2018 P T D (Trib.) 388
[Inland Revenue Appellate Tribunal]
Before Muhammad Jawed Zakaria, Judicial Member and Faheemul Haq Khan, Accountant Member
Messrs THATTA CEMENT COMPANY LTD., KARACHI
COMMISSIONER INLAND REVENUE, (APPEALS-II), INLAND REVENUE, KARACHI and another
S.T.A. No.249/KB of 2015, decided on 2nd January, 2017.
Adnan Mufti, FCA for Appellant.
Zafar Rafiq, D.R. for Respondents.
Date of hearing: 22nd September, 2016.
MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER.—The appeal arises out of the Order No. 25 of 2015 dated 23.04.2015 passed by the learned CIR(A), Karachi on the following summerised grounds:–
1. That both the impugned Order-in-Appeal and Order-in-Original passed by the learned Respondent-I&II are bad in law and contradictory to the facts of the case.
2. That the learned Respondents passed the impugned Order-in-Appeal and Order-in-Original in a whimsical and stereo typed manner without application of judicious norms of justice.
3. That the learned Respondents erred to confirm FED of Rs.19,688,894/- on “Ground Granulated Blast Furnace Slag” [GGBFS] which is not classifiable under PCT Heading 25.23 of the First Schedule to the Federal Excise Act, 2005.
4. That the learned Respondents unlawfully imposed double tax on supplies on which sales tax was already deposited at the time of receipt of advance.
5. That with ultra-disregard to the provision of Section 3 of the Sales Tax Act and Federal Excise Act, 2005 [FE Act] the learned Respondents erred to establish sales tax liability of Rs.111,371,123/- and Federal Excise Duty of Rs 38,248,800/- on the basis of presumed suppression in production.
6. That both the learned Respondents erred to impose sales tax on zero rated suppliers made by the company.
7. That the Respondents harshly imposed default surcharge and penalty upon the Appellant.
8. That the amount of default surcharge and penalty under the FE Act, 2005 could not be imposed as Sections 8 and 19 of FE Act, 2005 were not invoked in the SCN.
2. Brief facts of the case are that the Taxpayer/Appellant is registered for sales tax and federal excise purposes as manufacturer of cement, the assessing officer had issued a show-cause notice dated 16-01-2015 to the Taxpayer / Appellant on the basis of examination of sales tax and federal excise returns filed by the appellant for the tax periods from July 2012 to December 2014 and raised certain discrepancies. Show-cause notice has mentioned section 11(2) of the Sales Tax Act 1990 and section 14(2) of the Federal Excise Act, 2005 though, issues and demands has also been related to both Acts. The assessing officer while passing the impugned Order-in-Original No. 49/09 dated 27-02-2015 had raised sales tax and federal excise demands against the Appellant. Being aggrieved with the action of the Assessing Officer, the Appellant filed appeal before the Commissioner (Appeal), who vide his order dated 23.04.2015 dismissed the appeal. The relevant extract from the findings of the learned CIR (A) are reproduced hereunder:–
“The appellant’s claim is that the supplies made to the tune of Rs. 189,945/- to Messrs SSJD BIO Processors Private Limited are zero rated/reduce rated on the pretext of being an indirect exporter. In this regard, the explanation offered by the appellant before the DCIR was not found with plausible justification as to how Zero rating is applicable in the case of the indirect exporter. Hence it has been held by the DCIR that the Sales Tax on such so called zero rated supplies made during the period 2012-13 to the tune of Rs. 32,267/- is recoverable under section 11(2) of the Sales Tax Act, 1990.
In this context, the appellant’s AR has reiterated his earlier stance taken during the proceedings before the DCIR without any evidence to the contrary to dislodge the findings. Therefore in the absence of any evidence to the contrary, establishing that the supplies made to M/s. SSJD BIO Processors Private Limited are zero rated/reduce rated, the action of the DCIR is found well within the purview of law. Hence, I decline to interfere.
The appellant has proclaimed, the supplies of Ground Granulated Blast Slag Cement is not chargeable to Federal Excise Duty under the Federal Excise Act, 2005 as the Ground Granulated Blast Furnace Slag [GBFS] falls under separate heading 2618 of Pakistan Custom Tariff which is related to “Ores, Slags and Ash”, and the Federal Excise Duty (FED) is chargeable only on Clinker/Cement falling under heading 2513 of the Custom Tariff. The PCT heading 2523, comprises over Portland Cement, Aluminous Cement, Slag Cement, Supersulphate Cement and similar hydraulic cements, whether or not coloured or in the form of clinkers. On the other hand, the PCT Heading 2618 clearly stipulates the Granulated Slag, obtained from the manufacture of Iron or Steel (Slag of Iron). By-product of hot metal production in blast furnace of Iron / Steel Mills, is called as Granulated Blast Furnace Slag (GBS), falling under PCT heading 2618, 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 PCH heading 2523 of the Custom tariff and therefore is Chargeable to Federal Excise Duty under the law. GBS is used as a main constituent of Cement or as a separate concrete addition in Slag Cement. The GGBFS falls under the same PCT head of custom tariff as of Cement.
Therefore, Federal Excise Duty (FED) to the tune of Rs.19,688,894/- has lawfully been levied under Section 14(2) of the Federal Excise Act, 2015 in violation of Section 3 of the Act, ibid, to which no exception can be given. In the light of above discussion, the action of the DCIR being in accordance with law is hereby maintained.
In the instant case, the appellant’s declaration that the difference is on account of advance sales made and subjecting to tax tantamount to double taxation. This arguments of the appellant’s AR is not tenable for the reason that mere submission unless proved otherwise, the advance sales under the Sales Tax Act, 1990 cannot be held to be the double taxation on the supplies made under Section 26 of the Act, 1990. The details of the computation are depicted hereunder;–
Sales declared under Special Procedure
Amount of Sales Tax Involved
07/13 to 06/14
07/14 to 12/14
The declaration of such supplies under the Sales Tax Special PROCEDURES IN MONTHLY Sales Tax returns is in violation of Section 26 of the Act stated above, rather it appears to be an attempt to evade the due tax. Therefore, the contention of the appellant’s AR, in the absence of any evidence to the contrary is nothing but repetition of the arguments made before the DCIR.
Hence under the circumstances embodied above, the action of the DCIR in charging sales tax amounting to Rs. 74,933,131/- under Section 11(2) of the Sales Tax Act, 1990, is found well within the purview of law and is hereby maintained.
During the course of hearing of appeal, the appellant’s AR, except bare submissions, has not been able to putforth any concrete evidence to the contrary to dislodge the findings of the DCIR.
Hence in the circumstances, the undersigned is inclined to opine that the action of the DCIR, in charging Sales Tax amounting to Rs.186,336,521 invoking provisions of section 11(2) of the Sales Tax Act, 1990 along with default surcharge under section 34 and Penalty under section 33(11) of the Sales Tax Act, 1990 and levy of Federal Excise Duty at Rs. 57,937,694/- under section 14(2) of the Federal Excise Act, 2005 along with default surcharge under section 8 and Penalty under section 19(3) of the Federal Excise Act, 2005, is found well within the purview of law, which calls for no interference. The same are hereby confirmed.
Appeal being devoid of any merit is hereby dismissed.”
3. Being aggrieved and dissatisfied with the Order-in-Appeal No.25 of 2015, dated 23.04.2015 passed by the learned Commissioner Inland Revenue (Appeals-II), Karachi, the Appellant came up to this forum for redressal of his grievances.
4. On the date of hearing, Mr. Adnan Mufti, FCA appeared on behalf of the Appellant/Taxpayer while Mr. Zafar Rafiq, DR, attended on behalf of the Respondent/Department.
5. The learned counsel vehemently contended that the assessing officer has created a demand of Federal Excise Duty (FED) of Rs.19,688,894 under the Federal Excise Act, 2005 (the FE Act) on non charging of FED on supply of Ground Granulated Blast Slag by the Appellant during the tax periods under consideration. The AR has submitted in this regards that in terms of Serial No. 13 of the First Schedule to the FE Act, cement falling under PCT Heading 25.23 of the First Schedule to the Customs Act, 1969 is subject to FED. The relevant extract of PCT Heading 25.23 of the First Schedule is reproduced below:
Portland Cement, aluminous cement, supersulphate cement and similar other hydraulic cements, whether or not coloured or in the form of clinkers.
– Cement clinkers
– Portland cement
White cement, whether or not artificially coloured
– Aluminous cement
– Other hydraulic cements
6. On the basis of the above, the learned counsel further contended that only cement classifiable under PCT Heading 25.23 is subject to FED under the FE Act. The explanatory notes to the Harmonised Description and Coding System issued by the World Custom Organization and adopted in Pakistan for interpretation HS Codes explains the types of cement which is covered under PCT Heading 25.23. The relevant extracts are reproduced below:–
“Portland cement is obtained by firing limestone containing in its natural state, or mixed artificially with, a suitable proportion of clay, Other materials such as silica, alumina or iron bearing substances may also be added. As a result of the firing process, semi-finished products known as clinkers are obtained. These clinkers are subsequently ground to produce Portland cement, which may incorporate additives and accelerators to modify its hydraulic properties. The principal types of Portland cement are normal Portland cement, moderate Portland cement and white Portland cement.
The heading also covers aluminous cement, slag cement, supersulphate cement (ground blast furnace slag mixed with an accelerator and calcined gypsum), pozzolana cement, Roman cement, etc., and mixtures of the above-mentioned cements.
The cements of this heading may be coloured.
Note: The finely Ground Blast Furnace Slag is specifically excluded from PCT Heading 25.23.”
7. The AR further submitted that Ground Granulated Blast Furnace Slag [GGBFS] cannot be termed as ‘cement’ which is obtained by quenching molten iron slag (a by-product of iron and steel) from a blast furnace in water of steam to produce a glassy, granular product that is then dried and ground into a fine powder. This ground granulated powdered is from the family of ‘Ores, Slags and Ash’ having PCT Code of 2618.0000. The learned A.R. emphasized that this GGBFS is used in construction of dams, bridges and other super solid structure. This GGBFS can be sold separately and it is also used in the manufacture/production of Portland cement, slag cement etc. Once, GGBFS is used in the production of Portland Cement or Slag Cement it is classified under PCT Code 25.23 and not 26.18. During the proceedings before the learned CIR (A), the Appellant has explained that supply GGBFS on which FED demanded was not used in the production of any form of cement but it is separately sold to its customer directly. Hence, FED was charged on sale of GGBFS being classifiable under PCT heading 2618.0000. He went on to urge that both the learned Respondents did not comprehend the factual and legal position and treated GGBFS classifiable under Tariff heading 25.23 and imposed FED of Rs.19,668,894/- upon the Appellant. Before this court the learned AR., also produced following documents in support of his contention that GGBFS is not cement and cannot be treated under PTC code 2523.0000.
a) Relevant extracts of the First Schedule to the Custom Act, 1969;
b) Relevant extract of explanatory notes of HS Code 25.23 issued by World Custom Organization;
c) definition of ‘cement’ as defined by American Society for Testing and Material International No DIN1164; and a note of composition of GGBFS.
The AR on the basis of above detailed submissions, has once again reiterated that the officers below had incorrectly imposed FED on supply of GGBFS by the Appellant.
8. It was finally, respectfully, submitted by the learned counsel that the Tribunal can also appoint an expert to seek clarity as to the correct classification of GGBFS sold by the Appellant. In this regard he placed reliance on High Court order in case of Messrs Essa Cement whereby the Court has appointed an independent experts to provide report on the factual and technical details. Recently, in case of Pakistan Refinery Limited, the Large Taxpayers Unit Karachi had also appointed an expert.
9. On the other hand the learned DR has strongly supported the orders of the officers below and argued that the appellant has declared the supplies of Ground Granulated Blast Slag Cement which is chargeable to Federal Excise Duty under the Federal Excise Act, 2005 as the Ground Granulated Blast Furnace Slag [GBFS] falls under separate heading 26.18 of Pakistan Custom Tariff which is related to “Ores, Slags and Ash”, and the Federal Excise Duty (FED) is chargeable only on Clinker / all kinds of Cement falling under heading 25.23 of the Custom Tariff. The PCT Heading 25.23, comprises over Portland Cement, Aluminous Cement, Slag Cement, Super Sulphate Cement and similar Hydraulic Cements, whether or not coloured or in the form of Clinkers. On the contrary, the PCT Heading 26.18 clearly stipulates the Granulated Slag, obtained from the manufacture of Iron or Steel (Slag of Iron). The by-product of Hot metal production in blast furnaces of Iron / Steel Mills, is called as Granulated Blast Furnace Slag (GBS), 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 Federal Excise Duty under the law. GBS is used as a main constituent of Cement or as a separate concrete addition in Slag Cement, which is called as GGBFS.
The DR further vociferously submitted that in the instant case, the appellant trying to misguide this Honurable Court at this stage by declaring that the supplies of GGBFS as GBS and evaded the FED on the supplies of GGBFS, which is otherwise chargeable to FED under the law.
10. The legal position is that the cement is liable to FED under the FE Act through serial No.13 of the First Schedule to the FE Act. It is also pertinent to note that both sides agreed upon this legal and factual position that connotation “Cement” is a wide in term and there are various types of cements, which can be differentiated on the basis of their use, power of bond, goods or elements etc. and obviously all of them are recognized on the basis of ingredients used for production of each cement. This is also an accepted legal position that all sorts of cements are not excisable under the FE Act, only types of cements that are covered under the below reproduced Serial No. 13 are excisable?