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Petitioner: Messrs LUCKY PARAGON READY MIX LTD., KARACHI VS Respondent: C.I.R., (APPEALS-IV), KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Abdul Nasir Butt, Abdul Qayyoom Sheikh Title:Messrs LUCKY PARAGON READY MIX LTD., KARACHI vs C.I.R., (APPEALS-IV),
KARACHI Case No.: S.T.A. No,11/KB of 2015 Date of Judgment:2015-04-06 Reported As: 2017 PTD (Trib.) 156 Result: Appeal accepted Judgment ORDER The captioned appeal has been filed by the above named taxpayer, Registered Person (hereinafter called the appellant), through Messrs S.M. Law Associates, Karachi against Order No,16 of 2014 dated 22-12-2014, passed by Commissioner Inland Revenue (Appeals-V), Karachi. 2. Precisely stated, the facts of present case as gathered from available record are that the department while scrutiny of data available in Integrated Tax Management System (Income Tax and Sales Tax Returns of the appellant), considered that the appellant as a registered person has been engaged in the business of manufacturing and supply of ready-mix concrete (RMC) during the period 2009 to 2013, which is a taxable supply as per provisions of Section 3 of Sales Tax Act, 1990 but the appellant failed to declare and charge/levy/pay sales tax payable thereupon. Accordingly, Deputy Commissioner-IR, Audit Unit-04, Zone-I, RTO-II, Karachi, issued a Show-Cause Notice vide C.No, IR/ Audit/-04/ST/2013-14/4531 dated 17-05-2014 to the appellant and proceedings initiated vide Show-Cause Notice were culminated in charging Sales Tax at Rs,331,308,177/- vide an ORDER-IN-ORIGINAL dated 12-06-2014 under section 11(2) of the Sales Tax Act, 1990. However, the period wise breakup of Sales Tax Liability as given in the Show-Cause Notice was as under:-- S.No. Period Sales Value as Per Sales Tax ReturnSales Value as Per Income tax returnDifference Short Paid amount Recoverable 1 2009 NIL 448,358,279 448,358,279 71,737,325 2 2010 NIL 412,199,144 412,199,144 65,951,863 3 2011 NIL 315,954,807 315,954,087 53,712,317
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4 2012 NIL 367,035,066 367,035,066 58,725,611 5 2013 NIL 582,108,017 582,108,017 93,137,283 2,125,655,313 2,125,655,313 343,264,398 Being aggrieved of order-in-original, the appellant filed first appeal before Commissioner Inland Revenue (Appeals-V), Karachi, who vide his Order No, 16 of 2014 dated 22-12-2014 rejected the appeal by confirming the order-in-original. Feeling aggrieved of the decision of CIR (A), the appellant has preferred present appeal before this Tribunal. 3. We have heard the parties at length. We have also examined the available record and case law relied upon by the parties. Ld. AR of the appellant has also placed written synopsis of his arguments on record as well as a soft copy. The arguments of Ld. AR are reproduced here as below:-- "1. That the ORDER-IN-APPEAL No, 16/2014 dated 22-12-2014, passed by Respondent No, 1 is arbitrary, oppressive, without any justification and is not based on the proper appreciation either of the facts of the issue or of the law on the subject. 2. That the ORDER-IN-APPEAL NO. 16/2014 dated 22-12-2014 passed by the Respondent No,1 is also against the good conscience, natural justice, fair play and is also against the laws of equity. 3. That the impugned Order-in Appeal No, 16/2014 dated 22-12-2014, has been passed without opportunity of being heard as on the date of hearing i,e, 22-12-2014, the appellant has requested for an adjournment vide its letter dated 22-12-2014, the Order-in-Appeal is silent about such letter of adjournment and without giving any reason the order-in-appeal has been passed which is against the principle of "Audi Alteram Parterm" i,e, no person shall be condemned without being heard as held in various judgment by apex court e.g."a. Affording of an opportunity is a prerequisite for taking a penal action. CIT East Pakistan and 2 others v. Aswa b Ali and others [1976 SCMR 226] "It is an elementary principle of law that no person can be subject to an obligation without affording him an opportunity to show cause. Similarly, an order favoring a person passed by a competent authority cannot be varied to his disadvantage without hearing him." b. An order affecting the rights of a party can't be passed without an opportunity of hearing to that party. CIT East Pakistan v. Fazlur Rahman and Saeedur Rahman, [PLD 1964 SC 410] "We do not think the mere absence of a provision as to notice can override the principle of natural justice that an order affecting the rights of party cannot be passed without an opportunity of hearing of that party. Yet it cannot be said that it is not necessary to hear the parties affected in a proceeding under Section 115, C.P.C. The fact that the proceedings are judicial or quasi-judicial in nature is sufficient to entitle a party to a hearing in the absence of specific provision to the contrary." c. No adverse order should be passed against a. Party without affording an opportunity to meet the case. Karachi Textile Dyeing and Printing Works, Karachi v. Commissioner of Income Tax (Central), Karachi. [1984 PTD 150]' "No party can be condemned on basis of evidence or information adduced behind his back and without any notice to him. It is true that technicalities of Evidence Act cannot feller the exercise of power of the Assessing Authority but rule of justice demands that before any adverse order penalty or liability is passed or imposed upon a party he should be afforded full opportunity to meet the case and rebut the evidence used against him". That the Order passed by learned Commissioner-IR (Appeals-V) Karachi; is based on presumption/legal fiction and without considering relevant law point necessary evidence, and project his performance in raising is his promotion, it violates the
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fundamental principles of Natural justice as laid down by the Superior Courts. 5. That the impugned Order-in-Appeal dated 22-12-2014, passed by the Respondent-I, is beyond the prescribed maximum time-limit of 120 days under 2nd Proviso of subsection (2) of Section 45-B of the Sales Tax Act, 1990, more over the learned Commissioner-IR(Appeals-V) Karachi has neither fixed any extended period nor has in the instance case recorded any reason for processing of order after 60 days. Even if the learned Commissioner-IR (Appeals-V), Karachi, has fixed may extended period the Order-in-Appeals being passed after laps of 120 days would have become time-barred. Reliance has been placed on:- (i) 2013 PTD 537 Zamindara Paper Mills v. CIR (Legal Division) R.T.O. Wherein it was held that order was passed beyond the prescribed limitation of 120 days as it was dispatched and received after more than 220 days from the issuance of show-cause notice. (ii) 2007 PTD 430 -- Messrs Sabir Daud Exports v. Secretary, Revenue Division, Islamabad - wherein it was held that mere passing of an order in the file'is not enough and the crucial date to determine the time of judgment is the date when the order is dispatched to and received by the concerned party. (iii) 2009 PTD 762 -- Messrs Tanveer Weaving Mills v. Deputy Collector Sales Tax - wherein it was held that Order-in-Original was not valid for having been passed after expiry of 90 days provided under S.36 of the Sales Tax Act, 1990. (iv) 2008 PTD 60 -- Messrs Super Asia Mohammad Din Sons (Pvt.) Ltd. v. The Collector of Sales Tax, Gujranwala wherein it was held that once limitation had started to run and had come to an end the assesses had acquired a vested right of element of assessment by lapse of time. (v) 2008 PTD 1379 - Messrs Siddiqui Sons Denim Mills (Pvt.) Ltd. v. Secretary, Revenue Division, Islamabad. (vi) 2007 PTD 1317 -- Messrs Qasim Cotton Ginners v. Secretary, Revenue Division, Islamabad. (vii) PTCL 2005 CL 841 -- CBR/Sales Tax Department v. Messrs Pace International, Rawalpindi. (viii) PTCL 2010 CLC 1134 Messrs Zeenat Printing and Dyeing Gujranwala v. The Collector of Sales Tax and General Excise, Lahore. (ix) 1992 SCMR 1898 - Federation of Pakistan v. Messrs 16rahim Textile Mills Ltd., wherein it was held that due consideration was given as to whether the respondents should not pay the short-levied duty and whether the State should suffer in public finance. But the cardinal principle of law is that all are equal before law, whether citizens or State. Secondly if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts. Thirdly, while construing a financial statute, its terms are strictly to be followed. (x) 2009 SCMR 1126 -- Messrs Dewan Cement Ltd. v. Collector of Customs and Sales Tax and another wherein it was held that where the show-cause notice is time-barred the merits of the case need not be discussed. 6. That the Appellant is registered under Sales Tax Act, 1990, as , an Importer having STRN:1750681001555 and engaged in providing Ready Mix Concrete (hereinafter referred to as RMC) which is non-taxable and is batched/mixed at our hatching plant, wherefrom through mixer/stirrer tanks mounted on transit trucks, it without becoming an independent product (i,e, capable of being weighed, scaled, stored), in a continued process is poured/placed in an un-set form into the required constructing structure of the building, where it becomes an integral part of the building structure which is attached to earth and as such always been an immovable property. If the timings as required for said pouring into building structure are missed or delayed RMC becomes hardened and of no use i,e, totally wastage and thus not saleable. 7. That a Show-Cause Notice under section 11(2) of the Sales Tax Act, 1990, issued vide C.No,IR/AUDIT-04/ST/2013-14/4531 dated:17.05.2014, was served upon the Appellant, wherein it was intimated that during scrutiny of the Income Tax data available with them the Appellant is
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observed to be registered as a Manufacturer of Concrete Ready mix which is liable to sales tax. Further that since the Appellant not paid sales tax on the same, accordingly Appellant was charged for recovery of sales tax to the tune of Rs,343,264,398/- not paid since the year 2009 to 2013. 8. That since the Appellant is a bona fide and loyal taxpayer, thus in order to suffice the matter through his AR replies dated:09.06.2014 and 11.06.2014, properly replied to the show-cause notice, wherein the Respondent No,] was apprised of the fact that the show-cause notice served by him on the instant issue is based on assumption, surmises, besides totally misconceived as well, resultantly the Appellant has been leveled with a baseless and un-lawful charge for non-payment of Sales Tax on RMC, which is non-taxable. The entire reply made by the AR of Appellant was well in conformity with the facts of the issue and legally substantiated as well, besides appropriate arguments were also advanced by the AR at the time of hearing of the case and Respondent No,1 was also requested to himself inspect/view the entire process/operation as submitted before him, but he also ignored the said request. 9. That the Respondent No,3 was appraised of the fact that the show-cause notice has been issued under section 11(2) of The Sales Tax Act, 1990, relating to default period from July-2008. Whereas, under the provisions of section 11(5) thereof, a show-cause notice under section 11 can only be served within five years from the relevant date of default. As such your said notice relating to the period prior to May-2009 is barred by time. Besides, the figures relating to the tax period 2013 are also not correct and have been mentioned as Rs,582,108,017/- instead of Rs, 532, 108, 017/- 10. The Respondent No,3 was also informed that in order to make the things understand in better and clear, it was explained that Concrete is an essential building material used in construction work and is the composition in dry form comprising of gravel, sand and cement, whereas the water is added therein, as and when it is needed to be consumed. After addition of water it is termed as Ready Mix Concrete (hereinafter called RMC) but it remains in an un-set form. Evidently as is transparent from the name RMC, it is readily available mixed concrete i,e, after water is added thereto. 11 The Respondent No,3 was also apprised in detail that for the purpose of construction work, RMC is an essential requirement, particularly for the roof, beams, foundations, columns, pillars, etc., of the building structure being constructed. Basically RMC is consumed in the following forms: a. Firstly it is pertinent to record here that determining the classification of anything under Harmonized Commodity Description and Coding System (hereinafter referred to as HCD&CS/Nomenclature/PCT) is essentially required for the levy of Sales Tax or otherwise in pursuance of Note-2 of the Sixth Schedule to The Sales Tax Act, 1990. Accordingly the General Rules for the interpretation of the Harmonized System the classification of Goods in Nomenclature are to be governed by the Principles set out therein. The HCD&CS/Nomenclature/PCT sets out a systematic form of the Goods handled in International Trade. RMC is consumed for the manufacturing of Articles/ Goods like RMC Blocks, Slabs, Pre-fabricated Structural Components for Buildings, Pillars, Beams, Posts, Girders, Railings, Stair Treads, etc., which are pre-tasted or prefabricated in re-usable molds. These Articles/Goods (not the RMC itself) fall under 'leading No,68.10 of Harmonized Commodity Description and Coding System (HCD&CS/ Nomenclature/PCT) (copy attached as Annexure-E). It is important to note that a perusal of the main Heading 68.10 reveals that it covers Articles of Cement, of Concrete or of artificial stone and nowhere it speaks of coverage of RMC therein. Here it is pertinent to inform you that after recasting/pre-fabricating, these articles are specially cared and kept in a controlled environment and then transported to construction site for placing in its position. It is also pertinent to inform you that in Harmonized Commodity Description and Coding System/Nomenclature there is no product/goods exist/ specified as RMC. The Appellant is .Not engaged in the manufacturing or pre fabricating or pre-
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casting in re-usable molds, any of the article/goods of Cement or Concrete or RMC as covered and specified under above stated HCDCS/ Nomenclature Heading 68.10. Such type of RMC consumption is made by the persons engaged in the manufacturing and supply of above said articles of RMC. b. RMC is also very rarely consumed in constructing the structure of single stored very small scale houses by obtaining/batching the same manually with orthodox methods i,e, through application of labors at the construction site. In this situation the continuity of the process of obtaining/batching the RMC is not retarded or ceased, whereas it is completed after the so obtained/batched RMC in required quantity is poured/placed in the constructing structure of the building. c. RMC is also commonly consumed in constructing the structure of buildings/houses being constructed by the Constructors/ Contractors by obtaining the same using stirrers/mixers at the construction site. In this situation also the continuity of the process of obtaining/batching the RMC is not retarded or ceased and it is completed after the so obtained RMC, in required quantity, is poured/placed in the constructing structure of the building. With a view to facilitate the mega projects in construction industry, a modern technology of centrally obtaining/batching the RMC also exists which ensures continuous, consistent and un- interrupted communication of high quality RMC in a fresh state which results in maximizing the output efficiency. In said technology, RMC in required quantum, is obtained/batched at any other place in batching plant, where firstly the cement, gravel and sand are mixed in dry form and finally the water is added just before the operation of pouring or placing it at construction site, so as to start the chemical reaction for the purposes of initial setting which lasts for very limited time of 45 minutes only. This means that within 45 minutes, RMC is to be shifted into transit truck having stirrer/mixture tank mounted over it, where the process of stirring/mixing in the tank continues till the pouring/placing of RMC into the structure of building being constructed. In this manner RMC, in un-set form in a continuous process is transported to construction site, where operation of pouring/placing the same into the required structure of building is carried on. Here also it is pertinent to note that in case of any mis-timings or delay, as stated above, in pouring in any structure, the said RMC becomes hardened and of no-use at all i,e, wastage and not saleable. The Appellant through the said modern technology is engaged in the batching of RMC at a distant batching plant which is delivered to various sites in mixer/stirrer tanks mounted on Trucks in an un- set form for pouring/placing the same into the structure of building being constructed, where it becomes an integral part of the building structure which is attached to earth and as such always been an immovable property. In the interest of natural justice and to arrive at an appropriate conclusion the Respondent. No,1 was requested that all the above stated operation can be inspected/viewed at pre-fixed date and time at the venue of the Appellant, but he paid no heed to it and ignored the request. IT CAN ALSO BE ARRANGED NOW IF THIS HONORABLE FORUM DESIRES. In this modern technology also, the continuity of the process of obtaining/batching the RMC is not retarded or ceased and it is completed after the so obtained/batched RMC in required quantity is poured/placed in the constructing structure of the building. Particularly focusing the mega projects, the said type of modern technology for obtaining/batching RMC is used extensively, as it offers numerous advantages in comparison to all the other methods. 12. In support of explaining the RMC few definitions were also cited before the Respondent No,1, which are reproduced under: Mixed but un-set concrete brought to site from a batching plant, usually in an agitating truck. (Ref: The Penguin dictionary of building by James H. Maclean and John S. Scott) Concrete that is mixed at a distant batching plant and carried to the site in truck mixer. (Ref: Dictionary of Engineering by John Scott)
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RMC is batched in central plants and delivered to various sites in trucks usually in mixers mounted on the trucks. Concrete may be kept workable for as long as 1.5 hours by slow revolving the mixer. (Ref: Standard Handbook for Civil Engineers, 3rd Edition by Frederick S. Merril; Editor and published by McGraw /Hill International edition) RMC batched in central plant and delivered in a fresh state. (Ref: Cement and Concrete Terminology American Concrete Institute ACI 116R-00) RMC is delivered for placing from a central plant and it offers numerous advantages: (i) Close quality control of batching reduces the variability of desired properties; (ii) Use on congested sites or in highways, where there is little space for mixing plant and aggregate stock piling; (iii) Use of agitator trucks to ensure preventing segregation and maintaining workability. (Ref: Concrete Technology by A. M. Neville: & J. J. Brooks, International Student Edition). RMC is concrete that is batched in a batching plant, according to a set recipe, and then delivered to a work site, by truck mounted in-transit mixers. (Ref: http://en.Wikipedia.Org/wiki/Ready-mix concrete) 13. The Respondent No,3 was also informed that all the RMC used Articles/Goods like RMC Blocks, Slabs, Pre-fabricated Structural Components for Buildings, Pillars, Beams, Posts": Girders, Railings, Stair Treads, etc., which are pre-tasted or pre-fabricated in re-usable molds (not the RMC itself), fall under Heading No, 68,10 of Harmonized Commodity Description and Coding System (HCD&CS/Nomenclature/PCT), Since these RMC-used Articles/Goods are manufactured at some other place and brought to the construction site for placing at its required place in constructing structure of the building, as such these RMC-used Articles/Goods (but not the RMC itself) are capable of being weighed, scaled, stored and shifted, and are moveable in nature and accordingly fall under the definition of GOODS as envisaged under section-2(12) of the Sales Tax Act, 1990, and thus liable to the levy of Sales Tax under section 3 thereof The Respondent No,3 was also apprised of the fact that RMC, as defined and explained above, may be obtained by batching at construction site or alternately may be brought in an un-set form from central batching plant usually in tank mixers/stirrers mounted on the transit trucks under a continuous process of stirring/batching. After the same is poured/placed into the required constructing structure of the building, RMC, without becoming an independent product (i,e, capable of being weighed, scaled, stored), becomes an integral part of the building structure which is ,attached to earth and as such always been an immovable property, thus not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid, thus not liable to the levy of Sales Tax. 15. In addition to all the above submissions and discussions the Respondent No,3 was also apprised of the fact that by referring the decision of Honorable High Court of Lahore in W.P. No,500 of 1975 (Sh. Fazal Elahi Limited v. Federation of Pakistan) (1988 MLD 524) which has been upheld by Honorable Supreme Court of Pakistan in WP-561 of 1978 (1988 PTD (Trib.) 264), read with Sales Tax Circular No,01 of 1988 (copy attached as Annexure-F). In pursuance of the above stated ruling on 'Manufactureset through binding judgments of the Superior Courts of Law and implemented by Board as well, RMC is unambiguously ruled out from the scope of the definition of "Manufacture" and, therefore, does not qualify to be a manufactured product or article or goods, since it is not capable of being weighed, scaled, packed or stored and is also not capable to supply after becoming hardened on being pacified. Further, it is also crystal clear that the mechanism of obtaining the RMC (whether by batching at construction site or by being brought in an un-set form from central batching plant usually in tank mixers/stirrers mounted on the transit trucks and pouring/placing of the same into the required constructing structure of the building it becomes an integral part of the building as an immovable property) is un-ambiguously a continuous process, and thus also not covered by the definition of GOODS as defined under section 2(12) of the Act, ibid. Accordingly, it is not liable to the levy of Sales Tax. It is pertinent to mention that construction of
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such buildings/ structures, whether using RMC prepared at site or using RMC brought through mixer/stirrer trucks, are covered by Construction Services falling under Item No,9824.0000 to the Second Schedule of the Sindh Sales Tax on Services Act, 2011, which is liable to Sindh Sales Tax at the applicable rates on the gross value thereof. 16. The Respondent No,3 was accordingly apprised of the fact that in view of the foregoing submissions and discussions, it is an unambiguously established fact that Ready Mix Concrete (RMC) is neither a manufactured product/article/goods nor covered by the definition of GOODS as defined under section 2(12) of the Sales Tax Act, 1990, and as such is not liable to the levy of sales tax under the Act, ibid. 17. Although the Respondent No,3 was apprised of all the legally substantiated facts over the issue, but surprisingly the Respondent No,3 not taking into consideration the facts narrated by Appellant and just determining the liability on the basis of Income Tax records and presumption passed impugned Order dated:12.06.2014, thereby ordering the recovery of liability of Sales Tax, along with default surcharge besides imposition and recovery of penalty also. 18. That the action of Respondent No,3 of passing Order dated:12.06.2014 on the basis of Income Tax Return, is contrary to the judgments of Superior Courts wherein it has been held that "The income tax information has to be used to determine the correctness of information furnished by a registered person in the sales tax return and it has not to be used for the purpose of calculation of sales tax liability against the registered person" (referred case law: Messrs-Siddique-Enterprises-v. Commissioner (Appeals) 2013 PTD (Trib.) 2130 and various other decisions referred thereto). As such above said impugned Order dated:12.06.2014 is against the said binding judgments of Superior Courts. 19. The Respondent No,3 has erred in terming the RMC as Taxable, Supply in the entire impugned Order dated:12.06.2014, without determining the classification of the same under appropriate heading of HCD&CS/ Nomenclature/PCT read with Note-2 of the Sixth. Schedule to The Sales Tax Act, 1990. He has also erred in referring…
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