NAYADAUR MOTOR (PVT.) LTD. VS FEDERATION OF PAKISTAN through Secretary Ministry of Finance, 2016 PTD-KARACHI-HIGH-COURT-SINDH 1080 (2016)

(a) Constitution of Pakistan---

----Art. 199---Constitutional jurisdiction of High Court---Scope---Alternate remedy-----Scope---Where a statutory functionary acted in a mala fide or partial, unjust and oppressive manner, High Court in exercise of its Constitutional jurisdiction had power to grant relief to the aggrieved party---Where alternate remedy was available , non-exercise of jurisdiction under Art.199 of the Constitution was a rule to be applied by High Court for regulating its Constitutional jurisdiction, and exception to said rule existed if the show-cause notice or order was ultra vires, palpably without jurisdiction or with mala fide intent, and if availing of statutory remedy against it would be inefficacious because such action was to be nipped in the bud---In presence of such an exception, High Court lean its discretion towards the petitioner to provide him speedy and efficacious justice by issuing a writ of certiorari.

Messrs Ocean Pakistan Limited v. Federal Board of Revenue, Islamabad and others 2012 PTD 1374 and Filters Pakistan (Pvt.) Limited v. Federal Board of Revenue and others 2010 PTD 2036 rel.

Muhammad Riaz Dar v. The Secretary, Local Government and others 1986 SCMR 469 and Mir Nabi Bakhsh Khan Khoso v. Branch Manager, National Bank of Pakistan, Jhatpat (Dera Allah Yar) Branch and 3 others 2000 SCMR 1017 ref.

(b) Sales Tax Act (VII of 1990)---

----Ss. 7, 2(9) & 2(15)---Assessment of sales tax---Determination of tax liability---Adjustment of input tax against output tax---Tax period---Interpretation, object and scope of S. 7 of the Sales Tax Act, 1990---Petitioner/taxpayer impugned show-cause notice whereby petitioner's adjustment of input tax from output tax for the tax period was found to be incorrect by Department and petitioner was asked to pay an additional amount---Contention of Department was, inter alia, that petitioner had adjusted its input tax in respect of items which were not consumed during particular tax period and therefore petitioner was not entitled for said deduction---Validity---Section 7 of the Sales Tax Act, 1990 was a beneficial provision and a person for the purpose of determining his/her tax liability in respect of taxable supplies made during the tax period was entitled to deduct his input tax from the output tax that was due from such a person in respect of the tax period---Words "taxable supplies, tax period, input tax and output tax", if read in juxtaposition, made clear that a registered person was entitled to deduct his input tax in said tax period from output tax of the same tax period in respect of taxable supplies and such facility was provided to the registered person to adjust his input tax pertaining to a relevant tax period from his output tax for that particular period---Petitioner paid input tax on imports and locally purchased goods which petitioner had deducted from its output tax for that particular tax period---Word "consumed" as had been derived by the Department was not understandable and if such interpretation of Department was considered to be correct, then Legislature would have used the word "consumed" during a tax period in S.7 of the Sales Tax Act, 1990 whereas the Legislature have instead used the word "output tax" that was due from taxpayer in respect of that tax period, meaning thereby, that a tax period which comprised of one month had been given emphasis in S.7 of the Sales Tax Act, 1990 with regard to adjustment of input tax from output tax---Consumption of goods in respect of which input tax had been paid by a person had no relevancy whatsoever with S.7 of the Sales Tax Act, 1990 and the said section provided a mechanism to taxpayers to adjust input tax from output which was basic right of taxpayer---Once a registered person established that he had paid input tax on goods in that tax period he then becomes entitled for deduction of that very tax from its output tax collected by it from taxable supplies made by him in respect of that particular tax period and such denial of said adjustment was contrary to the spirit of S.7 of the Sales Tax Act, 1990---Impugned show-cause notice was set aside---Constitutional petition was allowed, accordingly.

Mirpurkhas Sugar Mills Ltd. v. Government of Sindh 1993 SCMR 920; Collector of Customs (Appraisement), Karachi and others v. Abdul Majeed Khan and others 1977 SCMR 371; Collector of Sales Tax, Custom House, Lahore v. Hoechst Ravi Chemicals Limited, Faisalabad Road, Sheikhupura 2003 PTD 1817; New Jubilee Insurance Company Ltd. v. Special Officer Central Zone A, Karachi and another 1990 PTD Kar. 1; Messrs Car Tunes v. Income Tax Officer, Circle-V, Hyderabad and another PLD 1989 Kar. 337; F.S. Tobacco Co. (Pvt.) Ltd. v. Superintendent, Central Excise and Sales Tax, Nowshero and 4 others 1995 PTD 874; Edulji Dinshaw Limited v. Income Tax Officer 1990 PTD 155; Kamran Industries v. Collector of Customs (Export) PLD 1996 Kar. 68; Gul Ahmed Textile Mills Ltd. v. Collector of Customs (Appraisement) Customs House, Karachi 1990 MLD 126 Julian Hoshang Dinshaw Trust v. Income Tax Officer, Circle XVIII 1992 PTD 1 and Quetta Textile Mills Ltd. v. Federation of Pakistan and 2 others 1999 CLC 755 rel.

Shiekhoo Sugar Mills Limited v. Government of Pakistan and others 2001 PTD 2097 = 2001 SCMR 1376; Karachi Shipyard and Engineering Works Limited v. Government of Pakistan and others 2010 PTD 1652; Collector of Sales Tax, Customs House, Lahore v. Hoechst Ravi Chemicals Limited Faisalabad Road, Sheikhupura 2003 PTD 1817; Collector of Sales Tax, Customs House, Lahore v. Messrs Breeze Industries, Lahore 2003 PTD 1819 and Sales Tax Reference Application No.142 of 2005 rel.

Mansoor-ul-Afrin for Petitioner.

Muhammad Aslam Butt D.G.A. for Respondent No.1.

Nemo for Respondents Nos.2 to 4.

Date of hearing: 19th January, 2016.

JUDGMENT

IRFAN SAADAT KHAN, J.---This Constitutional Petition has been filed with the following prayers:--

1.Declare that the Show Cause Notice number 16/16-S.Tax (W)/95 dated December, 1995 of no legal effect and issued without jurisdiction and is ab- initio void.

2.Declare that the petitioner is not liable to additional Sales Tax/ Surcharge and that no Sales Tax is due from petitioner.

3.Declare that the petitioner has been correctly making adjustment of "input tax" from "output tax" as per provisions of Section 7 of Sales Tax Act.

4.Restrain the respondents from acting on the Show Cause Notice dated December, 1995.

5.Grant any other or further/better relief or relieves as this Honourable Court may deem fit and proper in the circumstances of the case.

2.In the instant petition the petitioner has raised following questions:--

1.Whether the respondent No.4 not being Superintendent of Sales Tax, has jurisdiction under sections 34 and 43 of Sales Tax Act to issue a Show Cause Notice to the petitioner for recovery of additional tax and surcharge?

2.Whether the "input tax" as defined under Section 2(9) of the Sales Tax Act, 1990 paid by the petitioner at the time of import of the CKD Kits and local purchases during the particular period is adjustable against the "output tax" as defined under section 2(15) of the Sales Tax Act, 1990 of that particular period whether or not the entire imported kits and locally purchased goods have been consumed during the particular period in production and supply of goods?

3.Is the petitioner having paid tax by means of adjustment of "input tax" against the "output tax" and having been accepted by the department without any objection under section 11 of Sales Tax Act is liable to pay additional Sales Tax and surcharge under Section 34 of Sales Tax Act, 1990?

4.Whether the department is not estopped from giving different interpretation to the adjustments of "input" and "output" tax than the one adopted by itself earlier?

3.The matter was admitted for regular hearing on 22.04.1996 to consider that:--

"Whether Show Cause Notice dated 12.12.1995 served on the petitioner by the Deputy Collector, Sales Tax is without lawful authority as the provisions of Section 7 of the Sales Tax Act, 1990 have not been properly interpreted by the said respondent in view of the definition of "Input Tax" and "Output Tax" contained in Sections 2(9) and 2(15) of the Sales Tax Act, 1990 (the Act 1990).

It is seen from the record that the matter was dismissed on account of non-prosecution on 11.12.1997, however, the same was restored with a No Objection from the respondents on 23.12.1997 and the order dated 11.12.1997 was recalled.

4.Briefly stated, the facts of the case are that the petitioner is a Private Limited Company and is engaged in the business of assembling Auto Vehicles. The petitioner used to import Complete Knockdown (CKD) units from Korea, which were then assembled in Pakistan and marketed under the brand name "Ceres" or "Kia Pride". The petitioner is a registered person under the provisions of Section 14 of the Sales Tax Act, 1990 (hereinafter referred to as Act, 1990) and was regularly paying its Sales Tax and filing monthly returns under Section 26 of the said Act. The Sales Tax was paid at the time of import of CKD Units. Apart from imports the petitioner also purchased locally manufactured goods and paid Sales Tax on the same. The Sales Tax paid on the imports and the locally purchased goods were claimed as "Input Tax", as per Section 2(9) of the said Act, and when the assembled goods were sold the petitioner collected the Sales Tax from its customers, which was then claimed as "Output Tax", which is defined under Section 2(15) of the Act. As per provisions of Section 7, the petitioner is entitled to deduct its "Input Tax" from the "Output Tax". The petitioner filed its Sales Tax return for the month of March 1995, however, the Superintendent of Sales Tax issued a letter dated 08.05.1995 mentioning therein that the deduction of Input Tax was not correct therefore demanded a sum of Rs.28,87,368/- from the petitioner, which the petitioner paid under protest. Thereafter vide impugned Show Cause Notice dated 12.12.1995 the Deputy Collector of Sales Tax observed that since the petitioner has not discharged its Sales Tax liability in accordance with Section 7 of the Act, 1990, hence a loss of revenue has been caused to the department as the petitioner had incorrectly adjusted the Input Tax and thus made a short payment of Sales Tax amounting to Rs.1,09,43,388/. It was also mentioned in the said Show Cause Notice that since the above referred amount had wrongly been adjusted, hence the petitioner was liable to pay additional tax of Rs.1,00,86,103/- and a surcharge of Rs.9,82,194/. The Tax Advisor of the petitioner vide letters dated 25.01.1996 and 14.04.1996 explained the factual position to the Deputy Collector mentioning therein that since the adjustment of Input Tax against the Output Tax was in accordance with law and as per the provisions of Section 7 hence the petitioner has made no violation of the relevant laws and requested that the Show Cause Notice issued may be withdrawn. However, apprehending that the Deputy Collector was not in a mode to withdraw the Show Cause Notice filed the instant petition on the ground that the interpretation of Section 7 intends to be adopted by the Deputy Collector as clearly mentioned in the Show Cause Notice, would seriously prejudice the petitioner and this Court as mentioned above admitted the same for regular hearing on the question enumerated above.

5.Mr. Mansoor-ul-Arfin, learned senior counsel, has appeared on behalf of the petitioner and submitted that the interpretation proposed to be adopted of Section 7 of the Act, 1990 by the Deputy Collector is totally incorrect. He submits that perusal of Sections 2(9), 2(15) and 7 of the Act, 1990 would reveal that a person is entitled to adjust his Input Tax from his Output Tax paid in a tax period. He states that the petitioner has adjusted its Input Tax paid on imports and the locally purchased goods from the Output Tax and Sales Tax Returns filed in this regard by the petitioner suffered with no illegality and hence were rightly accepted by the Superintendent of the department. He submits that the interpretation sought to be adopted by the Deputy Collector, as mentioned in the Show Cause Notice, is totally against the provisions of the law as no incorrect adjustment has been made by the petitioner and the Input Tax for the relevant tax period has rightly been adjusted against the Output Tax. The learned counsel submits that the interpretation of Section 7 proposed to be adopted by the Deputy Collector would lead to an absurd situation since as per Deputy Collector adjustment of Input Tax is only available to a person in respect of goods "consumed" in a relevant tax period. He submits that the adjustment of Input Tax from Output Tax is not with regard to "consumption" of the goods but with regard to the Input Tax paid by a person in a tax period from the Output Tax of that very period and has no relevancy whatsoever with regard to the consumption of either raw material or any component in the said tax period. He submits that since an incorrect interpretation was proposed to be adopted by the Deputy Collector hence instead of going through the process of adjudication this writ petition has directly been filed before this Court. He submits that from the wordings of the Show Cause Notice it is evident that the Deputy Collector was bent upon to adopt the incorrect interpretation of Section 7 which is evident from the Show Cause Notice hence there was every likelihood that based on the Show Cause Notice an adjudication would be made by raising a huge illegal demand against the petitioner therefore this petition has been filed, which was rightly admitted for regular hearing after finding that the issue raised requires interpretation of Section 7 of the Act, 1990.

6.Learned counsel further submits that the term "Tax Period" has been defined in Section 2(29) of the Act, 1990 which comprise of one month only meaning thereby that whatever amount of Input Tax has been paid by the petitioner is liable to be deducted from the Output Tax of that month and the adjustment of Input Tax from Output Tax is with regard to a period only and not with regard to consumption of the raw material. He states that if the interpretation as proposed to be adopted by the Deputy Collector is considered to be correct then Section 2(29) and Section 7 would become redundant. He submits that it is a trite proposition of law that no provision of law should be read in such a manner to make the same redundant. He submits that perusal of section 7 would reveal that nowhere in the said section it has been provided that adjustment of Input Tax from the Output Tax would be made in respect of the goods consumed in a tax period. He states that section 7 is a beneficial section and its interpretation is to be made to make the same workable and not to make it illusionary or non- functional. He submits that since a mechanism has been provided under Section 7, the Deputy Collector is not authorized to deviate from the wording of the said section. In support of his above contention the learned counsel has placed reliance on the decisions given in the cases of Mirpurkhas Sugar Mills Ltd. v. Government of Sindh (1993 SCMR 920) and Collector of Customs (Appraisement), Karachi and others v. Abdul Majeed Khan and others (1977 SCMR 371). Learned counsel has also placed reliance on the decisions given in the case of Collector of Sales Tax, Custom House, Lahore v. Hoechst Ravi Chemicals Limited, Faisalabad Road, Sheikhupura (2003 PTD 1817), wherein according to him under identical circumstances the Hon'ble Lahore High Court has observed that department's interpretation of Section 7 with regard to future consumption was an incorrect interpretation and whatever Input Tax has been paid in a Tax Period has to be adjusted from taxable supplies made or to be made in that tax period.

7.The learned counsel further submits that a person could approach the Court by filing Constitutional Petition against notices also if the petitioner is of the view that no fruitful purpose would be served in approaching the concerned authorities. He submits that since a totally incorrect interpretation was likely to be adopted by the Deputy Collector hence it was deemed appropriate to file the present petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973, which was admitted for regular hearing after finding force in the contentions raised by him. The learned counsel in this regard placed reliance on the decision given in the case of New Jubilee Insurance Company Ltd. v. Special Officer Central Zone A, Karachi and another (1990 PTD Karachi-1) wherein a direct petition was filed before this Court challenging the issuance of notice under Section 65 of the Income Tax Ordinance, 1979 (now repealed) on the ground that the issuance of the notice was incompetent and void. Learned counsel further placed reliance on decision given in the case of Messrs Car Tunes v. Income Tax Officer, Circle-V, Hyderabad and another (PLD 1989 Karachi 337) wherein also a direct petition was filed against the notice issued by the ITO. Learned counsel has also placed reliance on the cases of F.S. Tobacco Co. (Pvt.) Ltd. v. Superintendent, Central Excise and Sales Tax, Nowshero and 4 others (1995 PTD 874), Edulji Dinshaw Limited v. Income Tax Officer (1990 PTD 155), Kamran Industries v. Collector of Customs (Export) (PLD 1996 Karachi 68), Gul Ahmed Textile Mills Ltd. v. Collector of Customs (Appraisement) Customs House, Karachi (1990 MLD 126), Julian Hoshang Dinshaw Trust v. Income Tax Officer, Circle XVIII (1992 PTD 1), Quetta Textile Mills Ltd. v. Federation of Pakistan and 2 others (1999 CLC 755) wherein also petitions were directly filed against notices. He submits that this petition not only is maintainable but the question admitted in the instant petition is also liable to be answered in affirmative i.e. in favour of the petitioner and against the respondents.

8.No one is in attendance on behalf of respondents Nos. 2, 3 and 4. Mr. Muhammad Aslam Butt, DAG, is in attendance on behalf of the respondent No.1, who at the very outset, submitted that this petition is not maintainable since only a Show Cause Notice has been issued to the petitioner against which the present petition has been filed and according to him the petitioner has the remedy to agitate the matter before the department and if any adverse order is passed the petitioner has the remedy to file an Appeal against the said order as specifically provided in the Act 1990. He submits that this petition is pre-mature and is liable to be dismissed as the petitioner without availing the alternate remedy available to them under the law has directly approached this Court. He further submits that whether the interpretation proposed to be adopted by the Deputy Collector was correct or not could be agitated in Appeal if any adverse order is passed against the petitioner hence this petition is not maintainable and is liable to be dismissed and the petitioner may be directed to avail the remedies as available to them under the law. In support of his contention the learned counsel has relied on the decisions given in the cases of Muhammad Riaz Dar v. The Secretary, Local Government and others (1986 SCMR 469) and Mir Nabi Bakhsh Khan Khoso v. Branch Manager, National Bank of Pakistan, Jhatpat (Dera Allah Yar) Branch and 3 others (2000 SCMR 1017). The learned counsel further submits that he adopts the para wise comments filed by the Assistant Collector, Sales Tax West dated 22.04.1996 and the written synopsis furnished by the Law Officer of the Sales Tax dated 14.09.1999.

9.We have heard both the learned counsel at considerable length, perused the record, written arguments and the decisions relied upon by them.

10.We first of all would like to deal with the issue raised by the learned D.A.G. with regard to the maintainability of this petition. Where a statutory functionary acted mala fide or in a partial, unjust and oppressive manner, the High Court in the exercise of its writ jurisdiction had power to grant relief to the aggrieved party." In the case of Messrs Ocean Pakistan Limited v. Federal Board of Revenue, Islamabad and others (2012 PTD 1374) the Apex Court has further elaborated the general rule and exception for exercise of constitutional jurisdiction by High Courts. The relevant part is reproduced for ease of reference:--

". . . . . "tendency to bypass the remedy provided in the relevant statute and to press into service constitutional jurisdiction of the High Court was to be discouraged though in certain cases invoking of such jurisdiction instead of availing the stately remedy was justified" has approved the same by further holding that "when the impugned order/action was palpably without jurisdiction and/or mala fide, forcing the aggrieved person in such a case to approach the forum provided under the relevant statute, may not be just and proper". It is further held in the judgment (supra) that "where a statutory functionary acted in mala fide or in a partial, unjust and oppressive manner, the High Court in exercise of its writ jurisdiction had power to grant relief to the aggrieved party".

11.We were also able to lay our hands on the decision given in the case of Filters Pakistan (Pvt.) Limited v. Federal Board of Revenue and others (2010 PTD 2036) wherein on one of us, namely, Irfan Saadat Khan, J., was a member and it was observed as under:--

". . . . Even otherwise, the petitioner basically seeks determination of its fiscal rights on substantial question of law to be arrived at upon interpretation of the said notification and the superior courts of Pakistan have been generally entertaining Constitutional Petitions and holding them to be maintainable on these grounds. Reference in this respect is made to the case of Messrs Usmania Glass Sheet Factory Limited, Chittagong (supra), Messrs Julian Hoshang Dinshawn Trust and others (supra), Pakistan Tobacco Co. Ltd. (supra) and Messrs Kamran Industries (supra).

We, therefore, overrule the objection of maintainability of petition raised by learned counsel for the respondents and hold the Constitutional Petition to be maintainable."

12.We are, therefore, of the view that where alternate remedy is available, non-exercise of jurisdiction under Article 199 of the Constitution by High Court, is a rule to be applied for regulating its constitutional jurisdiction. Exception to this rule is that the show- cause-notice or order is ultra vires, palpably without jurisdiction or with mala fide intent; availing of statutory remedy, against which, would be inefficacious, because such action is to be nipped in the bud. In presence of the exception, the High Court should lean its discretion in petitioner to provide him speedy and efficacious justice by issuing writ of certiorari.

13.We will now dilate upon the precise question which was admitted for regular hearing and the same is reproduced hereinbelow:--

"Whether Show Cause Notice dated 12.12.1995 served on the petitioner by the Deputy Collector, Sales Tax is without lawful authority as the provisions of Section 7 of the Sales Tax Act, 1990 have not been properly interpreted by the said respondent in view of the definition of "Input Tax" and "Output Tax" contained in Sections 2(9) and 2(15) of the Sales Tax Act, 1990 (the Act 1990)."

14.Before dilating upon this question we will discuss the relevant provisions of Sales Tax Act, 1990, which are reproduced hereinbelow:--

"(9) "Input tax'; in relation to a registered person, means-

(a)the tax levied under this Act on the supply of goods received by that person;

(b)the tax levied under this Act on imported goods entered for home consumption under Section 79 or Section 104 of the Customs Act, 1969 (IV of 1969), by that person;

(c)in case of purchase from a non-registered person of second-hand goods or such other goods as the Federal Government may be Notification in the official Gazette specify, an amount equal to the tax fraction of the value of that supply; and

(d)in case of purchase of goods from a wholesaler, who is not liable to pay sales tax in respect of supplies of goods made to the registered person, the amount of tax levied under this Act at the time when the said wholesaler received supplies of the said goods.

(15) "output tax" in relation to any registered person means the tax charged under this Act in respect of a supply of goods made by that person.

(29) "tax period" means a period of one month or such other period as the Federal Government may, by Notification in the official Gazette, specify.

7. Determination of tax liability.---(1) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deduct input tax from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in Section 9.

(2) A registered person shall not be entitled to deduct input tax from output tax unless,--

(i)in case of a claim for input tax in respect of a taxable supply made in Pakistan, he holds a tax invoice in respect of such supply for which a return is furnished;

(ii) in case of goods imported into Pakistan, he holds the bill of entry duly cleared by the customs under Section 79 or Section 104 of the Customs Act, 1969 (IV of 1969);

(iii)in case of purchase from a non-registered person of second-hand goods or such other goods as the Federal Government may, by Notification in the official Gazette specify, he keeps the records as prescribed in Section 22;

(iv)in case of purchase of goods from a registered person making an exempt supply, he holds an invoice issued by such person."

15.Perusal of Section 7 of Sales Tax Act, 1990, would reveal that this is a beneficial provision; as specifically observed by the Hon'ble Supreme Court of Pakistan in the case of Shiekhoo Sugar Mills Limited v. Government of Pakistan and others (2001 PTD 2097 = 2001 SCMR 1376). From the perusal of this section it is clear that a person for the purpose of determining his tax liability in respect of the taxable supplies made during the tax period is entitled to deduct his input tax from the output tax that is due from him in respect of that tax period. The significant words used in this section are "taxable supplies, tax period, input tax and output tax". If all these words are read in juxtaposition it will become clear that a registered person is entitled to deduct its input tax paid by him in the said tax period from the output tax of the same tax period in respect of taxable supplies. It is a facility provided to a registered person to adjust his input tax pertaining to a relevant tax period from his output tax of that particular period.

16.There are no two opinions on the issue that the petitioner has paid the input tax on its imports and locally purchased goods which they had deducted from their output tax of that particular tax period. The emphasis of the department while issuing the show cause notice impugned in the petition is that the petitioner has adjusted its input tax from his output tax in respect of the items which were not "consumed" during the particular tax period and, hence, the petitioner is not entitled for the said deduction. From where the word "consumed" has been derived by the department is not understandable. If the interpretation of the department is considered to be correct then the legislatures and the law makers would have used the said word "consumed" during a tax period in Section 7 whereas under this section the law makers have used the word "output tax" that is due from him in respect of that tax period meaning thereby that a tax period which comprises of one month has been given emphasis in the said section with regard to adjustment of input tax from the output tax.

17.To simplify the above it could be said that it is the input tax of that very tax period which is to be adjusted from the output tax of that very period and consumption of the goods in respect of which input tax has been paid by a person in our view has no relevancy whatsoever with the said section. Section 7 provides a mechanism to the taxpayers to deduct their input tax paid during a tax period from their output tax of that period which is considered to be the basic right of those tax payers. Once a registered person establishes that he has paid the input tax on the goods in that tax period he becomes entitled for deduction of that very tax from its output tax collected by it from the taxable supplies made by him in respect of that particular tax period and any denial of the said adjustment, in our view, would be contrary and against the spirit of the said section. In the decision given in the case of Karachi Shipyard and Engineering Works Limited v. Government of Pakistan and others (2010 PTD 1652) it was observed as under:--

". . . . non-adjustment of input tax claim for the materials/equipment, which is used in taxable supplies, will invariably result in unnecessary hardship to the taxpayer for being vexed twice. It is a settled principle of law that a registered person is entitled to adjust the input tax claim during the tax period for the taxable supplies made by him."

18.In somewhat similar situation in the case of Collector of Sales Tax, Customs House, Lahore v. Hoechst Ravi Chemicals Limited Faisalabad Road, Sheikhupura (2003 PTD 1817) the department had rejected the case of the claim of input tax on the ground that adjustment was only allowable on proportionate of the quantity of raw material "consumed" during each month. The learned Bench of the High Court while dealing with the issue observed that this interpretation of the department is not correct. Again in the case of Collector of Sales Tax, Customs House, Lahore v. Messrs Breeze Industries, Lahore (2003 PTD 1819) it was observed as under:--

'4" After hearing the learned counsel for the parties we are of the view that the impugned order of the Tribunal is not open to exception. The provisions of section 7 of the Sales Tax Act, 1990 are cleared in their tone and toner that an assessee/registered person is entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made or to be made by him from the output tax which is due from him in respect of that tax period. In other words the consumption of raw-material on which input tax was paid is not directly relatable to the claim of input tax which can be claimed both In respect of the taxable supplies made during that tax period or to be made. For the purpose of adjustment of input tax it is only the tax period and not the consumption of raw material which is relevant. The intention of law is otherwise clear from the following provisions of section 10 existing at the relevant time and even those as exist today that excess amount can both be carried forward as well as be refunded. In case the interpretation of the department in accepted then the provisions of section 10 both substituted as well as those presently would become redundant. That can hardly be the intention of the law. Therefore, as remarked earlier, we find no justifiable reason to interfere with the impugned order of the Tribunal."

19.We were also able to lay our hands on the Sales Tax Reference Application No.142 of 2005, wherein a Bench of this Court comprising of Hon'ble Mr. Justice Anwar Zaheer Jamali and Mr. Justice Athar Saeed (as their Lordships then were) in the case of Collector of Sales Tax and Federal Excise v. Messrs Abbott Laboratories (Pakistan) Ltd. observed as under:--

"14. On the interpretation of Section 7 and Section 8, we respectfully subscribe to the majority view in the judgment quoted supra. We also find a lot of weight in the argument of the learned counsel for respondent that the Department can not blow hot and cold at the same time.

15. The learned counsel for the applicant has not advanced any arguments on the additional question admitted in Special Sales Tax Reference Application No. 142 of 2005. Since for all practical purposes he has not pressed this question, therefore, we would refrain from answering this question.

16. In the light of the above discussion, we are of the opinion that the order of the Tribunal is based on correct appreciation of law which is unexceptionable and no interference is called by this Court. In our opinion question No.1 is of general nature and does not require adjudication by this Court. We would answer question No.2 in affirmative and before answering question No.3, we would modify it to read as under.-

Whether the Tribunal was justified in holding that input tax has to be adjusted against output tax according to tax periods.

17. We would answer the above modified question in affirmative. As a consequence these Special Sales Tax Reference Applications are dismissed being devoid of merits."

20.In the light of what has been discussed above we are of the view that the interpretation proposed to be adopted in the impugned show cause notice dated 12.12.1995 is totally against all norms of law since the insistence of the department that an input tax could only be adjusted against the output tax in respect of the goods consumed during a tax period is contrary and against the spirit of Section 7. We, therefore, allow this petition by directing the respondents to allow the petitioner the input tax adjustment of its taxable supplies from the output tax in respect of the particular tax period.

21.As a result of above, the impugned show cause notice dated 12.12.1995 is hereby vacated and the petition stands allowed. However, there shall be no order as to costs.

KMZ/N-8/SindhPetition allowed.