2025 PLP 552 (PTD)

Through this Reference Application under section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), inter alia following question of law asserted to have been arisen out of order dated 18.04.2017 passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal"), has been pressed and argued for our opinion:-- "Whether on facts and circumstances of the case, the ATIR failed to appreciate the mandatory provisions of Section 8B of the Sales Tax Act, 1990 and merely vacated the order of the Commissioner Inland Revenue (A) by holding the deviation if the same as a procedural defect?"

2. Learned counsel for applicant-department, at the very outset, is confronted with the fact that issue in hand has already been decided by this Court vide order dated 30.01.2017 passed in S.T.R. No. 07 of 2015 titled Commissioner Inland Revenue v. M/s. Malik Enterprises

1. He submits that since there is adjustment of 100% input tax instead of 90% on the part of respondent-taxpayer, therefore, penalty and default surcharge levied by the Adjudicating Authority through order-in-original is liable to be maintained and upheld.

3. When confronted, learned counsel for respondent-taxpayer has expressed no objection to uphold the order passed by Adjudicating Officer to the extent of penalty and default surcharge.

4. Arguments heard. Available record perused.

5. Record shows that respondent-taxpayer adjusted 100% input tax instead of 90% in violation of Section 8B of the Act of 1990. Admittedly, respondent-taxpayer had deposited its total tax liability. The applicant-department is seeking recovery of said 10% excess input tax adjustment amount. Even if the said amount is paid, this would be part of carried forward amount and ultimately, respondent-taxpayer would be entitled to claim input tax adjustment of the said amount as well at the end of the year, hence, the claim of 100% tax adjustment is only a procedural lapse. At this stage, recovery of said amount from respondent-taxpayer is not justified as rightly held by learned Appellate Tribunal in the impugned order. Even otherwise, the issue in hand has already been settled by another learned Division Bench of this Court in the case of Messrs Malik Enterprises supra, the operative part of the order is reproduced hereunder:-- "

5. Section 8B(1) of the Act provides that a registered person shall not be allowed to adjust input tax in excess of ninety percent of the output tax for such period. Usually a provision of law couched in negative language is mandatory in nature. We agree with the argument of the learned counsel for the petitioner that the basic purpose of allowing only 90% adjustment of input tax is to encourage correct declaration of taxable supplies by the registered persons. By retaining 10% of the adjustable amount for each tax period, the registered person is compelled to file proper documents to get its refund under section 66 of the Act.

6. From perusal of Section 8 it is clear that by allowing 90% of adjustment in the input credit, the law is not disallowing adjustment of the remaining 10% tax. Section 8B(1) is only procedural in nature which is then followed by procedure under Section 66 of the Act which caters to the entitlement of the petitioner to claim refund of the remaining 10% which has not been disallowed by law. Claim for the refund of excess tax paid may be made within a period of one year from the date of payment. The purpose of the enactment seems to be to keep a check on the assessee to file correct tax return. Before allowing the claim of refund, the Commissioner has to satisfy that input tax adjustment is due and admissible. Here an adjudication process takes place which has to be completed within a period of ninety days from date of filing of claim. Sales tax is a value added tax for which purpose, the department is entitled to check that a return is correctly filed. As a balancing criteria, the assessees are allowed to make 90% of input tax adjustment whereas they have to file returns to claim the refund. It is true that when a thing is provided by law to be done in a certain manner, it should be done in that manner. Any other procedure would normally not be permissible. However, despite the above proposition, we tend to agree with the Tribunal in that no mala fide was attributed nor proved against the respondent and it would be otiose to drive the registered person to run through the entire process again when this does not seem to be the intention of the legislature. At worst, the department could have proceeded to impose penalties for non-compliance of a procedural formality and not beyond that. It is not an allegation against the respondent that the input tax adjustment was not due to it, and was illegally claimed. In the absence of such allegation, no useful purpose would be served by going through the motions again."

6. Since procedural lapse has been committed and it has been agreed by learned counsel for respondent-taxpayer to pay the penalty and default surcharge as per order of the Adjudicating Authority, our answer to the proposed question is in negative i.e. against applicant-department and in favour of respondent-taxpayer subject to payment of penalty and default surcharge as per order -in-original.

7. With the above modification and following the ratio settled in the case of M/s. Malik Enterprises supra, instant reference application is disposed of accordingly.

8. Office shall send a copy of this order under seal of the Court to the Appellate Tribunal as per section 47(5) of the Sales Tax Act, 1990. MQ/C-18/L Order accordingly.