Commissioner Inland Revenue Sp Zone Regional Tax Office Multan vs M/S Hafeez Ghee & General Mills Pvt Ltd

Form No. HCJD/C-121

IN THE LAHORE HIGH COURT,

MULTAN BENCH, MULTAN.

JUDICIAL DEPARTMENT

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Commissioner Inland Revenue, Versus M/s. Hafeez Ghee & General Special Zone, Regional Tax Mills (Pvt) Ltd, Bahawalpur Office, Multan. Road, Multan.

S.No. of order/ Date of order/ Order with signature of Judge, and that of parties or Proceeding Proceeding counsel, where necessary 01.02.2017 Mr. Muhammad Tariq Rasheed Qamar and Shahid Iqbal, Advocate for petitioner.

Mr. Tanvir Ahmad and Furqan Ahmad Khan, Advocate for the respondent.

This Sales Tax Reference filed under Section 47 of the Sales Tax Act, 1990 is directed against the judgment of the Appellate Tribunal Inland Revenue, Lahore Bench, Lahore (Appellate Tribunal) dated 27.08.2013, whereby appeal filed by the respondent was allowed and the order of the Commissioner Inland Revenue (Appeals) dated 11.09.2012 and Order-in-Original No.104/2012 dated 29.06.2012 were set-aside. The following questions of law arising out of the impunged judgment have been proposed for determination by this Court:-

1.“Whether on the facts and in the circumstances of the case the learned Appellate Tribunal Inland Revenue is justified to ignore the provision of section. 8 B(1) of the Sales Tax Act, 1990, read with SRO 647 (1)/2007, dated 27.06.2007, which clearly states, inter alia, that a Registered Person shall not be allowed to adjust input tax in excess of

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ninety percent of the output tax for the tax period?”

2.“Whether on the facts and in the circumstances of the case the learned Appellate Tribunal Inland Revenue is justified to vacate the Order-in- Original and Order-in-Appeal ignoring that the supplies of ghee and edible oil were not excluded from purview of the SRO 647(1)/2007 dated

3.“Whether on the facts and in the circumstances of the case the learned Appellate Tribunal Inland Revenue is justified to ignore the provision at Serial No.24 of 6th Schedule of the Sales Tax Act, 1990 read with section 2(21a) of the Federal Excise Act, 2005, which clearly describe the meaning of charging, levying & collection of Federal Excise Duty in Sales Tax mode?”

2.Brief facts of the case are that the respondent company is a composite unit having a solvent section and a ghee section. The solvent section is excluded from the application of section 8-B of the Sales Tax Act, 1990. The respondent company claims to be entitled to adjust 100% of input tax of the solvent section against the output tax. The respondent company adjusted input tax at Rs.40,674,816/- during the months of July, 2009 to April, 2012 . Show-cause- notice was issued to the respondent company for wrong adjustment of input tax and violation of provisions of Section 8-B of the Sales Tax Act. The DCIR passed sales tax Order- in-Original charging Rs.40,674,816/- along with default surcharge under Section 34 and penalty under Section 33 (5), 33(6), 33(17) of the Sales Tax Act, 1990. Respondent filed appeal which was dismissed by the Commissioner Inland Revenue

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(Appeals), Multan on 11.09.2012. Both the orders were challenged before the Appellate Tribunal. The Tribunal set-aside both the orders by holding that tax-payer cannot be deprived of its legitimate right of adjustment of input tax. The petitioner now contends that the respondent could only adjust 90% of input tax as sales tax and has wrongly adjusted 100% tax, therefore, the judgment is not sustainable in the eye of law.

3.The Appellate Tribunal reached the conclusion that the respondent is a composite unit.

The respondent’s case is compatible with the intention laid down in serial No.4 of the SRO.647(1)/2007 dated 27.06.2007, which excludes the solvent extracting unit of edible oil mill from the application of Section 8(B) of the Act provided value of such raw material exceeds 50% of the value of all taxable purchases in a tax period and only four months i.e., November 2009, September, 2010, January 2011 and July 2011 where the adjustment of 100% input tax was not called for as conditions of the notification were not met with. The format of the return has only one column and does not show two separate columns for 90% adjustment and 100% adjustment.

Therefore, the respondent made 100% adjustment

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for the whole period under appeal. The sales of cooking oil and vegetable oil are exempted from sales tax as per serial 24 of 6th schedule of Sales Tax Act, 1990. Federal Excise Duty is only chargeable @ 16% on above mentioned

commodities as envisaged by Section 3 of Federal Excise Act, 2005 read with Ist and 2nd schedule of Federal Excise Act, 2005.

4.The Appellate Tribunal had reached the conclusion that by adjustment of 100% input tax against output, no loss has been caused to the revenue because the said amount could subsequently be adjusted by the respondent and the taxpayer cannot be deprived of its legitimate right to do so. Furthermore, explanation has been given by the respondent that in Form there are no separate columns for 90% adjustment and 100% adjustment.

As major portion of input tax was 100% adjustable therefore, they had sought 100% adjustment of the sales tax. We do not find any illegality in the view taken by the Appellate Tribunal that the respondent was entitled for 100% adjustment. Although procedure prescribed in law has not been followed, at the most the department can claim penalty for the said lapse. Therefore, in view of what has been stated above, we hold the question No.1 in the

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affirmative i.e., against the petitioner-department.

The questions No.(ii) to (iii) do not arise out of the judgment of the Appellate Tribunal, therefore, need not be replied. For the reasons recorded above, this Tax Reference is decided against the department.

5.Office shall send a copy of this order under the seal of the Court to the Appellate Tribunal.

(SHAHID KARIM) (MUZAMIL AKHTAR SHABIR)

JUDGE JUDGE

Zeeshan Khan