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S.T.As. Nos. 3/KB and 4/KB of 1983-84, decided on 24th September, 1986.

---S.12--C.B.R. Circular No. 16(10) T.T.S.T./76, dated 30-8-1978 & Circular No. 2(4)/ST/81, dated 15-3-1981--Assessee carrying on business of ship-breaking not paying any tax at custom stage nor filing any return within prescribed period--Assessment completed by Sales Tax Officer within statutory period and in order--Action of Sales Tax Officer levying sales-tax at concessional rate upheld.

1985 P T D 449 ref.

---S.12--C.B.R. Circular No. 16(10) T.T.S.T./76, dated 30-8-1978 & Circular No. 2(4)/ST/81, dated 15-3-1981--Avoidance of tax liability by arranging commercial affairs in such a manner that there was no charge of tax or there was distribution of charge of tax was not at all prohibited but there could be no legal authority for adoption of device not to comply with law and come forward to reap benefit of concession.

---S. 12--C.B.R. Circular No. 2(4) ST/81, dated 15-3-1981.--C.B.R. Circular No. 2(4) ST/81 dated 15-3-1981 simply gave concession which could be available only to persons who were in difficulty on account of creation of colossal demand but by, this circular neither there was any intention of Central Board of Revenue to exempt any assessee totally free from sales tax nor to declare any assessee exempt from sales tax.

Amin-e-Ajam, D.R. for Appellant.

S. Mukhtar H. Naqvi, I.T.P. for Respondent.

Date of hearing: 30th August, 1986.

.--These are two appeals at the instance of the Sales Tax Officer for assessment years 1977-78 and 1978-79 against the order of Appellate Assistant , Commissioner of Income-tax in S.T.A. No. AAC(D)/587/81, dated 9-6-1983 and S.T.A.No.1 AAC (D) 4084/82, dated 8-5-1983.

The brief facts of the case are that the Sales Tax Officer for assessment year 1977-78 considered the quarterly returns filed by the assessee engaged in ship-breaking business for the four quarters showing the gross turnover at Rs.73,97,204. The Sales Tax Officer considered the figures for the corresponding period of income-tax and adopted the turnover at Rs.75,00,000 by adopting 1/3rd of the gross sales as taxable and calculated the sales tax as under:

He then gave the refund adjustment at Rs.21,916 and the demand of net tax was created at Rs.1,52,503. The order was passed on 31-5-1981. The Appellate Assistant Commissioner considered the Circular bearing No-16 (10) TTST/76 dated 30-6-1978. He considered the arguments on behalf of the assessee that no assessment could be made on the appellant. The Appellate Assistant Commissioner also considered the Circular No.2 (4)/ST/81 dated 5-3-1981 in which waiver of sales-tax was made in respect of manufacturers who satisfy certain conditions laid down in that Circular. It was also contended before him that the assessee had not collected any sales-tax from customers before 1st July, 1980. It was also argued on behalf of the assessee that as per para. 3 of the Circular, the sales-tax liability was not to be assessed and that sales-tax could not be collected if already assessed. It was also argued on behalf of the assessee that the waiver was made subject to conditions laid down in para. 5 which require the manufacturers to deposit regular tax under section 12 in respect of sales made from July, 1980 and onwards to June, 1981. Lastly it was also argued that the sales-tax on ships imported for breaking up was collected at custom's stage and as such the question of depositing sales-tax from July, 1980 did not arise. The Appellate Assistant Commissioner observed that "the foregoing contention of the Authorised Representative is correct. The assessment is ab initio, null, void and illegal, and it is, therefore, annulled". Against this order the department filed an appeal.

The learned Departmental Representative urged that for these years the assessee had not filed any returns within the statutory prescribed period and that the Sales Tax Officer had issued a notice on 14-1-1980 for assessment year 1977-78 and on 25th March, 1980 for 1978-79. The assessee declared sales respectively at Rs.73,97,204/ 72,09,615 for these two years. On the basis of income-tax record for the corresponding period the sales were estimated at Rs. 75,00,000 and Rs.73,00,000 by the Sales Tax Officer. The learned Departmental Representative urged that as per Circular quoted above (16/10/TI/ST/76 dated 30th August, 1978) which pertains only to those assessments which were pending whereas in the case of the assessee, the assessee had failed to file returns of the relevant quarters within 30 days, the prescribed statutory period. The assessee had imported ship Gulf Marine' before 1-7-1980. Notice was issued to the assessee on 14-1-1980. Para 5 of the Circular directs that the sales-tax should be regularly deposited. It is urged by the learned Departmental Representative that the Circular dated 5-3-1981 was not applicable and that the law clearly envisages to tax and initiate the proceedings. He further very forcefully argued that the department was extremely justified in applying the concessional reduced rates.

As for assessment year 1978-79 the learned Departmental Representative urged that the Ship "M.V. Revens" was imported on 3rd January, 1979. The bill of entry was dated 14-6-1978 and the entry in the bill of entry on 7-8-1978 by custom authority is that it was free of sales-tax". The Departmental Representative again referred to para 5 and urged that the relief was admissible to such manufactures who were regularly depositing sales tax in respect of sales made in July, 1980 and subsequent months and in case of failure was not entitled to any concession also.

The learned counsel Mr. Mukhtar Naqvi, on the other hand, referred to SRO-51-1/72 dated 13-5-1972 and the amended SRO-820-1/73 dated 9-6-1973. He urged that on 5th March, 1981 benefit of general waiver was given. He also referred to para 3 of the Circular and referred to the dates of assessment of 1977-78 and 1978-79 which are respectively 31st May, 1981 and 10th April, 1982 and that these assessments were null and void. He urged that no sales-tax was collected from customers. He also relied upon the case 1985 PTD 449.

After hearing both the learned representatives we feel advisable to quote the relevant paras. of the Circular No. 1 of 1981 bearing C.No.2 (4) ST/81, dated 15th March,1981:

"3. After careful and sympathetic consideration, of this problem faced by some manufactures, it has been decided by the Government that either the sales-tax liability will not be assessed or the same will not be collected if it has already been assessed provided each case fulfils the following two conditions.

(a) That sales-tax was not collected by a producer from his customers in the relevant period ending at any time on or before 30-6-1980 and

(b) That neither the Sales-tax Department nor the Central Board of Revenue initiated during the relevant period or before that period proceeding to assess or to collect sales-tax liability from the local producer.

4. The Commissioner of sales-tax have been directed to implement this decision of the Government. Any manufacture or producer who faces any such problem may contact his Commissioner of Sales-tax to get appropriate relief due as per this circular.

5. It may be noted that this relief will be given to manufactures who are regularly depositing sales-tax under section 12(1) of Sales-tax Act, 1951 in respect of sales made in July, 1980 and the subsequent months. If any manufacture is not complying with provisions of section 12(1) his Commissioner of Sales-tax may give him the relief under this Circular provided he makes arrangement for depositing sales-tax under section 12(1) in respect of sales, made or to be made from July, 1980 to June, 1981.

The Central Board of Revenue felt necessity of issuing the above Circular in view of the difficulty which was being faced by number of assessees where sales-tax on sales, made prior to 1-7-1980, was neither collected by the manufacturer nor the department had initiated any action to assess or collect sales-tax by that date in the relevant period. Considering this colossal demand in certain cases and the unsurmountable difficulty arising there from in recovery this Circular was issued extending sympathetic approach to the problem. The earlier Circular 16(10) TI/ST176, dated 30th August, 1978 was also regarding sales-tax on ship-breakers. In this Circular it was stated that a policy decision has been taken to levy sales-tax at 8 at import stage on duty paid value of ships imported for breaking and that collection of sales-tax on ships will thereafter, be the responsibility of customs authority. It was further laid down in para. 2 of the said Circular as under:---

"2. Some assessments are pending with the Department and proceedings are at various stages. It has been decided that:

(a) Sales-tax at 7 % would be charged on 33-1/3% of the turnover as assessed by the Income-tax Officer in the corresponding Income-tax Assessment;

(b) appeals filed by the Department as well as the assessee will be withdrawn; and

(c) the assessments should be completed by 31-12-1978 and the demand collected by 30th June, 1979."

The Sales-tax Officer completed the assessment pursuant to the above Circular by adopting sales-tax at 7 % on 1/3rd of the turnover as taxable (effective rate bearing 2.5%). As for these assessments are concerned these were not pending at the time of the issue of this Circular and as such the question of completion also did not arise as on 31-12-1978. The assessee was carrying on the business of ship breaking and the Circular was issued under the caption of "sales-tax on ship-breakers" against 20% sales-tax, concessional rate of 7 % was directed to be charged by further extending the concession by curtailing the taxable sales to 1/3rd of the total sales, thus resulting in only 2 % effective demand of sales-tax subject further to adjustment of refund of sales-tax paid and was a most sympathetic unimaginable gesture exhibited by the Government. In these circumstances when the assessee had not paid any sales-tax at custom stage and the assessee did know very well that the process of ship-breaking involves sales-tax, it should have made efforts to enjoy the concession. On the contrary as the record reflects the assessee had failed to arrange his affairs to minimise his tax burden. There is no doubt that avoidance of tax liability by arranging commercial affairs in such a manner that there is no charge of tax or there is distribution of charge of tax, is not at all prohibited but there could be no legal authority for the adoption of the device not to comply with the law and come forward to reap the benefits of the concession. The circuitous method adopted by the assessee by not complying with the provisions of law and the trick neither to collect sales-tax not to pay could come to its rescue, as it would be tantamount to ignoring the clear provisions of law for imposition of sales-tax. The only inescapable course for us is to disregard this technique and trick of the assessee for sales-tax evasion or to circumvent the obligation of payment of sales-tax by any device. The Circular dated 30th August, 1978 does not place any embargo on the authority of the Sales-tax Officer to levy sales-tax at the concessional rates. The action having been taken by the Sales-tax Officer on 14-1-1980, much prior to the issuance of the latest circular, the assessment completed is in order, the same having been completed within the statutory period prescribed D under the Sales-tax Act.

As for the second assessment year is concerned, the bill of entry though filed on 14th June, 1978 yet it did reflect a date on 7-8-1978 by the custom authority to the effect that it was "free" of sales-tax. The date of issue of the circular is 30th August, 1978 and the date of clearance of the ship "free of sales-tax" is 7th August, 1978. The assessee subjected the ship to breaking process and it was incumbent upon him to pay sales-tax under the law as he had not to pay the same at custom stage. The bill of lading having been filed on 14-6-1978. The assessee cannot be allowed to enjoy exemption at customs stage by importing earlier than 1-7-1978 the bill of lading having been filed and at the same time from charge of sales-tax on ship-breaking under the Sales-tax Act. The Circular simply gives concession which could be available only to person who were in difficulty on account of creation of colossal demand but by this circular neither there was any intention of the Central Board of Revenue to exempt any assessee totally free from sales-tax nor to declare any assessee exempt from Sales-tax even if he behaves like a contumacious defaulter. The action of the Sales-tax Officer for both the years is in order. The Appellate Assistant Commissioner's order levy incorrect is vacated and that of the Sales-tax Officer is restored.

M. Y. H. Appeal accepted.

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