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S.T.A. No.1201/LB of 2003, decided on 21st July, 2008.

----Ss. 2(46)(e), 33 & 34---Value of supply---Sugar mill---Value of molasses---After considering proposal placed on record by the representative of All Pakistan Sugar Mills Association in its separate note in the report of valuation committee and average of value of four other sugar mills, Appellate Tribunal directed that sales tax should be determined at the value of Rs.450 per M.T. for the period January, 1999 to December, 1999 and the value of Rs.850 per M.T. for the period January, 2000 to December, 2000---50% of additional tax and penalty was also remitted.

----Ss.33 & 34---Offences and penalties---Advances---Levy of penalty for non-payment of sales tax at the time of receipt of advances---Validity---Confusion in the trade and industry was noticed regarding chargeability of the sales tax at the time of receipt of advances---Default committed by the "appellant was not wilful---Additional tax and penalty was not recoverable---Additional tax and penalty was recoverable only in cases of wilful default---Default committed by the appellant was not wilful as nothing had been placed on record holding that the appellant had wilfully committed the default of non-payment of sales tax at the time of receipt of advances---Penalty imposed was remitted by the Appellate Tribunal and the appellant was directed to be careful in future. Maple Leaf Cement v. Federation of Pakistan 1999 PTD 3907; Civil Appeal Nos. 1288 of 2000 and 1866 of 1996 and C.A. No.1294/2001 in re: Additional Collector of Sales Tax, Lahore v. Emco Industries Ltd. ref. Khalid Ishaq for Appellant. Muhammad Amjad, Auditor for Respondent. Date of hearing: 30th June, 2008.

This appeal is directed against Order-in-Original No. 16 of 2003 passed by the learned Collector (Adjudication) Customs, Sales Tax and Central Excise, Faisalabad issued vide C. No. 79/Coll/ST/Adj/2001/4613, dated 26-6-2003 whereunder different issues raised by the special auditors were decided. 2. Brief facts of the case are that the special audit of Messrs Kashmir Sugar Mills Limited Shorkot Road, District Jhang was conducted by Messrs Revenue Advisory Services for the period June, 1999 to December, 2000 under section 32-A of the Sales Tax Act, 1990. The auditors observed different discrepancies committed by the sales tax registered person. A show-cause notice was issued by the competent sales tax authority and after due process of adjudication vide Order-in-Original No.11 of 2002, dated 18-6-2002, the case was decided by the learned Collector (Adjudication) on the following issues:--

(i) Non-payment of further tax amounting to Rs.86.12,972 payable along with additional tax and penalty equal" to 3% of the amount of tax involved.

(ii) Adjustment of further tax amounting to Rs.56,91,569 payable along with additional tax and penalty @ 3% of the amount of tax involved.

(iii) Supplies of molasses at the lower rate resulting non-payment of sales tax amounting to Rs.64,01,714 along with additional tax and penalty.

(iv) Less payment of sales tax amounting to Rs.10,000.

(v) Non-payment of sales tax amounting to Rs.3,85,14,647 recoverable along with additional tax and penalty.

(vi) Inadmissible input tax amounting to Rs.8,62,357 found recoverable along with additional tax and penalty. 3. The learned Adjudicating Officer decided the case against the appellant vide order-in-original No.11 of 2002, dated 18-6-2002. Aggrieved with the decision, the registered person preferred appeal before Appellate Tribunal Customs, Central Excise and Sales Tax and the learned Appellate Tribunal remanded the case to the learned Adjudicating Officer for de novo consideration and fresh decision on merit on different issues except charge No.4 vide Order-in-Appeal No.1537/LB/2002, dated 30-8-2002. The case was reheard by the learned Adjudicating Officer and order-in-original No.16 of 2003 was passed against which the present appeal has been filed before this Tribunal under section 46 of the Sales Tax Act, 1990 on the following three issues i.e. charges Nos. 3, 5 and 6. 4. The main contentions of the learned counsel for the appellant were as under:--

(i) The appellant received a show-cause notice with respect to evasion of sales tax in different categories and heads amounting to Rs.6,00,94,159 as pointed out in the report of special audit carried out for the period January,, 1999 to December, 2000. The show-cause notice was replied and hearing was held and the learned Adjudicating Officer directed the appellant to deposit the demanded amount along with additional tax and penalty. The company challenged the order-in-original before the learned Appellate Tribunal in Appeal No.1537 of 2002 and the learned Appellate Tribunal after hearing the contentions of the parties remanded the case to the learned Adjudicating Officer in respect of all charges except Charge No.4 for de novo consideration and fresh decision in cash observation. The learned Adjudicating Officer reheard the case and the Order-in-Original No.16 of 2003 was issued and the appellant feeling aggrieved with the decision of learned Adjudicating Officer filed appeal before this Tribunal in respect of observation Nos. 3, 5 and 6. The learned adjudicating officer, decided ,charge Nrr.3 under valuation of molasses and the demand raised amounting to Rs.64,01,714 was held recoverable along with additional tax and penalty under sections 36(3), 34 and 33(2)(cc) of the Sales Tax Act, 1990. The charge No.5, non-payment of sales tax at the time of receipt of advances was also decided against the appellant and the demand was held recoverable along with additional tax and penalty under sections 36(3), 34 and 33(2)(cc) of the Sales Tax Act, 1990. Regarding charge No.6, inadmissible input tax, the learned Adjudicating Officer directed the registered person to pay penalty of Rs.2,500 under section 33(2)(cc) of the Sales Tax Act, 1990.

(ii) The impugned Order-in-Original is palpably wrong and runs counter to the law applicable to the case in hand. The learned Adjudicating Officer has failed to properly adjudicate the issue involved in the matter. The decision in Charge No.3 against the company is on the basis of presumption. The value of molasses has been fixed arbitrarily and without any evidence on record. The basis on which the market price has been fixed has not been clearly produced in the impugned order. The impugned order, therefore, is not sustainable under the law.

(iii) The learned Adjudicating Officer has wrongly decided recovery of the additional tax and penalty for non-payment of sales tax at the time of receipt of advances. The alleged amount cannot be recovered from the company because sections 33 and 34 of the Act did not, apply in the present case. The provision can only be applied where a wilful default has been committed by the registered person to evade the payment of sales tax. Further-more, an amount of additional tax and penalty is illegal and unwarranted by the law.

(iv) The imposition of penalty amount to Rs.2,500 on the issue of input adjustment in the relevant period cannot be imposed upon the company unless there is proof to the effect that there was wilful evasion of tax.

(v) The learned counsel for the appellant at the time of hearing before this Tribunal contended that according to report of Valuation Committee, the molasses was applied at different rates by different sugar mills, during the period under report. The learned counsel contended that the valuation committee examined the sales tax record of four sugar mills including the appellant i.e. Messrs Kashmir Sugar Mills and Messrs Hussain Sugar Mills, Messrs Chaudhary Sugar Mills and Messrs Crescent Sugar Mills. These sugar mills during the period from January, 1990 to December, 1999 supplied molasses on the average value of Rs.246.83 per M.T., Rs.403.45 per M.T., Rs.328 per M.T. and Rs.576 per M.T. by Messrs Kashmir Sugar Mills, Messrs Hussain Sugar Mills, Messrs Chaudhary Sugar Mills and Messrs Crescent Sugar Mills respectively. These sugar mills for the period January, 2000 to September, 2000 supplied molasses on the fresh values of Rs.714.75 per M.T. Rs. 863.13 per M.T., Rs.671.88 per M.T. and Rs.1159 per M.T. respectively. The sales tax auditors in the valuation report recommended assessment of sales tax @ Rs.576 per M.T. for the period January, 1999 to December, 1999 and @ Rs.1,000 per M.T. for the period from January, 2000 to December, 2000 whereas, the representative of Messrs Pakistan Sugar Mills Association Punjab Zone in his dissenting note proposed assessment @ Rs.450 per M.T. for the period January, 1999 to December, 1999 and @ Rs.850 per M.T. for the period January, 2000 to December, 2000. The learned counsel for the appellant contended that the impugned order in respect of charge No.3 is based on presumption and, therefore, is not sustainable under the law and may be set aside. 5. The respondents were represented by Mr. Muhammad Amjad, Auditor who opposed the contentions of learned counsel for the appellant and contended that the registered person has misdeclared the value of molasses and stated that sales tax is recoverable on the basis of value of molasses determined by the valuation committee i.e. Rs.576 Per M.T. for the period January, 1999 to December, 1999 and @ Rs.1,000 per M.T. for the period January, 2000 to December, 2000. The learned D.R. contended that sales tax advances was not paid at the time of receipt of advances, therefore, additional tax and penalty is recoverable from the appellant. Regarding observation No.6, the learned D.R. contended that the adjudicating officer has already taken a lenient view in the matter and only penalty of Rs.2,500 has been imposed which is recoverable from the appellant as there is no merit in the appeal. 6. We have carefully considered the contentions of both the parties and perused the appeal file available before us. In the first round of adjudication all the six audit observations were decided against the registered person. However, the registered person feeling aggrieved with the decision of learned adjudicating officer in Order-in-Original No.11 of 2002, filed appeal before the learned appellate Tribunal who set aside the impugned order except decision on audit observation No.4 and directed for de novo consideration and fresh decision on merit vide Order-in-appeal No.1537/LB/2002. The case was reheard by the Adjudicating Officer and opportunity of hearing was afforded to both the parties and the learned Adjudicating Officer settled the audit observations except charges Nos. 3, 5 and 6. We have heard the learned counsel for the appellant, the learned D.R. and perused the case record very carefully. We have also considered the report of Valuation Committee in respect of observation No.3 i.e. the issue of valuation of molasses supplied by the appellant. In the report of Valuation Committee, it was proposed that the sales tax should be charged at the value of Rs.576 per M.T. and Rs.1,000 per M.T. for the periods January, 1999 to December, 1999 and January, 2000 to December", 2000 respectively. The representative of all Pakistan Sugar Mills Association however, disagreed with the sales tax auditors and proposed that the sales tax may be charged at the value of Rs.450 per M.T. for the period January, 1999 to December, 1999 and @ Rs.850 per M.T. for the period January, 2000 to December, 2000. We have considered the contentions of both the parties and observed that the Valuation Committee has examined the valuation data of four sugar mills including Messrs Kashmir Sugar Mills, which is appellant in this case. The average value of supply for the tour sugar mills in Rs.388.57, per M.T. for the period January, 1998 to December, 1999 and Rs.852.19 per M.T. for the period January, 2000 to December, 2000. The representative of All Pakistan Sugar Mills Association, in its dissenting note has proposed the value of Rs.450 per M.T. and Rs.850 per M.T. for the period January, 1999 to December, 1999 and January, 2000 to December, 2000 respectively as against the proposal of sales tax department of Rs.576 per M.T. and Rs.1,000 per M.T. for the period January to December, 1999 and the period January to December, 2000. After considering the contentions of both the parties and the "report of valuation committee placed before us, the proposal of representative of All Pakistan Sugar Mills Association appears more reasonable as the average of value of four sugar mills for the two periods was Rs.388.57 per M.T. and Rs.852.19 per M.T. After considering all aspects of the case, we are convinced with the proposal placed on record by the representative of All Pakistan Sugar Mills Association in its separate note in the report of valuation committee and, therefore, sales tax should be determined at the value of Rs.450 per M.T. for the period January, 1999 to December, 1999 and at the value of Rs.850 per M.T. for the period January, 2000 to December, 2000. Considering the circumstances of the case 50% of the additional tax and penalty is also remitted. 7. The appellant received advances and failed to pay sales tax at the time of receipt of advances. The audit observation was in accordance with the law. We have observed that there was confusion in the trade and industry regarding chargeability of the sales tax at the time of receipt of advances. The appellant has referred to a judgment of Lahore High Court wherein it was held that the sales tax was payable at the time of actual supply of goods 1999 PTD 3907 in re: Maple Leaf Cement v. Federation of Pakistan. We have observed that the Hon"ble Peshawar High Court in Civil Appeals Nos. 1288 of 2000 and 1866 of 1996 and the Hon"ble Supreme Court of Pakistan in different cases have held that the sales tax was payable at the time of receipt of advances (C.A. No.1294/2001 in re: Additional Collector of Sales Tax, Lahore v. Emco Industries Ltd.). The Supreme Court of Pakistan in its judgment has held that the additional tax and penalty was recoverable only on wilful default. The learned counsel for the appellant contended that the default committed by the appellant was not wilful, therefore, additional tax and penalty is not recoverable. We are also of the considered view that additional tax and penalty is recoverable only in cases of wilful default. In the instant case, we are of the view that the default committed by the appellant was not wilful as nothing has been placed before us holding that the appellant has wilfully committed the default of non-payment of sales tax at the time of receipt of advances. The appeal against the charge is, therefore, accepted. So far as penalty of Rs.2,500 imposed against charge No.6 is concerned, the penalty taking a lenient view is remitted and the appellant is directed to be careful in future. 8. The impugned order is modified to the above extent and appeal stands disposed of as above. C.M.A./119/Tax (Trib.) Order accordingly.

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