WAK LIMITED, LAHORE VS CUSTOMS, CENTRAL EXCISE AND SALES TAX APPELLATE TRIBUNAL
2018 P T D 253
[Lahore High Court]
Before Shahid Karim and Tariq Saleem Sheikh, JJ
WAK LIMITED, LAHORE
Versus
CUSTOMS, CENTRAL EXCISE AND SALES TAX APPELLATE TRIBUNAL and 2 others
S.T.R. No.33 of 2005, decided on 24/08/2017.
(a) Show-cause notice---
----Object and Scope---Show-cause notice is a serious business and is not a casual correspondence---Purpose of show-cause notice is to put person on notice about allegations for which authorities intend to proceed against him and to give him an opportunity to explain his position.
[Case-law referred].
(b) Sales Tax Act (VII of 1990)---
----S. 36---Show-cause notice---Necessary ingredients---Show-cause notice is required to state necessary particulars so that addressee is fully informed as to which provision has been invoked against him.
[Case-law referred].
(c) Sales Tax Act (VII of 1990)---
----Ss. 2(33)(a), 2(35), 2(41), 2(46), 3 & 47---Reference---LPG cylinders---Taxable supply---Value of supply---Market value, determination of---Dispute was with regard to recovery of sales tax from taxpayer on supply of LPG cylinders to its customers using LPG---Taxpayer denied manufacturing of cylinders and for determination of value relied upon the provisions of S.2(46)(c) of Sales Tax Act, 1990---Validity---LPG cylinder delivered by taxpayer to its distributors and / or consumers was a taxable supply made in the course and in furtherance of taxable activity subject to levy of sales tax---Value of supply was essentially the consideration supplier received from recipient for that supply (including all federal and provincial taxes but excluding sales tax)---Taxpayer altogether denied manufacturing and supply of cylinders therefore, provisions of S.2(46)(a) of Sales Tax Act, 1990, was not applicable---Value of supply was to be determined on the basis of open market price and provision of S.2(46)(c) of Sales Tax Act, 1990 was to be invoked---Valuation Committee could not be formed under S.2(46)(e) of Sales Tax Act, 1990, as the same was not attracted---Provision of S.2(46)(e) of Sales Tax Act, 1990, applied to the situation where there were indications that value of supply was not correctly declared in invoice and no such invoices were available---In order to determine open market price the authorities relied upon sale receipts of four distributors of taxpayer, which showed that empty cylinders were sold in the range of Rs.1500/- to Rs. 1750/- and also produced two buyers of the cylinders for cross-examination---Matter pertained to period 1993-1998 while sale receipts produced by the department were dated 3-3-2000 and 8-3-2000, therefore, the same were irrelevant---High Court remanded the matter to Adjudicating Officer for determination of market price of the cylinders---Reference was disposed of accordingly.
[Case-law referred].
Ali Sibtain Fazli for Applicant.
Ms. Kausar Parveen for Respondents.
Date of hearing: 17th May, 2017.
JUDGMENT
TARIQ SALEEM SHEIKH, J.---This is an application by way of reference under section 47 of the Sales Tax Act, 1990 (the "Act"), which is directed against Order dated 26-11-2005 passed by the erstwhile Customs, Excise and Sales Tax Appellate Tribunal, Lahore (the "Tribunal"), in S.T.A. No. 850/LB/2005.
2.The Petitioner holds a licence from the Ministry of Petroleum and Natural Resources, Government of Pakistan, for marketing and distribution of Liquefied Petroleum Gas (LPG) across Pakistan. It conducts marketing under the trade name of "WAK GAS". The Enforcement and Collection Wing of the Collectorate of Sales Tax, Lahore, received an information that the Petitioner had also set up a cylinder manufacturing unit and, besides marketing and distribution, it was also engaged in manufacturing and supply of cylinders without payment of sales tax. The Enforcement Wing probed into the matter and collected evidence which confirmed that it had made supplies of cylinders valuing Rs.628,335,961/- during the period 1993 to 1998 and had thus evaded sales tax in the sum of Rs.83,431,572/-. Consequent thereupon, show-cause notice dated 30-06-2000 was issued to the Petitioner wherein it was charged with the contravention of sections 3, 6, 11, 22, 23 and 26 of the Act and was called upon to explain as to why the aforesaid sales tax along with additional tax and penalty may not be recovered from it. On 14-11-2000, a corrigendum was issued to add Messrs Steel Complex to the proceedings. Further, the above-mentioned figures were revised and the total demand of the sales tax was raised to Rs.186,078,750/- along with additional tax and penalty. The provisions which were alleged to have been contravened were re-stated as: "Sections 3, 6, 11 (2), 22, 23, 26, 34 and 36." The Petitioner contested the show-cause notice and denied its liability. The matter was adjudicated and, vide Order-in-Original dated 13-02-2001, the Adjudicating Officer ruled against it. Aggrieved, the Petitioner preferred an appeal before the Tribunal which was accepted and the case was remanded to the Adjudicating Officer for de novo consideration.
3.During the remand proceedings the Adjudication Officer issued second corrigendum dated 18-05-2002 whereby section 36 appearing in the first corrigendum dated 14-11-2000 was substituted with section 36(1). The Petitioner alleged that the limitation prescribed under section 36(1) was five years while under section 36(2) it was three years. The corrigendum dated 18-05-2002 was illegal and was issued with the mala fide intent to bring time-barred portion of the show-cause notice within limitation. It, therefore, moved an application before the Adjudicating Officer for its withdrawal. The Adjudicating Officer, however, refused to do so and ordered that the said application would be decided at the time of final hearing. The Petitioner challenged this order but it was maintained upto the Supreme Court. Eventually after protracted proceedings the Adjudicating Officer once again decided the matter against the Petitioner vide Order-in-Original dated 23-06-2005. The Petitioner filed an appeal (STA No. 850/LB/2005) thereagainst before the Tribunal which was dismissed on 26-11-2005. Now, this reference application before this Court.
4.The Petitioner has urged that the following questions of law emanate from the Tribunal's Order dated 26-11-2005 which require determination by this Court:
I. Whether, in the facts and circumstances of the case, the learned Tribunal was right in holding that the assertions regarding misdeclaration and deliberate evasion were made in the show-cause notice despite the fact that there were no such allegations in the Show-Cause Notice?
II. Whether the learned Tribunal was right in holding that mere contravention of certain sections of the Sales Tax Act would amount to deliberate and intentional evasion of tax despite the fact that no such allegation was levelled in the Show-Cause Notice?
III. Whether the learned Tribunal was right in holding that corrigendum dated 18-05-2002 was issued to correct a clerical error especially when no such assertion was made by the Department at any stage of the proceedings?
IV. Whether, in the facts and circumstances of the case, the learned Tribunal was correct in law in relying on the Information Memorandum of May-1999 issued by Sidat Hyder Morshed Associates (Pvt) Ltd. (Management Consultants) especially when the said Information Memorandum itself clearly had a disclaimer?
V. Whether the learned Tribunal was right in ignoring the judgment of the AJ&K High Court reported as "PTCL 1991 CL 108" holding that in the present case income tax was not a primary source of evidence and whether reliance of the learned Tribunal on the income tax records was contrary to law?
VI. Whether the learned Tribunal was right in relying on the receipts issued by Messrs S.A. Enterprises, Messrs Mahmood Traders, Messrs Sohail Traders and Messrs Siddique Gas Agency, especially when the said receipts were not produced before it at the time of its decision and, furthermore, when these persons filed affidavits before the learned Adjudicating Officer denying the said fact?
VII. Whether the learned Tribunal was right in holding that as two of the buyers of the cylinders appeared for cross-examination, their statements could be believed especially when statements recorded before the Adjudicating Officer were never examined by the Tribunal and the record of the case was never summoned by the Tribunal to examine the said facts?
VIII. Whether the learned Tribunal was right in holding that the provisions of section 2(46) of the Sales Tax Act, 1990, were not applicable to the present case?
IX. Whether the learned Tribunal erred in not discussing the fact that a committee appointed by CBR had already fixed the value of the cylinders manufactured by the Petitioner at Rs.650/- which was further reduced by another Bench of the Tribunal to Rs.488/-?
Questions I, II & III
5.Learned counsel contended that the original show-cause notice as amended by the first corrigendum was bad in law. It was vague and from its bare reading no case of misdeclaration or deliberate tax evasion was spelt out. Further, the show-cause notice did not mention the specific subsection of section 36 under which it was issued. No demand could be created against the Petitioner on the strength of such a vague and illegal notice. For this proposition he placed reliance on "Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others" (2001 SCMR 838) and "Messrs Atlas Tyres (Pvt) Limited, Sheikhupura v. Additional Collector (Adjudication) Collectorate of Central Excise, Lahore and another" (2003 PTD 1593). In the alternative, he argued that in the absence of relevant details and allegation of fraud, Show-Cause Notice would fall under subsection (2) and not subsection (1) of section 36 and being so would be barred by time. He next contended that the Adjudicating Officer had no lawful authority to issue corrigendum dated 18-05-2002 to the show-cause notice when the matter was subjudice before him in the remand proceedings. He argued that the sole purpose of the said corrigendum was to bring a time-barred case within the ambit of permissible time-limit. Such a corrigendum could not be issued because it deprived the Petitioner of a vested right that it had acquired on the lapse of the limitation period. On the other hand, learned counsel for the Revenue controverted these contentions and argued that the show-cause notice was issued within the prescribed limitation. Corrigendum dated 18-05-2002 was of a clarificatory nature and had no bearing on the case against the Petitioner.
6.The above controversy revolves around section 36 of the Act. This section was omitted by the Finance Act, 2012, but at the relevant time it read as under:
36. Recovery of tax not levied or short-levied or erroneously refunded.---(1) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice.
(2) Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay the amount of tax or charge or the amount of refund erroneously made shall be served with a notice within three years of the relevant date, requiring him to show cause for payment of the amount specified in the notice:
Provided that where a tax or charge has not been levied under this subsection, the amount of tax shall be recovered as tax fraction of the value of supply.
(3) The officer of [Sales Tax] empowered in this behalf shall, after considering the objections of the person served with a notice to show cause under subsection (1) or subsection (2), determine the amount of tax or charge payable by him and such person shall pay the amount so determined.
Provided that
Provided further that
(4) For the purpose of this section, the expression "relevant date" means---
(a) The time of payment of tax or charge as provided under section 6; and
(b) In a case where tax or charge has been erroneously refunded, the date of its refund.
7.Show-cause notices under subsections (1) and (2) of section 36, ibid, were two distinct notices as they dealt with two different contingencies. There were separate grounds for issuance of these notices and different limitation periods were prescribed for them. Subsection (1) contemplated a situation where any tax or charge was either not levied or had been short-levied or had been erroneously refunded due to some collusion or a deliberate act. On the other hand, subsection (2) was applicable where the non-levy, short-levy or erroneous refund was caused by reason of inadvertence, error or misconstruction. The limitation laid down for the show-cause notice under subsection (1) was five years while for the one under subsection (2) it was three years.
8.Jurisprudence is now pretty settled on the point that show-cause notice is a serious business and is not a casual correspondence. Its purpose is to put the person on notice about the allegations for which the authorities intend to proceed against him and to give him an opportunity to explain his position. This principle is rooted in the principles of natural justice and fair trial. In "Caretex v. Collector Sales Tax and Federal Excise and others" (2013 PTD 1536), this Court observed:
"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 roving inquiry into the affairs 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."
9.In view of the importance of a show-cause notice in the legal proceedings, the parameters for determining its validity have been discussed by our Courts in a number of cases. Some of them are: "The Collector Central Excise and Land Customs and others v. Rahm Din" (1987 SCMR 1840), "Federation of Pakistan through Secretary, Finance, Islamabad and 4 others v. Messrs Ibrahim Textile Mills Ltd and others" (1992 SCMR 1898), "Caltex Oil (Pakistan) Limited v. Collector, Central Excise and Sales Tax and others" (2005 PTD 480), "Collector of Sales Tax and CE, Lahore v. Zamindara Paper and Board Mills etc." (2007 PTD 1804 = 2008 SCMR 615), "Union Sport Playing Cards Company v. Collector of Customs and another" (2002 MLD 130), "The Coca Cola Export Corporation v. The Additional Collector-II (Adjudication), Collectorate of Central Excise and Sales Tax, Lahore". (2002 PTD (Trib.) 1455), "United Exports Company through Proprietor v. Pakistan through Secretary, Ministry of Finance, Federal Secretariat, Islamabad and 3 others" (2000 PTD 1798), "Messrs Inam Packages, Lahore v. Appellate Tribunal Customs, C.E. and Sales Tax, Customs House, Lahore and 2 others" (2007 PTD 2265), "Messrs Rupali Polyester Ltd., Lahore v. Collector of Central Excise and Sales Tax, Lahore and 6 others" (2009 PTD 538). Following principles may be deduced from these cases:
(i)Validity of show-cause notice is fundamental to the assumption of jurisdiction by the authority concerned.
(ii)A show-cause notice should indicate that it is a show cause which makes the respondent aware that if he does not respond to it adverse action might be taken against him.
(iii)If there is any pre-requisite for the issuance of a show-cause notice the same must be fulfilled. Where a statutory show-cause notice is required to be served, the Department cannot proceed without it. Any demand notice issued without such statutory notice would be coram non judice.
(iv)Mere allegation that a particular provision of law has been breached is not enough. The show-cause notice must be specific and should not be couched in general terms. It should contain the essential ingredients necessary to show infarction of law.
(v)The grounds or reasons must be explicitly set out. The show-cause notice carrying the defect of vagueness may not stand the test of judicial scrutiny.
(vi)Omission to mention in the show-cause notice the specific provision which is alleged to have been contravened is not fatal and does not ipso facto make it void. Instead of taking into consideration technicalities, the Court should look into the matter from different angles. It should also see whether substantial compliance has been made and if any of the sub-rules has been omitted whether any prejudice has been caused to the taxpayer.
(vii)If any limitation is prescribed by law the show-cause notice must be served within that period.
(viii)A flagrantly discrepant show cause can rebound on the entire prosecution case and can damage it extensively.
(ix)A show-cause notice that is issued on a wrong legal presumption is totally unlawful. Superstructure raised on wrong foundation remains defective and whole of it crumbles on identification of the said defect.
(x)Where the order of adjudication that is eventually made is based on a ground which was not mentioned in the show-cause notice, that order would be palpably illegal and void on the face of it.
10.With reference to section 36 of the Act, we have already pointed out that its subsections (1) and (2) applied to two different eventualities. Therefore, the show-cause notice was required to state the necessary particulars so that the addressee was fully informed as to which provision was being invoked against him. In "Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others" (2001 SCMR 838) while discussing similar show-cause notices under section 32 of the Customs Act (IV of 1969), the Hon'ble Supreme Court of Pakistan observed as under:
"Show-cause notices under subsections (2) and (3) of section 32 of the Act are two distinct and separate types of notices and different ground and different period for service of notice in each subsection has been prescribed. Under subsection (2) for non-levy, short-levy or erroneous refund, specific allegations of any collusion between the assessee and the Customs Staff has to be levelled with proper particulars in the show-cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy, short-levy or misconstruction then show-cause notice to the importer has to be served within six months of the non-short levy. If such specific particulars are not stated in the notice, the notice would be vague and would not be in consonance with the requirements of subsections (2) and (3) of section 32 of the Act."
11.In "Messrs Inam Packages, Lahore v. Appellate Tribunal Customs, C.E., and Sales Customs House, Lahore and 2 others" (2007 PTD 2265), supra, a learned Division Bench of this Court held:
"8. The show-cause notice though charged the Appellant with the evasion of sales tax of Rs.48,335 and generally alleged contravention of numerous provisions, yet neither the specific provision of the contravened law nor the manner of its contravention was specified by the Respondents. Further, the motive(s) or the reason(s) causing/occasioning the alleged evasion were also not stated under section 36 of the Sales Tax Act by the notifying authority. The show-cause notice was vague, unspecific and too general to enable the reader or the notified person to make out or clearly identify the particular clause/subsection or the reason or the period of limitation applicable to the case of the Appellant in terms of section 36 ibid."
12.In another case, reported as "Caretex v. Collector Sales Tax and Federal Excise and others" (2013 PTD 1536), supra, this Court ruled:
"The legal enforceability and the jurisdictional validity of a show-cause notice stems from its CONTENT, i.e., the facts supported by tangible evidence referred to in the Show-Cause Notice, and not from cosmetic showcasing of the statutory provisions or statutory key words like 'collusion' or 'deliberate act' in the Show-Cause Notice."
13. In the present case, show-cause notice dated 30-06-2000 which was served on the Petitioner read as under:
GOVERNMENT OF PAKISTAN
COLLECTORATE OF SALES TAX
56-A SHADMAN MARKET, LAHORE.
C.No. ADC/Adj/WAK/39/2000/367 Dated: 30-06-2000
SHOW-CAUSE NOTICE
Whereas, in pursuance of the information received against Messrs Wak Limited (Cylinder manufacturing unit) manufacture and supplies Cylinders without payment of Sales Tax. The concrete documentary evidences as Annexure-A from the Income Tax department were proceed which confirmed supplied of Cylinders by Messrs Wak Limited valuing Rs.62,83,35,961/- without payment of Sales Tax amounting to Rs.8,34,31,572/- detailed below:
| Period | Value of Cylinders as per Income Tax Returns Rs. | Excise duty @ 10% Rs. | Duty paid value for Sales Tax Rs. | Rate of Sales Tax | Sales Tax Payable Rs. |
| 993-94 | 185266664 | 18526666 | 203793330 | 12.5% | 25474166 |
| 1994-95 | 125477833 | 12547783 | 138025616 | -do- | 17253202 |
| 1995-96 | 127394168 | 127394168 | 140133584 | -do- | 17516698 |
| 1996-97 | 95803370 | 9580337 | 105383707 | 15% | 15807556 |
| 1997-98 | 37272477 | 37272477 | 40999724 | 18% | 7379950 |
| G. Total | 571214512 | 57121451 | 628335961 | 83431572 |
| | | | | | | | |
A booklet published in May, 1999 in the name of Wak Limited, "Information Memorandum" for private placement of shares of Wak Limited is also enclosed for ready reference as Annexure-E. The fact of number of Cylinders depicts in paras. 1.13, 1.7, 2.33, and 4.7 are in conformity with figures collected from Income Tax Department.
It has been alleged that Messrs WAK limited has contravened the provisions of Sections 3, 6, 11, 22, 23, 26 of Sales Tax Act, 1990.
On the basis of above Messrs WAK Limited, are called upon to show cause by 15-07-2k as to why sales tax of Rs.8,34,31,572/- along with additional tax under section 34 of the Sales Tax Act, 1990 to be calculated at the time of deposit should not be recovered from them.
ADDITIONAL COLLECTOR-I
14.As already stated two corrigenda were issued to the above show-cause notice. The first corrigendum dated 14-11-2000 was to the following effect:
GOVERNMENT OF PAKISTAN
COLLECTORATE OF CUSTOMS, SALES TAX & C.EXCISE (ADJUDICATION)
CUSTOM HOUSE LAHORE
C.No. ADC/Adj/Wak/39/2000/13521Dated: 14-11-2000
CORRIGENDUM
In view of the revised contravention report sent by the Assistant Collector Sales Tax and Central Excise (E & C) Lahore vide C.No.2030 dated 05-10-2000, the following amendments are made in this office show-cause notice C.No.ADC/Adj/WAK/39/2000/367 dated 30-06-2000 namely:-
i)In para I, the figures Rs.62,83,35,961/- and Rs.8,34,31,572/- may be read as Rs.1,24,05,25,000/- and Rs.18,60,78,750/- respectively.
ii)The table of the aforesaid show-cause notice in para 1 may be treated as replaced with the following:-
| TOTAL LPG CYLENDERS OWNED BY THE FIRM | VALUE OF CYLINDER @ OF RS.1300/-P. PC | EXCISE DUTY 10% RS. | TOTAL ASSESSABLE VALUE FOR SALES TAX | SALES TAX INVOLVED. |
| 867500 | 1127750000 | 112775000 | 1240525000 | 186078750 |
iii)In para 3, after the words section, "the following figures may be substituted namely, 3, 6, 11(2), 22, 23, 26, 34 and 36.
iv)In para 4 the amount of Rs.8,34,31,750/- may be read as Rs.18,60,78,750/-.
(HAFIZ MUHAMMAD ANEES)
COLLECTOR (ADJUDICATION)
REGISTERED
Messrs WAK Limited and Messrs Steel Complex
17-km Multan Road Lahore c/o Mannan Law Associates,
Hafeez Chamber, 85-Shahrah-e-Quaid-e-Azam, Lahore.
The second corrigendum dated 18-05-2002 sought to substitute "section 36" with "section 36(1)" in Line 2 of para (iii) of the first corrigendum dated 14-11-2000.
15.If show-cause notice dated 30-06-2000 is examined on the touchstone of the principles discussed above, it would be seen that it was quite specific. It not only stated the charge/allegation against the Petitioner but also referred to the material on which that charge was based. Although it did not expressly use the words "collusion" or "a deliberate act", the contents of the said show-cause notice left no doubt that the matter fell within the mischief of section 36(1). Shortly after issuing the show-cause notice the Revenue realized that it had missed out section 36(1) from the list of provisions mentioned therein which the Petitioner was alleged to have contravened. Therefore, it sought to rectify the mistake through the first corrigendum but even then the omission was not fully supplied as only section 36 was thereby inserted in the original show-cause notice without referring to the particular sub-section [i.e. whether it was subsection (1) or (2)] under which the Petitioner was charged. In our opinion, the original show-cause notice (read with first corrigendum) was valid for all legal purposes and contained the requisite particulars to inform the Petitioner that it had evaded sales tax through a deliberate act contemplated by section 36(1). So far as the second corrigendum was concerned, it only sought to specify that subsection (1) was attracted. In view of the fact that the show-cause notice was itself in order, this corrigendum did not bring any legal change or otherwise adversely affect any rights of the Petitioner. It may thus be taken as merely clarificatory.
16.The cases of Messrs Khyber Electric Lamps and Atlas Tyres (supra) relied upon by the Petitioner do not help it. In those cases the Show-Cause Notices neither quoted the specific legal provisions nor the reasons on the basis of which they were issued. The Court held that they were too vague to be fairly enforced and could not lay a foundation for any legal proceedings. In the instant case, it was not so. The show-cause notice was quite explicit that the Petitioner had evaded sales tax through a deliberate act. More importantly the Petitioner was not misled or prejudiced because of the omission to mention the specific subsection of section 36 under which it was being charged. This is evident from the reply that it put forth to the Show-Cause Notice. In the case of "Collector of Sales Tax and CE, Lahore v. Zamindara Paper and Board Mills etc." (2007 PTD 1804 = 2008 SCMR 615), the precise question before the Hon'ble Supreme Court of Pakistan was whether the show-cause notice could be declared void because the relevant sub-rule of Rule 10 of the Central Excise Rules, 1944, under which it had been issued was not particularly stated. The Apex Court observed that the Court must see whether substantial compliance of law had been made and taxpayer had not been prejudiced.
17.It is noteworthy that the law laid in Zamindara Paper and Board Mills case (supra) was reiterated in "Collector of Sales Tax and Central Excise, Lahore v. Messrs Pattoki Sugar Mills Ltd. and another" (Civil Appeal No. 1444/2006) decided on 07-01-2014.1 The Hon'ble Supreme Court discussed the case of Messrs Khyber Electric Lamps and further explained:
"4. We note that the learned Division Bench of the High Court while deciding the appeals before it had proceeded on the premise which is the basis of the case of Khyber Electric Lamps noted above. The law, however, has since been conclusively interpreted in the case titled Collector of Sales Tax and Central Excise, Lahore v. Zamindara Paper and Board Mills and others (2008 SCMR 615). It has been held in the said judgment that the mere omission to mention the relevant provisions of Central Excise Rules, 1944 was not fatal to the show-cause notice and the proceedings initiated against a party liable for payment of excise duty "
18. In view of the foregoing, we do not agree with the learned counsel for the Petitioner that the case against the Petitioner, if any, was covered by subsection (2) and the second corrigendum placed it under subsection (1). Similarly, his argument that the second corrigendum deprived the Petitioner of vested right that it had acquired called lapse of limitation period under subsection (2) does not hold water. However, what remains to be seen is whether the entire claim of the Revenue was within time. Admittedly, the show-cause notice was issued on 30-06-2000. The limitation provided under section 36(1) was five years from the relevant date as defined in section 36(4). Resultantly, the claim falling beyond the said period would be barred.
19.For the above reasons, subject to the time limitation referred to in the preceding paragraph, we answer the above questions in favour of the Revenue and against the Petitioner.
Questions IV & V
20.These questions lay challenge to the evidence brought against the Petitioner to prove the delinquency. Since a common thread weaves through them we take them up together.
21.Learned counsel for the Petitioner contended that there was no evidence that the Petitioner had manufactured 867,500 LPG cylinders since 1993 and that the Tribunal and the Adjudicating Officer had erred in law in recording a finding against it. The Petitioner manufactured and sold only 4328 cylinders upto 15-04-1997 on which the due amount of sales tax was paid. He further contended that the Revenue primarily relied upon the Information Memorandum that the Petitioner issued in May 1999 for private placement of its shares (hereinafter referred to as the "Information Memorandum") and income tax assessment orders to prove its case against the Petitioner and for calculating its liability but both these documents were inadmissible in evidence. On the other hand, learned counsel for the Revenue controverted these contentions. She argued that ample evidence was available on record to prove that the Petitioner manufactured and sold the aforementioned quantity of cylinders without payment of duties and taxes. The Information Memorandum was an important piece of evidence which fortified the Revenue's claim. It was published under the instructions and authority of the Petitioner and as it never denied its contents it was estopped from doing so at this stage.
22.The Petitioner issued the Information Memorandum in May, 1999, in which it expressly stated that it was the manufacturer of LPG cylinders. Since the instant case encompasses the period 1993-98, the first question is whether the Petitioner was a manufacturer of these goods in that span. During the proceedings before the Adjudicating Officer the Petitioner made written submissions in this regard. In view of their importance we reproduce the following excerpt from them which is quoted in Paragraph-17 of the Order-in-Original dated 18-06-2005:
"a) the contentions raised in this para are not correct as the Respondent never claimed that they have not manufactured cylinders before 1998. The respondent did manufacture 4328 cylinders prior to 1998 under the name of Messrs Metal Complex and for which full amount of Central Excise Duty and Sales Tax was deposited in the Government Treasury. The said company, Metal Complex, is a sister concern of the Respondent and thus for that purpose, they were declaring in their income tax returns that they were manufacturing and selling cylinders. Another reason for mentioning themselves as manufacturers in the returns was due to the fact that the Respondent used to purchase and provide specialized raw material to different manufacturers such as Messrs Steel Complex for manufacturing of cylinders and then to purchase the manufactured cylinders from these units. Thus, they had to declare themselves a manufacturer to justify the purchase of raw material so as to claim correspondent cost adjustment for income tax purposes . the income tax record cannot be made basis for a case under Sales Tax and Central Excise Laws, as can be seen from the judgment reported as "1990 PTD 1088".
Further, in Writ Petition No. 5841/2000 that the Petitioner filed before this court, it not only admitted that it was a manufacturer of cylinders but also that it was producing them since 1993. During the course of the said proceedings it also deposited Rs.20,00,000/- by way of instalment under a settlement/payment plan then agreed between the parties. The income tax record of the Petitioner and its Chief Executive, Mr. Ammar Ahmad Khan, also confirms that the Petitioner was engaged in the manufacturing of the said goods during the period under consideration.
23.The next issue is whether there is evidence that the Petitioner manufactured 867,500 cylinders during 1993-98. Admittedly, the Petitioner maintains storage and filling facilities at four locations, namely Port Qasim (Karachi), Dhodak (District D.G. Khan), Adhi (District Rawalpindi) and Lahore. During the period relevant for our purposes it had an allocation of 50 metric tons per day of LPG from the Dhodak field and 30 metric tons from the Adhi field. Besides, it imported LPG to meet the demand of its customers. According to the Information Memorandum, the Petitioner had a network of 800 distributors who catered to the requirements of approximately 800,000 households and it maintained a circulation of 867,500 cylinders to serve them. Perusal of Paragraphs 1.15, 2.33, 5.4 and 5.14 of the Information Memorandum clearly shows the Petitioner reckoned these cylinders among its assets. This information was corroborated by the income tax records. Further, the Revenue had evidence that the cylinders available with the aforesaid distributors were embossed with the monogram of the Petitioner; they were serially numbered and also carried the manufacturing date. The Petitioner's claim that it manufactured and sold only 3468 cylinders is rather queer because 800 distributors and 800,000 households cannot be serviced with such a small quantity and regular supply cannot be maintained with it. The Petitioner did not furnish any plausible explanation in this regard. It did not say anything about the source of supply of this large number of cylinders in circulation carrying its name.
24.The Revenue sought to establish that the Petitioner had manufactured the said cylinders and in order to evade payment of duties and taxes it had set up a phony firm by the name of Messrs Steel Complex. The Revenue established nexus between the two entities by bringing in evidence that they were located at the same address, both had consolidated income tax returns and that Rafiq Muhammad son of Shah Jehan Khan, who operated Messrs Steel Complex, was in fact an employee of the Petitioner. The Adjudicating Officer obtained information from different government departments/organizations, including LESCO, the Punjab Employees' Social Security Institution, the Employees' Old-Age Benefits Institution, District Labour Officer and the Municipal Corporation, Lahore. All these offices confirmed that Messrs Steel Complex did not exist in their records. In some of them, WAK Limited (Cylinder Manufacturing Unit) and WAK (Private) Limited (Gas Filling Unit) were entered. The Petitioner could not rebut these facts.
25.The finding of the Adjudicating Officer that the Petitioner was the manufacturer of the cylinders, that Messrs Steel Complex was an extended arm of the Petitioner and not an independent entity, and that it was engaged in the evasion of duties and taxes was based on a thorough appraisal of evidence. Similarly, his determination of the quantity of the cylinders manufactured and sold by the Petitioner was fully substantiated. Although the Revenue initiated proceedings against the Petitioner primarily on the basis of the Information Memorandum, there was other evidence gathered from various sources to corroborate it. The Tribunal upheld the findings of the Adjudicating Officer in appeal. Therefore, there are concurrent findings of fact against the Petitioner which were recorded after due evaluation of all the available material. The learned counsel has failed to persuade us that the said findings are based on no evidence or are otherwise perverse which may give rise to a question of law.
26.Learned counsel for the Petitioner vehemently argued that the Tribunal as also the Adjudicating Officer erred in law in relying on the Petitioner's Assessment Orders procured from the Income Tax Department as they were inadmissible in view of the law laid down in the case reported as "Muhammad Saddique and others v. Deputy Collector, Excise and Taxation/Sales Tax Officer, Mirpur and others" (1990 PTD 1088). He also objected to the reliance of the aforesaid authorities on the Information Memorandum on the ground that the figures mentioned therein were not authentic and were given only to attract customers. So far as the first argument is concerned, it is observed that Muhammad Saddique's case is distinguishable from the one we have before us. In that case the taxpayer argued that its business was exempt from all taxes being a small cottage industry. The learned Court held that the taxpayer must produce concrete evidence to substantiate its claim and assessment orders issued by the Income Tax authorities could not validly be used for that purpose. However, in the instant case, the Tribunal and the Adjudicating Officer used the income tax documents merely as a corroboratory piece of evidence to establish tax fraud which is not prohibited by any provision of law. The quantity of cylinders and value thereof was determined on the basis of various sources and was not exclusively linked to the Petitioner's income tax returns or assessment orders.
27.As regards the objection relating to the Information Memorandum, we agree with the learned counsel for the Revenue that the Petitioner never challenged its veracity so it is estopped from doing it now. Further, this Court cannot permit the argument that the said document was issued for "commercial purpose" only and could not be used for tax purposes. The Petitioner is bound by the representations/ declarations that it made to the public to secure an investment.
28.Learned counsel for the Petitioner also relied heavily on the "disclaimer" appended to the Information Memorandum. It is observed that the said disclaimer only absolves Messrs Sidat Hyder Morshed Associates (Pvt) Ltd (Management Consultants) of the liability for any inaccuracy that may be found therein. The Petitioner cannot take its advantage because the entire information given in the booklet was provided by it. Even otherwise, the language of the disclaimer does not suggest that its benefit extends to the Petitioner as well.
29.In view of the foregoing, we answer the above questions in the "affirmative", i.e. against the Petitioner.
Questions VI, VII, VIII & IX
30.These questions essentially pertain to the valuation of cylinders. Learned counsel for the Petitioner assailed the said valuation on two counts. First, he contended that although the Petitioner supplied LPG to its distributors it did not sell the cylinders to them. Notwithstanding the fact that the Petitioner received security deposit for delivery of the cylinders, there was no taxable supply within the meaning of section 2(41) which could make it chargeable to tax under section 3. For this proposition he relied upon "Collector of Central Excise, Madras v. Messrs Indian Oxygen Ltd." (1989 MLD 2454), "Indian Oil Corporation Ltd. v. State of Punjab and another" "North East Gases (Pvt.) Ltd. and another v. State of Assam and others" (2007 (2) GLT 341), and "Indian Oxygen Ltd. v. State of Tamil Nadu" (2001 122 STC 288 Tribunal). Secondly, the learned counsel contended that the Adjudicating Officer assessed the value of an empty cylinder at Rs.1400/- without any legal basis. He submitted that the Revenue had previously determined its value at Rs.650/-. He also referred to the Petitioner's Appeal No. 581/1997 decided by the Tribunal in which the value of its cylinders was fixed at Rs.488.02 per unit for the year 1994-95. On the other hand, cylinders of bigger capacity, i.e. 15 kgs, were valued at Rs.750/- by the Revenue in the year 2002. He next contended that under section 2(46) of the Act the value of supply was the consideration of money received by the supplier and not the market price. The Tribunal and the Adjudicating Officer had taken the alleged open market price for the purpose of assessment which was contrary to law. Even otherwise, the aforesaid assessment by the Adjudicating Officer was without jurisdiction inasmuch as only a committee appointed under section 2(46)(e) was competent to assess the value of supply for purposes of sales tax.
31. Learned counsel for the Revenue controverted the aforementioned contentions. Relying upon "Collector of Sales Tax and Central Excise, Lahore v. Water and Power Development Authority and others" (2007 SCMR 1736) she argued that the learned counsel for the Petitioner had deliberately misconstrued section 2(41) of the Act. The delivery of cylinders did constitute a taxable supply and was accordingly chargeable to sales tax. She further argued that the value of cylinders was assessed on the basis of documentary evidence in accordance with the provisions of the Act. Therefore, no exception could be taken thereto.
32.In order to appreciate the respective contentions of the parties it is imperative that we know what the law applicable was at the relevant time. Section 3 is the charging section. Originally when it was incorporated in the Act its subsection (1) read as under:
3. Scope of tax---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of twelve and half per cent of the value of---
(a) taxable supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him; and
(b) goods imported into Pakistan.
It was amended by the Finance Act, 1996 after which it read:--
3. Scope of tax.---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of sixteen percent of the value of-
(a) taxable supplies made in Pakistan by a registered person in the course or furtherance of any [taxable activity] carried on by him; and
(b) goods imported into Pakistan.
A bare reading of the above provision shows that sales tax under section 3(1)(a) would be chargeable when (i) a registered person (ii) makes taxable supplies (iii) in the course or furtherance of (iv) a taxable activity.
33."Taxable supply" is defined in section 2(41). It read as under during the relevant period:
"(41) "taxable supply" means a supply of taxable goods made in Pakistan [by an importer, manufacturer, wholesaler (including dealer), distributor or retailer] other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4;"
On the other hand, "supply" as defined in section 2(33) which read as under at the relevant time:
"(33) "supply" includes sale, lease or other disposition of goods in furtherance of business carried out for consideration and also includes--
(a) putting to private, business or non-business use of goods acquired, produced or manufactured in the course of business;
(b) auction or disposal of goods to satisfy a debt owed by a person;
(c) possession of taxable goods held immediately before a person ceases to be a registered person; and
(d) such other transaction as the Federal Government, may by notification in the official Gazette, specify."
34.The term "taxable activity" during the period relevant for our present purposes was defined by section 2(35) as:
(35) "taxable activity" means any activity which is carried on by any person, whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture;
35.On the first issue the main thrust of the argument of the learned counsel for the Petitioner was that in order to constitute a taxable supply it must qualify to be a supply within the meaning of section 2(33). Since the ownership of the LPG cylinders was retained by the Petitioner and was never transferred to the distributors, there was no "disposition of goods" as contemplated by section 2(33), ibid, and was thus not a supply.
36.It is noteworthy that the definition of the term "supply" as given in section 2(33) is an inclusive definition. Clause (a) of this subsection is vital for the adjudication of this case as it ordains that when the goods are acquired, produced or manufactured in the course of business, they would be considered as supply when they are put to:
a) private use,
b) business use, or
c) non-business use.
37.In "Collector of Sales Tax and Central Excise, Lahore v. Water and Power Development Authority and others" (2007 SCMR 1736), supra, the Hon'ble Supreme Court of Pakistan explained that "the expression business though has not been defined in the Act yet in the ordinary parlance is used with varying connotation and has been defined by the Courts, including that from foreign jurisdiction, from time to time as it means any trading activity accompanied by regularity of transactions intended for the purpose of making profits; it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit not for sport and pleasure as held in The State of Andhra Pardesh v. Messrs H. Abdul Bakhi and Bros AIR 1965 SC 531 " It is important to note that the expression "business" is followed by the phrase "in the course of" which would imply anything connected with, related to and having some nexus with the business. Under section 2(12) "goods" include every kind of moveable property other than actionable claims, money, stocks, shares and securities, while as per section 2(39), "taxable goods" means all goods other than those which have been exempted under section 13. Since the LPG cylinders were not exempted goods and were acquired, produced or manufactured in the course of business and were also put to business use, they squarely fall within the definition of goods given in section 2(12) and are also covered under clause (a) of section 2(33)(1). Thus they constitute a taxable supply as contemplated in section 2(41).
38.The next important question is whether the supply of LPG cylinders, which we have determined is a taxable supply, is chargeable to tax under section 3(1) of the Act. The learned counsel submitted that LPG was a commodity of a peculiar nature and it had to be delivered in cylinders. Further, because of its peculiar nature and the risks involved, these cylinders must conform to the prescribed safety standards which could only be guaranteed and maintained by the company itself by providing the same. The empty cylinders could not be reckoned as a packing material as they were not sold with the LPG and were taken back by the Petitioner for the purpose of re-filling. Such cylinders were re-used till they had outlived their life. Learned counsel particularly emphasized that LPG cylinders must be distinguished from cement bags, cigarette casings and disposable bottles of beverages where the value of the containers is included in the value of the taxable supply and they are discarded after use. It must be appreciated that section 3 of the Act prescribes certain conditions for chargeability of sales tax, which inter alia include (i) taxable supply made (ii) in the course or furtherance of business. In the case of Water and Power Development Authority (supra), the Hon'ble Supreme Court held that "taxable supply and business are two different expressions with different concepts and operate in their respective fields. The quantum of tax liability is determined on the basis of value of taxable supply, while the liability to pay tax under section 3(1)(a) of the Act arises only when the supply is made in the course or in furtherance of business."
39.The expression "in the course or in furtherance of business" employed in section 3(1) was explained by the Hon'ble Supreme Court in "Collector of Customs, Sales Tax and Central Excise and others v. Messrs Sanghar Sugar Mills Ltd. Karachi and others" (2007 PTD 1902) as under:
"The meaning of 'in the course of' can be taken to mean as connected with, related to and having some nexus with the business/taxable activity and similarly 'in furtherance of' indicative of the fact that taxable supply had been made for the enhancement/further development of the business/taxable activity. The word furtherance has been defined in the Advanced Law Lexicon, Third Edition, 2005, p.1953, as 'act of furthering, helping forward, promotion, advancement, or progress'. In furtherance of has been interpreted as in promoting or advancing in the Oxford English Dictionary, Volume IV, P.169. Furtherance has been defined as 'fact or state of being furthered or helped forward, the action of helping forward, advancement, aid, assistance'. It is abundantly clear that the taxable supply has not been confined or limited to the one which is the product or the goods manufactured but also including those goods which involve in some way with the progress, promotion, advancement of business/activity/taxable activity".
40.The argument sought to be raised by the Petitioner was ultimately that the LPG cylinders were for its own use. As such, they were not chargeable to tax. This argument was negatived by the Hon'ble Supreme Court in the cases of "Sheikhoo Sugar Mills Ltd v. Government of Pakistan and others" (2001 SCMR 1376) and Water and Power Development Authority (supra) to which we have already made certain references hereinabove. In the former case, one of the questions before the Court was whether Bagasse, an intermediary product that the sugar mills produced during the manufacturing of sugar, was liable to sales tax when it was not sold to any third party but was used by the mill itself as a fuel in the process. The Apex Court held that the Bagasse was a marketable and an identifiable item and could be supplied by a corporate entity to itself in the course of business and shall be leviable to sales tax. Similarly, in the WAPDA's case, the issue was whether the printing material and stationary that it prepared for its own consumption was chargeable to sales tax. The Hon'ble Supreme Court held that it constituted a taxable supply made in the course of or in furtherance of business, i.e. activity of generation and selling/supplying electricity being carried on by WAPDA in the form of business. Accordingly, sales tax was payable on these goods. The law laid down in these cases is fully applicable to the one we have before us.
41.We now advert to the cases from the Indian jurisdiction cited by the learned counsel for the Petitioner. In Collector of Central Excise Madras v. Indian Oxygen Ltd., the assessee manufactured dissolved acetylene gas and compressed oxygen gas and supplied them in returnable cylinders. For the purpose of supply of these cylinders it charged certain rentals and to ensure that they were timely returned, it also obtained certain amount from its customers by the way of security deposit. On those deposits notional interest at the rate of 18% per annum was calculated. The question before the Indian Supreme Court was whether the said two amounts, namely, the rentals of the cylinders and the notional interest earned on the security deposit could be included in the value of gas for assessing the excise duty. The Court held that charges like rentals and the notional interest income were for ancillary or allied services and were not an activity of manufacture.
42.In Indian Oil Corporation Ltd v. State of Punjab and another, LPG cylinders were being used for supply of gas to the customers. The questions before the High Court were, firstly, what was the rate of tax applicable on the empty LPG cylinders, and secondly, whether input tax credit would be available on VAT amount paid on the purchase of empty LPG cylinders from local supplies within the State of Punjab. The High Court rendered its judgment with reference to the various provisions of the Punjab VAT Act, 2005.
43.In North East Gases (Pvt.) Ltd. and another v. State of Assam and others, the appellants challenged assessment and consequential demand of tax and penalty on the charges realized by them on retention of their empty gas cylinders by their customers. The contention of the appellants was that they did not carry on business of leasing out the cylinders or transfer of right therein to their customers. The cylinders were the only mode of transportation of the gases and were used as containers. The Gauhati High Court ruled in favour of the taxpayer holding that there was no disposition of the cylinders.
44.In Indian Oxygen Ltd v. State of Tamil Nadu, the issue before the State Taxation Tribunal was again whether the levy of Sales tax at 10 per cent on cylinder holding charges collected by the assessee on the sale of gas was valid. The Tribunal held that it was not.
45.We have minutely examined the above case-law. All these cases are distinguishable on facts and the law laid down therein is with specific reference to the statutory provisions applicable thereto. The present case is governed by the Sales Tax Act, 1990, which is perceptibly different from them. More particularly, learned counsel for the Petitioner could not show us that there was any provision parallel to sections 2(33)(a), 2(35), 2(41) and 3 of our Sales Tax Act, 1990, in the laws that were applied in those cases. In our considered opinion the case-law relied upon by the learned counsel for the Petitioner is not relevant for the purpose of the instant case. In this view of the matter, we hold that the LPG cylinders delivered by the Petitioner to its distributors and/or the consumers was a taxable supply made in the course and in furtherance of a taxable activity and is thus subject to the levy of sales tax.
46.We now proceed to discuss the second argument of the learned counsel for the Petitioner with reference to the questions under consideration which challenges the valuation of the cylinders as also the jurisdiction of the Adjudicatory Officer to assess the same. We have already seen that the quantum of tax liability is determined on the basis of value of taxable supply. This takes us to section 2(46) which consists of several clauses which respectively define the value of supply depending upon the nature of transaction. Clauses (a), (c) & (e) of section 2(46) are relevant for our present purposes which are reproduced hereunder for ready reference:
(46) "Value of supply" means---
(a) in respect of a taxable supply, the consideration in money including all Federal and Provincial duties [and taxes], if any, which the supplier receives from the recipient for that supply but excluding the amount of tax.
Provided that
(b)
(c) in case where for any special nature of a transaction it is difficult to ascertain the value of a supply, the open market price.
(d)
(e) in case where there is sufficient reasons to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the [Inland Revenue] constituted by the [Commissioner] and
47.A bare reading of the above provisions shows that the value of supply is essentially the consideration the supplier receives from the recipient for that supply (including all federal and provincial taxes but excluding the sales tax). In the instant case, since the Petitioner altogether denied the manufacturing and supply of cylinders, clause (a) of section 2(46) would not apply. Therefore, in the peculiar circumstances of the case, the question is whether the value of supply is to be determined on the basis of open market price under clause (c) or a Valuation Committee should be formed under clause (e), ibid. In our opinion; clause (c) will have to be invoked because even clause (e) on which the Petitioner relies is not attracted. This is for the simple reason that clause (e) applies to the situation where there are indications that the value of supply has not been correctly declared in the invoice while in the present case such invoices are not available.
48.In order to determine open market price the Revenue relied upon sale receipts of four distributors of the Petitioner, namely, Messrs S.A. Enterprises, Messrs Mahmood Traders, Messrs Sohail Traders and Messrs Siddique Gas Agency which showed that the empty cylinders were sold in the range of Rs. 1500/- to Rs. 1750/-. It also produced two buyers of these cylinders for cross-examination. We have observed that the present case encompasses the period 1993-98 while the sale receipts produced by the Revenue are dated 03-03-2000 and 08-03-2000. As such, they are irrelevant. The matter must be remanded to the Adjudicating Officer for the determination of the market price.
49.We have noticed that the Collectorate of Central Excise, Customs House, Nabha Road, Lahore, issued Letter No. IV(2)CE/36/ 95/Pt/1754 dated 27-03-1996 which states that the Central Board of Revenue had constituted a committee of three Deputy Collectors for determination of normal assessable value of empty LPG cylinders (Heading No. 7311.0000). The committee recommended the minimum assessable value of empty LPG cylinder at Rs. 650/- per unit from October-1995 onwards. The Adjudicating Officer shall consider the said report for determination of the value of supply of cylinders. Since this is a very old case, he shall decide the matter within sixty days from the date of receipt of a certified copy of this judgment.
50.In view of the foregoing, this application is partly allowed. Office shall send a copy of this judgment under the Seal of the Court to the Appellate Tribunal Inland Revenue, Lahore.
MH/W-8/L Order accordingly.