2013 P T D (Trib.) 1723
[Appellate Tribunal Inland Revenue]
Before Jawaid Masood Tahir Bhatti, Chairman and Faheem-ul-Haq Khan, Accountant Member
CIR, RTO, ISLAMABAD
Messrs DAZZLE GLASS (PVT.) LTD., ISLAMABAD
S.T.As. Nos.92/IB and 93/IB of 2011, decided on 30th June, 2013.
Hamidullah Shah, D.R. for Appellant.
Ch. Naeemul Haq for Respondent.
Date of hearing: 12th March, 2013.
Above captioned appeals have been filed by the Department against the impugned order vide No.118 of 2011 dated 2-3-2011 passed by the learned Commissioner Inland Revenue (Appeals-I), Islamabad. The Department has agitated on the following common grounds: –
“(a) The learned Commissioner Inland Revenue Appeal-I in para-10 states that the appellant charged Sales Tax on supplies of glass invariably, however, the services of tempering, crystal motive, frosting and edging are not carried by him. Hence no manufacturing activity carried out on the part of appellant.
The learned Commissioner again states that “I am of the considered opinion that the contention of the appellant carried weight and any activity of tempering, crystal motive, frosting etc. are not proved on the part of the appellant.” However the learned CIR(A) in Para 11 of the order holds “Appellant is registered as a “Manufacturer” and liable to charge SED @1% hence this charge is accordingly upheld.” Apparently there exists a contradiction in the ruling of the learned CIR(A).
(b) Out of the total suppressed sales of Rs.28,958,602 as mentioned in Order-in-Original No.19 of 2010 by the Assistant Commissioner, the appellant provided purchase invoices only of Rs.1,603,372 for the tax year 2008-2009 during the process of adjudication. The appellant did not provide any single purchase invoice for the tax year 2007-2008. If we convert the purchase invoices, provided the appellant of Rs.1,603,372 into sales by taking value addition as per the Income Tax Return i.e. 17.73%, the sales would be Rs.1,887,650 (1,603,372*117.73/100). This means that the appellant failed to provide sales invoices of Rs.27,077,952 (28,958,602-1,887,650).
(c) The facts and figures show that the learned Commissioner Inland Revenue Appeal-I declared the decision in favour of the appellant without looking into and perusal of the 93% of sale invoices relating to the suppressed sales.”
2. Brief facts of the case are that during the comparison of sales tax returns with income tax returns for the years 2007-08 and 2008-09, it was found that the registered person declared less amount of sales in its Sales Tax Returns and failed to declare sales of Rs.28,958,602 in the sales tax returns, thus did not deposit an amount of Rs.4,489,876 as sales tax. Therefore, an amount of Rs.4,489,876 as sales tax was considered as recoverable under section 36(1) for violation of sections 3, 6 and 26 along with default surcharge and penalty under sections 34 and 33 of the Sales Tax Act, 1990. Besides this, the taxpayer during the period from July, 2007 to June, 2009 failed to pay 1% Special excise duty levied under section 3A of the Federal Excise Act, 2005 and with S.R.O. No.655(I)/2007 dated 29-6-2007 amounting to Rs.370,161 (calculated on the sales declared in income tax returns). Therefore an amount of Rs.370,161 as Special excise duty is recoverable under section 14(1) of the Federal Excise Act, 2005 for violation of sections 3A, 4, read with S.R.O. No.655(I)/2007 along with default surcharge and penalty under sections 8 and 19 ibid respectively. The taxpayer for the period from July 2008 to January 2009 deposited the amount of sales tax on 12-3-2009, hence an amount of Rs.3,729 as default surcharge under section 34 of the Sales Tax Act, 1990 is still payable. Furthermore the taxpayer e-filed its sales tax returns for the period from July, 8 to May, 9 on 30-6-2009 and failed to file its sales tax returns for September, 2007 and June, 2009, which attracts a penalty of Rs.61,500 under section 33 of the Sales Tax Act, 1990.
The discrepancy pointed out in the show cause notice was replied by the taxpayer in the following words:-
“(i) During the filing of our income tax periods 2008 and 2009, we filed the values of supplies and services as per the annual returns. During the aforesaid audit you have pointed out that sales declared in sales tax returns are less than the sales declared in income tax returns. On this basis we had reconciled all the data and found that there are services on which we have not paid the sales tax. In the light of Income Tax Returns actual picture of our sales are as under:–
Supplies declared in sales tax returns
Total Sales declared in Income Tax Returns (Supplies + Services)
Detail of Services and with holding deduction certificates are enclosed:–
(ii) We have submitted the sales tax on supplies not on services. So it is submitted for your kind consideration on amount of Rs.370,161 as 1% Special Excise Duty which is calculated on gross amount. You are requested to calculate the SED on actual sales. We agree to pay the SED on the same.
(iii) We agree that we have paid sales tax late for subject period due to the problem of non working of our account in FBR.
(iv) As per your above mentioned letter the amount detected Rs.3,729 has been deposited payment challan # ST-20100712-0341-1082034 is attached for your record.”
This explanation, not considered satisfactory by the Assistant Commissioner, he passed order under section 36(1) of the Sales Tax Act, 1990, under section 33(1)5, under section 14(1) of the Federal Excise Act, 2005, under sections 3A, 4 read with S.R.O. No.655(I)/2007 along with default surcharge under section 8, under section 19 of the Federal Excise Act, 2005 and under section 33 of the Sales Tax Act, 1990. However, the learned CIR(A) vide Order No.118 of 2011 dated 2-3-2011 decided the issue in the following words:–
“I have gone through the written as well as verbal submissions of the appellant as well as of the department. The AR raised legal issues as well as argued on facts of the case. As regards the legal issue, the AR contended that the department audited the accounts under section 25 of the Sales Tax Act, 1990 and demand was raised on the sales tax issue as well as federal excise issues, which is not in the ambit of the order. The DR stated that since a single return was filed both for sales tax and federal excise, there was no need to issue separate audit letter under section 46 of the Federal Excise Act, 2005. Contention of the DR on legal issue is valid, and accordingly accepted.
Coming to the facts of the case, three issues were involved in the case namely sales tax on differential of sales declared in sales tax returns and income tax returns, levy of SED and non/late filing of monthly returns. As regards the issue of difference of sales in returns, the AR stated that the referred difference is due to the services of tempering, crystal motive, frosting and edging etc as the same were not taxable. The AR further stated that the appellants charge sales tax on supplies of glass invariably, however, the services of tempering, crystal motive, frosting and edging are not carried on by them. Hence, no manufacturing activity is carried out, on the part of the appellant. The DR was directed to go through the records of the appellants and confirm this aspect. The DR in his comments stated that if the rate of glass of 12 mm is Rs.165 per sq foot and rate of tempering in Rs.100 per sq foot, it shows that tempering does not include sale of glass. In view of above mentioned discussion, I am of the considered opinion that the contention of the appellant carries weight and any activity of tempering, crystal motive, frosting etc. is not proved on the part of the appellants. The comparison provided by the DR also confirms this aspect that the rates of these activities does not include sale of glass. Hence, he charge of difference of supplies declared in sales tax returns and income tax returns is vacated.
As regards the issue of levy of Special Excise Duty, the AR could not come up with any convincing arguments. Appellant is registered a “Manufacturer ” and liable to charge SED @ 1%, hence this charge is accordingly upheld. The charge of non/late filing is also established as it was not pressed.”
3. The department did not feel satisfied with the orders of CIR(A) and came up in the 2nd appeal before this Tribunal as per grounds of appeal mentioned supra.
4. Mr. Hamidullah Shah appeared on behalf of the Department while Ch. Naeemul Haq, Advocate represented the respondent/ taxpayer.
5. Learned DR argued that the learned CIR(A) in para-10 states that the appellant charged Sales Tax on supplies of glass invariably, however, the services of tempering, crystal motive, frosting and edging are not carried by him. Hence no manufacturing activity carried out on the part of appellant. He further argued that the learned CIR(A) again states in his impugned order that “I am of the considered opinion that the contention of the appellant carried weight and any activity of tempering, crystal motive, frosting etc. are not proved on the part of the appellant.” However the learned CIR(A) in Para 11 of the order holds “Appellant is registered as a “Manufacturer” and liable to charge SED @1% hence this charge is accordingly upheld.” Apparently there exists a contradiction in the ruling of the learned CIR(A). Learned DR argued that out of the total suppressed sales of Rs.28,958,602 as mentioned in Order-in-Original No.19 of 2010 by the Assistant Commissioner, the appellant provided purchase invoices only of Rs.1,603,372 for the tax year 2008-2009 during the process of adjudication. The appellant did not provide any single purchase invoice for the tax year 2007-2008. If we convert the purchase invoices, provided the appellant of Rs.1,603,372 into sales by taking value addition as per the Income Tax Return i.e. 17.73%, the sales would be Rs.1,887,650 (1,603,372*117.73/100). This means that the appellant failed to provide sales invoices of Rs.27,077,952 (28,958,602-1,887,650). He further argued that the facts and figures show that the learned CIR(A) declared the decision in favour of the appellant without looking into and perusal of the 93% of sale invoices relating to the suppressed sales. Accordingly, the learned DR prayed that the order of learned CIR(A) may kindly be quashed and that of Officer Inland Revenue may be restored.
6. On the other hand, Ch. Naeemul Haq, Advocate representing the respondent/taxpayer vehemently opposed the contention made by the learned DR. He argued that the order passed by the learned CIR(A) is well within the framework of law and there is no irregularity, infirmity and illegality in the same. Accordingly, he prayed that the present appeal filed by the Department may be dismissed and the order of learned CIR(A) may be upheld/confirmed.
7. Rival parties have been heard and the case record examined. We are of the opinion that differential amount represents job receipts performed by the taxpayer for other parties i.e. customers. The taxpayer preferred manufacturing job specified by the customer without purchasing the raw-material or selling it by himself. In the production process a series of activity involving material, machine and human skills are employed. The entire manufacturing activities may be done under one roof or at the option of manufacturer, particularly depending upon the nature of manufacturing. The manufacturing activities can be outsourced either fully or partly, in a close location or distinct location. The factors compelling to decentralize or outsource the manufacturing activities completely or any parts thereof is usually cost effectiveness, requiring specialized skill, availability of processing equipments, convenient location, favourable terms of contract or utilization of own performing capacity in more projecting activities and depend on other exigencies of decision making.
8. In the instant case as well, material was provided by the customer (raw or semi finished), defined jobs performed by the taxpayer and return of goods to the customer for further processing, packing, sale etc.
9. We are of the opinion those jobs performed by the taxpayer fall in the category of toll manufacturing/which is commercially defined as under:–
“Toll processing, also known as toll manufacturing, tolling, toll conversion or custom manufacturing, can be defined as performing a service on a customer’s product, for a fee (toll). Toll processing companies provide a processing/manufacturing service for other companies and receive a volume based fee.
Toll manufacturing, also called toll processing or contract manufacturing, produces products that are normally unique, custom engineered, proprietary goods made exclusively by the toll manufacturer (the “toller”) for the contracting firm (the “customer’) and are branded as such.
10. On the contrary, the provision of section 2(16) of the Sales Tax Act defining manufacturing process clearly encompass services of tempering, crystal motive, posting and edging performed by the taxpayer for other parties. The definition reads as under:–
(16) “manufacturer” or “produce” includes: –
(a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product;
(b) process of printing, publishing, lithography and engraving; and
(c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repacking or preparation of goods in any other manner.
(17) “manufacturer” or “producer” means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include–
(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner;
(b) an assignee or trustee in bankruptcy, liquidator, executor, or curator, or any manufacturer, or producer and any person who disposes his assets in any fiduciary capacity; and
(c) any person, firm or company which owns, holds, claims or uses any patents, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distributes, consigns, or otherwise disposes of goods:–
Provided that for the purpose of refund this Act, only such person shall be treated as manufacturer-cum-exporter who owns or has his own manufacturing facility to manufacture or produce the goods exported or to be exported;
12. From careful perusal of the record we have found that some material was produced before the ACIR/adjudication officer for his examination but the same have not been properly scrutinized by him. Once the evidence is provided by the taxpayer the burden is shifted on the shoulders of the Revenue Authority/ACIR. In the instant case the ACIR/Adjudicating Officer has obviously not discharged the onus. From pleadings of the parties we have seen that the main dispute is with regard to the “manufacturing of goods”. The contention of the department that the taxpayer is indulged in the business of manufacturing while the taxpayer’s stand is that he is providing services and the glass frosting and glass tempering are exempt as it comes into the ambit of services, hence, no tax is leviable on the same.
13. At the same time it has also been noted by us that the sufficient material was not produced by the Taxpayer to establish its case. Neither basic record/specific initial material was called by the ACIR/ Adjudicating Officer as envisaged under section 22 of the Sales Tax Act nor the Taxpayer had provided the same to the Adjudicating Officer for his examination. The learned CIR(A) has also not thrashed out the case properly and his observations are contradictory. Such orders of the authorities below can legitimately be characterized as arbitrary and capricious.
14. In the circumstances supra, we are of the considered opinion that it would be in the interest of justice to remand the case back to the ACIR/adjudicating authority to examine all the materials to be produced before him as prima facie it is apparent that the ACIR/Adjudicating Officer has neither initiated any enquiry to find out the veracity of the claim of the Taxpayer nor any record was called by the ACIR/ Adjudicating Officer under section 22 of the Sale Tax Act, 1990. Further, no corroborative evidence was produced by the Taxpayer in support of his claim. The Taxpayer is also directed to produce all the relevant records and evidence in support of his claim before the ACIR. It is directed that the adjudicating authority after affording a reasonable opportunity of being heard decide the issues. It is further directed to the ACIR/Taxation Officer either personally visit the factory premises or depute some one to ascertain whether the taxpayer is indulged in the manufacturing activity or not and then proceed, in accordance with law. These are the avowed and dominant rationale for remanding the matter. The object is to afford all opportunities to enable it to explain the nature of business carried on by the Taxpayer. These directions are being given to hold a full-scaled enquiry after adducing evidence by the Taxpayer and record/details asked by the ACIR/Adjudicating Officer under section 22 of the Sales Tax Act. The effect of remand is of-course, in the interest of both the parties as the findings drawn by the authorities below have not been properly investigated. After taking into account all aspects of the issues we consider it un-necessary to go into the further point raised and agitated by both the parties as we have remanded back the case to the ACIR/Adjudicating Officer. It is also directed that the whole exercise to be completed within two months strictly. The department has to consider the treatment given to such “receipts” in the preceding and following periods.
15. Before parting with this appeal we may observe that it is a well-settled rule of law that the onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much as condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and second condition is fulfilled. It is further observed that it is cardinal principle of law that if the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.
16. Consequently, the departmental appeal stands disposed of as above.
CMA/104/Tax(Trib.) Order accordingly.