APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I, ISLAMABAD
STA No.194/IB/2020
MA (AG) No.29/IB/2021
MA (AG) No.32/IB/2021
MA (AG) No.33/IB/2021
MA (Stay) STA Ext. No.1063/IB/2021
(Tax Period Nov. 2017 to April, 2019)
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M/s
KB Business Services, Plot No.B-40 & B-41, Small Industrial Estate,
Taxila. |
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Appellant |
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Vs |
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Commissioner
Inland Revenue (District Zone), RTO, Rawalpindi. |
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Respondent |
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Appellant
By: |
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Mr. Muhammad Wasim, ITP |
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Respondent
By: |
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Mr. Khawar Siddique, DR |
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Date
of Hearing: |
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08.12.2021 |
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Date
of Order : |
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08.12.2021 |
O R D E R
M. M. AKRAM (Judicial
Member): The
titled appeal has been filed by the appellant/registered person against the
Sales Tax Order in Appeal No.32/2020-2021 dated 06.08.2020 passed by the
learned Commissioner Inland Revenue (Appeals-III), Rawalpindi for the Tax Periods
November, 2017 to April, 2019 on the grounds as set forth in the memo of
appeal. Subsequently, the appellant also filed the additional grounds as well
in the instant appeal.
2. Brief
facts culled out from the record are that during the scrutiny of sales tax
returns filed by the appellant registered person for the period from November,
2017 to April 2019, it was observed that the appellant had claimed and adjusted
input tax amounting to Rs.48,794,444/- paid by him on import of “Agricultural
Machinery” on payment of sales tax at the rate of 5% or 7% in terms of Eighth
Schedule to the Sales Tax Act, 1990 (hereinafter referred to as “the
Act”). It was observed that the said amount of input tax was not admissible
for adjustment under Clause (k) of sub-section (1) of section 8 of the Act.
Therefore, a show-cause notice was issued, and thus, the proceedings so initiated
culminated in the passing of the impugned order whereby charges levelled
through the show cause notice were established, however, as a result of the
reconciliation, the amount of inadmissible input tax was rejected at
Rs.9,541,924/- which was held recoverable default surcharge (to be calculated
at time of payment) under section 34 and penalty of Rs.477,096/- as prescribed
at serial No.5 of the table to section 33 of the Act. Being aggrieved, the
appellant filed an appeal before the learned Commissioner Inland Revenue
(Appeals) who vide order dated 06.08.2020 confirmed the treatment accorded by
the Assessing Officer. Aggrieved with this order, the appellant has preferred
an appeal before this forum and assailed the impugned order on a number of
grounds.
3. This case came up for hearing on 08.12.2021.
Learned AR for the appellant in addition to the grounds of appeal enumerated in
the memos of appeal vehemently contended that the proceedings initiated by the
assessing officer directly under section 11 of the Act are void ab-initio. He
explained that before issuance of notice under section 11 ibid, selection of
the case of the appellant for audit under section 25 is a sine qua non and
after conducting an audit, the assessing officer could have only initiated the
proceedings under section 25(2) read with section 11 of the Act. In support, he
placed reliance on the judgment reported as 2015 PTD 1. Further argued that the
assessing officer passed the consolidated order for the tax periods November,
2017 to April, 2019 whereas it had to be passed for each tax period
independently, therefore, the proceedings are void ab-initio. Reliance was
placed on 2011 PTD 1558. It has been stated that the provision of section
8(1)(k) conflicts with the other provisions like sections 7(1), 7A, and 8(1) of
the Act. Further submitted that the appellant being a commercial importer has
been paying the tax under the special procedure and therefore, it is entitled
to claim input tax against the output tax. It has also been stated that the
appellant is a commercial importer, import of agricultural machinery for
further taxable activity, and sold to farmers, therefore, the provision of
section 8(1)(k) is not applicable. On the other hand, the learned DR opposed
the appeal on the ground that the learned Commissioner (Appeals) has passed a
speaking order and there is no illegality or lacuna in his order. He,
therefore, pleaded that the appeal be dismissed.
4. We have heard both the parties and perused
the relevant record with their assistance. We are not persuaded with the
arguments/contentions advanced by the learned AR for the appellant.
Undisputedly, the appellant is a commercial importer, imported the agricultural
machinery subjected to a rate of sales tax @ 7% at import stage under the
Eighth Schedule to the Act, and claimed input tax in respect of the tax periods
November, 2017 to April, 2019. However, while passing the
order-in-original, the assessing officer accepted the contention of the
appellant with respect to the claim of input tax in respect of the tax period 1st
July 2018 to April 2019 on the basis that the rate of tax on import of
agricultural machinery was changed from 7% to 5% through Finance Act, 2018 in
the Eighth Schedule to the Act whereas no corresponding amendment was made in
section 8(1)(k) of the Act. Therefore, the claim of the input tax of the appellant
in respect of the said tax period was in accordance with law. Accordingly, the
claim of input tax to the said extent amounting to Rs.17,631,798/- was allowed.
However, as far as the prior tax period from November 2017 to June 2018
the claim of input tax paid on import of agricultural machinery at the rate of
7% amounting to Rs.9,541,924/- was disallowed on the touchstone of section
8(1)(k) of the Act.
Thus, the grievance of the appellant in
the instant appeal is revolved around the provision of section 8(1)(k) of the
Act. The said provision is reproduced hereunder for convenience: -
“ Tax credit not allowed.- (1)
Notwithstanding anything contained in this Act, a registered person shall not
be entitled to reclaim or deduct input tax paid on –
…………………….
(k) import or purchase of agricultural machinery or equipment
subject to sales tax at the rate of 7% under Eighth Schedule to this Act;”
The
plain reading of the above provisions of law clearly provides that a specific
restriction has been imposed that input tax in respect of agricultural
machinery imported on payment of sales tax at the rate of 7% under the Eighth
Schedule is not admissible for adjustment against output tax. In the instant
case, admittedly, the appellant imported the agricultural machinery subjected
to sales tax @ 7% therefore, it is not entitled under the aforesaid provisions
of law to claim input tax against output tax. Both the authorities below have
rightly disallowed the input tax. Further, we have noted that as per sub-rule
(2) of the Rule 58B of the Special Procedure Rules, 2007 provides that the value-added
tax paid at the import stage shall form part of input tax and the importer
shall deduct from the output tax subject to the limitation and restrictions
under the Act. Thus, the importer in terms of section 8(1)(k) of the Act is not
entitled to deduct input tax paid at the import stage. Accordingly, both the
authorities below have rightly disallowed the same.
As far as the contentions of the
appellant that without first conducting an audit under section 25 of the Act,
the show cause notice under section 11 could not be issued to the appellant is
flawed and not tenable. Somewhat similar contentions were raised by the
petitioners before the Hon’ble Sindh High Court in C.P Nos. D-7255, 4535, 5886,
8451& 8669 of 2017, etc whereby their lordships vide order dated 16.10.2020
observed that: -
“5. The impugned Show Cause Notices in the majority of the petitions have been issued in terms of Sub-Section (2) (barring a few) together with Sub-Section (3), and on perusal of the same, we do not see as to how an interpretation has been sought by the Petitioners that before an audit is conducted no Show Cause Notice can be issued. There is no such linkage or prerequisite, so to say, of an audit mandatorily before issuance of a Show Cause Notice in each and every case. It is settled law that nothing could be read into the statute and impliedly it cannot be read that an audit under Section 25 is mandatory before issuance of a Show Cause Notice. In our view, both provisions are available to the officers of the Inland Revenue Department and if need arises, they can resort to a complete audit under Section 25 of the Act before issuance of a Show Cause Notice; however, at the same time they can also issue a Show Cause Notice without conducting audit on perusal of a Sales Tax Return. In fact, to us it appears that audit being an extensive exercise to be carried out on production of the entire record, resort to a direct show cause notice by the respondents is beneficial to the interest of the Petitioners, relieving them from a cumbersome exercise and apparently listed petitions have been filed without accrual of any cause of action to that extent. Show Cause Notice(s) has been issued and it is settled law that no order could be passed beyond the scope of the same, whereas, an audit may entail additional discrepancies; hence, on that account as well no grievance has accrued. Accordingly, we do not find any merits in the contention so raised on behalf of the Petitioners.” (Emphasis supplied)
5.
Before parting with the judgment, we may
clarify that the assessing officer had allowed the input tax in respect of the
tax period from July 2018 to onward on the ground that the rate of tax on
agricultural machinery was reduced from 7% to 5% through Finance Act, 2018 in
the Eighth Schedule to the Act, however, no corresponding amendment was made in
section 8(1)(k) of the Act, therefore, the appellant was entitled to claim
input tax against the output tax. We
are unable to persuade ourselves to subscribe to the aforesaid view of the assessing
officer. The provision of section 8 is machinery provision as declared by the
superior Courts in numerous cases therefore, it has to be liberally construed.
Further, the provision of section 8(1)(k) is interlinked with the Eighth
Schedule to the Act, after amending the rate of tax in the Eighth Schedule the
corresponding amendment should have been made accordingly. To bring the provisions of section 8(1)(k) dealing with the
disallowance of input tax in conformity with the Eighth Schedule to the Act, an
amendment is necessary failing which the said provision of law will cease to
have an effect. Let this order be sent to the learned Chairman and
Member Legal, Federal Board of Revenue, Islamabad to do the needful in accordance
with the foregoing observations.
6. For what has been discussed above, the
appeal of the appellant is dismissed being devoid of merit, and accordingly,
the order passed by the learned CIR(A) is maintained.
7. This order consists of (06) pages and each
page bears my signature.
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CERTIFICATE U/S 5 OF THE LAW REPORT ACT
This case is fit for reporting
as it settles the principles highlighted above.
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