Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers
five per cent of the retail price
11. From perusal of the above, it can be seen that only Portland Cement, Aluminous Cement, Slag Cement, Super Sulphate Cement and similar Hydraulic Cements (whether or not coloured or in the form of Clinkers) are excisable and remaining sort of cement that is not covered under above types of cement is not subject to FED. The first rule of interpretation prescribed after first schedule to the FE Act stipulates that unless the intent appears otherwise, for the purpose of levy of duty of excise, the description of goods shall prevail upon the tariff classification. However, in order for interpretation of description of any goods or verification of any characteristics of any product, the reliance shall be made on the relevant version of the Explanatory Notes to the Harmonized Commodity Description and Coding System.
Apparently the product of the Appellant Ground Granulated Blast Furnace Slag if to be consider as a type of cement such description of type of cement is not mentioned in serial number 13 as reproduced above, further the assessment order, impugned appellate order and the DR also not clarified that if product of the Appellant will be considered as cement how and under which type of cement as listed in serial number 13 appellant product falls i.e. is it Portland Cement, Aluminous Cement, Slag Cement, Super Sulphate Cement?. Therefore, this is apparent that the departmental plea of taxing appellant product has failed to fulfill first condition of rules of interpretation i.e. “the description of goods shall prevail” as prescribed under the FE Act. Both the learned representatives gracefully conceded that in order for interpretation of description of any goods or verification of any characteristics of any product, the reliance shall be made on the relevant version of the Explanatory Notes to the Harmonized Commodity Description and Coding System. Therefore, both sides has explained how the Appellants product fall under PCT heading 25.23 as referred in serial number 13 or otherwise, and for this purpose both sides also relied on Explanatory Notes to the Harmonized Commodity Description and Coding System. The appellant’s stand is that their product is not a cement fall under tariff heading 25.23 and instated of that their product is Ground Granulated Blast Furnace Slag and falls under separate heading 26.18 which is related to “Ores, Slags and Ash”. On the other side the DR has agreed that Granulated Blast Furnace Slag (GBS) is falling under PCT heading 26.18, which is not chargeable to FED. However, after grinding it to Cement fineness called as Ground Granulated Blast Furnace Slag Cement (GGBFS), comes under the PCT heading 25.23 of the Custom tariff and, therefore, is Chargeable to FED. GBS is used as a main constituent of Cement or as a separate concrete addition in Slag Cement, which, is called as GGBFS. The Department is of the view that Appellants product is basically Ground Granulated Blast Furnace Slag Cement and therefore excisable being fall under tariff heading 25.23.
12. Now reverting back to the second issue in appeal is related zero rated supply of cement by the appellant to M/s. SSJD BIO Processors Private Limited amounting to Rs.189,945. The AR in this regards submitted that the buyer is an indirect exporter and purchased cement from the appellant for its factory located in export processing zone, therefore, the appellant correctly applied zero rate on supplies to such buyer as per the provisions of the fifth schedule to the ST Act/.
13. The learned D.R. on the other hand, supported the findings of the officers below that Messrs SSJD BIO Processors Private Limited bearing NTN # 37829137, is registered at Plot No.10-11, Hassan Ali Street, off. I.I. Chundrigar Road, Karachi and there is no factory address of buyer is registered with the department in this regards he also produced the copy of Online NTN verification of Messrs SSJD BIO Processors Private Limited. He further stated that Serial No.5 of the Fifth Schedule read with Section 4 of the ST Act only provide zero rating to the supplies of raw materials, components and goods for further manufacturing of goods in the export processing Zones, but on the contrary, the supply of “Cement” made to M/s SSJD BIO Processors Private Limited by the appellant is not a raw material for use in further manufacturing of goods in export processing zone. Therefore, the Appellant wrongly apply the zero rate on such supplies.
14. Regarding the third issues involved in the appeal which is related to sales tax demand raised on account of declaring of sales invoices valuing around Rs.440 M in the sales tax returns of tax periods under consideration by the appellant without showing any payment of sales tax on such supplies by selecting supplies under special procedures. The assessing officer/OIR created sales tax demand of Rs. 74,933,131/- in this regard. It was reiterated by the learned counsel that through Finance Act, 2013, amendments were brought in Section 2(44) i.e. definition of time of supply in the ST Act. After said amendment, a supplier is required to pay applicable sales tax in government treasury at the earlier time of delivery of goods or on receipt of advance payment from the buyer. The detailed mechanism of payment of sales tax on receipt of advance is before actual delivery of goods described in Sales Tax General Order No.1 of 2006 [STGO]. The STGO requires issuance of Advance Payment Receipts at the time of receipt of advance which is treated as sales tax invoices. At the time of actual delivery or supply of goods, no tax is required to be charged on tax invoice issued in pursuance of advance payment receipt on which sales tax has already been deposited and paid. It was asserted that the Appellant in compliance to the aforesaid amendment and STGO had duly deposited sales tax on advance by issuance of advance payment receipt. Furthermore, at the time of actual delivery of goods sales tax invoices were also issued on which sales tax was not charged as the sales tax has already been deposited at the time of receipt of advance. Furthermore, invoices so issued were duly cross-referenced with the advance payment receipt earlier issued at the time of receipt of advance. As the Appellant is also required to report all such invoices in the sales tax return on which no sales tax was charged in pursuance of STGO and advance payment receipts. However, unfortunately, there was no option available at E-FBR web portal which would enable the Appellant to report such invoices with no sales tax. Hence, in order to report the invoices, the Appellant made a reporting error by declaring such invoices by selecting the option of Special Procedure in the sales tax return so that zero sales tax would appear in the sales tax return against the value of invoices reported in the sales tax return.
15. The learned AR further urged that during the proceeding, the DCIR highlighted all such invoices which are reported under the Special Procedures and treated the same as separate supplies on which sales tax was not charged by Appellant and arbitrarily calculated short payment of sales tax. The Appellant repeatedly informed both the officers below that the invoices selected are those which are issued against the advance payments receipts and sales tax has already been deposited. Since, there was no provision in the sales tax return to report such invoices, a reporting error was made in the sales tax return which does not warrant any payment of sales tax by the Appellant. In order to support his contention, the Appellant had duly provided all the necessary records and details which would enable the DCIR to reconcile the APR’s with the sales tax invoices.
16. It was contended by the learned counsel that both the officers below overruled the genuine facts given by the Appellant and imposed double tax on all such invoices which are reported under the Special Procedure and thus created undue liability of Rs.74,933,131. He drew our attention and asserted that both the officers below nowhere in the impugned Order-in-Original has concluded or established that there was any short payment of sales tax by the Appellant were also unable to identify any single invoice or transaction from the Appellant’s record on which sales tax was not charged by the Appellant. The Respondents in the Order-in-Original stated that the Appellant has reported the invoices under the Special Procedure and equated technical error with non-payment which is unjust and unwarranted. There are numerous judgment of Appellate Forums wherein it was held that reporting errors made in the sales tax return would not deprive the taxpayer from fundamental rights reliance was placed on judgments of Appellate Tribunal reported as 2011 PTD 1943, 2011 PTD 2171 and 2013 PTD 777.
17. The learned DR on other hand has submitted that on examination of sales tax returns along with Sales Tax Invoices and Advance Payment Receipts provided by the appellant, it is transpired that the appellant erred in law while issuing two invoices for a single supply of goods, whereas the law clearly stipulates that the registered person is required to issue sales tax invoice under Section 23 read with Section 2(44) of the Sales Tax Act, meaning thereby is that the sales tax invoices shall be issued in relation to a supply of goods, other than under hire purchase agreement, means the time at which the goods are delivered or made available to the recipient of the supply or the time when any payment is received by the supplier in respect of that supply, whichever is earlier.
18. While rebutting the arguments of the learned D.R., the learned counsel vehemently contended that in gross violation of provisions of section 23 read with section 2(44) of the Sales Tax Act the appellant had issued “Advance Payment Receipts” to the customers at the time of receipt of payment and paid output tax thereon in the relevant monthly return and subsequently issued “Sales Tax Invoice” when the goods delivered with “Nil” payment of sales tax by declaring such supplies under illegal gumshoe of the Special Procedure in subsequent sales tax return, as the payment of tax had already been made.
19. The fourth and last issue involved in the appeal is short payment of sales tax and Federal Excise duty on suppressed production worked out by the assessing officer on the basis of comparison of cost of fuel and energy consumption of the appellant with industry.
20. The learned AR of the appellant has vehemently contended that the assessing officer/OIR had made analysis of cost of energy i.e. coal, fuel and power allegedly consumed by various cement manufacturers in the cement industry and calculated an average cost of production of Rs.2,200/- and Rs. 2,700/- per metric ton of cement. These average cost of Rs. 2,200/- and Rs. 2,700/- were then blanketly used to compare with the actual cost of energy consumed by the Appellant. Resultantly, the assessing officer used these presumed average cost per metric ton to calculate the suppressed production on the basis of assumption, presumption and conjecture without having any valid or concrete evidence in his hands. The learned AR, before us illustrated as follows:
Actual Cost of production
Actual Cost per M.Ton
Actual Number of dispatches
Average Cost as per SCN
Estimated Number of Dispatches as per SCN
Short dispatches in KG
Short dispatches in per BAG
Market Value per BAG
G= F X 1000
The AR further explained that the assessing officer/OIR arbitrarily worked out short production of the Appellant on average cost per metric ton derived from unknown sources. The action of the officers below was entirely illegal and unjustified whereby arbitrary figures are used to calculate production and sales of the Appellant. The SCN notice issued to the Appellant and resulting Order-in-Original and OIA suffers from factual and legal infirmities. The average cost of production per ton of another cement manufacture used by the DCIR/OIR to estimate production of Appellant in ultra-vires to Section 3 of the Sales Tax Act and Section 3 of the FE Act which requires sales tax to be charged and paid on actual supplies of goods made by the Appellant and not on any presumed supplies worked out arbitrarily. Reliance was also placed on reported judgment 2014 PTD 1469 [ATIR].
21. The learned A.R. of the taxpayer company went on to submit that the per unit cost of cement per metric ton of every manufacturer is different which is based on uncountable factors involved in the production/manufacture which inter alia includes the following:
a. The mix of clinker, coal and power used in the production;
b. Production capacity and its utilization of each Individual Plant;
c. Age of each Individual plant;
d. Economies of scale;
e. Type of Technology used in the process of manufacturing cement;
f. Type/source of Fuel used in the process of manufacturing cement including fuel mix;
g. Source of Power i.e. electricity used in the process of manufacturing cement;
h. Alternate Power source availability i.e. Waste heat recovery; and
i. Impact of Bulk purchases of Fuel source i.e. Coal.
22. It was further asserted that the Appellant and Attock Cement Limited cannot be compared with each other on following fundamental differences:
a) The plant of Attock cement is based on Chines technology whereas Appellant’s plant is based on Japanese Technology;
b) The age of plant of Attock and that of the Appellant’s plant
c) Attock Cement production plant has three times more production capacity than that of the Appellant’s plant and there is no match for cost of production and economies of scales;
d) The financial statement for the 2014 of the Appellant when compared with Attock Cement shows following differences, he submitted following chart before this Court:
Cost of sales
Profit before tax
Dispatches in Tons
23. A company wise comparison is also submitted by the AR which show that every manufacture of cement has different cost of production per Metric ton of cement.
24. Moreover, with utter disregard to the provisions of Section 3 of the Sales Tax Act and FE Act, the DCIR had established sales tax liability of Rs.111,371,123/- (principal) and Federal Excise Duty of Rs.38,248,800/- on the basis presumed suppression in production.
25. The AR also submitted that SCN was issued to the Appellant on the basis of assumption and presumption and without any concrete evidence for short payment of sales tax and FED by the Appellant in terms of Section 3 of the Sales Tax Act and FE Act respectively. In absence of exact details of transaction on which short payment of sales tax and FED is established. The SCN notice issued to the Appellant is not a valid SCN and the superstructure based on it is unlawful. Further, the appellate forums had never appreciated the proceeding and assessment order which were passed on the basis of some assumption and resulting hypothetical short payments of sales tax and FED. The learned counsel cited the following judgments:–
26. In the decision reported as 2013 PTD 1536 (HC), it is held as follows:–
“8. Show-Cause Notice is a foundational document, which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. It is the narration of facts in the Show-Cause Notice along with the supporting evidence which determines the offence attracted in a particular case. Show-Cause Notice is not a casual correspondence or a tool or license to commence a roving inquiry into the affair of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the department against the taxpayer”
27. In another decision reported as 2013 PTD 2130, it is stated that liabilities calculated on the basis of assumptions and presumption shall always be struck down:–
“It is therefore mandatory for the revenue authorities to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which, the sales tax imposed on the basis of some assumption or presumption not warranted in law shall always be struck down. There is no room for any intendment and there is no presumption as to tax.”
“It is the narration of facts in the show cause notice along with the supporting evidences which determines the offence attracted in a particular case and show cause notice is not a casual correspondence or a tool or license to commence a roving inquiry into the affairs of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual vitality upon the department against the taxpayer.”
In another reported judgment reported as 2014 PTD 1629, ATIR held as under:–
“13. We have given serious consideration to the rival arguments and find considerable force in the contentions raised on behalf of the registered person. Based on principles settled by the higher appellate authorities in various judgments, including few relied upon by the learned counsel for the taxpayer, there is no cavil to the proposition that show-cause notice is a foundational document, which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. It is the narration of acts in the show-cause notice along with the supporting evidence which determines the offence attracted in a particular case. The show-cause notice is not a casual correspondence or a tool or license to commence a roving inquiry into the affair of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the revenue against the taxpayer. Indeed, in this case, the revenue grossly erred by proportionately working out the alleged defaults on the basis of averaging. Considering the legal position on the proposition, we have no hesitation to conclude that no lawful life could be given to such a show-cause notice which violates all norms of justice and fair play. The revenue, could not be allowed to take refuge under technical defense taken by the learned counsel for the department.”
The learned ATIR in a judgment reported as 2011 PTD 808 (Trib.) held as under:–
“The totals of various service receipt and income items, having no nexus with the charge of Sales Tax, were subjected to Sales Tax on the basis of unwarranted presumptions. Service receipts and income items like commission on T.V. License fee, tender fee, liquidation charges are ex-facie not chargeable to Sales Tax. The Sales Tax Officers are allowed access to record other than prescribed record under section 25(1) of the Act, only to discover omission of any item chargeable to Sales Tax in the prescribed record; otherwise as a rule the audit is to be based on the prescribed record in terms of section 25(3) of the Act (as it was in force at the material time), since initial burden to show that taxpayer suppressed items chargeable to tax is on the Revenue, this burden cannot be shifted on the taxpayer to prove that every thing it did was not chargeable to tax. Such an exercise is also violative of the case-law referred to supra. Respectfully following the judicial pronouncement of the Hon’ble Karachi. High Court in the case reported as 2004 PTD 868 the demand is set aside under all the aforesaid five heads (i.e. Sales Tax on miscellaneous income, other electric revenue, overhead recovery; repair, testing and inspection fee and other income – energy tariffs).”
28. Furthermore, in an identical case reported as 2010 PTD 1112 wherein the tax department had also created voluminous demand on the basis of estimated production basis was struck down by the Appellate Tribunal Inland Revenue. The relevant extracts are as under:–
“The third issue pertains to recovery of sales tax on the charge of suppression of sales. Production has been estimated on the basis of RPM of machinery installed whereupon it is alleged that the same has been understated by the respondents. The calculations made by the department are based on presumptions and assumptions. The working of the machines is one of the relevant factors which need to be taken into an account for ascertaining the production of a unit. An assessment made solely on the basis of efficiency of the machines is not sustainable under the law. Under the Sales of Goods Act, sales entail delivery of goods and receipt of money consideration as price. In the instant case, neither any clandestine removal of goods nor any concealed receipt of money thereto is established or proved therefore, the observations stand unsubstantiated and thus remains in the air.
Sales tax is on supply of taxable goods and not on production or production capacity of a unit. The production formula adopted by audit is subject to number of variable and may be a good tool for assessing production capacity of a weaving unit if all such variables are assigned with some presumptive values. “
Production and production capacity on the basis of said formula has no significant value until and unless it is supported by some corroborating evidence regarding any clandestine receipt of raw material or removal of finished goods or receipt of money consideration in this respect thereto without which it remains presumptive and having no force of law. In the absence of any material evidence, corroborating the clandestine removal of goods and receipt of money consideration in this respect, it is unjustified to hold any recovery on account of suppression of sales against the respondents”.
In the case reported as 2010 PTD (Trib.) 408 the Appellate Tribunal held as under:–
11. We have carefully gone through the record and have considered the arguments advanced at the bar and find that the assessment on the basis of consumption of electricity was hardly a safe rule and yard stick to assess the production. There are different apartments of a textile mills and the electricity is variedly utilized in each of them. The audit report and the show cause notice have absolutely not mentioned as to how many spindles were there in the relevant mills. It was also silent about the type of frame as to whether it was auto coro frame or ring frame. Sometimes there are 7 and sometimes there are 8 machines in a frame. Similarly, the machines were having 60 spindles and now there are machines even having upto 1000 spindles. It was also silent about the count of the yarn. Normally, the production was 10 ounce in 8 hours per spindle. The audit report is very much flimsy in respect of assessment viz the units in January, 2000 the bags were shown as 2062 against 180928 units. In February, 2000 the bags were shown as 2062 against 138520 units and in March, 2000, 2062 bags were shown against 159248 units and so on so forth. It was definitely a self-styled assessment. Further, it had been admitted that the production of different units was 135 bags to 340 bags per frame per month and the appellant unit was producing 248 bags per frame per month which appeared to be quite reasonable. There is nothing on record to show that the appellant had made any admission. The copy of the previous Order-in-Original No. 11/2000 (Annexure-B) is on record. The Auditor had wrongly showed the number of finished goods and the quantity of raw material in the light of the previous audit report. The use of electricity in the office is definitely meant for furtherance of taxable activity. The management of the mills is intended for the reasonable or optimum if not highest production. However, the appellant during the comments had admitted its liability towards the electricity charges amounting to Rs. 95,571/-. It was not definitely a willful default, so there was no occasion to charge additional tax or impose penalty. In fact the tenor of the concluding part of the judgment is against the levy of additional tax or imposition of penalty. With this discussion, leaving the liability of Rs. 95,571/-, regarding electricity charges, the impugned order is set aside on the remaining counts.
29. The learned A.R. contended that the DCIR / OIR had erred to uphold the demand of Rs. 111,371,123/- (principal) on the basis of information which is not on the record of the Appellant under Section 22 of the Sales Tax Act and Section 17 of the FE Act, 2005. The Appellate Tribunal in reported judgment 2012 PTD 73 has categorically held that information acquired from third parties cannot be levelled against the taxpayer without conducting verification and scrutiny of the records of the taxpayer and without cross-examination of such records by the accused.
30. On the other hand, Mr. Zafar Rafiq, DR vehemently opposed the contentions made by the counsel of the taxpayer. He went on to argue that the appellant once again submitted earlier details in respect of excessive usage/consumption of energy in production of Clinker/Cement. During comparison of energy consumed, which comprises of Coal, Furnace Oil/Diesel Oil, Electricity/Gas and others, in production of Clinker/Cement with other related industries, it is revealed that Messrs Thatta Cement Company Limited consuming irrational energy in production i.e. Rs.3,500 per ton in 2012-13 and Rs.2,865 per ton in subsequent year 2013-14, while the industrial average falls between 2200 per ton to 2700 per ton of clinker/cement during the period under consideration. The appellant in order to cope the irrationality of consumption of energy in the years 2012-13 and 2013-14, placed reliance on the consumption of Fuel and Energy in work-in-process as the work in process exceeds in both years by Rs.142.909 Million and Rs.62.308 Million respectively, which may affect by declining the cost of energy upto the extent of Rs.3,252 per metric ton in the year 2012-13 and by increasing the cost of energy upto the extent of Rs.3,012 per metric ton. However, the appellant is still unable to justify irrationality along with excessive consumption of energy in production during the period 2012-13 and 2013-14, while the hike of prices of energy from the period 2012-13 to 2013 to 2014, gives superficial leverage to the appellant. Albeit, keeping in view the norms of justice and economics of scale, credit of old plant to the extent of 2.5% of efficiency is already allowed to the appellant and the DCIR/OIR should pass judicious order for the recovery of adjudged amounts.
31. We have heard the arguments of rival representatives from both sides and have perused the available record of the case as well as SCN, order-in-original, impugned order of the learned CIR (A) and written submission filed by the both sides.
32. On the above issue we, on merit, we have failed to appreciate that which provision of the ST Act or FE Act authorized the Assessing Officer to compare consumption of energy of the appellant plants with industry or with another taxpayer consumption of energy and calculate estimated production and assumed that the Appellant must have suppressed difference of alleged estimated production and declared production. Section 3 of the both Acts imposes sales tax or FED on taxable supplies on the value of supply. The sales tax and FED both are based on the sales and not on the amount of production. The Assessing Officer. Commissioner Appeals or the DR has failed to mention any provision of the Act which authorized them to do so. The assessing officer has also failed to provide any support regarding authenticity of alleged industry consumption of fuel cost, it was obligatory on the officer to confront the source as well substance of information to the appellant and obtain explanation of the appellant so that appellant’s right of providing proper opportunity could be fulfilled.
33. The DCIR had failed to identify specific transactions on which short payment of sales tax has been imposed upon the Appellant. The Appellant placed reliance on the reported decision of Supreme Court of Pakistan reported as 1998 PTD 3200 in which it was held that question of fact (i.e. occurrence of taxable supplies) cannot be based upon conjectures and surmises. Further the DCIR in the impugned Order-in-Original failed to present any tangible evidence or information in the form of invoices, confiscated goods, recovery of sales tax resulting in huge imposition of short payment of sales tax by the Appellant. Furthermore, the DCIR had erred in considering one component of production cost i.e. Fuel and power to compute the suppressed production while ignoring the other materials/component in manufacturing of cement.
Reliance is also placed on following:
Relevant extracts of the order 2012 PTD 73 is reproduced below:–
“Moreover, from the above precedents of Superior Courts, it is very much clear therefrom that such documents cannot be used against Messrs Karim Traders itself then it would not be logical and would be devoid of any common sense as to how such documents can be used against a third party which is neither executants nor author of these documents. This being the position, we are of the view that none of the documents seized from Messrs Karim Traders can be used against the appellant.
9. Notwithstanding the above, we would like to point out that even the documents which have been procured during the raid, search and seizure have to be proved in accordance with law i.e. Qanun-e-Shahadat Order, 1984. Either the author of the document or the person who is well aware of the documents and has been associated with execution or preparation of these documents has to appear before Court or adjudicating forum to prove the same. The department had not even proved as to how the documents seized from Messrs Karim Traders are linked to the appellant which is a different and distinct limited company. The same is the case with the first appellate forum which is without calling the Revenue to produce the documents or prove the same believed that whatever had been stated in the documents is true. The Revenue had even failed to produce the figures which are calculated from the said document. Now, it is a crystal clear that the Revenue has built up this case on presumption, conjectures, surmises and is on the basis of documents which are not proved and have no link whatsoever with the present appellant and were part of internal record of Messrs Karim Traders.
On the point raised by the learned counsel, we have also asked the DR as to whether anyone from Messrs Karim Traders appeared before any of the lower forums to state these documents in any manner connected with the appellant. On this query, the learned DR replied upon the court that no one from Messrs Karim Traders has ever appeared to state the connection between these documents and the appellant. This being the position, we failed to understand it as to how any of these documents on which the whole controversy has been made by the Revenue against the appellant. We, therefore, hold that the Revenue has miserably failed to prove this charge against the appellant at this stage which has no legs to stand upon here. (Bold ours for emphasis)
In another judgment of ATIR reported as 2011 PTD 808, it was held as follows:
41. The statements made by the third parties, without their cross-examination by the appellant, were not admissible evidence. The assertion on behalf of the appellant that payments were made through crossed cheques to the concerned parties and, had opportunity been given to cross-examine them, the Department would have uncovered concealment in the cases of the said third parties. Since, the statements of the third parties were accepted without providing the appellant an opportunity to cross-examine them, these statements were not admissible as evidence. Reliance in this behalf was placed on the judgment cited as 1990 PTD 747 (Trib.). The demand was thus not raised in accordance with law and remand thereof by the appellate authority was also illegal and unjustified. The demand is accordingly set aside.
34. The DCIR had incorrectly invoked the provision of section 11(2) against the Appellant in the impugned SCN without having any concrete, positive, clear-cut information of short payment of Sales Tax and Federal Excise Duty by the Appellant and no specific corroborative evidence to this effect was reproduced in the SCN. The allegation framed in the SCN is based on fancy and presumptive in nature and the SCN issued to the Appellant is not a valid SCN. The Appellant place its reliance on the following decisions in support of its ground;
– 2013 PTD 1536 [High Court of Pakistan]
– PTCL 2013 CL 433; (sic)
– 2010 PTD (Trib.) 845
35. That the impugned Order-in-Original passed by the DCIR is unconstitutional and against the fundamental rights of every taxpayer to do business. Reliance is placed on the decision of Supreme Court of Pakistan reported as 1992 PTD 954 while dismissing the appeal of the department, has settled this issue as under:–
“An assessee is entitled to manage his own affairs to the best of his benefit even by adopting legal modes which may result in reduction of tax and the same if covered by the provisions of law cannot be challenged on the ground of prudence, admissibility or business practice.”
36. We are of the view that comparison of fuel consumption of two same brand and model vehicles is not possible after 5 to 10 years as their running, utilizing, maintains and various other factors other impacts on fuel consumption average. Surprisingly the industry fuel cost ratio which presented by the assessing officer without any support are also vary from 2200 to 2700 per matric tone of production. We fully agreed with the AR contention that the per unit cost of cement per metric ton of every manufacturer is different which is based on uncountable factors involved in the production/manufacture which inter- alia includes the following:–
a. The mix of clinker, coal and power used in the production;
b. Production capacity and its utilization of each Individual Plant;
c. Age of each Individual plant;
d. Economies of scale;
e. Type of Technology used in the process of manufacturing cement;
f. Type/source of Fuel used in the process of manufacturing cement including fuel mix;
g. Source of Power i.e.-electricity used in the process of manufacturing cement;
h. Alternate Power source availability i.e. Waste heat recovery; and
i. Impact of Bulk purchases of Fuel source i.e. Goal.
37. We note that section 40B available in the ST Act and identical section 45 of the FE Act which authorized a Commissioner that if on the basis of material evidence, has reason to believe that a registered person is involved in evasion of sales tax or tax fraud, he may, by recording the reason in writing, post a tax officer to the premises of such registered person to monitor production or sale of taxable goods and the stocks position. Similarly powers of monitoring or tracking of production, sales, clearance, stocks of registered person through electronics or other means are available. In presence of such powers if any officer found any suspicious activity or history of suppression of production or sales of taxable goods by a registered person, he may instead of making assumptions, estimations, comparisons, better to appoint an officer or start monitoring for of production or sales of registered person so whatever figures he get in hand are authentic and un challengeable in eyes of law. The AR presented numerous orders of higher appellate forums, whereby the courts have struck down the sales tax liability based upon the assumption and presumption and held that there was no provision under the law which allows the officer to determine sales tax on the basis of production capacity of machine or consumption of electricity. The upshot of the above discussion leads to inescapable conclusion that the impugned order is not sustainable on this factual plane also. The officer has committed fatal legal infirmities which are incurable, thus rendered the entire proceedings without any legal force. Resultantly the suppressed value of production determined on the basis of mere assumption and presumption of the officer. Such assumptions/ presumptions were never approved by the higher appellate fora, when the very basis of determining value of suppressed production was dubious/suspicious the whole structure build upon such basis is bound to collapse. Further the officer failed to establish whether the quantum of suppressed production was sold to illegitimate buyers without applying sale tax or the said quantum of production were illegally removed by the appellant to avoid sales tax levy. Since the ultimate destiny of suppressed production is determined by the officer is unknown, therefore, sales tax cannot be levied/charged on such production worked out on the basis of unknown source and unknown experts. Unless the office place on record evidence that such suppressed production was sold or illegally removed from the premises of appellant. Thus, the taxpayer appeal is allowed on this ground.
38. On the other issue of sales tax demand raised on account of declaring the sales tax invoices, the same is also not sustainable even on merit for the following reasons as we have minutely perused the impugned assessment and appellate order in this regard. We have also heard the learned representatives and considered their submissions. We are of the view that there is no charge of short payment or non-payment of sales tax has been made out in the impugned Order-in-Original or Appellate order by the, assessing officer or Commissioner Appeal or even DR has not concluded or established that there was any short payment of sales tax by the Appellant. The DCIR/OIR was also unable to identify any single invoice or transaction form the Appellant’s record on which sales tax was not charged by the Appellant. The sole case made by the department is that the Appellant had issued “Advance Payment Receipts” to the customers at the time of receipt of payment and declared such receipts as sales tax invoices in sales tax return and paid output tax thereon in the relevant monthly return and subsequently issued another “Sales Tax Invoice” in the month when the goods actually delivered with “Nil” payment of sales tax by declaring such supplies under head the Special Procedures, the department is of the view that such treatment of the Appellant is in gross violation of provisions of Section 23 read with Section 2(44) of the Sales Tax Act, therefore, they raised such huge demand of sales tax of around Rs. 74 M on such dual declaring of same sale. However, any one from the three officers (OIR, CIR(A) and DR) have failed to make any comments on procedures prescribed by the FBR through STGO for payment of sales tax and declaring “advance payment receipts” and sales tax invoices in the monthly sales tax returns, or to state any other manner of declaring “advance payment receipts” and sales tax invoices related to sales of goods against advance payments, which available in the online sales tax return at e-FBR portal. We have also perused section 2(44) ibid. The legal position is that section 2(44) required payment of sales tax on receipts of advance payments against supplies delivered subsequently, FBR issued procedures for payment of sales tax and declaring such supplies through STGO. However online sales tax return available at e-FBR portal does not provide any manner to declare advance payment receipts and sales tax invoice in respect of same transaction. Therefore, the appellant by following the procedure as prescribed in the STGO had declared advance payment receipts as sales tax invoices in the month of receipts of advance and subsequently once again declared such supplies in the month of actual sales. However, as appellant had already discharged his sales tax liability in the month of receipts of advance, therefore in absence of any proper procedure in online sales tax return opt for declaring such invoices issued at the time of actual supplies by selecting head of special procedures and with nil payment of sales tax. We have not found any willfull default in such action of the Appellant, especially not error or default for which appellant could be punished by taxing double for single supply. Consequently, sales tax demand created in assessment order is directed to be deleted. However, the FBR ought to provide proper mechanism in online sales tax return for payment and declaring of sales tax on receipts of advance payments and subsequent supplies and remove this lacuna.
39. On legal and jurisdiction issue the whole super structure revolves around that the assessing officer had issued a single / combined show-cause notice for issues and demands related to two separate statutory enactment/statute/laws. i.e. the FE Act and the Sales Tax Act, 1990 (the Sales Tax Act) wherein he had addressed this issue i.e. levy of FED on supply of cement which is a single stage FED i.e. no value addition regime or sales tax mode provision are applicable like section 7 of the FE Act. Remaining issues and demand raised through show-cause notice are related to the Sales Tax Act i.e. payment of sales tax on advance or sales tax demand on concealment of sales. Although he mentioned sections authorized him for assessment in both Acts i.e. section 11(2) of the Sales Tax Act and section 14(2) of the FE Act but he failed to mention any section of FE Act which authorized him for recovery of FED demand and levy of default surcharge and penalties under the FE Act. The Appellant raised this issues before assessing officer that the show-cause notice is not a valid show-cause notice and suffers legal infirmity due to the reason that the assessing officer/OIR simultaneously invoked both the provisions of the ST Act and FE Act. However, the assessing officer/OIR while passing the impugned assessment order rejected the appellants plea by stating that his action of issuing combined show-cause notice and passing one single assessment order for issues or demands related to two different statutes is a valid and strictly in accordance with the law. In this regard he referred a judgment of Appellate Tribunal Inland Revenue being S.T.A. No. 20/LB of 2013 dated 28-02-2014 (2014 PTD 1698) whereby in case of a tax payer who failed to file sales tax cum FED return consistently more than six months, the assessing officer by passing an order of non-filing of sales tax cum FED return charged late filing penalties and tax payable along with the return through a single order by referring provisions of both Acts i.e. ST Act and FE Act. The learned bench of Tribunal has held that the appellant already admitted late filing of return and payable duties and taxes therefore, on the basis of mere technicalities of issuing a single order for both Acts cannot be entertained.
40. It is noted by us that the order of the assessing officer/OIR is a very different nature of facts as compared to this case as there is a single return prescribed for sales tax and FED purposes, therefore, non filing of a return (single document) should be assessed through a single order and this is not possible to issue two different orders for single non-compliance, hence, in the above situation learned bench of tribunal rightly stopped the tax payer for getting benefits of technicalities. Similar situation is also occurred in cases where a proceeding related to FED demands in respect of goods and services liable to FED in sales tax mode as in such situations provisions of both Acts are simultaneously applicable therefore a single order referring provisions of both Acts provides safeguard to revenue against tax payers challenging the order on such technicalities that provisions of which Acts are appropriately applicable. However, in cases where single stage FED applicable and there is no simultaneous provisions are applicable for both Acts. Proceeding under the each Act should be initiated through separate notices and separate orders. As both Acts are distinct and separate independent statutes. Both the Acts have different independent provisions for maintaining records, issuing a show-cause notice, assessments, creating demand, passing an order, recovery of demand, time limits, filing of appeals and references to high court, therefore any combined show-cause notice or order creates difficulties for tax payers and appellate authorities and just providing ease to assessing officer/OIR such provisions of two Acts cannot be over ruled by each other. Just for single example in this case Section 37 of the FE Act required that any person desirous of filing appeal against any order passed under any provision of FE Act before the commissioner appeal or appellate tribunal may require to deposit the FED demand at the time of filing of appeal. However, the tax payer also adopts to pay 15% of liability created under the order for getting automatic stay for six months. However, there is no similar provisions are available under the Sales Tax Act. Therefore, if such sort of combined proceeding and orders allowed to be continued the officer having jurisdictions on a tax payer in respect of Sales Tax Act, FE Act or Income Tax Ordinance, 2001 there would a mess and complex situation arise that the provisions of which Acts prevailed or applied in respect of time limits of assessment and records, provision for creating demands, provision for recovery of taxes, requirement and procedures for filing sales tax appeals etc. In this regard, we may refer the judgment of Hon’ble High Court of Sindh in case of Shahnawaz (Private) Limited reported as 2011 PTD 1558 whereby composite balloting for selection of cases for audit for sales tax, FED, income tax purposes were held by Federal Board of Revenue (FBR) has been challenged before the Hon’ble High Court of Sindh at Karachi and Hon’ble High Court held such balloting illegal and void on the basis that each law has its own merits and separate provisions and schemes, thus, such type of combined balloting for selection is not accepted.
41. Therefore, in view of the above discussion, we are of the opinion that the assessing officer/OIR was not empowered to issue such combined show-cause notice, initiate proceedings, passing combined single impugned assessment order under appeal. It is, therefore, opined by this court and hereby declare that impugned assessment order and appellate order are void, illegal and without jurisdiction. As we have already declared the orders of the officers below being void, illegal and without jurisdiction.
42. Before parting with this judgment we may observe that the department is at liberty to initiate independent separate proceedings under the FE Act and independent separate proceedings under the Sales Tax Act through a separate show-cause notices strictly in accordance with law. If law so permits to initiate proceedings separately, then the department should proceed the same keeping all the relevant provisions of laws. And if separate proceedings are initiated it is directed that the department should consider chemical examination of the appellant product under consideration by getting sample in presence of the appellant from open market and get a chemical examination of the product from any independent laboratory so the characteristics of the product will be applied for classification of product as cement liable to FED under serial No. 13 of 1st scheduled to the FE Acts and explanatory notes as per the first rule of interpretation as prescribed after the first scheduled of the FE Act that product fall under PCT heading 25.23.
43. As we have already decided the appeal on legal as well on factual plane, thus, impugned orders are not sustainable on legal issues and are hereby annulled.
44. Consequently, the appeal of the taxpayer is hereby allowed in above terms.
HBT/104/Tax (Trib.) Appeal allowed.