12) The learned AR admitted that the distinctive business activity of Pakistan WAPDA Foundation was not covered by the consolidated Sales Tax Registration of WAPDA entities. It was submitted that the Foundation had been held to be separately liable to Sales Tax by the Customs, Exercise and Sales Tax Appellate Tribunal in its order dated 21-10-2008 in Federal Excise Appeal No,353/LB/2006 and the matter was sub judice in the Hon'ble Lahore High Court. Controversy between the Registered Person and Sales Tax Department revolved around the following amounts:- (a) Non-payment of Sales Tax on Miscellaneous IncomeRs,116,520,117 (b)Non-payment of Sales Tax on Other Electric RevenueRs,9,254,948 (c) Non-payment of Sales Tax on Overhead RecoveryRs,30,709,297
---
## Page 6
(d)Non-payment of Sales Tax On Repair, Testing and Inspection FeeRs,689,380 (e) Non-payment of Sales Tax on Other Income---Energy TariffsRs,68,907,681 It was pointed out that the five amounts mentioned under the above heads of impugned demand had no nexus with the charge of Sales Tax. In this context, our attention was drawn to various certificates produced before the first Appellate Authority, which were annexed with the present appeal as well. The amounts under the above heads include commission on collection of T.V. License fee, savings from new connections, quarter rent recoveries, sale of tenders, burnt meter charges, liquidity damages, rent of stand by generators, house rent, school bus charges, repair charges, testing and inspection fee like design vetting fee on survey of new electrification schemes etc. It was vehemently urged that the respondent-Department misdirected itself in taxing the items which were not chargeable to Sales Tax. Besides, it shifted the burden to show that the amounts were not covered under section 3 of the Act onto the appellant while initial burden to prove that the items were chargeable to tax was on the Department. It was further argued that under the scheme of the Sales Tax Act, prescribed Return of Sales Tax is based on the the prescribed record under sections 22 and 23 of the Act. Although the Sales Tax Authorities have been allowed access to record other than the prescribed record under section 25(1), such access is only for the purpose of ascertaining whether all the amounts chargeable to Sales Tax had been declared in the Return or not. Such access to record is thus aimed at discovery of transactions chargeable to tax but not disclosed in the Return. Unless Revenue shows that a transaction attracts charge of tax, it cannot shift the onus to the taxpayer to show that each and every transaction, manifestly having no nexus with the charge of Sales Tax, was not chargeable to tax. The audit report, eventually has to be based on the prescribed record in terms of section 25(3) of the Act. Reference in this regard was made to the case-law reported as 2004 PTD (Trib.) 2026, wherein the learned Customs, Excise and Sales Tax Appellate Tribunal, on the basis of the judgment of Hon'ble Supreme Court of Pakistan: 1987 SCMR 571, held that "scrutiny of record would be restricted to the prescribed record only." In yet another case reported as 2008 PTD (Trib.) 541, the learned Customs, Excise and Sales Tax Appellate Tribunal held that the Income Tax record cannot be made the basis for adjudicating the liability under the Sales Tax Act, 1990. In nutshell, it was stressed, that access to other record under section 25(1), does not allow shifting of initial burden to show chargeability to a taxpayer, as was done in the present case. It was averred, that if the total service charges are not subject to Sales Tax by the Federation, it is absurd to require a taxpayer to break up the totals into thousands of its components and to prove that each component is not chargeable to tax. It was maintained that the creation of demand on manifestly non-taxable heads was mala fide. It was further pointed out that the learned Collector (Appeals) did not appreciate the relevant provisions of law and facts of the case and remanded the matter on the basis of presumptions, which was patently without jurisdiction in terms of section 45B(3). The entire exercise was thus contended to be misdirected, unjust and unfair. (a) Non-payment of Sales Tax on Miscellaneous IncomeRs,1,736,207,156Rs,1,736,207,156 (b)Non-payment of Sales Tax on Other Electric RevenueRs,1,940,934,128Rs,1,940,934,128 (c) Non-payment of Sales Tax on Overhead RecoveryRs,20,026,830Rs,20,026,830 The demand, under the above three heads, aggregates toRs,3,697,168,114 and constitutes about 89% of . Total demand of Rs,4,149,235,498. The said demand was raised on the amounts received
---
## Page 7
by the appellant as partial cost of immovable infrastructure for its electrification/development schemes and works. The learned Collector (Appeals) recorded the following finding on the three identical items:-- "WAPDA can (fully or) partially demand and recover the cost (compensation) for its schemes (infrastructural development schemes and works) from the sponsors/users/beneficiaries (government departments, local government, local bodies, housing schemes, public and private sector institutions and organizations etc). Despite such cost recovery, the ownership (under the relevant laws, the work "control" has been used) and responsibility to operate (management) and maintain (repairs, up- gradation, balancing, replacement, modernization and replenishment) remains with WAPDA. WAPDA .Can formally sell out its undertakings, schemes and works etc. Discontinuation, abandonment or demolition of any such scheme does not render WAPDA to pay back any such amount charged from the beneficiaries. Price of power supplied through or with such schemes or works is entirely an independent charge." 13. The learned representative of the appellant also referred to the relevant paras of the show- cause notice to highlight that the total receipts were mechanically mentioned in the notice without any specifics or break up of service charges, cost of construction of immovable property or even purchase of material. The show-cause notice, what to speak of showing that prima facie charge of sales tax was attracted to the above amounts, does not even suggest the subjects of allegation. The show-cause notice was, thus, contended to be invalid. Reliance in this context, was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 2005 PTD 480 (SC Pak.) and PLD 1989 Lahore 47. Referring to para. 15 of the appellate order, it was pointed out by the AR of the Registered Person that the learned Collector (Appeals) impliedly admitted that even supply of immovable property is not chargeable to tax under section 3 of the Act:- "If the stance of the appellant that immoveable property/ construction is not taxable, then an inference can be drawn that use of the tax paid goods in these schemes/works is not for taxable supply purposes, which means WAPDA cannot avail input tax adjustment in respect of such inputs." 14. The learned AR pointed out that, in fact, the learned first appellate authority illegally built up a new case in appeal regarding the adjustment of presumed input tax on the basis of presumptions and conjectures. Thus, the learned Collector (Appeals) exceeded his jurisdiction. It was explained that even the presumption of supply of immovable property by the learned Collector (Appeals) is based on farfetched interpretations and inconsistent with the unambiguous language of the Constitutional and statutory provisions. Reference was made to Article 142(c) of the Constitution of the Islamic Republic of Pakistan, 1973 which expressly excluded the subjects not enumerated either in the Federal Legislative List or the Concurrent Legislative List from the domain of Federal Legislation. It was pointed out that Sales Tax on immovable property was not enumerated in the above said lists and as such it stood expressly excluded from the fiscal domain of the Federation of Pakistan. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1993 SCMR 1523 wherein the Honourable Court observed: "What is excluded by express words cannot be included on any principle of interpretation." It was argued that the supply of immovable property is the subject under the fiscal domain of the Provinces and, as such, it cannot be charged to tax under the Sales Tax Act, 1990, on any principles of interpretation. The learned AR further argued that the learned Collector (Appeals) illegally stretched various definitions and phrases of the Act to create fiction of deemed supply of infrastructure to rope it in the charge of Sales Tax by the Federation. Reliance was placed on the judgment of the Hon'ble Supreme Court of Pakistan cited as 1996 SCMR 1470 in thecase of B. P. Biscuit Factory Ltd. Karachi v. Wealth Tax Officer and another wherein it was held:-
---
## Page 8
"It is well-settled rule of law that all charges upon the subject must be imposed by clear and…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.