2015 PLP (Trib (PTD)

NAZIR AHMAD, (JUDICIAL MEMBER).

The titled miscellaneous application as well as appeal has been filed at the instance of the registered person. Through MA(AG) No.43/LB/2014, the registered person seeks permission to file additional grounds in respect of sales tax appeal bearing S.T.A. No.482/LB/2014. The representatives of both the parties are present and heard at length, therefore, the above titled miscellaneous application as well as appeal is disposed of as under:-- M.A. (AG) No.43/LB/2014

2. Through the instant miscellaneous application, the learned counsel appearing on behalf of the registered person has sought permission to take additional grounds, which according to him, go to the root of the case. On the other hand, learned DR appearing on behalf of the department has objected that the additional grounds taken as per instant miscellaneous application being filed contrary to the provisions of rule 10 of ATIR, Rules, 2010, are not entertainable.

3. Arguments heard and record perused. Before dilating on the issue regarding maintainability of the additional grounds taken by the registered person as per instant miscellaneous application, it would be in the fitness of things to have a glance on the Rule 10 of the ATIR, Rules, 2010, which reads as under:-- "

10. Contents of memorandum of appeal.

Every memorandum of appeal shall be written in Urdu or English and shall set forth concisely and under distinct heads, the specific grounds of appeal without any arguments or narrative and such grounds shall be numbered consecutively."

4. The language of the above Rule is self explanatory without any ambiguity therein. From bare perusal of the same, it can easily be gathered that every memorandum of appeal should be consisted of specific grounds without any narration or argument. Perusal of the instant miscellaneous application reveals that argumentative additional grounds have been taken therein, which being in violation of above mentioned Rule are not entertainable. Thereby, rejected. STA No.482/LB/2014

5. Title appeal has been directed against the Order-in-Appeal No.306/2014 dated 30-4-2014 recorded by CIR(Appeals), Faisalabad.

6. Briefly stated facts of the case are that as per report of the CREST, it came to the notice of the taxation officer that the registered person had shown supplies amounting to Rs.70,421,619 from the unregistered, non-filer, non-active and blacklisted registered persons as per detail enumerated in the body of orders passed by both authorities below. On the basis of said irregularity, adjudicating proceedings were initiated by way of issuance of show-cause notice, the Registered person was asked to explain as to why sales tax worth Rs. 3,521,081 may not be recovered under sections 11(2) and 11(3) of the Act along with default surcharge under section 34(1) and a penalty under section 33(5) of the Act. Appellant has also been charged with violation of sections 3, 6, 22, 23 and 26 of the Act read with section 2(5AC) and Notification No. S.R.O. 1125(I)/2011 dated 31-12-2011. Upon culmination of adjudication proceedings the IRO has partially vacated demand of sales tax worth Rs. 998,800 and has adjudged remaining liability of Rs. 2,522,281 against the appellant vide its Sales Tax Order No. 147/2013 dated 7-1-2014 and a penalty under section 33(5) of the Act is also imposed. Feeling aggrieved, the registered person preferred appeal before CIR (Appeals), Faisalabad, but remained unsuccessful. Still discontented, the taxpayer has come-up in appeal before this Tribunal.

7. Learned counsel of the appellant assailed impugned orders mainly on the grounds that allegations levelled therein are baseless and frivolous as alleged goods were supplied under coverage of proper zero-rated invoices issued under section 23 of the Act duly incorporated in summary statements and in turn in his sales tax returns for tax periods in question. Payments against alleged transactions have also been received through banking channel as provided under section 73 of the Act. Besides, alleged buyers namely Messrs Hiba Textile, Faisalabad and Messrs Hira International, Faisalabad have subsequently been blacklisted on 30-6-2013 and 3-7-2013 respectively and were very much operative at the time of transaction therefore; any past liability on account of output tax cannot be created against the appellant upon subsequent inclusion of his buyers in that very list of blacklisted persons. He placed his reliance on judgment of August Supreme Court of Pakistan in a case reported at PLD 2001 SC 340 and in a case reported at 2005 SCMR 492

8. The learned counsel further argued that a show-cause notice for recovery of sales tax prior to July, 2013 merely based on discrepancies pointed out by "the CREST" is illegal and unlawful. Primarily, this term 'the CREST' is found incepted first time in the Sales Tax Rules, 2006 notified vide S.R.O. 555(I)/2006 dated 5-6-2006 and then in section 8(1) (caa) of the Act, wherein its domain was limited to purchases vis-a-vis input tax to authorize tax functionaries to disallow input tax credit in supply chain, if any transaction is not verified electronically. The CREST, despite its inception in said Rules, 2006 and in negative provisions of section 8 of the Act by virtue of its subsections (1)(caa), is not found in charging provisions of section 3 or in any notification issued thereunder without which its scope cannot be extended to sales vis-a-vis output tax. Provisions of section 8 of the Act titled as "Tax credit not allowed" is limited for disallowance of input tax conversely, adjudicating authority, by its own, has unlawfully extended its scope to sales vis-a-vis output tax on all sales tax returns filed prior to 1st July-2013 before insertion of section 2(5AC) of the Act.

9. Besides above, learned counsel further challenged hallow basis of edifice of instant case on grounds that impugned Notification No S.R.O. 1125(I)/2011 dated 31-12-2011 was applicable from 1st January-2012 without any retrospective effect whereas impugned show-cause notice and consequent adjudication order passed on its basis are found involving liability of sales tax of Rs. 2,451,431 for August-2011, September, 2011 and October, 2011 as well. Any sales tax liability prior to 1st January, 2012 cannot be made levied under said notification being beyond its scope and due to its non-applicability in retrospection. Even otherwise, learned counsel submitted, appellant is engaged in supply of yarn necessarily falling in textiles and textile articles thereof subject to zero percent sales tax under condition (vii) of Notification No. S.R.O. 1125(I)/2011 dated 31-12-2011. Supply of yarn cannot be taxed except in case it is made to unregistered persons and these notified goods, useable as industrial inputs, squarely falling in five major zero-rated sectors are chargeable to sales tax at zero percent as no other rate of sales tax is given in condition (vii) of said notification. Since, supply of yarn is made only to registered persons therefore;' it is zero-rated as per said notification issued under section 4(c) of the Act and no sales tax whether at reduced rate or as the case may be, at standard rate under section 3 ibid can be charged thereon.

10. On the other hand, when departmental representative confronted with tax situation cited supra, he has defended the case on similar grounds and charges as levelled earlier in impugned show-cause notice as well as adjudged in consequent adjudication orders and nothing new, except to reiterate earlier set of contentions, has been put forth by him.

11. We have carefully considered the arguments of rival parties and also carefully gone through relevant record available on file. Learned counsel has rightly assailed that the CREST, despite its inception in the Sales Tax Rules, 2006 and also in negative provisions of section 8(1)(caa) of the Act, is found missing in charging provisions of section 3 or in any notification issued thereunder without which its scope cannot be extended to sales vis- -vis output tax as provisions of section 8 of the Act titled as "Tax credit not allowed" are limited for disallowance of input tax having no nexus at all with output tax due on supplies thereof under section 3 ibid and its scope, without any jurisdiction, has unlawfully extended across to sales vis-a-vis output tax on all sales tax returns prior to 1st July 2013 even before insertion of section 2(5AC) of the Act. Impugned Notification No. S.R.O. 1125(I)/2011 dated 31-12-2011 not applicable retrospectively can hardily evolve liability of sales tax for earlier period of August, September and October-2011 and any such sales tax liability created thereunder prior to 1st January, 2012 is illegal and unlawful as we have hardly find any other notification invoked in impugned show-cause notice or in consequent adjudication order.

12. We have noted that there is nothing on record to contradict that payments in respect of alleged transactions have not been received through banking channel under section 73 of the Act and that alleged buyers have not subsequently been blacklisted and are not found operative at the time of transaction therefore; it is reasonable to hold that any past liability of output tax cannot be created against appellant upon subsequent inclusion of his buyers in that very list of blacklisted persons.

13. There is no denial to the fact that appellant is engaged in manufacture of yarn necessarily falling in textiles and textile articles thereof subject to zero percent sales tax under Notification No. S.R.O. 1125(I)/2011 dated 31-12-2011 and its supply cannot be impeded with sales tax except in case it is made to unregistered persons. The notified goods like yarn useable as industrial inputs in textile sector squarely falling in five major zero-rated sectors are chargeable at zero percent as no other rate of sales tax is given in condition (vii) of said Notification issued under section 4(c) of the Act and no sales tax whether at reduced rate or as the case may be, at standard rate under section 3 ibid can be charged thereon. Accordingly sales tax on textile goods shall be charged and levied at the rate of zero-percent under section 4 providing complete ouster to standard or any other rate of sales tax specified in section 3 of Act as held in judgment of this Tribunal in S.T.A No. 1203/LB/2013 dated 1-7-2014.

14. In view of what has been discussed above, particularly in the light of law and the principles laid by the superior courts in various pronouncements quoted supra, impugned show-cause notice as well as consequent orders of both authorities below are declared to be illegal, ab initio void and are hereby set aside.

15. The instant appeal filed by the taxpayer is succeeded and disposed of in the manners as indicated above. HBT/1/Tax(Trib.) Appeal accepted.