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S.T.A. No.385/LB of 2003, decided on 14th July, 2008.

----S. 2(46)(e)---Value of supply---Valuation Committee, constitution of---Collector of Customs according to Cl. (e) of subsection (46) of S.2 of the Sales Tax Act, 1990, was authorized by law to constitute a valuation committee for the determination of correct value of supplies when there was sufficient reason to believe that the value of supply had not been correctly declared in the invoice.

---S.2(46)(e)---Value of supply---Pesticides suppliers---Addition, determination of---Value addition determined @ 16% of the value plus packing charges could not be generally applied for all the suppliers of pesticides as the valuation committee at the time was not competent to determine such value addition---Order on the point was set aside by the .Appellate Tribunal and the case was remanded to the Adjudicating Officer for re-determination of correct value of supply strictly in accordance with the provisions of S.2(46)(e) of the Sales Tax Act, 1990 as the value addition of 16% plus packing charges determined for all types of suppliers of pesticides was not in accordance with the law and sales tax authorities were directed to calculate the tax liability in the light of value determined by the valuation committee.

---S.73---Certain transaction not admissible---Business account---Bank account---Term "business account" had reference to the account maintained by the appellant and not the Bank account of the appellant; however, in both the cases the payment had to be made through banking instrument and not through cash.

----S.73---Certain transaction not admissible---Payment through cash or cheque---Determination of---Order was set aside by the Appellate Tribunal for determining whether the payment was made through cheque as claimed by the appellant/registered person or the payment against the supplies were made in cash as claimed by the auditor---Sales tax record of the appellant may also be examined carefully to find out the source of amount used for making payment in cash and then to determine whether the payment was made from the cash genuinely generated by the appellant in accordance with law---However, if payment was made by cheque then this must have been done from the account of the appellant maintained in the Bank and in that case there would be no violation of law---Adjudicating Officer was directed to decide the issue after determination of the fact whether the payment was made by cheque or through cash payment.

----S.7---Determination of tax liability---Input tax adjustment---Auditors alleged that appellant had claimed input tax adjustment without having sales tax purchase invoices---Recoverable amount was adjudged along with additional tax and penalty @ 3% of the amount of tax involved---Appellant had not produced any evidence to the effect that input tax adjustment was claimed on the basis of value sales tax invoices---Appellant had not even produced duplicate invoices if the original invoices were not available---Appeal on the point was dismissed by Appellate Tribunal being without any merit.

---S.36---Recovery of tax not levied or short-levied or erroneously refunded---Order-in-original was passed after lapse of 201 days from the date of issuance of show-cause notice---Appellant contended that order was not sustainable in the eyes of law as the same was passed beyond the prescribed time limit laid down in law---Validity---Delay in passing of judgment by the Adjudicating Officer did not render the recovery of legitimate amount of taxes illegal--Recovery of due amount of tax could be made even if the order was passed with delay. Messrs Kohinoor Textile Mills Ltd., Rawalpindi v. The Collector of Sales Tax and Central Excise, Rawalpindi Appeal No.267 of 2004 and Messrs Triple M. v. Collector of Sales Tax and Central Excise, Lahore (sic) rel.

---S.36---Recovery of tax not levied or short-levied, or erroneously refunded---Show-cause notice---Non-mentioning of section in the show-cause notice---Effect---Show-cause notice had clearly laid down the charges and also stated that the principal amount of sales tax was recoverable along with additional tax and penalty---No illegality had been committed when the charges were clearly laid down and detailed order-in-original was passed by the Adjudicating Officer. Waqas Khalid A.R., for Appellant. Ikhlaq Ahmad, Auditor for Respondent. Date of hearing: 30th June, 2008.

This appeal is directed against Order-in-Original No.113 of 2003 passed by the learned Additional Collector (Adjudication) Customs, Sales Tax and Central Excise, Multan issued vide C. No.501 of 2002/Adj/ST/Addl/844, dated 12-3-2003 whereunder the demand raised in the show-cause notice in three audit observations out of four observations was adjudged against the appellant payable along with additional tax and penalty under sections 36, 34 and 3 of the Sales Tax Act, 1990. 2. Brief facts of the case are that the sales tax auditors scrutinized the sales tax record of Messrs Agree Force Chemicals, D.G. Khan for the period 1-5-2001 to 31-12-2001 and pointed out different discrepancies as detailed below:--

(1) Sales Tax was not deposited at the correct value and an amount of Rs.6,74,659 was found recoverable along with additional tax and penalty.

(2) The registered person violated the provisions of section 73 of the Sales Tax Act, 1990 and the payment against supplies received was made in cash instead of banking instruments, therefore, an amount of Rs.15,39,131 was found recoverable along with additional tax and penalty.

(3) Sales Tax not paid on the supply of empty drums and an amount of Rs.27,553 along with additional tax and penalty was found recoverable.

(4) The registered person claimed input tax amounting to Rs.3,40,200 without having sales tax purchase invoices which was found recoverable along with additional tax and penalty. In view of above discrepancies, the registered person was held chargeable for the violation of sections 2(9)(37), 3, 6, 11, 22, 23, 26 and 73 of the Sales Tax Act, 1990 and was called upon to show cause as to why sales tax amounting to Rs.25,81,543 along with additional tax and penalty should not be recovered from him under sections 36, 34 and 33 of the Sales Tax Act, 1990. The case was adjudicated by the learned Additional Collector (Adjudication) who after considering the contentions of parties concerned upheld charge Nos.(1), (2) and (4) whereas charge No.(3) was dropped. The appellant feeling aggrieved with the impugned order filed appeal before this Tribunal under section 46 of the Sales Tax Act, 1990. 3. The main contentions of the learned counsel for the appellant were as under:--

(i) The order passed by the learned respondent is bad in law and against the facts of the case.

(ii) The tax levied on the basis of value addition is based on presumptions hence illegal. The declared sales tax is actual and levy of additional tax and penalty is unjustified. The sales tax auditors after scrutiny of the sales tax record observed that the registered person has not made value addition @ 20% and has, therefore, suppressed value amounting to Rs.37,48,107 resulting evasion of sales tax amounting to Rs.6,74,659 payable along with additional tax and penalty. During the course of hearing, the learned Adjudicating Officer observed that value addition @ 20% determined by the auditors" was not correct and the Valuation Committee constituted under the provisions of section 2(46)(e) of the Sales Tax Act, 1990 comprising of representative of sales tax department and representative of Pakistan Crop Protection Association in its findings determined value additional @ 16% input plus packing charges for the supplies of pesticides. The learned Adjudicating Officer directed that the value should be calculated @ 16% value addition plus packing charges as determined by the Valuation Committee and the amount so determined should be recovered along with additional tax and penalty @ 3% of the tax involved under sections 36, 34 and 33(2)(cc) of the Sales Tax Act, 1990. According to section 2(46)(c) of the Sales Act, 1990, Valuation Committee can be constituted by the Collector of Sales Tax in case there is sufficient reason to believe that the value of supply has not been correctly declared in the invoices and the value determined by the Valuation Committee would be the value for the calculation of sales tax on the supplies made. The Valuation Committee, therefore, cannot determine the minimum value of supply and the determination of value addition @ 16% plus packing charges by the Valuation Committee is, therefore, not in accordance with law. The valuation so determined has been made applicable in a generalized manner to all supplies of pesticides which is illegal and unjustified. The Hon"ble Lahore High Court in the case of Messrs Crescent Re-Rolling Mills v. Assistant Collector, Sales Tax, Lahore had held that "the agreement between the association and the revenue have never been converted into law through the process, no person could be forced to comply with the same". The impugned order against the charge is, therefore, not sustainable under the law.

(iii) The appellant has produced a certificate from Allied Bank Limited and verification from Messrs Ali Akbar Enterprises, regarding the sale of pesticides and payment of tax. The payment of tax, therefore, is sufficient proof for the purpose of section 73 of the Sales Tax Act, 1990 and the appellant in the instant case has not made violation of section 73 of the Sales Tax Act, 1990. The Sales Tax Auditors after scrutiny of the record observed that the payment against the supplies received was made in cash and, therefore, section 73 of the Sales Tax Act, 1990 was violated and input tax credit, the amount of Rs.15,39,131 was recoverable along with additional tax and penalty. The learned Adjudicating Officer observed that Bank certificate regarding payment to the supplier has stated that these payments were made through business account of the respondent. The certificate submitted by the respondent issued by Messrs Allied Bank of Pakistan along with payment receipts indicates that the payments were made to Messrs Ali Akbar Enterprises and it does not establish that the respondent has made payment to their supplier from their business account as required under section 73 of the Sales Tax Act, 1990 and it was held that an amount of Rs.15,39,131 was recoverable along with additional tax and penalty under sections 36, 34 and 33 of the Sales Tax Act, 1990.

(iv) The appellant has made payment through cheques to the supplier Messrs Ali Akbar Enterprises and copies of the receipts issued by the supplier have been provided. However, the cheques, were encashed in the month when the input tax was claimed and these were encashed later. For the encashment of Bank instrument, there is no limitation of 120 days. The Bank certificate produced by the appellant provides confirmation that the amount is ultimately deposited in the sales tax account and the cheques have not been cancelled. Section 73 of the Sales Tax Act, 1990 prior to July, 2003 required the supplier to make payment from business account and the word" Bank account was inserted in section 73 of the Sales Tax Act, 1990 in the Finance Act, 2003-2004. The term business account is broader in its meaning and not limited to the Bank only. It refers to any payment on account of business and there is no condition of banking account, therefore, the exercise of the Department not to allow input for any payment not appearing in the Bank statement is itself generated and against the requirement of law. The impugned order passed against the appellant against the charge, therefore, not sustainable in the eyes of law.

(v) The tax levied on the basis of out of period adjustment is illegal as this issue has already been decided by the higher forums in favour of the taxpayers. The imposition of additional tax and penalty is, therefore, illegal. The auditors during the course of audit observed that the registered person has claimed input tax adjustment amounting to Rs.3,40,200 without having sales tax purchase invoices in his possession. The learned Adjudicating Officer observed that the registered person claimed the amount during the month of August, 2001 which related to the month of September, 2001 due to clerical mistake and there was no loss of revenue. The learned Adjudicating Officer directed that the Collectorate who verified that the amount was deposited and the principal amount of input tax should be deducted from the adjudged amount and only additional tax and penalty should be recovered from the appellant. The appellant has not violated the sales tax law and the objections raised by the Auditors are not sustainable and the impugned order in this regard needs to be set aside. 4. The respondents were represented by Mr. Ikhlaq Ahmad, Auditor who opposed the contentions of learned counsel for the appellant and contended that the Valuation Committee constituted by the Collector proposed value addition @ 16% plus packing charges for the supplies of pesticides, therefore, the impugned order against the charge of suppression of value by the appellant is in accordance with law as the sales tax was evaded by the appellant which is recoverable from the appellant along with additional tax and penalty as adjudged. Regarding charge No.(2), the learned D.R. contended that the appellant has violated the provisions of section 73 of the Sales Tax Act, 1990 and the payments were made in cash instead of making payment through banking instruments from the business bank account of the buyer. The learned D.R., regarding audit observation No.(4), stated that the appellant has claimed inadmissible input tax adjustment which is recoverable from the appellant along with additional tax and penalty. 5. We have heard the contentions of both the parties and perused the appeal filed available before us. According to clause (e) of sub-section (46) of section 2 of the Sales Tax Act, 1990, the Collector of Customs is authorized by the law to constitute a Valuation Committee for the determination of correct value of supplies when there is sufficient reason to believe that the value of supply has not been correctly declared in the invoice. In the instant case, the Auditors observed in observation No.(1), that the appellant has suppressed the value of supply and supplies were made without value addition and determined value addition @ 20% of the value of supplies for the calculation of sales tax and an amount of Rs.6,74,659 was found recoverable from the appellant along with additional tax and penalty under sections 36, 34 and 33 of the Sales Tax Act, 1990. The learned Adjudicating Officer however, observed that the value addition of 20% as determined by the auditor was not correct and value addition of 16% plus packing charges was required to be taken into consideration for the calculation of correct value of supplies as determined by Valuation Committee constituted by the Collector of Sales Tax in terms of section 2(46)(e) of the Sales Tax Act, 1990 for the suppliers of pesticides. The learned counsel for the appellant during the course of hearing pointed out that there is no doubt about the fact that correct value can be determined by the Valuation Committee appointed by the Collector of Sales Tax when there is sufficient reason to believe that the correct value has not been declared in the invoices but the Valuation Committee has no authority to determine value addition about any sector of suppliers and also the sales tax authorities are not permitted by the law to apply the minimum value determined for all the-suppliers of pesticides. We have carefully considered the contentions of both the parties and observed that the value addition determined @ 16% of the value plus packing charges cannot be generally applied for all the suppliers of pesticides as the Valuation Committee at that time was not competent to determine value addition. In view of above position, the impugned order against charge No.(1) is set aside and the case is remanded to the learned Adjudicating Officer for re-determination of correct value of supply strictly in accordance with the provisions of section 2(46)(e) of the Sales Tax Act, 1990 as the value addition of 16% plus packing charges determined for all types of suppliers of pesticides is not in accordance with the law and sales tax authorities are directed to calculate the tax liability in the light of value determined by the Valuation Committee. The second issue is regarding violation of provisions of section 73 of the Sales Tax Act, 1990. The auditors observed that the payment against the supplies received by the appellant were made in cash instead of banking instruments whereas the learned counsel for the appellant contended that the payment against the supplies received was made through banking instruments i.e. cheque in favour of the supplier. The learned counsel contended that the term business bank account was inserted in section 73 of the Sales Tax Act, 1990 in the Finance Act, 2003-2004 i.e. in July, 2003 and prior to July, 2003, the term business account was the requirement of section 73 of the Sales Tax Act, 1990. The learned counsel contended that the term business account has reference to the account maintained by the appellant and not the bank account of the appellant. However, it has been observed that in both the cases the payment has to be made through banking instrument and not through cash. The learned counsel contended that the payment has already been made by the appellant against the supplies received and if the appellant is forced to make payment of sales tax along with additional tax .and penalty it will amount to double taxation. The learned counsel further contended that in the past the learned adjudicating officers have condoned the omission against imposition of penalty. In view of the above, the impugned order against charge is set aside and the case is remanded to the learned Adjudicating Officer for determining whether the payment was made by the appellant through cheque as claimed by the learned counsel or the payment against the supplies were made in cash as claimed by the auditors. The sales tax record of the appellant may also be examined carefully to find out the source of amount used for making payment in cash and then determined whether the payment was made from the cash genuinely generated by the appellant in accordance with the law." However, if the payment was made by cheque then this must have been done from the account of the appellant maintained in the bank and in that case there would be no violation of law. It is, however, fact that in some cases, the learned Adjudicating Officers have regularized the discrepancy by imposition of penalty. The learned adjudicating officer is directed to decide the issue after determination of the fact rather the payment was made by cheque or through cash payment. 6. The Auditors have alleged that the appellant has claimed input tax adjustment without having sales tax purchase invoices. The learned Adjudicating Officer adjudged an amount of Rs.3,40,200 recoverable along with additional tax and penalty @ 3% of the amount of tax involved. At the time of hearing, before this Tribunal, the appellant has not produced any evidence to the effect that input tax adjustment was claimed on the basis of valid sales tax invoices. The learned counsel for the appellant has also not produced duplicate invoices if the original invoice are not available. In view of the above there is no merit in the appeal against the charge and the appeal is dismissed. 7. The learned counsel during the course of hearing raised legal issues and stated that the show-cause notice was issued on 27-6-2002 and the Order-in-Original was passed on 15-1-2003, therefore, there was delay of 201 days and the impugned order passed beyond the prescribed time limit laid down in the law is not sustainable in the eyes of law. We have observed that in similar situation, the Division Bench of Hon"ble Lahore High Court, Rawalpindi Bench in appeal No. 267 of 2004 of Messrs Kohinoor Textile Mills Ltd., Rawalpindi v. The Collector of Sales Tax and Central Excise, Rawalpindi, observed that while inserting proviso to section 36 of the Sales "Fax Act, 1990 legislature did not provide the penal consequences in the event of non-compliance of aforesaid proviso. The Hon"ble Court dismissed the appeal in the case. We have observed that the Hon"ble Supreme Court of Pakistan in the case Messrs Triple M. v. Collector of Sales Tax and Central Excise, Lahore (sic) had held that delay in passing of judgment by the adjudicating officer does not render the recovery of legitimate amount of taxes illegal. Therefore, in view of above, recovery of the due amount of tax can be made even if the order was passed with delay. 8. The learned counsel further pointed out that section 36 of the Sales Tax Act, 1990 has not been mentioned in the show-cause notice, therefore, the impugned order is not sustainable in the eye of law. We have carefully considered the contentions of learned counsel for the appellant and examined the case record. We have observed that the show-cause notice has clearly laid down the charges and also stated that the principal amount of sales tax is recoverable along with additional tax and penalty, therefore, no illegality has been committed when the charges are clearly laid down and detailed order-in-original was passed by the learned Adjudicating Officer. The appeal is disposed of accordingly. C.M.A./118/Tax(Trib.) Order accordingly.

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