IN THE SUPREME COURT OF BANGLADESH HIGH COURT DIVISION

(SPECIAL STATUTORY JURISDICTION)

VALUE ADDED TAX APPEAL NO. 68 OF 2018

IN THE MATTER OF:

An appeal under Section 42(2)(Ga) of the Value Added Tax Act, 1991.

And

IN THE MATTER OF:

M/S. City Sugar Industries Ltd.

.... Appellant

-Vs-

Customs, Excise and VAT Appellate Tribunal and others

....Respondents

Mr. M.A. Hannan with Mr. Abdus Samad Azad, Advocates

...... For the appellant

Ms. Mahfuza Begum, Deputy Attorney General, Ms. Sayeda Sabina Ahmed Molly, Mr. Ali Akbor Khan, Assistant Attorney Generals.

.......  For the Respondents-government.

Heard on 16.11.2023, 23.11.2023, 30.11.2023 and 13.12.2023

Judgment on 15.01.2024

Present:

Mr. Justice Md. Iqbal Kabir

              and

Mr. Justice S.M. Maniruzzaman

S.M. Maniruzzaman, J:

The instant VAT Appeal filed under Section 42 (1)(Ga) of the Value Added Tax Act, 1991 (in short, the Act, 1991) is directed against the order dated 30.08.2018 passed by the respondent No. 1, Customs, Excise and VAT Appellate Tribunal (Tribunal) in Nathi No.  CEVT/Case(VAT)-

150/216 communicated vide Nathi No. CEVT/Case (VAT)-150/216/125 dated 12.09.2018 dismissing the appeal and thereby upholding the order passed by the respondent No. 2, Commissioner, Customs, Excise and VAT Commissionerate, Dhaka (East), Dhaka vide Nathi No. 3(9)77/Re:Hi:/City Sugar Ind:/Ltd./Sadar Audit/2015/772 dated 14.08.2016 directing the appellant to pay amount of Tk. 87,65,617.50 as evaded VAT under Section 55(3) and Tk. 52,59,370.00 as interest under Section 37(3) of the Value Added Tax Act, 1991 (in short, the Act, 1991) total Tk. 1,40,24,988.00.

Facts, relevant for disposal of the appeal, in short, are that the appellant is a limited company incorporated under the Company Act, 1994 and is engaged in the business of manufacturing finished sugar by using imported raw sugar and after manufacturing sells the same in local market on payment of applicable duties and taxes in accordance with law. In course of business, the appellant obtained VAT registration certificate from the concerned VAT office under the Act, 1991 for the purpose of payment VAT and since then it has been paying VAT regularly with satisfaction of the VAT Authority.

Suddenly an audit team of the respondent No. 2 entered into the appellant’s factory for the purpose of audit and requested to produce necessary commercial documents and which were submitted by the appellant on 28.05.2015 before the audit team. Thereafter the audit team on 06.09.2015 submitted report to the authority concern. Further on 29.10.2015 the audit team requested the appellant to submit Mushok- Challan-11 in respect of purchasing packaging items for amount of Tk. 23,73,29,300.00 for the period of July,2012 to June, 2014 regarding payment of VAT and deduction of tax at source.

 In response thereto, the appellant submitted Mushok-Challan-11 for amount of Tk. 9,21,83,058.00 in relating to 2(two) enterprises namely M/S City Fiver Ltd., Demra, Dhaka and M/S Macca Multilayer Ltd. Kerangionj Dhaks. The concerned VAT Authority further requested the appellant to submit Mushok-Challan-11 in respect of remaining amount of Tk. 14,51,46,242.00. In response thereto, the appellant supplied the Mushok- Challan-11 with name of the enterprises from which the Mushok-Challans had been issued by the (i) M/S Balaka Fiver Industries, Nayangonj (ii) M.s. Macca Multilayer Ltd., Teghoria, Kerariganj and (iii) M/S Nahid Enterprise, Lalbag, Dhaka.

Upon receipt thereto, the concerned VAT Authority sent all challans to the concerned Circle for examining and after producing of the said challans the  concerned Circle informed that 72 (seventy two) challans amounting to Tk. 4,75,32,000.00, 15(fifteen) challans amounting to Tk. 69,90,000.00 and 8(eight) challans amounting to Tk. 39,15,500.00 issued by M/S Balaka Fiber Industries, M/S. Ideal Fiber Industries and M/S Nahid Enterprise respectively were not found correct, but 14 (fourteen) challans issued by M/S Macca Multilayer Ltd. were found correct and as such the challans amounting to Tk. (9,21,83,058.00+ 1,09,00,604.00)= Tk. 10,30,83,662.00 were found correct.

Pursuant to the said information, the respondent No. 2 issued a demand cum-show cause notice upon the appellant on 06.03.2015 directing to pay amount of Tk. 3,50,93,171.00 as evaded VAT. By the said notice, the appellant was also asked to give reply to the notice within the period stipulated therein.

On receipt thereto, the appellant replied to the notice on 03.04.2016 contending that the appellant never evaded any VAT in respect of the goods which were purchased by the appellant from different enterprises. In support of reply the appellant submitted challans in respect of payment of VAT and the adjudication authority fixed the date on 03.04.2016 for hearing.

Upon receipt reply to the notice, the adjudication authority further sent all the challans for examination by the concerned Circle and the Circle submitted report on 23.06.2016 stating that the challans as prescribed in the notice issued under Section 55 were found correct. It was further observed that the appellant company purchased packing materials from M/S Rahman Synthetics Ltd. vide L/C No. DPCDAK- 249892 dated 06.12.2016 for amount of US$ 1,28,520.00 equivalent to BD Tk. 1,06,06,958.00 and remaining packaging materials of Tk. 22,67,24,342.00 were purchased from 05(five) companies. By examining the said challans it was found that 95 (ninety five) challans out of 385 (three hundred eighty five) challans were found incorrect. Against the said 95(ninety five) challans, the purchased price of materials of Tk. 5,84,37,450.00 and 15% VAT on the said amount stood at Tk. 87,65,617.50 which was payable by the appellant and 2% interest on the said amount of Tk. 52,59,370.00 also liable to pay by the appellant. Considering the report the respondent No. 2 upon hearing the appellant made the demand final under Section 55(3) of the Act, 1991 on 06.03.2016 directing the appellant to pay the tune of Tk. 87,65,617.50 as evaded VAT under Section 55(3) and 2% interest of the said amount to the tune of Tk. 52,59,370.00 under Section 37(3) of the Act, 1991.

Challenging the said order, the appellant preferred appeal before the Tribunal being Appeal No. CEVT/Case(VAT)-150/2016 and after hearing the contending parties, the Tribunal dismissed the appeal and thereby affirmed the adjudication order by its order dated 30.08.2018.

Feeling aggrieved by and dissatisfied with the order of the Tribunal dated 30.08.2018, the appellant preferred the instant VAT appeal before this Court.

Mr. M.A. Hannan, learned Advocate appearing for the appellant submits that the Tribunal committed error of law and fact in dismissing the appeal and thereby upholding the order dated 14.08.2016 passed by the respondent No. 2 in view of fact that the demand notice issued under Section 55(3) of the Act, 1991 the respondent No. 2 demanded an amount of Tk. 87,65,617.50 as VAT and at the same time calculated penal interest of Tk. 52,59,370.00 at the rate of 2% under Section 37(3) of the Act, 1991 without making any proceeding under the said Section and as such directing to make payment of total Tk. 1,40,24,988.00 which includes interest of Tk. 52,59,370.00 in the proceeding under Section 55 most illegally and liable to be set aside. Mr. Hannan next submits that demand of VAT and penal interest under Section 37(3) could not claim simultaneously in a proceeding under Section 55 without any proceeding under Section 37 of the Act, 1991, the amount of Tk. 52,370.00 imposed as penal interest is not sustainable in the eye of law in view of the purchased goods which includes VAT @15% and as such the allegation of evasion of VAT or non-

payment of VAT against the appellant is vague and not sustainable in law and hence the impugned order is liable to be set aside. Mr. Hannan, by referring Sub-section 2 of Section 6 submits that VAT is payable when the goods is supply or challan is issued but in the present case Mushok- Challans-11 have been issued in favour of the appellant and the appellant paid the applicable VAT and as such there is no scope to demand VAT on allegation of fake challan issued by 3(three) enterprises. In view of the above provision of law the appellant is not liable to such allegation, but both the authorities below without considering the said provision of law directed the appellant to pay VAT along with interest. Mr. Hannen, by referring Section 3 further submits that the allegation brought against the appellant by the VAT Authority to the effect that the appellant failed to deduct VAT at source. Admittedly the appellant purchased the goods from the supplier and supplier issued Mushok-Challan-11 in favour of the appellant, however, the appellant not a Service Provider or a Service Recipient and the allegation for deduction of VAT at source made against the appellant is not applicable under Section 3 of the Act, 1991. In view of the above, the learned Advocate prays for allowing the appeal and setting aside the impugned order of the Tribunal.

On the other hand, Mr. Elin Imon Saha, learned Assistant Attorney General appearing for the respondent No. 1 submits that the VAT Authority after examination of Mushok-Challan-11 so submitted by the appellant before the VAT Authority it was detected that total 95 challans were not found correct and the said fact was not denied by the appellant before both the authorities below, the Commissioner as well as the Tribunal by  concurrent findings of the fact  to  the  effect  that   the  appellant by producing incorrect Mushok-Challan-11 tried to evade VAT to the Tune of Tk. 87,65,617.50 for the period of July, 2012 to June, 2014 and also liable to pay interest at the rate of 2% under Section 37(3) of the Act, 1991 on the said amount of evaded VAT. In view of the above, there is no illegality in the impugned order so passed by the Commissioner as well the Tribunal.

We have heard the learned Advocate for the appellant and the learned Assistant Attorney General for the respondent-government and have perused the memo of appeal and relevant materials on record so appended thereto.

It however, appears from record that pursuant to the audit report a proceeding had been initiated by the respondent No. 2 against the appellant under Section 55(1) of the Act, 1991 on 06.03.2016 contending inter alia that the appellant did not produced Mushok-Challan-11 in respect of purchasing packing materials to the tune of Tk.14,51,46,242 and 15% of VAT on the said amount of Tk. 2,17,71,937/- and also failed to deduct VAT at source to the tune of Tk. 10,61,0295/-. The appellant is liable to pay evaded VAT to the tune of Tk.2,1933,232/- and 2% interest on the said amount of Tk. 52,59,370.00 total amount of Tk. 3,50,93,171/- .

Pursuant to the said show cause notice the appellant replied thereof and the respondent No. 2, Commissioner upon examination of the audit report and hearing the appellant made the demand final under Section 55(3) of the Act, 1991 directing to pay VAT to the tune of Tk. 87,65,617.50 instead of Tk. 2,19,33,232/- and interest of Tk. 52,59,370.00 under Section 37(3) of the Act 1991 holding inter alia;

04z                         ,               

            ew ¢X¢f¢p¢XH−L        / /      h¡wm¡−cn

V¡L¡l  j§mÉ (     +  , )= , , ,  .     ।

, , ,  /-                             h¢ZÑa  fË¢aù¡e  q−a  œ²u                            -

−j¡V 5¢V fË¢aù¡e q−a 385¢V Q¡m¡−el j¡dÉ−j 22,47,24,342/- V¡L¡ j§−mÉl fÉ¡−L¢SX p¡jNË£ œ²u L−l−Re k¡l j−dÉ 95¢V Q¡m¡e p¢WL f¡Ju¡ k¡u ez Eš² 95 ¢V Q¡m¡−el ¢hfl£−a œ²uL«a EfLlZ j§mÉ 5,84,37,450/- V¡L¡ j§−mÉl Q¡m¡e p¢WL e¡ b¡L¡u 15% q¡−l Ev−p j§pL Ev−p LaÑ−el ¢hd¡e b¡L¡u a¡ fË¢aù¡−el ¢eLV q−a Bc¡u−k¡NÉ z ¢eeÈ RL BL¡−l f¢lq¡lL«a j§p−Ll f¢lj¡e ®cM¡−e¡ q−m¡-

p¡¢hL fkÑ¡−m¡Qe¡u ¢el£r¡ ®ju¡−c fË¢aù¡−el ¢eLV q−a 1,40,24,988/-V¡L¡ j§mÉ pw−k¡Se

Ll BCe, 1991 Hl d¡l¡ 55(3) ®j¡a¡−hL Bc¡u−k¡NÉ j−jÑ f¤ex ¢el£r¡ fË¢a−hc−e E−õM Ll¡ q−u−Rz

Now the issue requires to be addressed in the instant appeal is that whether incorrect VAT Challan have/had been issued by the supplier in favour of the purchaser against the sold goods then the purchaser is liable to pay VAT against the said challan.

Another issue requires to be addressed is that whether the interest claimed by the VAT Authority under Section 37(2) in the proceeding so initiated under Section 55 of the Act, 1991 is in according with law.

In order to appreciate the aforesaid issues let us first have a look at the relevant provisions of the Act, 1991 for proper disposal of the appeal

which are quoted below for cursory glance:

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(M)  Customs Act, 1969 (IV of 1969),      Customs Act            ,    section 24        

              ,                                  -                  ,   :

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          :

( ) Customs Act   section 131                                     ,                 (bill of export)

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( )                          ,-

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( )                     ৎপািদত          ,     

ৎপাদন ;

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Section 6 of the Act, 1991 is also necessary for disposal of the appeal

which runs as follows:-

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Castoms Act    q¡  Ad£e                        −  ó      HCl¦f                     −ke q¡  Act-  Ad£−e    

B       ;                   −rœja

      ¿»−Zl                cš         ¢h¢dj¡m¡, B−cnpj§q h¡          ,       ,         Act                    š

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            l¦−f q −k Eq¡  ®ól

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( )                                                       

ৎপািদত  ,     ,     

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 )                                ।

( )                         ;

( )                                qC−a h¡wm¡−c−n ®ph¡l plhl¡q NËqZ Ll¡ qC−m kMe Bw¢nL h¡ f§ZÑ j§mÉ f¢l−n¡d Ll¡ quz

( )    ( )                                                                                                                 ।।

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                             ,                   ৎেস                  ।।

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                      :

a−h naÑ b¡−L ®k ®L¡e fËL−Òfl BJa¡u ®L¡e ®ph¡ NËqZL¡l£ La«ÑL fË−cu                                    ,     ,             

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-    ,                               

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                           ।

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                    ,                                             ৎেস                    ,             

                   ।

Thus, on a plain reading of Section 3 it, however, appears that VAT

shall be imposed and payable at the rate of 15% on the base value mentioned in Section 5 upon all goods imported into Bangladesh except the goods listed in the First Schedule of this Act on the supply of all goods no listed in the said schedule and on all the services rendered in or imported into Bangladesh except those services specified in the Second Schedule of

this Act. VAT shall be payable by:

1.    in case of imported goods, the importer at the point of import;
2.    in case of goods manufactured or produced in Bangladesh, the supplier at the point of production or manufacturing;
3.    in case of service rendering the renderer of service;
4.    in case of supply of services from outside the geographical area of Bangladesh, the recipient of service.

In the present appeal, the appellant is not a supplier, it purchased

packaging items from the different manufacturer/suppliers by payment of VAT and the suppliers had issued Mushok-Challan-11 in respect of payment of VAT.

Thus, from quoted provision of Sub-section (1) and (3) of Section 3, Sub-section (2),(4),(4KaKa), (4KaKaKa) of Section 6 it however, appears that the VAT to be deducted at source at the rate of 15% from the manufactured goods who supplied his/it product/goods on payment of VAT by Mushak-Challan-11.

In the instant appeal, the appellant purchased packaging goods amount of Tk. 22,67,24,342 from the suppliers namely (i) M/S City Fiver Ltd. Demra, Dhaka and (ii) M/S Macca Multilayer Ltd. Keranjonj (iii) M/S Balaka Fiber Industries (iv) M/S Ideal Fiber Industries and (v) M/S. Nahid Enterprise by 385 Mushok-Challans-11 out of which the VAT authority found 95 Mushok-Challans-11 amount of Tk. 5,84,37,450 issued by M/S Balaka Fiber Industries, M/S Ideal Fiber Industries and M/S. Nahid Enterprise were not found correct.

It is quite surprising that VAT at the rate of 15% on the same amount of Tk. 87,65,617.50 is liable to pay by the appellant, but the VAT Authority without taking any proceeding against the said 3 (three) enterprises who were issued fake Mushok-Challan-11 and received VAT from the appellant against the Challans in question. The adjudication authority without considering the stated provision of law most illegally directed the appellant to pay unpaid VAT alleging that the appellant failed to deduct VAT at source against the said Challans in question.

In this regard Section 6 (4kaka) (kakaka) of the Act, 1991 provides that it is the duty upon the Service Receiver (®ph¡ NÊq£a¡) or value or commissioner of Service Provider (−ph¡ fËc¡eL¡l£) to deposit VAT on deduction at source to the Government treasury. In the present case the appellant is neither Service Provider nor Service Recipient. Admittedly, the appellant has/had purchased packing materials from the suppliers by payment VAT through Mushok-Challan-11 and as such the allegation for deduction VAT at source is not tenable against the appellant in the eye of law.

Moreover, it appears from the adjudication order dated 14.08.2016 that wherein the proceeding so had been initiated against the appellant under Section 55(1) of the Act, 1991 by issuing show cause notice under Section 55 of the Act, 1991. The adjudication authority, the Commissioner without initiation any proceeding under Section 37 of the Act, 1991 directed the appellant to pay interest at rate of 2% to the tune of Tk. 52,59,370.00.

The said issue has been resolved in various decisions passed by this Court categorically observing inter-alia that the provision of Section 37 of the VAT Act is a penal provision which can be exercised only after determination of VAT evaded by any person under a given scenario; whereas, Section 55 of the VAT Act provides for realization of unpaid or less paid VAT and other taxes. Section 55(1) clearly empowers among others to the concerned VAT Authority to issue notice of show cause for payment of unpaid or less paid VAT. Section 55(3) provides for hearing on the basis of reply, if any, submitted to such notice and after such hearing to make the demand final.

In this regard, in the case of  United Mineral Water and PET Industries Ltd.-Vs-Commissioner of Customs Excise and VAT reported in 61 DLR (HC) 734, it has been observed, inter alia-

“If the entire provision of section 55 is considered then it

would be clear that section 55 empowers the concerned VAT

authority to take steps for realization of unpaid or less paid

VAT or tax, upon first issue of a notice asking to show cause

and then, upon hearing, within 90 days to dae a final demand

in respect of any VAT or tax unpaid evaded or less paid.” Further, it has been observed:

“On the other hand, section 37 of the said Act defines various offences and punishments for such offence. Before any final demand could be made under section 55(3), none of the provisions of section 37 could be resorted to. It is needless to say as the fiscal law demands strict interpretation so equally demands for strict application by an authority authorized to apply. The VAT Act is a comprehensive tax law. It has defined the tax to be paid as VAT on the specified sales and/or services. Similarly, it has laid down elaborate procedure for realization of the tax and punishment for any violation or omission. The concerned authority is therefore, duty bound to follow the procedure as laid down in the Act for each and every action. The Act does not empower any of the authorities created to become Zealot to overpower and/or n overawe any tax payer. Invoking and/or resorting to section 37 while issuing a notice under section 55(1) of the VAT Act therefore, could not be said to have been issued bonafide for the simple reason that at the time of issue of the notice, the authority concerned had not yet arrived at as to any evasion of VAT by the petitioner.”

In the  Provati Insurance Company Ltd.-Vs-Commissioner of

Customs Excise and VAT  reported in  17 BLC (HC) 450,  it has been observed as under:-

“In absence of compliance with the requirements of section 55(1) of the Act, thereafter of demands made twice as required under section 37(2)(Kaka), the penalties under section 37(2) and 37(3) have been illegally imposed.”

Similar view has been expressed in  Abdul Motaleb -Vs-

Commissioner of Customs Excise and VAT Appellate Tribunal reported in 64 DLR (HC) 100, observing inter alia-

“Nothing short of prior compliance of section 55 of the VAT Act, the VAT authority by any stretch of imagination cannot go for an action under section 37 of the Act, which is a penal provision. Liability has to be fixed first under section 55 of the Act nothing more nothing less.”

In the case of  Mr. Baker Cake and Pastry Shop & others -Vs- Commissioner, Customs, Excise and VAT and others reported in 66 DLR (HC) 359, it has been held;

“After the amendment of the Act in the year 2010 section 55 of the Act has taken a new look. Now the offences under Section 37 can be dealt with by giving notice but under section 55 of the Act. By no means it can be said that the amendment has changed the settled proposition of law.”

In the case of TK Chemical Complex Limited vs National Board of

Revenue reported in 63 DLR (HC) 687, it has been held interalia;

“8. if we glean at all these provisions, we find that the law enjoins a procedure to be fulfilled in a case where a rebate has been taken in violation of section 9(1) of the said Act. Even the audit report by which the excess rebate in question has been found against the petitioner itself suggests the steps should be taken against the petitioner under section 9(2), 2(L) and 2(M). 9.  That being the position we are of the view that the respondent No. 2 the Commissioner of Customs Excise and VAT Commissionerate, Chattogram misdirected itself by exceeding his limit in issuing the notice under section 37(2) of the VAT Act upon the petitioner. Thus, this Rule succeeds.”

In the instant appeal, the VAT Authority claimed interest to the tune of Tk. 52,59,370 in the proceeding so had been initiated under Section 55 of the Act, 1991 without initiation any proceeding under Section 37 of the Act, 1991 which is not tenable in the eye of law.

In view of the facts and circumstances of the cases we find substance in the submission so made by the learned Advocate for the appellant and thus merit in the appeal, accordingly, the appeal is allowed.

The impugned order dated 30.08.2018 passed by the respondent No. 1, Customs Excise and VAT Appellate Tribunal (Tribunal) in Nathi No. CEVT/Case(VAT)-150/216 communicated vide Nathi No. CEVT/Case(VAT)-150/216/125 dated 12.09.2018 dismissing the appeal and thereby upholding the passed by the respondent No. 2, Commissioner of Customs, Customs Excise and VAT Commissionerate, Dhaka (East), Dhaka vide Nathi No. 3(9)77/Re:Hi:/City Sugar Ind:/Ltd./Sadar Audit/2015/772 dated 14.08.2016 directing the appellant to pay amount of Tk. 87,65,617.50 as evaded VAT under Section 55(3)  and Tk. 52,59,370.00 as interest under Section 37(3) of the VAT Act, 1991 total Tk. 1,40,24,988.00 is hereby set-aside.

There will be no order as to costs.

Send down the lower Court’s record at once.

Md. Iqbal Kabir, J:

I agree.

Md. Mashud sikder-A.B.O.