2004 PLP 1893 (PTD)

(ii) The exporter was entitled to refund if he held a tax invoice of goods procured locally and exported subject to fulfillment of conditions of section 73 of the Sales Tax Act. (iii) The allegation of collusion between the exporter and the supplier has not been established as it is based on conjecture and surmises. Suspicion cannot fake the place of proof. (iv) The impugned SCN was not based on sufficient material; therefore, the proceedings be struck down. (v) C.B.R. has no legal authority to issue a list of suspected units and a buyer could not be held hostage for the wrong‑doings of another person when he had fulfilled his legal obligation. (vi) A person could not be saddled with criminal liability for initiating penal action unless the Department was in possession tangible material to establish the complicity, abetment, collusion or connivance with a high degree of proof in order to establish the offence. The Department has provided no evidence to establish the commission of offence. (vii) The contention that the list of suspected units issued by the C.B.R. was freely accessible was spot (enable as the departmental correspondence was not a public notice and C.B.R. was not empowered under the Sales Tax Act to issue any such notification to the detriment of the registered person who paid tax to the suppliers under the bona fide impression that the same would be deposited in the Government treasury. (viii) In a case of Messrs Excellent Enterprises, Karachi, the Federal Tax Ombudsman has held that the supplier's firm was not a suspected unit when it supplied the goods.

9. The Consultant reiterated during the hearing that the complainants had made purchases against valid sales tax invoices, the payments were made through cheques/pay orders as required under section 73 of the Sales Tax Act, and the declaration was made in the Sales Tax Return‑Cum‑Payment Challan for August, 2002. The goods were exported as verifiable from the bills of exports. The refund claim was got received in the Department on 30‑9‑2002. ,

10. He stated that no action was taken by the Department for more than a year and, thereafter, a SCN, dated 7‑3‑2003 was issued to them by the Deputy Collector alleging that the invoices submitted by them had been issued by suspected units. He argued that (i) C.B.R. had no authority to declare a unit as suspected and SCN could not be issued, to genuine registered person, (ii) the allegation in the SCN was baseless because if the sales tax had not been deposited by the suppliers, the fault lay with them, (iii) the Department should furnish evidence to support the allegation that the suppliers were not genuine, and (iv) the allegation that the purchases were actually paper transactions was not correct as they had furnished evidence of invoices under which the goods were shipped to Karachi and shipping bills against which the goods were exported.

11. He contested the legal validity of the so‑called list of suspected units and questioned whether any legal action could be initiated on the basis of C.B.R.'s internal correspondence with its subordinate offices, He argued that the presentation of the purchase invoices, the proof of payment as required under section 73 of the Sales Tax Act, and the corresponding shopping bills constituted a conclusive proof to the effect that the goods had been purchased and exported. He requested that this office give a ruling whether a registered person could be held liable for any violation of the law made by suppliers not within his knowledge and whether he was party to it when the Department had failed to establish any material evidence of the connivance to that effect.

12. The Assistant Collector of Sales Tax responded to the arguments stated that he did not have the exact date on which the C.B.R. had issued the list of suspected units wherein the names of the suppliers were included. He had a combined list of 1316 suspected units, which represented several lists issued by the authorities. He stated that under rule 8 of Sales Tax Refund Rules, 2002, the Department had the right to issue a SCN where it was found that any refund claim was not genuine. When the complainants filed the refund claim in September, 2002, inquiry was made from the Collectorate for verification but no reply was received. The investigation was still on and the Department had approached the Collectorates to verify the invoices of the suppliers so that they were able to reach any definite conclusion.

13. The Consultant added after filing of the refund claim, all records have been shown to the sales tax authorities and necessary verification has been made. If the sales tax authorities and the C.B.R. had knowledge about the illegal activities of some suppliers, they should have publicly notified the names of the suspected units to forewarn the business community. The complainants were not aware of the so‑called list of suspected units circulated within the Department, its credibility or the validity was not above board, and it should not impact on their credibility.

14. The submissions made in the complaint, its reply, and arguments recorded. during the hearing of the complaint have been examined. According to the complaint, the documents of the refund claim were filed on 30‑9‑2002, but no action was taken by the Department and no objection was raised and, after more than six months, a SCN was issued by the Deputy Collector calling upon the complainants to show cause why the refund claim not be rejected and penal action under section 33 (4)(c) of Sales Tax Act not taken. Clearly the SCN was based on a mere apprehension as the names of the suppliers were mentioned in list of suspected units allegedly involved in the issuing of fake/flying invoices. The allegation had been made against the suppliers but the SCN was issued to the purchasers/exporters without disclosing any complicity or illegal activity on their part.

15. The complainants have contended that everything including bank transactions have been verified. It is apparent that due diligence has not been exercised by the sales tax authorities to verify the validity of the supportive documents submitted by the complainants. Before issuing the SCN, the respondents should have carried out intensive investigation to ascertain the factual position such as:‑‑ (i) Verify whether transfer of goods between the supplier and the purchaser had taken place. The evidence of dispatch note, the receipt note, the transport documents, the entry in the books of the purchaser should have been checked. (ii) The verification of payment through banking channels should have been carried out with a view to ascertain the genuineness of the payment of the cost of goods inclusive of the sales tax and validity of the invoices. (iii) Verify from the accounts books of the complainants that goods were deposited in and taken out of their warehouses and physically exported as per the shipping documents and mate receipt. (iv) It has been stated that in several instances the transaction of goods had taken place before the supplier was declared as a suspected unit. This aspect too should have been checked to ascertain the genuineness or otherwise of the transaction and the invoice.

16. If it was established that the transaction was genuine, the goods had been physically transported from the suppliers to the purchasers and eventually exported, and that the banking transactions showed that cost of goods including sales tax had been duly paid by the purchasers, there would be no justification to detain the refund claim or issue a SCN for rejection of refund and imposition of penalty. The responsibility for payment of sales tax lay with the suppliers and the Department should have proceeded against the suppliers and not against the purchasers.

17. Nothing has been brought on record to establish the involvement of the complainants in the alleged tax fraud or collusion between them and the suppliers. The Sales Tax Department has not carried out intensive investigation and audit and not reached any definite conclusion and the consequent delay in disposal of refund claim demonstrates sheer inefficiency. The Department should either establish the fault of the complainants and conclude the proceedings or pay the refund. SCN is a defective document as no concrete grounds have been mentioned to justify the initiation of penal proceedings against the complainants.

18. It is recommended that C.B.R. direct the Collector of Sales Tax to (i) withdraw the defective SCN; (ii) carry out investigation and audit (on the lines stated above) to determine the genuineness of the transaction and payment of sales tax to the supplier as per the invoices submitted in the supportive documents; (iii) issue fresh SCN on the basis of concrete evidence of complicity/ involvement of the complainants in a tax fraud and finalize the proceedings; or (iv) decide the refund claim if the genuineness of the claim is established; and (v) finalize the aforesaid recommendations, within forty‑five days. (vi) Compliance be reported within two months. C.M.A./5/FTO Order accordingly