2020 PLP (Trib (PTD)

DR. MUHAMMAD NADEEM, ACCOUNTANT MEMBER.

The instant appeal has been preferred at the instance of the registered person against the impugned appellate order dated 11.12.2017 recorded by the learned CIR(A) Faisalabad wherein the learned first appellate authority upheld the treatment meted out by the Adjudication Officer.

2. The relevant facts for disposal of present appeal are that during the course of examination of sales tax and federal excise returns of the registered person for the tax periods July 2012 to June 2013, the ACIR (assessing authority) observed following discrepancies:-- i. Excess input tax adjustment/refund claim. ii. Inadmissible input tax adjustment. iii. Excess input tax adjustment/refund sanctioned @ 17% instead of 16%. iv. Input tax adjustment against suspended/blacklisted units. v. Supplies not owned by the buyers. vi. Late filing of sales tax returns. vii. Penalty and default surcharge on late payment of sales tax viii Sales of wastage and empties without charging of sales tax. On the basis of above discrepancies, a show-cause notice dated 24.02.2017 was issued by the assessing authority which was duly complied with by the registered person through explanation letter dated 07.04.2017. The assessing authority considered the same, however, he found it unsatisfactory. Consequently, he passed Order-in-Original No.29/2017, dated 24.04.2017, whereby an amount of Rs.3,004,063/- was held recoverable along with default surcharge and penalty.

3. Being aggrieved, the registered person preferred first appeal before the learned CIR(A) and assailed the treatment meted out at assessment stage. The learned CIR(A) vide impugned order dated supra upheld the order of the assessing authority.

4. Being again dissatisfied, the appellant/registered person has come up in second appeal and assailed the orders of the authorities below on a number of legal and factual grounds of appeal. At the very outset of his arguments, the learned AR for the appellant has taken a legal stance and contended that the very initiation of proceedings by the ACIR/assessing authority pertaining to the tax periods July 2012 to June 2013 and its subsequent completion of proceedings through impugned order-in-original are not sustainable in the eye of law being without any lawful jurisdiction and its maintenance by the learned CIR(A) is illegal and unjustified. It is submitted by the learned AR that ACIR, Corporate Zone has illegally issued the impugned second order-in-original, in spite of the fact that first order for the same tax periods July 2012 to June 2013 was finalized by his predecessor by invoking the provisions of section 11(2) of the Sales Tax Act, 1990. He further submitted that this first order-in-original was adjudicated by the learned CIR(A) and the department filed second appeal before this Tribunal which was dismissed vide detailed order bearing STA No. 563/LB/2013 dated 11.02.2019. Thus, it is contended by the learned AR that impugned second order-in-original for the same tax periods was passed which was an effort to review and enhance the amount of recoverable tax which is grossly without any lawful jurisdiction and merits cancellation straight away. In support of his arguments, the learned AR placed before us copies of first order-in-original and appellate orders of the learned CIR(A) and ATIR.

5. The learned AR further submitted that in contradistinction to section 122(4) of the Income Tax Ordinance, 2001, there is no such authority conferred upon the ACIR to review or to issue repeated notices/orders under section 11 of the Sales Tax Act, 1990. It is asserted by the learned AR that if any subsequent action to review or improve upon the Order-in-Original is required, the same can only be taken by a higher authority i.e. either by the Board under subsection (1) of section 45A of the Act or by the Commissioner as provided for under subsection (4), of section 45A of the Act. In support of his arguments the learned AR placed reliance on the following judgments:-- 2016 PTD 527 (LHC), 2016 PTD 483 and 2011 PTD (Trib.) 2347

6. Conversely, the learned DR supported the orders of the authorities below and contended that the ACIR has lawfully passed the impugned order-in-original and contended that no such legal objection was raised by the registered person in below forums.

7. We have looked into the matter and after due consideration, we are in agreement with the legal stance taken by the learned AR. Perusal of the first Order-in-Original No 93/2014 passed as a consequence of post refund audit carried out under section 25 and appellate order dated 02.04.2015 passed by the learned CIR(A) and the Tribunal's order reveals that these were passed for the same tax periods i.e. July 2012 to June 2013 which was again adjudicated by the ACIR and is now subject matter of appeal before us. In our considered opinion, the ACIR lacks power to reopen, re-adjudicate and review proceedings in the garb of second show-cause notice under section 11 of the Act. Under the law, if any subsequent action to review or improve the first order is required, the same can only be carried out by a higher authority i.e. enter by the Board under subsection (1) of section 45A or by the Commissioner under subsection (4) of section 45A. Here, we deem it appropriate to reproduce the relevant section 45A which reads as under:-- "45A. Power of the Board and Commissioner to call for records. (1) The Board may, of its own motion, or otherwise, call for and examine the record of any departmental proceedings under this Act or the rule made thereunder for the purpose of satisfying itself as to the legality or propriety of any decision or order passed therein by an Officer of Inland Revenue, it may pass such order as it may think fit. Provided that no order under imposing or enhancing and penalty or fine requiring payment of a greater amount of sales tax than the originally levied shall be passed unless the person affected by such order has been given an opportunity of showing cause and of being heard. (2) No proceedings under this section shall be initiated in a case where an appeal under section 45B or section 46 is pending. (3) No order shall be made under this section after the expiry of five years from the date of original decision or order by the subordinate officer referred to in subsection (1). (4) The Commissioner may, suo motu, call for and examine the record of any proceedings under this Act or the rules made thereunder for the purpose of satisfying himself as to the legality or Propriety of any decision or order passed by an officer Inland Revenue subordinate to him and pass such order as he may deem fit." (emphasis added)

8. In view of the above clear cut statutory stipulation, we are of the opinion that the second adjudication carried out by the ACIR is without any lawful jurisdiction and liable to be set at naught. This issue has also been settled by the Hon'ble Lahore High Court in the case reported as 2016 PTD

527. Relevant portion of the said judgment is reproduced here-under:-- "12

perusal of above mentioned provisions of section 45A of the Sales Tax Act, 1990 shows that in case, any impropriety and illegality is observed in any order or decision passed by an officer of Inland Revenue subordinate to Federal Board of Revenue or the Commissioner, it should have been checked by the Federal Board of Revenue or the Commissioner himself by exercising their revisional jurisdiction under section 45A of the Act. There is no other provision in Sales Tax Act authorizing a sales tax functionary to review or reopen past and closed transactions and the provisions of section 45A do not empower any other authority subordinate to Federal Board of Revenue or the Commissioner or reopen and review an order passed lawfully. Therefore, the issuance of impugned SCN by reopening a past and closed transaction by the respondent No. 2 having no revision jurisdiction in this case is also on act of assumption of wrong jurisdiction. In this regard I find myself in agreement with the observations of Learned Inland Revenue Appellate Tribunal passed in its judgment reported as Messrs Ashar International (Pvt.) Ltd. Faisalabad v. C.I.R., Faisalabad (2011 PTD (Trib.) 2347). "(emphasis added).

9. In view of the judgment of the Hon'ble Lahore High Court and in the light of statutory stipulation reproduced supra, we are inclined to hold that very initiation of second adjudication through show-cause notice and its completion through second impugned order-in-original is not sustainable which are accordingly annulled and the order of the learned CIR(A) is accordingly vacated.

10. Now we take up the case for decision on merits, which is decided in the following manner: Excess input adjustment/refund claim:

11. The Assessing Officer after scrutinizing the detail of suppliers through computer data base system (SMART) observed that certain suppliers have not declared or less declared sales to the registered person in summary filed under section 26(5) of the Act. Thus it was found that the registered person claimed such input tax credit against which no/less supplies were made to the appellant. Accordingly, an amount of Rs.817746/- was found recoverable along with default surcharge and penalty. On appeal, the learned CIR(A) upheld the action.

12. It is the submission of the learned AR that the appellant made purchases from active suppliers against valid sales tax invoices and the payments were made in compliance to the provisions of Section

73. In this behalf, complete record was placed before the assessing authority but he failed to consider the same. It is further submitted that the allegation was made on the basis of computer data system called SMART whereas statute does not recognize any such computer data system as the official computer data base is called CREST.

13. We have looked into the matter and we find that since the registered person claimed input tax adjustment on the purchases against those suppliers who were active taxpayer and also that the payments were made in compliance to Section 73, therefore, there was no justification for denial of input tax adjustment. Hence, the tax charged is deleted being not sustainable in the eye of law. Even otherwise after confronting the appellant with disallowance of Rs.17,746/- the ACIT could not deny input credit of Rs.817,746/- Inadmissible input tax adjustment.

14. During the examination of sales tax returns, it has been observed by the department that the registered person adjusted input tax on the invoices of certain suppliers against the goods/services which do not relate to taxable activities. The assessing officer rejected the input amounting to Rs.342,862/- under section 8(1)(a) of the Act which was confirmed by the learned CIR(A).

15. The AR of the registered person has argued that the claim of input tax adjustment amounting to Rs.342,862/- was arbitrarily disallowed by the Taxation Officer and the learned CIR(A) has also unlawfully confirmed the same. He has further argued that the input tax was claimed on purchases from certain parties for use in taxable activities of appellant and are allowable under the law. In this context, he has produced the particulars of the parties.

16. We have considered the rival arguments of both the parties and feel inclined to concur with the assertions made at the bar by the learned counsel of the AR and have observed that the Taxation Officer without discussing any of invoices and without identifying the goods or services purchased disallowed the input tax adjustment, whereas the AR has claimed that the registered person have purchased the different goods from the supplier which is ultimately directly or indirectly used for the taxable activities. In this context he has relied upon a judgment of the Lahore High Court reported as 2017 PTD 2380. For the ease of Reference it would be appropriate to, reproduce the relevant extract: "From the above it follows that in order to determine whether input tax is admissible in a particular case it has to be seen whether the goods were used in relation to the taxable supplies. It is not necessary that they should be an integral part thereof. Once a registered person establishes that the goods in respect of which he claims input tax adjustment were used for the purpose of taxable supplies as aforesaid, he would be entitled to the adjustment unless the Federal Government has issued a notification under Section 8(1)(b) to disallow the same."

17. It has been established without any shadow of doubt that the Adjudication Officer has failed to follow the dictum laid down by the superior courts. Therefore, we have no hesitation to allow the input tax adjustment amounting to Rs.342,862/-. Excess input tax adjustment/refund sanctioned @ 17% instead of 16%.

18. The Assessing Officer observed that the registered person have received excess input tax adjustment/sales tax refund in the tax period of June 2013 @ 17% instead of 16%, he, therefore, rejected the refund to the extent of 1%. In appeal the learned CIR(A) turned down the plea of the registered person and maintained the Order-in-Original.

19. The learned AR has stated that the Federal Government enhanced the rate of sales tax from 16% to 17% w.e.f. 13.06.2013 and the taxpayer paid the tax at the rate of 17% therefore, the refund was rightly claimed on the other hand, the learned DR has supported the order of the authorities below for the reasons recorded therein.

20. We have considered the rival arguments and find that the claim of the registered person is correct as if the registered person paid the tax @ 17% and the same was proved from the invoices and suppliers returns then he has rightly claimed the refund @ 17%. Therefore, we have no hesitation to allow the appeal of the registered person and claim of refund @ 17% is quite justified and may be allowed. Input tax adjustment against suspend/blacklisted units.

21. During the examination of record, it has been observed by the department that the registered person have claimed refund/adjusted input tax against the invoices issued by the suspended/blacklisted units. Therefore, the Assessing Officer called upon the registered person through issuance of show-cause notice that as to why sales tax amounting to Rs.1,872,301/-may not be recovered under the provisions of the Sales Tax Act, 1990. The Assessing Officer turned down the reply of the registered person and disallowed the input tax adjustment amounting to Rs.1,709,362/- against the invoices issued by the suspended/ blacklisted units. In appeal the learned CIR(A) turned down the plea of the registered person and maintained the Order-in-Original.

22. The learned AR has strongly challenged the orders of the authorities below and has contended that the registered person claimed input tax adjustment against the valid purchase invoices issued by the suppliers under section 7 of the Sales Tax Act, 1990. He has further contended that at the time of transactions the status of both suppliers was operative/active and subsequent blacklisting of one supplier cannot be operative retrospectively. He has further argued that all the payments were made through banking channel by strictly following the provisions of Section 73 of the Act. In this regard he has relied upon the following judgments of the superior courts: 2015 PTD 2256, 2016 PTD 1695, 2018 PTD 1081 and 2018 PTD 986.

23. On the other hand, the learned DR has supported the orders of the authorities below for the reasons recorded therein and has prayed for maintenance of the same.

24. We have considered the arguments of both the parties and have perused the record available before us. We have observed that the registered person has strong case because he has fulfilled all the legal formalities which are required under the law. The learned AR has apprised the court that at the time of transactions both the units were active and operative and much after the transaction date, one unit was suspended on 14.04.2016 which cannot be blamed upon the registered person. This issue has already been settled by the higher courts as well as by this Tribunal in favour of the taxpayer in decision referred supra. We, therefore, respectfully following the dictum laid down in these cases, accept the appeal of the taxpayer on this point and allow the adjustment of input tax Order accordingly. Supplies not owned by the buyers.

25. During the comparison of supplies made by the registered person and purchases declared by buyers, it was observed by the Assessing Officer that supplies to the extent of sales tax of Rs.79,714/- were not declared by the buyers in their sales tax returns Accordingly, it was presumed that the supplies were actually made to unregistered person to avoid taxation. Consequently, an amount of Rs.79,714/- was found recoverable along with default surcharge and penalty. It is the submission of the learned AR before us that the supplies were made to registered person after issuing valid invoices and payments were received in terms of Section 73 of the Act. Therefore, the alleged tax demand is unlawful and merely on presumptions.

26. We have looked into the matter and after due consideration we find that there is no fault on the part of the registered person as supplies were made to registered person against which valid sales tax invoices were issued and payments were received in accordance with law, therefore, there is no justification for denial of input tax adjustment, if there was any default that was on the part of the buyers and not on supplier. Order of the Assessing Officer being not sustainable in the eye of law is accordingly vacated in this behalf as well.

27. Resultantly, the appeal of the registered person succeeds on legal as well factual grounds. SA/169/Tax (Trib.) Appeal allowed.