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2011 PTD (Trib) 1306

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    INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN

    Messrs Fauji Kabirwala Power Company LTD, Khanewal

    Versus Commissioner of Income Tax, Islamabad

    HEAD NOTE S.T.A. No. 132/IB of 2010 Before: Munsif Khan Minhas, Judicial Member and Ikram Ullarf~raur Accountant Member

    Rashid Ibrahim, FCA for Appellant. Imran Shah, DR/Senior Auditor for Respondent

    Decided on: 3rd March, 2011 Citation: 2011 PTD 1306; (2012) 104 TAX 203 (Trib.) (a) Sales Tax Act (VII of 1990)

    S. 30---Auditor General's Functions, Powers and Terms and Conditions of Service) Ordinance (XXIII of 2001), S. 12---S.R.O. 1195(1)/90 dated 17-12-1990---Authorities---Audit by staff of Directorate of Revenue Receipt Audit---Officers of Directorate of Revenue Receipt Audit had not been vested with powers of Sales Tax Officer and therefore, could not conduct audit of a tax payer directly.

    [p. 1318] A

    2007 PTD (Trib.) 1600 and 2008 PTD (Trib.) 261 rel

    (b) Sales Tax Act (VII of 1990) Ss. 25 & 30---Auditor General's (Functions, Powers and Terms and Conditions of Service)

    Ordinance (XXIII of 2001), S.12---S.R.O. 1195(1)/90 dated 17-12-1990---Auditor General of Pakistan's Circular No.1167-Coord(Hq)PRA/35-2007 dated 29-2-2007---Access to record, documents, etc.---Initiation of adjudication proceedings on observations of staff of Directorate of Revenue Receipt Audit---Validity--Initiation of adjudication proceedings based on the pointation or observations of Directorate of Revenue Receipt Audit was perfectly lawful---To say that the Directorate of Revenue Receipt Audit could not point out any short payment or inadmissible adjustment of input tax was to disable the constitutional duty of the institution of the Auditor General which had the responsibility of protection of public revenues and tantamounted to denying the constitutional role of Public Accounts Committee in safeguarding the public revenue---Directorate of Revenue Receipt Audit analyses the federal revenue receipts on the basis of tax record of a tax collecting agency---Since, .tax collecting agency collects tax from a taxpayer, it was quite rational that the taxpayer records had to be scrutinized in order to figure out any leakage of r avenue---Directorate of Revenue Receipt Audit could exercise the functions of review of the audit receipts of a federal tax collecting agency only by examining the tax record of a taxpayer---Directorate of Revenue Receipt Audit pointed out short payment of the tax not to the taxpayer, but to the tax collecting agency, which was quite lawful---Directorate of Revenue Receipt Audit did not audit the taxpayer's account directly---Every citizen of the State had a duty to point out evasion of public money---If a complaint by a private person leads to recovery of a short paid tax, the complainant had vested right to payment of reward according to the Reward Rules notified by the Federal Board of Revenue from time to distinguished.

    [p. 1319) B

    2007 PTD (Trib.) 1600 and 2008 PTD (Trib.) 261 distinguished

    (c) Sales Tax Act (VII of 1990) S.8(1) & (2)---S.R.O. 555(1)/2006 dated 5-6-2006---Tax credit not allowed---Determination

    of input tax---Taxable and non-taxable supplies---Apportionment of---Section (1) of the Sales Tax Act, 1990, specifically postulates the qualification for re-claiming or deduction of input tax paid

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    and S.8 (2) of the Act hypothesizes that if a person deals in taxable and non-taxable supplies at the same time, he could reclaim only such portion of the input tax as was attributed to taxable supplies in such manner as specified by the Board.

    [p. 1328] C

    (d) Sales Tax Act (VII of 1990) -- Ss.3, 7, 8, 2(33), 2(35) & 2(46) STGO No.1 of 2000 dated 24-1-2000---STGO No.3 of 2004 dated 12-6-2004---

    S.R.0.578(I)/98 dated 12-6-1998---Sales Tax Special Procedure Rules, 2006, R.38 (3)---Sales Tax Special Procedure Rules, 2007, R.13---Scope of tax---Taxpayer, a power supply company---Energy purchase price---Capacity purchase- price---Claim of input adjustment---Apportionment of---Contention that input adjustment could only be claimed for the sales tax paid on energy price---Validity---Expression "supply" includes capacity purchase price as it was received by the taxpayer in furtherance or in connection with her business---Capacity purchase price, energy price premium, excess bonus and supplemental charges etc., were part of total sales but were specifically excluded for the purpose of valuation of supply under S.2(46) of the Sales Tax Act, 1990---If the supply was either non-taxable, or exempt or excluded from the value of supply under S.2(46) of the Sales Tax Act, 1990, no input adjustment in respect thereof was admissible under Ss.7 and 8 of the Sales Tax Act, 1990---Section 8(1)(a) of the Sales Tax Act, 1990 specifically provides that no input adjustment or tax credit could be claimed in respect of any goods or services used or to be used for any purpose other than for taxable supplies made or to be made---Taxable supply was a sine quo non for claim of input adjustment which was not absolute but contingent upon a supply being taxable---Capacity purchase price portion of the consideration received by the taxpayer was not a taxable supply and claim of tax credit in respect thereof was prima facie inadmissible which necessitates apportionment of total input tax for total supplies into two distinct categories i.e. taxable and non-taxable supplies---Energy purchase price was taxable and capacity purchase price, energy price premium, excess purchase supplemental charges etc., were non-taxable or not taxable---Taxpayer could not claim input adjustment without fulfilling criteria laid down in Ss.7 and 8 of the Sales Tax Act, 1990---Taxpayer was liable to apportionment of total input tax claimed between the taxable (receipt or turnover on account of energy purchase price) and non-taxable (receipt or turnover on account of capacity Purchase price, energy price premium, excess bonus and supplemental changes etc.)---App was found to be without any merit and the same was dismissed by the Appellate Tribunal and order of adjudication officer and the First Appellate Authority was sustained---Additional tax and penalty imposed was remitted for the reason that taxpayer was1not found to have wilfully defaulted the payment of sales Tax

    Sheikhoo Sugar Mills Ltd. v. Government of Pakistan and others 2001 SCMR 1376 = 2001 PTD 2097; Messrs Ambar Tabacco Co. (Pvt.) Ltd. Distt. Swabi v. The Additional Collector, Sales Tax and 3 others 2003 PTD 800; Collector Customs, Central Excise and Sales Tax, Karachi (West) v. Navartis Pakistan Ltd. 2002'PTD 976; Messrs Service Industries Ltd. v. Federation of Pakistan and 5 others 2002 PTD 2845; Messrs Al-Hailal Motors Store and others v. The Collector, Sales Tax and Central Excises (East) Karachi and others 2004 PTD 868; Messrs Umani Associates Sub-Proprietary Firm v. Central Board of Revenue and another 2001 PTD 2982; Collector Sales Tax and Central Excise (West), Karachi v. Messrs Al-Hadi Industries (Pvt.) Ltd. 2002 PTD 2457; Messrs Peoples Concerns (Pvt.) Ltd. Gadoon Amazai, Industries Estate, Sawabi v. Assistant Collector, Sales Tax Peshawar PTCL 2003 CL 428; Messrs Mayfair Spinning Mills Ltd. Lahore v. Customs, Excise and Sales Tax Appellate Tribunal, Lahore and 2 others PTCL 2002 CL. 115; Collector of Customs, Sales Tax and Central Excise and others v. Messrs Sanghar Sugar Mills Ltd., Karachi and others PLD 2007 SC 517 = 2007 PTD 1902; Ghandhara Nissan Diesel Ltd. v. Collector, Large Tax Payers Unit and 2 others 2006 PTD 2066 and 2008 PTD (Trib.) 261rel.

    (e) Sales Tax Act (VII of 1990) Ss.33 & 34---Offences and penalties---Default surcharge---Scope---Generally, default

    surcharges and penalty was imposed as punishment or economic sanction against a deliberate attempt to evade---Taxpayer simply took advantage of a rule that enabled him to avoid taxTax avoidance was "rule assisted". There being no mens rea, or a wilful default on part of taxpayer, the imposition of default surcharge and penalty was set aside by the Appellate Tribunal.

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    (f) Sales Tax Act (VII of 1990) S.8 (1)(a)---Constitution of Pakistan, Art.25---Tax credit not allowed---Discrimination---

    Remission of lawful tax liability could not be allowed just because the department did not take action to recover lawful tax from other IPPs---Rule of consistency would require that all other IPP should also be given the same treatment as had been given to the present taxpayer -Sales Tax Act sufficiently enables the department to invoke demand from others, too on case by case basis but subject to due process of law---Federal Board of Revenue may like to issue necessary instructions to all of its field formations to conduct audit of all such IPPs within their area of jurisdiction in order to quantify the illegal and inadmissible input adjustments taken by such IPPs on the strength of illegal rules framed by Federal Board of Revenue against the statutory provisions contained in S.8(1)(a) of the Sales Tax Act, 1990, and recover the amount after fulfilling all codal formalities under the law in case it was figured out that there had been loss to the public money.

    [p. 1332] E

    2004 PTD 2294 and 2004 PTD 942 ref

    (g) Sales Tax Act (VII of 1990)-- Ss.2(46), 7 & 8---Sales Tax Rules 2006, R.13---Sales Tax General Order No.3 of 2004 dated

    12-6-2004---Federal Board of Revenue letter C.No.3(4) ST-L&P/07 dated 2-12-2008---Value of supply---Capacity purchase price---Exclusion of capacity purchase price from purview of value of supply through device of Sales Tax General Order No.3 of 2004 dated 12-6-2004---Validity---Federal Board of Revenue or any other executive agency was not

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