a GOVERNMENT OF PAKISTAN _ OFFICE OF THE DEPUTY COMMISSIONER IR oq ERR ENFORCEMENT & COMPLIANCE-XXVI (Zone-ll REGIONAL TAX OFFICE, PESHAWAR vamrud Road, University Town Peshawar AUST ae a Dated 13./ 05/2014 | ene a T/E&C-I/CREST (8B)/2014/ BEFORE (BAHADER SHER AFRIDI) DEPUTY COMMISSIONER LR (E&C-XXVI) ASSESSMENT ORDER NO. 142/2014 1. Show Cause No, No. 175 Dated 29/03/2014 2, Respondent (s) MIS Royal Polytex Industries (Pvt) Ltd. TF-70&71, 3" Floor Deans Trade Center, Peshawar STRN. 2100980001073 3. Petitioner Regional Tax Office, Peshawar 4. Dates of Hearing 17/04/2014 and 06/05/2014 5, Date of Judgment 12/05/2014 6. Present for respondent Mr. Yar Rehman (Manager Finance) N.B. An appeal against this order lies to the Commissioner, (Appeal), Inland Revenue), Peshawar within 30 days from the date of receipt of this order. Any such appeal should be annexed by payment of Treasury Challan for Rs. 1,000/- and must be accompanied by a copy of this order bearing a court Fee Stamp of Rs. 2.50 as prescribed under Shedule-litem 6 of the Court Fee Act 1870. BRIEF FACTS: Whereas, as per discrepancies transmitted via e-mail and reported through Computerized Risk-Based Evaluation of Sales Tax (CREST), M/S ROYAL POLYTEX INDUSTRIES PVT LTD having STRN 2100980001073 have declared in their Sales Tax / Federal ¢ Returns for the Tax Periods, 07/2011, 02/2012, 03/2012, 04/2012, 09/2012, 10/2012,11/2012 and 12/2012 that they are excluded from the purview of Sub Scetion 1 of Section 8B of the Sales Tax Act, 1990 under the provisions of SRO 647(1)/2007 dated 27-06-2007 as amended. Whereas, as per their registration record / declaration in their aforesaid return, they are not excluded from the purview of Sub Section 1 of Section 8B of the Sales Tax Act, 1990, hence, they are not allowed to adjust input tax in excess of ninety percent of the output tax for the said tax periods.[Access Input Tax lof Registered Adjustment [Person (Rs) IPewon making) | | | Lzero-rated supplies| iprovided value of] t : 110% of Output Tax. (07/2011 Y jue’ supplies N | lexceeds 50% of | ce Ivalue of all taxable) i lsupplies in a tax! period 022012 1,557,735 (03/2012 bo (04/2012 (09/2012 f 10/2012 11/2012. 12/2012 [TOTAL | -do- 6,225,611 ‘They have claimed excess input tax adjustment of fs. 6,225,611/- which is qnenissible under the provisions of section 7, 8B read with SRO 647(1)/2007 dated ei9e-2007 as amended. Therefore, they are liable to pay illegally adjusted Input “Tax amounting 10 Rs. 6,225,61 1- in respect oftheir aforesaid Tax Periods. 2. “The above mentioned discrepancies were communicated to the respondent vide Show cause notice C.No.125947/175 dated 29/03/2014 and charged with the an travention of sections 3, 6, 22, 23 and 26 of the Sales “Tax Act 1990 read with SRO 647(1Y/2007 dated 27-06-2007 and were called upon to show cause as to why evaded Sales ‘Tax amounting t0 Rs. 6,225,611/- may not be recovered from ‘them under Section 110) & @) of the Sales Tax Act, 1990 along with defauit surcharge under Section 34(1) ibia and penalty under section 33 of the Sales Tax Act, 1990.3. In response to the show cause notice the respondent submitted written reply which is reproduced as under: 1, TAX PERIOD JULY-2011, FEB, MAR & APRIL 2012 “in this regard it is stated that we are engaged mainly in export of plastic products to Afghanistan through proper channel as well as are engaged in local supplies of PP Bags against payment of due taxes, Our total taxable supplies (export *local sales) during the current financial year consist of above 80 % of exports. The main raw material for the PP Bags is Polypropylene Granule having HS code 3902-1000. During the subject period, Polypropylene Granule has been imported properly against payment of due taxes at import stage. Up to June 2012, Polypropylene Granule was subjected to sales tax at higher rate 22%, For the financial period 30.06.2012, portion of imports of Polypropylene Granule at higher rate Rs.663.417 million versus local purchases at standard rate valuing Rs.55.005 million, exceeds 92% of total value of purchases (import + local). Needless 10 mention that in a ongoing business concern, raw material imported during a month, is consumed over a period of several months. Surely, cause for import in bulk, is international feasible cost of the material and other aspect of fixed overheads. Serial No. 4 of the SRO.647(1)/2007 dated 27.06.2007, clearly excludes a manufacturer consuming raw material chargeable to Sales Tax at the higher rate from the purview of Section 8B of the Sales Tax Act, 1990, and whereas, in all Sales Tax return for financial year June 2012, reason for exelusion from the purview of the Section, is stated “ person consuming ......"as discussed above, The enclosed statement, showing details of import of raw material at higher rate and local purchases, obviously verify our above narrated plea, During tax period from July 2011 to June 2012, import of Rs.663.471 million versus local purchases of 55.005 million, clearly presents a picture absolving us from purview of section 8B read with SRO. 647(1)2007 dated 27/06/2007. 2. TAX PERIOD SEP, OCT. AND DEC 2012 As far as the allegation for the period Sep, Oct, Nov and Dee 2012 is concerned, it is clarified that in response to show cause notice issued by worthy Deputy Commissioner Audit-XI, RTO, Peshawar vide C.No. ST/Audit-XU/Royal Poly/2013/261 dated 03.02.2014, Reply for the said allegation and for the said period, has already beensubmitted vide our letter dated 09/04/2014. Copies of the show cause notice and our reply are enclosed herewith for ease of your reference and record. In the light of above, it is clear cute case of double jeopardy which is not permissible in any law in Pakistan, A second prosecution for an offense after the defendant has already been tried for it, has always been prohibited in any law of the country. Therefore, the subject charge is liable to be vacated on the strength of this fact alone. However, besides above, being compliant taxpayer, our additional submissions in the ‘matter are as follows. In all sales tax returns for financial year ending June, 2013,we have declared the reason for exclusion from the purview of the section, as “person making zero rate ‘mentioned at serial No.7 of the SRO.647(1)/2007 dated 27/06/2007. The enclosed statement showing the details of exports and local supplies made during July supplies... 2012 to Dec 2012, confirms our declared plea, During the subject period, we made export valuing 243.96 million which constitute 78% of the total sale proceeds (local-+ export) versus 22.15 million of local sales. The 78% exports, clearly excluded us from the purview of Section 8B and the subject SRO. ORDE! T have gone through the contents/facts of the case available on file and written reply submitted by the respondent. In order to reach a just and fair conclusion in the instant case, it would be appropriate to reproduce the provisions of SRO.647(1/2007 dated 27/06/2007, relevant to the case: “In exercise of the powers conferred by the second proviso to sub-section (1) of section SB of the Sales Tax Act, 1990, the Central Board of Revenue is pleased to direct that the registered person specified in column (2) of the table shall be excluded from the purview of the said sub-section:-S.No. Table 4. Manufacturers consuming raw materials chargeable to sales tax at the rate of 18.5% or 21% provided value of such raw materials exceeds 50% of value of all taxable ‘purchases in a tax period.” 7, “Person making zero-rated supplies provided value of such supplies exceeds 50% of the value of all taxable supplies in the tax period” Sales Tax Returns of the respondent for the periods mentioned in the show cause notice show the following details: Tax Local Exports Purchases Input Tax paid @ period | supplies | Value (Rs)| Local Imports | Local | Imports Value (Rs) (Rs) (Rs) 072011 | 31,806,486 | 8,090,208 3,081,731 | 2,970,506 | 16% 16% 02/2012 | 97,313,647 [0 4,202,281 [0 16% 0 0320127567377 0 0 0 0 0 04/2012 _| 133,585,565 | 23,211,200] 4,275,875 | 7,735,867 | 16% 16% 09/2012 | 2,929,895 | 1,125,025 | 216,522 | 96,219,876 | 16% 16% ‘| 10/2012 [5,160,384 | 1,794,000 | 0 193,604,959] 6 16% 11/2012 | 16,214,905 [3,657,000 | 0 151,101,402] 0 16% 12/2012 [30,759,972 | 3,826,000 [3,880,511 | 2,170595 | 16% | 16% From the perusal of Section $B (1) of the Sales Tax Act, 1990 read with SRO.647 (1)/2007 dated 27/06/2007 and the above declarations of the respondent, it is thus obvious that the respondent was not exempt from the purview of Section 8B (1) of the Sales Tax ‘Act, 1990, and was required to deposit the amount of Sales Tax, as mentioned above, for each Tax Period. Perusal of the written reply of the respondent shows that the respondent has wrongly interpreted and applied the provisions of Section 8B (1) of the Sales Tax Act, 1990 read with SRO.647 (1/2007 dated 27/06/2007.The respondent's contention, that the purchasc/import of raw material at a rate higher than the standard rate of Sales Tax and value of exports exceeding 50% of all other taxable supplies in whole of the corresponding financial years allow exclusion from the purview of Section 8B (1), isbased on wrong application of the provisions of Section 8B (1) of the Sales Tax Act, 1990 read with SRO.647 (1/2007 dated 27/06/2007. As mentioned above, serial no 4 and 7 of SRO.647 (1/2007 clearly allow exclusion from the purview of Section 8B, if the conditions are met in a given tax period and not on the basis of the combined values of purchases and supplies and input tax paid thereon for whole of the year. As is evident from the declarations of the respondent, neither Input Tax has been paid at 18.5% or 21% nor the value of such raw material exceeds 50% of value of all taxable purchases in each tax period mentioned above. Secondly the value of Zero rated supplies i.c exports is also less than 50% of the value of all taxable supplies in each tax period, In view of the above, it is thus evident that the respondent has violated the provisions of Section 8B (1) read with SRO.647 (1/2007 dated 27/06/2007. Therefore the charges ‘led in the Show Cause Notice C.No.125947/175 dated 29/03/2014 are established and le Thereby order the n covery of Sales Tax amounting to Rs.6,225,61 1/- as principal amount along with default surcharge ws 34 of the Sales Tax Act,1990 to be calculated at the time of actual payment and penalty at Rs.311,281/- w/s 33 (5) of the Act ibid This order consists of (06) pages and each page bears my official seal and signature. ole (BAHADAR SHER AFRIDI) DEPUTY COMMISSIONER IR (E&C-XXVD Mis ROYAL POLYTEX INDUSTRIES PVT LTD, TF-70 &71 3RD FLOORDEANS TRAL CENTER, PESHAWAR. Registered: Copy to: 1, The Commissioner LR, Zone-IIl, R10, Peshawar, 2. The Additional Commissioner IR, Zone-IIl, RTO, Peshawar. 3. Office Copy. 4. Master File. O[L GanAparsHER AFRIDI) UTY COMMISSIONER IR (E&C-XXV1)