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S.T.A. No.2769/LB of 2001, decided on 28th October, 2008.

----Ss.3, 11, 33, 34, 36 & 46---Assessment of Sales Tax---Raising demand of Sales Tax on the basis of units of electricity consumed by assessee--Imposition of penalty---Appeal to Appellate Tribunal---Appellant had assailed order-in-original passed by Additional Collector whereby demand of Sales Tax had been raised on the basis of units of electricity consumed by the appellant---Assessment on the basis of consumption of electricity was hardly a safe rule and yardstick to assess the production---Textile mills had different departments and electricity was variedly utilized in each of them---Audit report and the show-cause notice had absolutely not mentioned as to how many spindles were there in the relevant mills---Said report was also silent about the type of frame as to whether it was auto cone frame or ring frame and there was no count of yarn---Audit report was very much flimsy in respect of assessment, it was definitely a self-styled assessment---Auditor had wrongly showed the number of finishing goods and the quantity of raw material in the light of the previous audit report---Use of electricity in the office was definitely meant for furtherance of taxable activity---Appellant during the comments had admitted its liability towards the electricity charges; such being not definitely a willful default, there was no occasion to charge additional tax or impose penalty. Muhammad Akram Nizami for Appellant. Imran Tariq, D.R. and Shaukat Hayat, Auditor for Respondents.

1. The appellant has assailed, in this appeal, the Order-in-Original No.87/01, dated 18-10-2001, passed by the learned Additional Collector, Faisalabad, whereby among others, a demand of" sales tax had been raised on the basis of units of electricity consumed by Messrs S.Q. Textile Mills. 2. The brief facts, giving rise to this appeal, are that audit of Messrs S.Q. Textile Mills was conducted by the Senior Auditors, Sales Tax, Faisalabad for the period 1-1-2000 to 30.4-2001 and the following discrepancies were pointed out:-

(i) Sales Suppressed

During scrutiny of record it was observed that the production declared by the said unit far less with respect of electricity units consumed by the registered person. The declared production was also compared with the market having same kind of unit and was found far less than the average which shows. The registered person suppressed his production as well as sale the calculation is appended below:-

* Calculation is as under:-

Total unit consumed for the said period = 2787743 units.

Assessed consumption of electricity for the production of 1 Kg yarn = 1.8608 unit (declared by the unit)

Total assessed production for the said period = 2784743/1.8608 = 1496529/- kg(32992 bags)

As per above calculation, the unit has removed 9169 bags of yarn from the business premises without charging/paying sales tax. Therefore, sales tax amounting to Rs.31,79,546 is recoverable along with additional tax in violation of sections 3, 22, 23 and 26 of the Sales Tax Act; 1990 and also liable to penal action under section 33 ibid.

(ii) Short realization of sales tax

(a) During checking of purchase, sale and inventory record of the unit it was observed that the unit had supplied taxable goods from business premises without paying sales tax. Detail is as under:-

Thus the unit violated sections 3, 6, 7, 11, 23 and 26 of the Sales Tax Act, , 1990. Therefore, sales tax amounting to Rs.3,19,972 along with additional tax is recoverable from the unit under sections 34 and 36 of the Act, 1990 and also liable to penalty under section 33 ibid.

(iii) Inadmissible input tax on electricity

The registered person is not entitled to adjust input tax on electricity bills issued in the month of January, 2000 because the government gave the credit of GST amount on the electricity bills issued in the month of February, 2000. Thus the sales tax amounting to Rs.95,571 along with additional tax is recoverable under sections 34 and 36 of the Sales Tax Act, 1990.

(iv) Inadmissible input on electricity supplied to offices

Section 3(1)(a) of the Sales Tax Act, 1990 requires that the taxable supplies made in Pakistan shall be chargeable to sales tax by the registered person in the course of furtherance of any taxable activity carried on by him and section 8 of the Sales Tax Act, 1990 also requires that the registered person is entitled to adjust input tax only on the goods which are used for furtherance of business activity, while the registered person adjusted input tax on electricity (bills) used for office purposes that is not part of furtherance of business activity and is not covered in the definition of section 3(1)(a) of the Sales Tax Act, 1990. So Sales Tax amounting to Rs. 16,630 is recoverable under sections 34 and 36 of the Sales Tax Act, 1990. 3. On the basis of above Messrs S.Q. Textile Mills, Faisalabad were charged with the violation of sections 3, 6, 7, 11, 22, 23 and 26 of the Sales Tax Act, 1990. They were called upon to show-cause as to why sales tax amounting to Rs.36,11,719 along with additional tax should not be recovered from them and why penal action should not be taken against them under the Sales Tax Act, 1990. 4. The show-cause notice was contested. The defence took the following plea:-

(i) Sales Suppressed

(a) That the allegation is based on presumption and imagination. The audit has arbitrary alleged that 2.8608 units of electricity are used production of 1 kg of yarn, which is factually incorrect and without any substance of legal force. In presence quantitative as well as qualitative accounts, there is no logic to derive assertions through presumptions and whims.

(b) That the audit has alleged neither impropriation of raw martial to the extent of the alleged under production of finished goods nor procurement of raw material for the same purpose.

(c) That the audit has not provided any proof regarding receipt of consideration in money against the supply of goods said to have been suppressed by the respondents.

(d) That in the absence of any evidence regarding procurement of raw material, receipt of consideration in money and moreso in the non-existence of any buyer, a mere presumption cannot execute the sale which requires a seller and a buyer both positively. Sales of goods warrants physical transfer of goods and ownership to any other person against certain consideration in money without which no transaction on account of sale/purchase can be deemed to have been affected. If otherwise any assertion is made, it would tantamount to harassment of the registered person on one hand and professional incompetence of the audit on the other hand.

(e) That the units of electricity used in a month are compared with that of production of yarn in the subsequent month which reflects that the audit has based their observation on mere surmises and guess work without any factual strength.

(f) That the units of electricity used in offices are not excluded from that of the total units while computing the so-called under production of yarn.

(g) That the respondents have never declared that 1.8608 units of electricity are used for the manufacturing of 1 kg of yarn. This ratio of production of yarn and units of electricity neither exists on record nor can be ascertained, otherwise through an arbitrary and whimsical manner.

(h) The version of the audit regarding the said ratio is self-contradictory as the uniform production of 2062 bags of yarn per month has been assessed against the veriable consumption of electricity for each month that is sufficient to prove professional incompetence and inefficiency on the part of audit. Details are given below:--

5. It is evident from the above chart that the audit had assessed production of 2062 bags of yarn for the month of February, 2000 and February, 2001 as against consumption of 138520 and 220128 units of electricity respectively which is equal to make mockery of facts and law. 6. On the basis of above premises, it was submitted that whole observation was framed on presumptions, surmises and intendment of the audit without any legal as well as factual worth and ought to be dropped on merit.

(ii) Short realization of sales tax

(a) The observation is again presumptive in material and imaginative in character as it is based on misconstruction of facts and figures by the audit as evident from the vide infra facts.

7. It is crystal clear from the above date that the audit had taken opening balance of finished goods as 1250 bags instead of 630 bags available as per record in opening balance of finished goods as on 1-1-2000. It is pertinent to mention here that previously the audit of the record of the respondent was conducted for the period from 1-12-1997 to 31-12-1999 and a contravention report was issued which provided that closing balance of finished goods as on 31-12-1999 was 630 bags i.e. opening balance of finished goods as on 1-1-2000. It can be verified from the previous contravention report. 8. The adjudication was conducted. During adjudication, every effort was made that the parties may reconcile. The learned Adjudicating Authority observed that at long last the appellant had agreed that the assessment be made at the production level of per frame per month. The learned adjudicating authority concluded that the assessment be made at 300 bags per frame per month and that the Senior Auditor had taken the opening balance of finished goods as 1250 bags instead of 630 bags ignoring the fact that this balance was available on the sales tax record and that previous departmental report for the period 1997 to 1999 had showed it as the same. The learned adjudicating authority also observed that opening balance of raw material should have been taken as the one adjudged in the previous audit report and the Order-in-Original No.11/00 i.e. 146332 kgs. (136852 kg in stock + 9680 kgs shortage). The learned adjudicating authority furthermore observed that the assessee had admitted its liability regarding Rs.95,571 in respect of the electricity charges, so the said recovery be made along with additional tax under sections 34 and 36 of the Sales Tax Act, 1990. The learned adjudicating authority furthermore observed that the electricity used in office could not be adjusted towards input tax and Rs.16,630 was recoverable along with additional tax under sections 34 and 36 of the Sales Tax Act, 1990. Hence, this appeal. 9. Arguments were heard. The learned counsel for the appellant argued that consumption of electricity was by no means yardstick to assess the production. He contended that there were so many factors to be considered in assessing the production like the model of the machinery, the condition of the machinery, its maintenance, its supervision, its management, the skill of the labour, the willingness of the labour and the condition of the raw-material etc. He furthermore submitted that the learned adjudicating authority had assessed the production of 2062 bags in all 16 months each regardless of different units consumed each month. For example, the Auditor had assessed 2062 bags in February, 2000 against electricity units numbering 13820 and again 2062 in February, 2001 against units numbering 220128. It was a mockery of assessment. The learned counsel furthermore submitted that it was admitted during discussion that other units of similar nature were giving a wide range of production from 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per month. The production of Messrs Ittehad Textile Industries was just 135 bags per frame per month. It was also admitted during discussion in adjudication that their could not be any hard and fast standardized production/ electricity consumption ratio because it varied widely from unit to unit. The learned counsel read paragraph No.6 of the impugned judgment. The learned counsel vehemently contended that the appellant had-never conceded that its production level be considered as 300 bags per frame per month. 10. The learned Auditor defended the impugned order. He submitted that the impugned order was quite in accordance with facts and law. He furthermore submitted that the appellant had admitted its liability amounting to Rs.95,571. 11. We have carefully gone through the record and have considered the arguments advanced at the bar and find that the assessment on the basis of consumption of electricity was hardly a safe rule and yardstick to assess the production. There are different apartments of a textile mills and the electricity is variedly utilized in each of them. The audit report and the show cause notice have absolutely not mentioned as to how many spindles were there in the relevant mills. It was also silent about the type of frame as to whether it was auto coro frame or ring frame. Sometimes there are 7 and sometimes there are 8 machines in a frame. Similarly, the machines were having 60 spindles and now there are machines even having upto 1000 spindles. It was also silent about the count of the yarn. Normally, the production was 10 ounce in 8 hours per spindle. The audit report is very much flimsy in respect of assessment viz the units in January, 2000 the bags were shown as 2062 against 180928 units. In February, 2000 the bags were shown as 2062 against 138520 units and in March, 2000, 2062 bags were shown against 159248 units and so on so forth. It was - definitely a self-style assessment. Further, it had been admitted that the production of different units was 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per frame per month which appeared to be quite reasonable. There is nothing on record to show that the appellant had made any admission. The copy of the previous Order-in-Original No.11/2000 (Annexure-B) is on record. The Auditor had wrongly showed the number of finished goods and the quantity of raw material in the light of the previous audit report. The use of electricity in the office "is definitely meant for furtherance of taxable activity. The management of the mills is intended for the reasonable or" optimum if not highest production. However, the appellant during the comments had admitted its liability towards the electricity charges amounting to Rs.95,571. It was not definitely a wilful default, so there was no occasion to charge additional tax or impose-penalty. In fact the tenor of the concluding part of the judgment is against the levy of additional tax or imposition of penalty. With this discussion, leaving the liability of Rs.95,571, regarding electricity charges, the impugned order is set aside on the remaining counts. H.B.T./200/Tax (Trib.) Appeal allowed.

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