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Appeal No.7(1568)ST/IB of 2001(PB), decided on 7th May, 2009.

----Ss.3, 6, 7, 22, 23, 26, 33 & 34---Scope of Tax---Appellants were engaged in manufacturing and supply of Diesel Electric Locomotives without payment of sales tax-Appellants supplied to Pakistan Railways without payment of leviable sales tax---As it was proved and admitted that sales tax was not paid on locomotives handed over to Pakistan Railways, appellants were directed to pay demanded amount along with additional tax and penalty equivalent to 3% of the tax involved---Appellants contended that manufacturing/assembling Locomotives were for their own usage and were not supplied the same to any other person---Locomotives (Railways Engines) were not independently marketable products, which could be sold in the market and were not liable to sales tax---Validity---Pakistan Railways and Pakistan Locomotives Factory were both distinct registered persons---Both the registered persons were now under obligation to issue sales tax invoices in respect of supplies made to each other under S.23 of the Sales Tax Act, 1990---Pakistan Locomotive Factory/appellant had supplied Locomotives to Pakistan Railways without payment of sales tax and had violated S.3 of the Sales Tax Act, 1990---Stance taken by the appellants was not sustainable in the eyes of law and appellants were liable to pay sales tax on the taxable supplies of Diesel Engine Locomotives which were rolled out during the involved period--As the Order-in-Original did not suffer from any patent illegality, impropriety or material irregularity warranting any interference, appeal was dismissed by the Appellate Tribunal. Sheikhoo Sugar Mills Limited v. Government of Pakistan 2001 PTD 2097 and Messrs Wapda v. Collector of Central Excise and Sales Tax Forum of March, 2002 on page 38 distinguished. Usmani Associates v. Central Board of Revenue 2001 PTD 2982 rel. Messrs Engro Chemical Pakistan Ltd. v. Additional Collector of Customs 2003 PTD 777 ref.

----S.46(4)---Appeal to Appellate Tribunal---Jurisdiction and scope---Word "in relation to the matter before it"---According to subsection (4) of S.46 of the Sales Tax Act, 1990, the Appellate Tribunal, after giving the appellants an opportunity of being heard, may pass such order in relation to the matter before it as it thinks fit---Words "in relation to the matter before it" apparently confine the powers of the Appellate Tribunal to the subject-matter of appeal and apparently it cannot travel beyond the scope of the appeal or pass an order or give a direction which would work adversely to the appellant, who has filed an appeal against the decision or order of the lower forum---Appellant cannot be put in a worse position than what he was earlier.

----S.46(4)-c-Appeal to Appellate Tribunal---Appellate proceedings are the continuation of the original proceedings---Proceedings under the Sales Tax Act, 1990 do not come to an end with the passing of an order, if any of the rival parties files an appeal, the proceedings are kept alive; the appeal before only continuation of the original proceedings---Legal pursuit of a remedy through filing an appeal before the first and second appellate authorities are really but steps in a series of proceedings all connected by an intrinsic unity; are to be regarded as one legal proceedings---Appellate proceedings, therefore, are the continuation of the original proceedings. 2005 PTD (Trib.) 2262 rel.

----S.46---Appeal to Appellate Tribunal---Re-open of entire matter---On filing of an appeal the entire matter reopens and becomes sub judice. PLD 1969 SC 1 rel.

----S.46---Appeal to Appellate Tribunal---Powers to Appellate Tribunal--Appellate Tribunal as the final fact finding authority is obliged to consider the question(s) of fact(s) and that is the reason that Appellate Tribunal has been entrusted with vast powers, so as to bring the factual issues involved in the case to surface which will help in arriving at the proper, legal, just and fair decision of a case.

----S.46---Appeal to Appellate Tribunal---Question of law---A pure question of law can be raised at any stage of the appeal depending upon the facts and circumstances of each case. Messrs Gatron(Industries) Ltd. v. Government of Pakistan 1999 SCMR 1072 and Haji Abdullah Khan v, Nisar Muhammad Khan PLD 1964 SC 6900 rel.

----S.46---Appeal to Appellate Tribunal-Question of law not taken before the louver forum---Allowability---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 the higher forum and Appellate Tribunal for doing complete justice may, if the facts and circumstances of the case so demand, allow to raise a question of law which was not as such taken before the lower forum---It is, in fact, the function of the Appellate Tribunal, who is seized of the matter, to apply the correct law to meet the ends of justice. 2005 PTD 480 rel.

---S.46---Constitution of Pakistan, 1973, Art. 187(1)--Appeal to Appellate Tribunal-.--When leave is not granted on a point, the same can be allowed to be canvassed in appeal if it is necessary for doing complete justice in a case or a matter pending before the Court as contemplated by Sub-Article (1) of Article 187 of the Constitution of Pakistan. 1992 SCMR 1072 rel.

----S.3---Scope of tax---Explanation and meanings of terminology--Section 3(1) of the Sales Tax Act, 1990 is a taxing section---Section 3(1)(a) of the Sales Tax Act, 1990 consists of the components/constituents as follows; the sales tax is to be levied/charged at the rate of 15% (now 16%) of the value of (i) taxable supply (ii) by a registered person (iii) in the course or furtherance of (iv) any taxable activity/business (v) carried on by him---Expression used in S.3(1)(a) the Sales Tax Act, 1990, and which are relevant for the purpose of resolving the controversy involved in this case, are (i) taxable supply (iv) taxable activity, and (iii) in the course of furtherance of---Though the first two, but not the latter one and also not the word "business", have been defined directly under S.2(28) or (41) and S.2(24) or (35), yet for proper appreciation of their meaning, one has to revert back to the definitions of goods, taxable goods, supply and taxable supply---Goods means and includes movable property other than money and securities etc., and Taxable Goods means and includes the movable property other than those which have been exempted under S.13 of the Sales Tax Act, 1990, supply means and includes sale, transfer and other disposition of goods and taxable supply means supply of taxable goods other than supply of goods which are exempt under S. 13 of the Sales Tax Act, 1990. Messrs Myfair Spinning Mills Ltd. Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore and 2 others PTCL 2002 CL 115 (H.C. Lab.); Dawood Hercules Chemicals Ltd. v. Collector of Sales Tax, Lahore 2007 PTD 1161; Messrs Al-Hilal Motors Stores and other v. The Collector, Sales Tax and Central Excise (East) Karachi and others 2004 PTD 868 and Collector of Customs Additional Collector, Hub v. Customs, Excise and Sales Tax Appellate Tribunal, Karachi Bench and others 2007 SCMR 1705 = 2007 PTD 2275 ref.

----S.3---Scope of tax---Locomotives in Completely Build Unit condition were received in the name of District Controller of Store (Shipping) of Messrs Pakistan Railways, Karachi Cantt., and after payment of leviable duty and taxes, the same were directly received by Messrs Pakistan Railways for its operation at Karachi, without arriving at Messrs Locomotive Factory, Risalpur and no value addition was made thereon---Such locos were clearly and evidently not part of the case and demand of sales tax on such CBUs was not justified.

----Ss.66, 7(2) & 23---Refund to be claimed within one year---Adjustment of input tax---Limitation---Period of limitation for claiming input tax adjustment/refund was one year under S.66 of the Sales Tax Act, 1990 and that was also barred by time under the provisions" of Sales Tax Act, 1990---Input tax adjustment could only be made during the relevant tax period which the appellants have failed to do so---Appellants were not entitled for the adjustment of input tax at this belated stage---Appellants failed to perform their statutory obligation under the Sales Tax Act, 1990---Input tax adjustment was neither permissible under the Sales Tax Act, 1990 nor the statute allows right of such delayed input tax adjustment facility to the registered person. Collector, Sales Tax and Central Excise (West), Karachi v. Messrs Al-Hadi Industries (Pvt.) Ltd., 2002 PTD 2457; Messrs Cherat electric Company Ltd., Nowshera v. The Collector, Sales Tax and Central excise, Peshawar and another 2002 PTD (Trib.) 1525 and Messrs Rainbow Industries v. Collector of Customs, and others in C.P. 469/2004 rel.

----Ss.34 & 33---Additional tax--Penalties--Appellant contended that they were government owned enterprise and no wilful evasion of tax was involved---Imposition of additional tax (default surcharge) and penalty were uncalled for---Department contended that appellants have violated the explicit provisions of Sales Tax, 1990 by not paying the due sales tax on the supply of locomotives and it was a wilful default on their part---They were liable to pay additional tax (default surcharge) and penalty prescribed under the law---Validity---Appellants wilfully and deliberately avoided their statutory obligations under the Sales Tax Act, 1990 as there was abundantly clear indication in the L-1 Licence issued .to them by the department in 1993 that their product was chargeable to sales tax---Even after compulsory registration, they rolled out thirteen Diesel Engine Locomotives and deliberately avoided to pay leviable sales tax thereon. PLD 1991 SC 963 ref. 2008 PTD 1461 distinguished. Qazi Waheeduddin and Anwar Saeed Dawar, Managing Director for Appellants. Abdul Latif Yousafzai; Muhammad Zubair Shah, A.C., Haroon Khattak and Dost Muhammad for Respondents. Dates of hearing: 17th, 25th November 2nd December 2009, 12th January 2009, 10th, 12th, 19th and 26th February, 2009 and 16th March, 2009.

This appeal has been filed by Messrs Pakistan Locomotive Factory, Risalpur (hereinafter called as the appellants) against Order-in-Original No. 53 of 2001, dated 8-5-2000, passed by the Collector of Customs, Sales Tax and Central Excise (Adjudication), Peshawar (hereinafter called as the respondent No.1). 2. Precisely, the stated facts of the case as recapitulated from the available record are that the appellants were engaged in the manufacturing and supply of Diesel Electric Locomotives without payment of sales tax thereon and they produced 13 Diesel Electric Locomotives and supplied the same to Messrs Pakistan Railways without Payment of leviable sales tax. Hence, total value of locomotives was Rs.1,75,34,40,000 on which sales tax evaded was calculated as Rs.26,30,16,000. Accordingly, the appellants were called upon to show cause as to why the alleged amount may not be recovered from them and why penal action could not be taken against them under sections 3, 6, 7, 22, 23, 26 and 36 read with sections 33 and 34 of the Sales Tax Act, 1990. Subsequently, on adjudication of the matter, the learned Collector of Customs, Sales Tax and Central Excise (Adjudication), Peshawar, vide his Order-in-Original No. 53 of 2001, dated 8-5-2001, concluded as under : --

"(3) On 8-5-2001, Mr. Muhammad Shah, Dy. Chief Mech. Engineer, Mr. Sohail Iqbal, Dy. Director procurement and Mr. Mir Badshah, District Controller of Stores, appeared for respondents and Syed Yousaf Shah, SIO, appeared for prosecution. The respondents stated that they were unaware of payment of sales tax on locomotives and were of the opinion that sales tax paid at import stage was sufficient: They were explained the system and requested to approach the Collector concerned for further guidance regarding refund/payment. In view of above, it is proved and admitted by them that sales tax was not paid on locomotives handed over to Pakistan Railways, B therefore, the respondents are directed to pay the demanded amount of Rs.26,30,16,000 along with additional tax thereon levied under section 34 of the Sales Tax Act, 1990. A penalty equivalent to 3% of the tax involved is also imposed under section 33 of the Sales Tax Act, 1990." 3. Being aggrieved by the impugned Order-in-Original, the appellants filed an appeal before this Tribunal on, inter alia, the following grounds:--

(a) That, Pakistan Locomotive Factory (PLF) has already paid sale tax on the imported parts and material for all 20 Diesel Electric Locomotives at the time of import at Karachi as "input tax";

(b) that in addition to input taxes, Pakistan Locomotive Factory (PLF) has to pay sales tax on the value addition. The total value addition upto May, 2001 is Rs.252.116 million, on which the sales tax @ 15% to the tune of Rs.37.817 has been paid by means of Cheque No.026159, dated 30-6-2001, which is also confirmed by the Superintendent Sales Tax, Central Excise, Nowshera; and

(c) that the appellants never sold Diesel Electric Locomotives to earn even a single penny and are supplied to Pakistan Railways of which the appellant is one of the organization, so no tax is leviable on it. 4. Consequently, the appellants" counsel filed additional grounds of appeal which are reproduced below in verbatim:

(a) that section 3 of the Sales Tax Act, 1990, provides that;

Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of fifteen per cent of the value of:

(a) taxable supplies made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him.

Taxation activity is defined in section 2(35), which provides:

"any activity carried on by any person, whether or not for pecuniary profit, and involves in whole or in part, the supply of goods to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of business, trade or manufacture."

Whereas, the appellants are manufacturing/assembling Locomotives for their own usage and are not supplying the same to any other person. It is further submitted that Locomotives (Railways Engines) are not independently marketable products, which could be sold in the market and therefore, are not liable to sales tax.

(b) that the Honourable Superior Courts of Pakistan, while interpreting the provisions under consideration, have already held that to decide whether certain goods are leviable to sales tax or not, the marketability of the goods has to be addressed as well, Sheikhoo Sugar Mills Limited v. Government of Pakistan (2001 PTD 2097). It is submitted that the goods being manufactured are not marketable. In Usmani Associates v. Central Board of Revenue (2001 PTD 2982), the Honourable Karachi High Court, while addressing the question of marketability of the goods in that case, held that they were not leviable to sales tax as they had been manufactured for specific purpose and certain specifications. They, therefore, could not be used for any purpose other than for which they were manufactured. They further elaborate that no tax should be levied on the sole ground that the goods are capable of being sold in the market.

(c) that without prejudice to the above, it is submitted that the 1st 10 Locomotives out of the alleged 13 Locomotives are completely built units (CBU) imported by Pakistan Railways. The amount of sales tax leviable on the said CBUs was duly paid at the time of import by Pakistan Railways. The CBUs has nothing to do with the appellants. Therefore; the demand of sales tax on the 10 CBUs is not justified;

(d) that there is no mala fide involved on the part of the appellants.

Therefore, the demand of additional tax and imposition of penalty is without lawful authority;

(e) that around Rs.1081.985 million sales tax was paid on raw materials and kits purchased/imported by the appellants. The adjustment of the same has not been allowed till date. Asking the appellants to pay sales tax once again without allowing the adjustment would amount to double taxation; and

(f) that the above mentioned grounds are very necessary to be considered to meet the ends of justice. 5. The very first hearing was held in the instant case by a Division Bench of this Tribunal on 20-8-2003, but the case could not be decided earlier for one reason or the other and the first hearing was fixed in the instant case before the present Division Bench on 17-11-2008. Subsequently, hearings were held on eight different dates. The final hearing was held on 16-3-2009. During the course of hearings, the Departmental Representative filed para-wise comments to the Memo. of Appeal, which are placed on the file and learned counsel for the appellants filed written arguments (rejoinder) thereto, which are also placed on file. 6. On the last date of hearing fixed for 16-3-2009, the learned counsel for the appellants along with Managing Director of the unit appeared and almost reiterated the same arguments as advanced in the memo. of appeal as well as in the additional grounds of appeal filed by the appellants. He also referred to a number of citations in different cases in support of his contentions, which are also placed on file and the same will be discussed in the succeeding paras. On the other hand, the learned counsel for the respondents along with representatives of the respondent-department controverted the arguments advanced by the learned counsel for the appellants and also referred to some citations in other cases, placed on record, in support of their contentions, which shall also be discussed in the succeeding paras, as well. 7. We have, carefully" perused the available case record and have anxiously considered the written as well as oral submissions made by the learned counsel for the appellants and the respondents. At the outset, we would like to refer to the case of Messrs Engro Chemical Pakistan Ltd. v. Additional Collector of Customs,- reported in 2003 PTD 777, wherein the Honourable Court has observed that:--

"the law is well settled, that every judicial order should be a speaking order and particularly in tax matters, where the scope of appeal/reference before the High Court is very limited. In the absence of speaking orders, the High Court finds it difficult to decide the questions of law, for under section 36-C of the Central Excises Act, 1944, and under the analogous provisions of Customs Act and Sales Tax Act, 1944, only such questions of law can be raised before the High Court as arise out of the order of the Tribunal. Thus, if the learned Tribunal fails to pass proper judicial order, by considering all the facts and points of law raised before it, amounts to negation of justice. The Tribunal is always required to dilate upon all the questions of facts and law agitated before it, so that, the High Court is not handicapped in deciding the questions of law." 8. In the wake of the above cited judgment, we now intend to go into the deeper appreciation of the factual and legal issues involved in this case, in chronological, systematic and legally convincing manner, as given in the succeeding paras, so as to arrive at the proper, just and fair decision in the instant appeal. However, at the very outset, we would like to discuss comprehensively the background of this case. Messrs Pakistan Locomotive, Risalpur (the appellants) are the Federal Government establishment under the Ministry of Railways. The appellants are engaged in the manufacturing and assembling of Locomotives (Diesel/Electric Engines) and repair of their components and supply the same to Messrs Pakistan Railways. All in-house manufacturing of Locomotives in Risalpur (having certain specification) is for its own railways operations, which is a public amenity. These Locomotives are (admittedly) not sold to the public sector, however, like all other government departments, the appellants were also liable to pay the federal taxes including sales tax. In fact, the appellant"s unit is an independent entity and now having separate registration number as compared to Messrs Pakistan Railways, which is an associated person as defined under section 2(3) of the Sales Tax Act, 1990. These two entities operate under common management and control, but now they issue sales tax invoices separately pertaining to the supply made to each other. Reportedly, the appellants had avoided registration under section 14 of the Sales Tax Act, 1990, in spite of repeated notice issued by Sales Tax Department and ultimately, they were compulsorily registered on 1-6-1999 under section 19 of the Sales Tax Act, 1990 and were issued Registration No.05-4-8602-001-46. Consequently, the Regional Directorate of Intelligence and Investigation (Customs, Federal Excise and Sales Tax), Peshawar made out a contravention case against the appellants on account of non-payment of massive amount of due sales tax and for violations of various provisions of the Sales Tax Act, 1990. They were alleged to have made taxable supplies as defined under section 2(41) of the Sales Tax Act, 1990, valuing Rs.1,75,33,40,000 and thus, they were alleged to have evaded the principle amount of sales tax worth Rs.26,30,16,000 in violation of sections 3, 6, 14, 22, 23, 26 and 36 ibid. The aforesaid contravention case was decided vide Order-in-Original No.53 of 2001, dated 8-5-2001, however, being aggrieved, the appellants have filed the instant appeal. 9. First Issue:--Whether this Tribunal can travel beyond the scope of the subject-matter of the appeal and factual and legal issues neither raised in the show-cause notice nor agitated at the original stage of adjudication nor at the first appeal stage can be considered by it

(a) The learned counsel for the respondents has raised a preliminary objection relating to the jurisdiction of this Tribunal on the ground that it cannot travel beyond the scope of the subject matter of the appeal and the factual and legal issues neither raised in the show-cause notice nor agitated at the original stage of adjudication nor at the first appeal stage cannot be considered at this stage by the Appellate Tribunal. On the other hand, the learned counsel for the appellants has argued that the points of facts and law can be raised at any stage during the appeal proceedings and a number of judgments by the Superior Courts lend credence to his observation in this behalf. We, however, need to examine the aforesaid contentions by the learned counsel for the appellants as well as the respondents to examine its legal standing in the eyes of law.

(b) According to subsection (4) of section 46 of the Sales Tax Act, 1990, the Appellate Tribunal, after giving the appellants an opportunity of being heard, may pass such orders in relation to the matter before it as it thinks fit. We observe that the word "in relation to the matter before it" apparently confines the powers of the Appellate Tribunal to the subject-matter of appeal and apparently it cannot travel beyond the scope of the appeal or pass an order or give a direction which would work adversely to the appellant, who has filed an appeal against the decision or order of the lower Court. It is well-settled principle in law that an appellant cannot be put in worse position than what he was in earlier.

(c) It is also well-settled principle in law that the proceedings under the Act do not come to an end with the passing of an order. If any of the rival parties files an appeal, the proceedings are kept alive; the appeal being only continuation of the original proceedings. The legal pursuit of a remedy through filing an appeal before the first and the second appellate authorities are really but steps in a series of proceedings all connected by an intrinsic unity, are to be regarded as one legal proceedings. Thus, the appellate proceedings are the continuation of the original proceedings. In support of our aforesaid observation, we place reliance on the case-law cited in the case, reported in 2005 PTD (Trib.) 2262.

(d) In fact, on filing of an appeal, the entire matter reopens and becomes subjudice. We also place reliance in this behalf on the case-law cited in the case, reported in PLD 1969 SC 1. Moreover, Appellate Tribunal as the final fact finding authority is obliged to consider the question(s) of fact(s) and that is the reason that Appellate Tribunal has been entrusted with vast powers, so as to bring the factual issues involved in the case to surface which will help in arriving at the proper, legal, just and fair decision of a case.

(e) We notice that in the case of Messrs Gatron (Industries) Ltd. v. Government of Pakistan, reported in 1999 SCMR, 1072 the Honourable Court has observed that a pure question of law can be raised at any stage of the appeal depending upon the facts and circumstances of each case. This view has reaffirmed the earlier, view taken by the Supreme Court in the case of Haji Abdullah Khan v. Nisar Muhammad Khan, reported in PLD 1965 SC 6900.

(f) By also placing our reliance on the judgment, reported in 2005 PTD 480, it is now settled principle of law that a question of law arising out of the facts of the ease relating to the fundamental issues involved therein, even if was not raised before the lower forum, can be allowed to be taken before the higher forum and this Tribunal for doing complete justice may, if the facts and circumstances of a case so demand, allow to raise a question of law which was not as such taken before the lower forum. It is, in fact, the function of this Tribunal, who is seized of the matter, to apply the correct law to meet the ends of justice. Also in the case of Gatron (Industries) Ltd. v. Government of Pakistan, reported in 1999 SCMR 1072 the Court has held that even when leave is not granted on a point, the same can be allowed to be canvassed in appeal if it is necessary for doing complete justice in a case or a matter pending before the Court as contemplated by sub-article (1) of Article 187 of the Constitution.

(g) In view of the above stated position, dicta of the Superior Court and extenuating circumstances of the instant case, we are inclined to agree with the contention of the learned counsel for the appellants on the said issue. 10. Second Issue:--Whether the appellants were liable to pay sales tax on the supplies of their product i.e. DE Locomotives

(a) The learned counsel for the appellants has raised the contentious issue that supply was not made in furtherance of taxable activity; therefore, the appellants could not be saddled with the liability of paying sales tax. He has also placed his reliance on the judgment of the Honourable Supreme Court of Pakistan in the case of Messrs Sheikhu Sugar Mills Ltd. v. Government of Pakistan reported in 2001 SCMR 1376 = 2001 PTD 2097 (para. 9). He has also referred to the judgment of the Honourable Lahore High Court, Lahore in the case of Messrs WAPDA v. Collector of Central Excise and Sales Tax, reported in Tax Forum of March, 2002 on page 38, wherein it has been held that printing material and computer stationery being prepared by the printing press owned by the WAPDA for the exclusive use in the office throughout Pakistan does not attract levy of sales tax.

(b) After careful examination of the aforesaid citations made by the learned counsel of the appellants, we are of the considered opinion that Messrs Pakistan Railways and Messrs Pakistan Locomotive Factory are now both distinct registered persons. So far as supplies to each other are concerned, both the registered persons are now under obligation to issue sales tax invoices in respect of supplies made to each other under section 23 of the Sales Tax Act, 1990. Furthermore, the Departmental Representative of the respondent department has also invited our attention towards the focal issue and also produced documents in this context showing that another associated person of Messrs Pakistan Railways namely Messrs Kohat Concrete Sleepers which is engaged in taxable activities, is registered under the Sales Tax Act, 1990 and is charging sales tax while supplying concrete sleepers to Messrs Pakistan Railways. In view of the aforesaid legal and factual position, we are inclined towards the submissions made by the learned counsel for the respondent department as well as by the Departmental Representative that Messrs Pakistan Locomotive Factory have supplied Locomotives to Messrs Pakistan Railways without payment of sales tax and thus, they have violated section 3 of the Sales Tax Act, 1990. Therefore, the interpretation regarding scope of tax i.e. section 3 made by the learned counsel for the appellants is not tenable in circumstances of the cases are enumerated above.

(c) Furthermore, the facts of the instant case of the respondents are not identical with the facts of quoted cases, therefore, citations referred to by the learned counsel for the appellants are not applicable to the instant case. In this regard, we place reliance on the judgment in the case of Messrs Usmani Associates Sub-Proprietary Firm v. Central Board of Revenue and another reported in 2001 PTD 2982 wherein it has been held that:

"Where Sales Tax is Charged:--Sales Tax is charged, levied and paid only when taxable supply is made in the course or furtherance of "taxable activity". Definition of "taxable activity" lays down in clear and unambiguous terms that it involves in whole or in part the supply of goods to any other person, which is the condition precedent for the levy of sales tax."

(d) Yet in the case of Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore and two others, reported in PTCL 2002 CL 115 (H.C. Lah), it has been held by the Court that:

"Chargeability of sales tax is provided under section 3 of the Act, which enunciates that there shall be charged, levied and paid a tax known as sales tax at the rate of 15% (now 16%) of the value of taxable supplies made in Pakistan by a registered person in the course or furtherance of any taxable activity carried on by him and goods imported into Pakistan."

Section 3 is the charging section, which creates a charge on all taxable supplies made in Pakistan by a registered person in the course or furtherance of any taxable activity carried on by him and on all goods imported. In other words, under section 3 of the Sales Tax Act, 1990, sales tax is chargeable, on value of taxable supplies. .

(e) Likewise, in the case of Dawood Hercules Chemicals Ltd. v. Collector of Sales Tax, Lahore, reported in 2007 PTD 1161, it has been held therein that Sales tax is leviable on taxable supply made in Pakistan by a registered person in course or in furtherance of taxable activity.

Similarly, in other case of Messrs Al-Hilal Motors Stores and other v. The Collector, Sales Tax and Central Excise (East) Karachi and others, reported in 2004 PTD 868, it has been held therein that in terms of the provisions contained in section 3 of the Sales Tax act, 1990, which is the charging section, the sales tax shall be charged, levied and paid on taxable supplies made in Pakistan by a registered person in the course or in furtherance of any taxable activity carried on by him.

Furthermore, in the case of Collector of Customs through Additional Collector, Hub v. Customs, Excise and Sales Tax Appellate Tribunal, Karachi Bench and others, reported in 2007 SCMR 1705 = 2007 PTD 2275, it has been held therein that when liability to pay tax would arise: The quantum of tax liability is determined on the basis of value of taxable supply, while the liability to pay tax under section 3(1) of the Act arises only when such supply is made in the course or in furtherance of taxable activity.

(f) Section 3(1) of the Act is taxing section. Section 3(1)(a) consists of the components/constituents as follow; the sales tax is to be levied/charged at the rate of 15% (now 16%) of the value of (i) taxable supply (ii) by a registered person (iii) in the course or furtherance of (iv) any taxable activity/business (v) carried on by him. The expressions used in section 3(1)(a) and which are relevant for the purpose of resolving the controversy involved in this case, are (i) taxable supply (iv) taxable activity, and (iii) in the course or furtherance of. Though the first two, but not the latter one and also not the word "business", have been defined directly under section 2(28) or (41) and section 2(24) or (35), yet for proper appreciation of their meaning, one has to revert back to the definitions of goods, taxable goods, supply and taxable supply. Goods means and includes moveable property other than money and securities etc., and Taxable Goods means and includes the moveable property other than those which have been exempted under section 13 of the Act, supply means and includes sales, transfer and other disposition of goods and taxable supply means supply of taxable goods other than supply of goods which are exempt under section 13 of the Act.

(g) In view of the above legal and factual position, the stance taken by the learned counsel for the appellants is not sustainable in the eyes of law and the appellants were liable to pay sales tax on the taxable supplies of thirteen (13) Diesel Engine Locomotives of serial numbers 6011 to 6023, which were rolled out during the period between 9-3-2000 to 6-12-2000, involved in this case. 11. Third Issue:--Whether ten (10) out of thirteen (13) Locomotive Engines covered by the impugned Order-in-Original are those which were imported as Completely Built Units (CBUs) and directly delivered to Messrs Pakistan Railways for its use at Karachi

(a) The learned counsel for the appellants has contended that the first ten (10) Locomotives out of thirteen (13) Locomotives covered by the impugned order were Completely Built Units (CBUs) imported by Messrs Pakistan Railways and their delivery was directly taken by Messrs Pakistan Railways at Karachi, without bringing them to Messrs Locomotive Factory, Risalpur. The amount of sales tax leviable on the said CBUs was duly paid at the time of importation by Messrs Pakistan Railways and the demand of sales tax on the said ten (10) CBUs is not justified, as the question of value addition and payment of sales tax thereon does not arise at all.

(b) On the other hand, the learned counsel for the respondent-department as well as the Departmental Representatives have argued that the contention of the learned counsel for the appellants is an afterthought. At the time of inquiry by Customs Intelligence, Peshawar, the management submitted in. writing vide their letter No.LFS. 10.B/2000, dated. 8-12-2000 and incorporated in the show-cause notice issued vide C. No.ST/ADJ/COLL/14/2000/388, dated 24-2-2001 that manufacturing of twenty (20) Diesel Electric Locomotive (3000 hp) was in progress with Messrs Pakistan Locomotive Factory, Risalpur. Out of twenty (20) Diesel Engine Locomotives, thirteen (13) Nos. had been manufactured during the period from 9-3-2000 to 8-12-2000 and had been handed over to Messrs Pakistan Railways for its own use.

(c) We have carefully examined the issue of importation, of ten (10) Locomotives in CBU condition. We are inclined to agree with the learned counsel- for the appellants that ten (10) Diesel Engine Locos in CBU condition were directly imported by Messrs Pakistan Railways for the reasons given below:

(i) The appellants have produced the original documents i.e., Bills of entry, Invoices, Packing List, Bills of Lading, copy of the Contract, etc which confirm their contention in this behalf. Copies of the said original documents have also been provided by the appellants and the same are placed on record. Moreover, sales tax on these ten (10) Completely Built Units (CBUs) i.e., AGE-30 Locos from serial numbers 6001 to 6010 imported during the period 7-5-1998 to 1-8-1998 had also been paid at Karachi and after custom clearance, these ten (10) CBU Locomotives were put in service at Karachi without arriving at Messrs Locomotive Factory, Risalpur.

(ii) The letter, dated 10th July, 2006 and 7th July, 2008 (Placed on file) issued by the then Secretary/Chairman Messrs -Pakistan Railways, addressed to the Chairman, FBR, also confirm the contention of the appellants that these ten (10) Locomotives were imported as Completely Built Units (CBUs) and were put in service at Karachi, without arriving at Messrs Locomotive Factory, Risalpur and sales tax had already been paid at the import stage at Karachi.

(iii) In order to ascertain the correct position regarding the import of these ten (10) Locos (CBUs), the learned Collector, Sales Tax, Peshawar was directed by this forum to obtain import data of Messrs Pakistan Railways for the period October, 1990 to June, 2002 relating to CBUs, SKBUs and CKDUs of Locomotive Diesel engines from the Collectorate of Appraisement, Model Customs Collectorate, Custom House, Karachi. The matter was accordingly taken up by the learned Collector with the Appraisement Collectorate, Karachi vide his letter, dated 11th February, 2009 (placed on file). In response, the aforesaid Collectorate retrieved the aforesaid import data of Locomotive Diesel Engines imported by Messrs Pakistan Railways relating to the aforesaid period and dispatched the same to the aforesaid Collectorate. Subsequently, the A.C. (Legal Division) of the Collectorate of Sales Tax, Peshawar filed a report before this Tribunal, which provided the details of the aforesaid import data as retrieved by Pakistan Revenue Automation (Pvt.) Ltd., and they only confirmed that 6 Locomotives in CBU condition were imported by Messrs Pakistan Railways. However, on careful scrutiny of the import data provided by Pakistan Revenue Automation (Pvt.) Ltd., and the related documents provided by the appellants, it was confirmed that ten (10) Diesel Engine Locomotives were directly imported in CBU condition by Messrs Pakistan Railways and not by Messrs Pakistan Locomotive Factory, Risalpur (the appellants), during the period from 7-5-1998 to 1-8-1998 and accordingly customs cleared.

(iv) Now the question arises whether these ten (10) Locos in CBU state were the first ten (10) Locos out of the thirteen (13) Locos covered by the impugned Order-in-Original The appellants have, in fact, attempted to twist the issue. These ten (10) CBUs Locos are not part of this case at all as clearly evident from the Contravention Report No.35 of 2000, dated 5-12-2000. The rolling out dates of twenty (20) PKD/CKD Diesel Engine Locomotives Project (AGE-30), as provided by Mr. Kamran Waseem, Production Engineer of Messrs Pakistan Locomotive Factory, Reisalpur to the detecting agency correctly mentioned the roll out dates of first thirteen Locos, covering serial numbers 6011 to 6023 relating to the period from 9-3-2000 to 6-12-2000, which are clearly involved in this case, whereas the remaining seven (7) Locos were rolled out between 21-12-2000 to 1-9-2001 and are probably covered in the second case of the respondent-department, wherein appeal has also been filed by the appellants i.e. Appeal No.S.T. 80/PB/2005, which is still subjudice.

(d) In view of the above stated position, we find that ten (10) Diesel Engine Locomotives in CBU condition (AGE-30) LOCO (Sr. No. 6001 to 6010) were received during 7-5-1998 to 1-8-1998 in the name of District Controller of Stores (Shipping) of Messrs Pakistan Railways, Karachi Cann., and after payment of leviable duty and taxes, the same were directly received by Messrs Pakistan Railways for its operation at Karachi, without arriving at Messrs Locomotive Factory, Risalpur and no value addition was made thereon. However, these ten (10) Locos are clearly and evidently not part of this case. 12. Fourth Issue:--Whether the appellants are entitled to claim input tax adjustment under the Sales Tax Act, 1990

(a) In the case, of Messrs Myfair Spinning Mills Ltd., Lahore, v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore and two others, reported in PTCL 2002 CL 115 (H.C. Lah), the Court has held that, "in order to avoid double taxation and ensure the proper levy of sales tax, a mechanism of input tax and its adjustment is provided under section 7 of the Act. A registered person is entitled to deduct input tax paid during the tax period for the purpose of taxable supply made or to be made by him from the output tax, that was due from him in respect of tax period. The registered person is also provided such other adjustment as was specified in section 9 and under section 10, the registered person is allowed to carry forward the excess amount or seek the refund." It has further been held therein that, "the provisions regarding input as well as out put tax as defined in the definition clause of the Act read with sections 7 and 8 thereof are only the modalities prescribed to protect the interest of the exchequer against any pilferage, evasion or fraud."

(b) The learned counsel for the appellants has contended that the appellants are entitled to claim input tax adjustment and has also presented certain calculations in this regard, while the learned counsel for the respondent department has forcefully rebutted these calculations and adjustment of input tax on the grounds that the facility of input tax adjustment is available under section 7 of the Sales Tax Act, 1990 to the registered person subject to the conditions that he has a valid input tax invoice/bill of entry in the name of such registered person who wants to avail of the facility of the input tax adjustment. In the instant case, the bills of entry produced by the learned counsel for the appellants are in the name of Messrs Pakistan Railways which is separate registered person and not in the name of the appellants i.e., Messrs Pakistan Locomotive Factory, Risalpur. Moreover, the bills of entry clearly show the sales tax registration number of Messrs Pakistan Railways and not that of the appellants.

(c) In the case of Collector, Sales Tax and Central Excise (West), Karachi v. Messrs Al-Hadi Industries (Pvt.) Ltd., reported in 2002 PTD 2457 the Court has held that, "the provision contained in subsection (2) of section 7 is mandatory in nature, it is an enabling provision which prescribes the way in which the claim of deduction/adjustment/refund of the input tax is to be preferred. Subsection (2) of section 7 prescribes a particular manner of claiming deduction/adjustment/refund and on plain reading of the provision, it is abundantly clear that the non-compliance disentitles a registered person from deducting input tax from output tax." It has been further observed therein that, "the registered person was not entitled to claim the refund of sales tax on the basis of tax invoice/bill of entry which is not in accordance with the requirement of section 23. Therefore, we are of the opinion that the appellants are not entitled for the adjustment of input tax at this belated stage for the aforesaid reason. Besides, the input tax adjustment can only be made during the relevant tax period which the appellants have failed to do so.

(d) The learned counsel for the respondents and the Departmental Representatives have further argued that besides the aforesaid legal position, the period of limitation for claiming input tax adjustment/refund is one year under section 66 of the Sales Tax Act, 1990 and that is also barred by time under the provisions of the Sales Tax Act 1990. We place our reliance in the case of Messrs Cherat Electric Company Limited, Nowshera v. The Collector, Sales Tax and Central Excise, Peshawar and another, reported in 2002 PTD (Trib.) 1525 wherein the Court has held that the law or the exchequer does not deprive a person of his claim to receive back the input tax paid by him, but it should be done by him as per the tax discipline provided for under the limitations and conditions prescribed by the law. If he fails to avail of his entitlement under section 7(1) of the Act in a tax return for the relevant tax period, he should, at his discretion, avail of the facility under section 66 of the Sales Tax Act, 1990.

(e) In this behalf, we also place reliance on the judgment passed in the case of Messrs Rainbow Industries v. Collector of Customs, etc., in C.P. 469/2004, wherein the Honourable Court has observed that:--

"(15) By now, it is well-settled that fiscal statutes are to be construed strictly. If the subject is entitled to any relief it must be given to him but at the same time, if he is bound to follow a particular procedure and fails to abide by the same, then the penal consequences will have to follow. In such like cases, the question of financial loss to the exchequer or the subject are irrelevant. If the statute provides to do a certain thing in a certain manner it must be done in that particular manner and not otherwise."

(f) We are of the considered opinion that the arguments advanced by the learned counsel for the respondents on this specific issue are convincing enough as the appellants failed to perform their statutory obligations under the Sales Tax Act, 1990. In such circumstances, input tax adjustment is neither permissible under the Sales Tax Act, 1990 nor the statute allows right of such delayed input tax adjustment facility to the registered person. 13. Fifth Issue: Whether the Additional Tax (default surcharge) and the Penalty are attractable in this case

(a) The learned counsel for the appellants has prayed that the appellants are government owned enterprise and no wilful evasion of tax is involved. Therefore, the imposition of additional tax (default surcharge) and penalty are uncalled for. In this context, he also placed reliance on the judgment of the Honourable Supreme Court of Pakistan, reported in PLD 191 SC 963. While the learned counsel for the respondents expressly argued that the appellants have violated the explicit provisions of the Sales Tax Act, 1990 by not paying the due sales tax on the

supply of locomotives and it is a wilful default on their part, hence they are liable to pay additional tax (default surcharge) and penalty prescribed under sections 33 and 34 of the Sales Tax Act, 1990.

(b) The learned counsel for the respondents has further contended that penalty for each offence under section 33 is fixed and no discretion has been allowed. As regards the judgment of Lahore High Court, Lahore, reported in 2008 PTD 1461 referred to by the learned counsel for the appellants, the same is not applicable in the instant case being irrelevant. According to him, in the said judgment, the subject-matter of appeal was the payment of principal amount of sales tax and the request of appellant for disposal of appeal regarding penal amount in the light of amnesty envisaged under S.R.O. No.463(I)/2007, was acceded to and all the facts and circumstances of the said judgment are distinguishable from the instant case. Moreover, according to him, neither the appellants have deposited the entire principal amount of sales tax nor any S.R.O. granting amnesty like the aforementioned S.R.O. is currently in the field, thus, the appellants" contention is not sustainable.

(c) In our opinion, the appellants wilfully and deliberately avoided their statutory obligations under the Sales Tax Act, 1990 as there was abundantly clear indication in the L-1 Licence issued to them by the department in 1993 that their product is chargeable to sales tax. Even after compulsory registration, they rolled out thirteen (13) Diesel Engine Locomotives of Serial Numbers 6011 to 6023 between 9-3-2000 to 6-12-2000 and deliberately avoided to pay leviable sales tax thereon. 14. In view of the above stated facts, dicta of Superior Courts and circumstances of the instant case, are not inclined to accept the pleas raised by the learned counsel for the appellants as the impugned Order-in-Original does not suffer from any patent illegality, impropriety or material irregularity warranting any interference by this Tribunal. The instant appeal thus, does not succeed and the same, therefore, stands dismissed. 15. Announced on 7-5-2009. 16. Attested copy of this judgment be dispatched to the concerned parties within ten (10) days of passing of the same. C.M.A./84/Tax (Trib.) Appeal dismissed.

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