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Petitioner: Messrs SUKKUR ELECTRIC SUPPLY COMPANY LTD., SUKKUR VS Respondent: C.I.R., R.T.O., SUKKUR
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Faheem-ul-Haq Khan Title:Messrs SUKKUR ELECTRIC SUPPLY COMPANY LTD., SUKKUR vs C.I.R., R.T.O.,
SUKKUR Case No.: S.T.A. No,261/KB of 2016 Date of Judgment:2016-10-05 Reported As: PTCL 2018 CL. 439, 2018 PTD (Trib.) 4 Result: Order accordingly Judgment ORDER MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER.---This Sales Tax Appeal has been filed by the Appellant/Taxpayer against the order No, 53-S, dated 20.05.2016 passed by the Commissioner Inland Revenue (Appeals), Quetta on the following grounds:-- 1. That the Appellant has submitted an affidavit of Mr. Imdad Ali Mirani, Finance Director, Sukkur Electric Supply Company, Sukkur which fully explains the genesis of Rs, 12,246,119,442. The aforesaid affidavit also comprises a detailed statement which shows the genesis of this figure. In fact, Rs, 7,223,172,649 were the amount of sales tax not realized from consumers by the Hyderabad Electric Supply Company (the HESCO) when the SEPCO was carved out of the HESCO's jurisdiction. The aforesaid statement annexed with the affidavit of Mr. Imdad Ali Mirani also gives month wise addition to this amount from January 2012 to June 2014. Thus the figure of Rs, 12,246,119,442 is completely and justifiably linked with the sales tax billed to the consumer and paid to the Government of Pakistan but not realized from consumers. The main reason for this non-recovery is the poor collection of electricity bills which also includes the amount of sales tax not realized from consumers. 1.2 The appellate authority has attached gospel truth status to the misinterpretation of the audited accounts but has not at all examined the clarification of the relevant entries by the SEPCO's Auditors, M/s. Riaz Ahmad and Company, Karachi who have categorically disproved the charges of non-payment of the sales tax amounting to Rs, 12.246 Billion in the letter dated 06-05-2016 addressed to the Commissioner Inland Revenue (Appeals), Quetta/Sukkur. The relevant part of this letter is reproduced below:-
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"CLARIFICATION REGARDING SALES TAX NOT YET REALIZED Refer to the appeal filed by Sukkur Electric Power Company Limited "the company" against Order- in-Original No, 21/2015 dated 15-7-2015 passed by the DCIR audit unit-I, Zone-I, regional tax office Sukkur regarding recovery of sales tax amounting to Rs, 12.246 billion not yet realized. We submit that we "Riaz Ahmad and Company Charted Accounts" are auditors of Sukkur Electric Power Company Limited for the Financial Years 2011-2012, 2012-2013 and 2013-2014. We state that the company charges and collects sales tax from consumers of electricity on billing basis under Rules 14(1) of the Sales Tax Special Procedure Rules, 2007 reproduced below:- "14. Filing of returns and deposit of sales tax.---In case of WAPDA and KESC, sales tax levied and collected under rule 13 during a tax period shall be deposited on 'accrual basis' i,e, the amount of sales tax actually billed to the consumers or purchasers for the tax period." And there appears to be some confusion as to the following entries in the financial statement of the company for the year ended on 30th June 2014:- (i) Note 10. TRADE AND OTHER PAYABLES on Page 22 of the Audited Accounts---Sales tax not yet realized = Rs,12,246,119,442. (ii) Note 16. ADVANCES AND OTHER RECEIVABLES on page 27 of the Audit Accounts---Sales tax not yet realized = Rs,12,246, 119,442. We draw attention of your good self to the fact that the credit of the sales tax not yet realized of Rupees 12,246,119 million disclosed in note 10 of the financial statements of the company is a contra of corresponding debit "sales tax not yet realized" disclosed in note 16 to the financial statements. This does not represent the sales tax liability payable to the Federal Board of Revenue (FBR). Therefore, the figure Rs, 12.246 Billions (Rupees 5.023 billion related to consumers and Rupees 7.223 billion transferred to SEPCO by HESCO) in fact relates to the sales tax billed to the consumers while this amount has not been paid by the consumers to the SEPCO because the recovery position of the SEPCO is very poor. We further explain the actual treatment of sales tax payment along with monthly sales tax return in the books of accounts of the Company and its presentation in the annual financial statements as under: The Company has a practice to record monthly sales tax paid along with sales tax return separately under the account head "Advance General Sales Tax Paid (Code 1002000)" instead of debiting the "Sales Tax Not Yet Realized". This cumulative "Advance General Sales Tax Paid" is grouped under Trade debts (Not 15) for presentation in the financial statements. As at 30 June 2014, trade debts disclosed in note 15 to the financial statements comprise of outstanding energy charges receivables from consumers and Advance General Sales Tax Paid to FBR along with monthly sales tax returns. Advance General Sales Tax Paid adjusted with Sales Tax Not Yet Realized on realization of receivables from consumers. We emphasize that the interpretation placed on the accounting entries and presentation in the financial statements by the tax officers is neither warranted nor could it overrule the law." 1.3 It is emphasized that this pattern of accounting showing the sales tax deposited in the State exchequer but not paid by the electricity consumers in the Column "Sales Tax not yet realized", has been prescribed by WAPDA and is being followed in all the DISCOs. Copies of financial statements for the period ending 30-06-14 relating to 3 other power distribution companies are enclosed where similar columns show the sales tax not yet realized from the consumers. (i)Copy of Financial Statement of Multan Electric Power Company Ltd. 2013-2014. (ii)Copy of Financial Statement of Quetta Electric Supply Company Ltd. 2013-2014. (iii)Copy of Financial Statement of Faisalabad Electric Supply Company Ltd. 2013-2014. 1.4 The averments made in the affidavit have not been disputed by a counter affidavit and hence these averments stand legally proved/admitted. It has been held that vide 1986 CLC 1408--
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M.Farooq Memon v. Government of Sindh through its Chief Secretary, Karachi---Non-filing of counter affidavit to controvert facts stated in petition, held, would amount to admission of averments made in such petition. Similarly it was decided in 1986 CLC 745---Anwar Ali and 9 others v. Chief Engineer, Irrigation, Sukkur Zone, Sukkar and 2 others---Facts stated in petition when not controverted by counter affidavit, it would, held, be accepted as established. It has also been held vide 1999 MLD 90---Abdus Salam Butt v. lqbal Razzaq Butt and 5 others that affidavit is considered sufficient prima facie proof and if not rebutted by cogent evidence, it becomes conclusive proof. It was further held in 2001 MLD 1257---Mst. Bushra Sadiq v. Karachi Development Authority through Director General and others that statement supported by an affidavit ought to be accepted unless rebutted by another statement on oath. It can thus be safely concluded that the impugned Assessm ent Order and the Orderin-Appeal are not substantiated by the true facts and applicable law as the appellant has established that Rs,12.246 Billion in fact relate to the Sales Tax which the appellant has to receive from its consumers. Resultantly the subject case is unlawfully based on presumptions, intendment and misinterpreted entries in accounts. Reliance is placed on:-- i.2015 PTD 1010 (Supreme Court of Pakistan)---AL-Hamza Ship Breaking Co. and 14 others v. Government of Pakistan through Secretary Revenue Division, Ministry of Finance, Islamabad and others---Tax has to be collected in accordance and only in accordance with law. ii.2004 PTD 868 ---Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise and another Sales tax liability could not be assessed/imposed solely on the basis of Bank statements of the registered person without any corresponding taxable supply made in the course of taxable activity. iii.2016 PTD (Trib.) 445---Messrs Sarhad Restaurant, Lahore v. CIR (Appeals-Ill), Lahore---No room for any intendment existed and there was no presumptions as to tax---In absence of any deeming provisions, Revenue was required to establish that a transaction fell within parameters of taxable_ supplies or in furtherance of any taxable activity failing which sales tax imposed on basis of some assumption or presumption not warranted in law should always be struck down. iv.2012 PTD (Trib.) 478---Messrs Peacock Restaurant v. CIR, LTU, Islamabad etc. ---Passing an order on the basis of conjecture is not correct at law. v.2008 PTD 103---Haji Sultan Ahmed v. CBR, Islamabad and 5 others---Law requires that tax must be levied or charged in clear, unambiguous and specific terms. vi.2013 PTD (Trib.) 2130---Messrs Siddique Enterprises, Faisalabad v. CIR (Appeals) RTO, Faisalabad---Income tax return including financial statements of a registered person was neither specified as sales tax record under S.22 or any other provision of Sales Tax Act, 1990 nor was he legally bound to produce record of income tax return in response to show-cause notice issued to him under S. 25 thereof ---Data of income tax return could be used to determine correctness of data provided by registered person in sales tax return, but same could not be used for calculating sales tax liability against him---Impugned assessment of sales tax was illegal---Principles. vii.2008 PTD (Trib.) 541---Sales Tax Appeal No, 295/LB of 2007-- Income Tax record could not be made basis for adjudging the liability under Sales Tax Act, 1990---Appeal was accepted by setting aside the order as a result of which the show-cause notice was set aside by the Tribunal viii.2012 PTD (Trib.) 453---The CIR, Faisalabad v. M/s Kamal Fabrics, Faisalabad---Any order which does not contain substantial reason and does not show that it is passed on objective consideration shall always be treated as illegal, void, arbitrary and a result of misuse of authority vested in the public functionary. 1.5 The Company record payment / adjustment of output tax against input tax separately under the account head "Advance General Sales Tax Paid" creating asset, instead of reducing the liability by debiting the "Sales Tax Not Yet Realized". This cumulative "Advance General Sales Tax Paid" is
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grouped under Trade debts for presentation in the financial statements. Advance General Sales Tax Paid is offset with Sales Tax Not Yet Realized on realization of receivables from consumers. In nutshell, sales tax asset and sales tax liability are overstated in the financial statements. In order to determine the actual sales tax payable / refundable, one has to offset advance sales tax (asset) with the sales tax not yet realized (liability). Scheme of journal entries is produced below for understanding: At the time of billing of consumers: Trade Debts A/c Dr Sales A/c Cr Sales tax not yet realized A/c Cr At the time of filing of sales tax return at each month end: Advance Sales tax paid A/c Dr Bank/Input tax A/c Cr At the time of realization of bills from consumers: Bank A/c Dr Trade Debts A/c Cr Sales tax no yet realized A/c Dr Advance Sales tax paid A/c Cr From the above scheme of journal entries, it is visible that sales tax charged to consumers in their respective monthly bills is properly adjusted against input tax and surplus, if any, is paid along with monthly return. Burden of Proof is on the Department That the Appellant has established by detailed statements and record as to how Rs, 12.246 Billions are linked with the sales tax deposited in the State treasury but not recovered from the consumer to whom it was billed. It is evident that in such circumstances the burden of proof is on the Department to prove beyond reasonable doubt that this amount in fact relates to certain suppressed/concealed supplies. The Sales Tax is levied on taxable supplies of goods under Section 3 of the Sales Tax Act, 1990. The argument given in the impugned Order-in-Appeal that the record is kept with the taxpayer is not tenable because the Department can always seek/examine all relevant record relating to payment of sales tax. It has been held vide 2010 PTD 592---Collector of Sales Tax and Federal Excise v. Messrs Abbott Laboratories (Pakistani Ltd., Karachi---To bring the subject to charge and levy of tax the burden is upon the Revenue to establish that the said subject is chargeable to tax. It has also been held vide 2008 PTD 2025---Messrs Abbasi Enterprises and another v. Collector of Sales Tax, Peshawar and 3 others---The burden of proving that the taxable supply has been made by a registered person in the course or furtherance of any taxable activity carried on by him is on the department. It is decided vide 2011 PTD (Trib.) 808---Messrs Pakistan Water and Power Developments Authority (WAPDA) Large Taxpayers Unit, Lahore and 2 others--- The onus to show that the transaction was chargeable to tax was squarely on the Department. It is thus evident that the department has failed to counter appellant's stance that the alleged short paid Sales Tax of Rs, 12.246 Billion is fact the amount which the SEPCO has to receive from its clients and it is not at all payable to the FBR. 3. Interpretation favorable to the taxpayer is to be adopted - Doubt to be resolved in favour of taxpayer:- That the Appellant has proved that the alleged short paid sales tax amount of Rs, 12.246 Billion & in fact relates to the sales tax not received by the Appellant from the electricity consumers. It is evident that blind misinterpreted reliance on an entry in the audited accounts is not warranted
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especially when the misinterpreted explanation of such entry has been categorically belied by an affidavit of Finance Director, SEPCO with detailed statement and explanatory letter by the Appellant's Auditors who have audited the accounts. It is emphasized that the Department is solely relying on misreading of the audited accounts and such reliance is absolutely unjustified when the Auditors who have undertaken the audit, explain the genesis of different entries candidly rejecting the inference drawn by the department. 4. New e-filing system of sales tax return The misinterpretation of two entries in the audited accounts is fully established by the aforesaid affidavit and the clarification letter by the Auditor. The computerized system of billing installed in the SEPCO's office is incapable of dumping certain electronic bills to be issued to the consumers in the category which is outside the scope of billing of sales tax to the consumers and payment thereof to the Government under Rule 14(1) of the Sales Tax Special Procedure Rules, 2007. 5. Audit The Sales Tax Act, 1990 prescribes a procedure for selection of a taxpayer for audit purposes and our contention as to the Appellant's audit having been conducted without conforming to the relevant legal requirements have not been rebutted. It is well settled law that question of law can be raised at any stage and the observation in the impugned order that this objection was not raised at the original stage is not tenable. It was held by the Supreme Court of Pakistan in a case titled 2005 PTD 480--Caltex Oil (Pakistan) Ltd. v. Collector, Central Excise and Sales Tax and others---A question of law arising out of the facts of the case relating to the fundamental issues involved therein, even if was not raised before the lower forum, can be allowed to be taken before higher forum. 6. Show-Cause Notice and Order-in-Original relates to more than five years The Appellant had argued that the subject case relates ALSO to tax liability linked with the period beyond the 5 years limitation prescribed under Section 11 of the Sales Tax Act, 1990. As explained above, the amount of Rs, 12.246 Billion is the accumulated figure of sales tax not paid by the consumers of electricity. And even that figure also relates to the period more than 5 years in the past. This argument has been overruled in the impugned Order-in-Appeal by the suggestion that there is no time limitation for recovery of unpaid Sales Tax. It has been held vide 2010 PTD 251--- Messrs Gulistan Textile Mills Ltd. Karachi v. Collector (Appeals) Customs, Sales Tax and Federal Excise, Karachi and another that issuance of show-cause notice more than five years after alleged default in filing of sales tax return was barred by period of limitation and therefore, entire proceedings emanating from this show-cause notice stand extinguished being not maintainable in law. It was also held vide 2012 PTD (Trib.) 1040---Commissioner (Legal Division) Inland Revenue (RTO), Faisalabad v. Messrs Zahid Jee Fabrics (Pvt.) Ltd. Faisalabad---Phrase "shall be served with a notice within five years of the relevant date" conveyed the intention of the legislature that show cause notice and issuance of the same within five years, was a mandatory requirement for an action under section 36 of the Sales Tax Act, 1990---Even if there was a good case for creation of liability, he will not be dragged in. It is thus evident that sales tax liability beyond 5 years limitation period is untenable. 6.2 This issue has also been rejected in the Order-in- Appeal on the ground that it was not raised at the initial stage. As explained in Para 5, a question of law can be raised at appeal stage. 7. No Default surcharge and penalty where there is no evasion/non- paym ent of due sales tax The SEPCO/HESCO have paid full amount of Sales Tax as declared in the Sales Tax returns for the period under consideration and there is no outstanding amount of sales tax payable under the law. The Appellant is not liable to pay default surcharge and penalty provided at S. Nos, 5 and 6 of the Section 33 of the Sales Tax Act, 1990 as there is no evasion of sales tax and no loss of revenue is involved. It is further submitted that imposition of un-quantified penalty is not tenable. The
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Respondent No, 1 has not examined this issue at all 8. Case law quoted in the Additional submissions has not been examined No a single judgment has been examined in the impugned Order--in-Appeal while the Appellant has submitted and explained 36 judgments in support of his case. It is settled law that the principles of law enunciated by Superior Courts are binding on lower judicial, fora under Articles 189 and 201 of the Constitution of the Islamic Republic of Pakistan. 9. The Appellant craves to grant of permission to raise additional grounds at the time of hearing and also explain if any further points are raised by the department. PRAYER In view of the above submissions, it is humbly prayed that the show-cause notice. Assessment Order and impugned Order-in-Appeal passed by the Respondents may kindly be set aside. It is also prayed that the operation of the impugned Assessment Order/Order-in-Appeal No,53S dated 20-05-2016 may be suspended. 2. Brief facts of the case are that Messrs Sukkur Electric Power Company Limited, Sukkur as a distributor of electrical energy engaged in the supply of electrical energy to the registered and unregistered persons. The perusal of the audited accounts of the Messrs Sukkur Electric Power Company Limited, Sukkur having NTN: 3801689-3 revealed that Messrs Sukkur Electric Power Company Limited, Sukkur had an outstanding liability payable of Sales Tax to the tune of Rs,17,158,836,157/-. The figure mentioned supra reflected in Note 10 and Note 16 of the audited accounts for the tax period from July, 2013 to June, 2014 to the tune of Rs, 12,246,199,442/- and Rs, 4,916,636,715/-respectively; Note 10 mentions the same as Sales Tax not realized and Note 16 mentions General Sales Tax receivable. The cumulative liability to the tune of Rs, 17,158,836,157/- during the above said tax period duly reflected in the audited accounts was payable by the M/s. Sukkur Electric Power Company Limited, Sukkur, nonetheless, the same was short paid by Messrs Sukkur Electric Power Company Limited, Sukkur. Thus contravened the provisions of sections 3, 6, 11, 22, 23 and 26 of the Sales Tax Act, 1990 and short payment of sales tax at Rs,17,158,836,157/- in violation of sections referred above was liable to be recovered under section 11(2) along with default surcharge (to be calculated at the time of payment) under section 34(1) besides the imposition of penalty as provided at S. Nos,05 and 06 to the table given in section 33 of the Sales Tax Act, 1990. This amount was charged by the DCIR vide Order-in-Original dated 02-07-2016 in the following manners; "20. The perusal of the record and the summary of the sales tax paid for the tax period from January, 2012 to June, 2014 viz-aviz accretion in the liability do not match and reveals staggering difference. The total Sales Tax paid after adjusting output tax from input tax is Nil, whereas, the accretion in the sales tax liability declared with the immediately preceding tax year is Rs,2,048,840,930/-. The contention of the taxpayer that no sales tax liability is payable as per sales tax return cannot be accepted in the face of the facts that the R/P himself has declared the Sales Tax liability to the tune of Rs, 12,246,119,442/- under the Head trade and other payable to the audited accounts. The R/P's assertion that the department needs to focus on sales tax issues on the basis of sales tax returns, as per law is not tenable in the face of the diametrically different declaration in the audited accounts, which reflects the financial position of the company. The contention of adjusting entry, contra entry and no sales tax payable merely mentioning in the audited statements is not tenable as per substantive law and accounting principles, hence, rejected. Thus the tax liability to the tune of Rs,12,246,119,442/- is payable by the R/P as per his own declaration." 3. Being aggrieved with the order of the DCIR, the taxpayer/ appellant filed appeal before the Commissioner (Appeals), who vide his B order dated 20.05.2016 upheld the impugned order and dismissed the appeal in the following words;
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"5. On the basis of the above, I find that the impugned Order-in-Original has rightly pointed out and established the outstanding payable amount of sales tax from the audited annual accounts of the appellant, which are considered the most authentic records. Therefore, I am inclined to hold that the Order-in-Original is correct, both on legal and factual basis and the same needs no interference. As such, the appeal filed by the appellant is hereby dismissed being devoid of merit and the Order-in-Original is upheld." 4. Being dissatisfied with the order of the Commissioner (Appeals) the taxpayer/appellant has come up to this forum for redressal of his grievances. 5.On the date of hearing, Mr. Hussain Ahmed Shirazi, Advocate appeared on behalf of the taxpayer while Mr. Farhan Badar Solangi, D.R attended the case on behalf of the department. 6.The learned A.R. of the taxpayer discussed and argued upon the above grounds filed by the taxpayer. During the course of hearing, the learned A.R. filed following written statements and relied on case laws mentioned in it; "WRITTEN ARGUMENTS IN APPEAL UNDER SECTION 46 OF THE SALES TAX ACT, 1990 AGAINST THE ORDER-IN-APPEAL NO.53S DATED 20-05-2016 PASSED BY THE RESPONDENT NO.1 SALES TAX NOT YET REALIZED Respectfully sheweth:- 1.Rs. 1,224,611,942 in fact relate to amount already deposited by SEPCO/HESCO in the State exchequer but not paid by the consumers - Affidavit - Explanation by the Appellant's Auditors - Pattern of accounting prescribed by WAPDA and followed by other Power Distribution Companies That the affidavit of Mr. Imdad Ali Mirani, Finance Director, Sukkur Electric Supply Company, Sukkur fully explains the genesis of Rs, 12,246,119,442. The averments made in the affidavit have not been disputed by a counter affidavit before the Commissioner Inland Revenue (Appeals), Quetta and hence these averments stand legally proved/admitted. The contents of affidavit are reproduced hereunder for ready reference; "AFFIDAVIT Subject: Appeal filed by M/S Sukkur Electric Power Company Ltd., (the SEPCO) against Order-in- Original No,21/2015 dated 15-07-2015 passed by the Deputy Commissioner Inland Revenue, Audit-I, Zone-I, Regional Tax Officer, Queens Road, Sukkur. 1. That I, Imdad Ali Son of Muhammad Saleh, RIO Village Masso Khan Awan holding CNIC No, 45102- 1426955-3 DO HEREBY SOLEMNLY DECLARE AND AFFIRM AS UNDER: 2. That I am qualified Cost and Management Accountant (ACMA). 3. That I am working as Finance Director (Additional Charge) in Sukkur Electric Power Company Ltd. (SEPCO) since 2012. 4. That I was actively associated in the audit of accounts of the SEPCO for the Financial Years 2011- 2012, 2012-2013, 2013-2014 by Riaz Ahmed & Company, 108- 109, 1st Floor,…
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