2011 PLP (Trib (PTD)

CHAUDHRY MUNIR SADIQ, MEMBER (JUDICIAL).

This order shall dispose of the titled Sales Tax Appeal filed by the registered person against the Order-in-Appeal No. 618 of 2008 dated 12-5-2008 passed by the Collector (Appeals), Customs, Sales Tax and Federal Excise, Multan.

2. Brief facts giving rise to the filing of present appeal are that the post refund Audit Team Sales Tax, Multan received an information from the Collector Customs, Sales Tax and Federal Excise, Multan that the registered person/appellant got refund on the basis of invoices issued by the suspected/blacklisted units/suppliers and the refund of Rs.37,05,523 was sanctioned erroneously. Thereafter, the Collector, Sales Tax, authorized the staff under section 38 of the Sales Tax Act, 1990 and directed to conduct post refund audit to check the authenticity/ admissibility of input tax and export. The audit team asked the appellant to provide the record for post refund audit but the appellant informed them that all relevant record was submitted with the refund claim and their routine audit had already been conducted by the team of DARR and Auditors of the department. Consequently, a contravention report was prepared alleging therein that the appellant had violated the sections 2(14), 2(37), 7(1), 7(2)(i), 8(1)(d), 10,21(2), 25, 26(1) and 73 of the Sales Tax Act, 1990 read with the Sales Tax Refund Rules, 2002. Thereafter, a show-cause notice C. No.20/2007/Adj/ST/Addl/3573 dated 16-06-2007 was issued. The registered person submitted written reply to the show-cause notice wherein it was alleged, inter alia that the show-cause notice issued against registered person pertaining to the period January, 2003 to December, 2005 was unwarranted, nullity in the eye of law and of no legal effect for reasons mentioned in the reply, besides being without jurisdiction and barred by time. However, the reply did not find favour and consequently the Adjudicating Authority passed an order against appellant/registered person and directed it to deposit the alleged amount of Sales Tax along with surcharge/Additional Tax under section 34 and penalty under section 33 of Sales Tax Act, 1990 for period up to June, 2005. Registered person filed an appeal against the order before the Collector (Appeals), Customs, Sales Tax and Federal Excise Multan but the learned Collector (Appeals) rejected the appeal, hence this appeal.

3. Learned A.R has argued that the order passed by the Adjudicating Authority was against the show-cause notice. The period confronted was July, 2005 onward but order passed related to the period January, 2003 to June, 2005. He referred to Para 6 of the show-cause notice and Para 7 of the order in original. He argued that learned Collector (Appeals) failed to take notice of the fact that whenever a decision or order is based on a ground which was not mentioned in the show-cause notice, the Superior Courts always have declared it to be illegal and void on the face of it. He argued that in similar situation honourable Supreme Court of Pakistan in re: The Collector Central Excise and Land Custom and others v. Rahm Din" cited as 1987 SCMR 1840 held that: "This petition can be disposed of on the short ground that order of adjudication being ultimately based on a ground which was not mentioned in show-cause notice the order was ab initio illegal and void in the face of it. In view of this ab initio legal infirmity, we do not consider it necessary to examine the other contentions raised by the learned Counsel" Learned A.R further argued that the status of the suppliers was operative, as per Revenue Record, during the period under consideration i.e. 2003 to 2005 when the business transactions took place. He also pointed out that the other allegations raised by the Revenue are also baseless and are not true as audit of the registered person had already been conducted by the officers of the department and the DRRA, in which the auditors have given a clear report regarding compliance of Section 73 of the Sales Tax Act, 1990. Moreover, the refund claim was processed through Sales Tax Automated Refund Repository (STARR) and at the time of sanction of refund no discrepancies were found regarding "blacklisted"/ "suspected"/"suspended" units and the status of all suppliers were operative as per record of STARR. He submitted that the Rule 13 of Sales Tax Rules, 2002 requires that all refund claims that have not been subjected to pre-sanction inquiry or audit shall invariably be audited on quarterly basis subsequent to the payment. The audit as required by sub-Rule (1) of Rule 13 of Refund Rules 2002 was conducted and the respondent neither alleged any excess payment of refund nor raised any sort of demand for recovery of any amount as contemplated in sub-rule (2) of Rule 13 of Refund Rules 2002. It also needs mention that record of the registered person has been audited by the officials of audit branch of the Collector of Customs, Sales Tax and Federal Excise on yearly basis since time of registration of the registered person as per provisions of section 25 of the Sales Tax Act, 1990 and the audit reports duly signed by the audit officers do not point out any sort of objections or such like objections as contained in the show-cause notice. As the refund branch scrutinized all record before sanctioning the refund claim of the registered person, therefore, the allegation, by the present audit team, regarding non-production of record is totally baseless and beyond the facts of the case. While concluding his arguments he submitted that the order in original as well as the order in appeal are based on assumptions and presumptions and are not sustainable even on this ground. He requested for annulment of the orders passed by forums below.

4. Learned DR on the other hand, has supported the impugned order for the reasons mentioned therein and has further argued that Rule 12(5) of the Sales Tax Rules, 2006 allows the Adjudicating Authority to reject refund on the basis of invoices issued by the blacklisted person prior to its blacklisting and prayed for dismissal of the appeal.

5. Arguments heard. Perusal of the record reveals that at the time of making business transactions with the appellant/registered person the suppliers were not blacklisted and had operative status. Learned D.R has failed to produce. any order regarding the blacklisting of suppliers issuing invoices to the appellant, whereas the persons registered under Sales Tax Act can only be declared as blacklisted through an order passed under clause (N) of Para 3 of Sales Tax General Order No. 1-of 2004 read with Rule 12 of Chapter 1 of Sales Tax Rules 2006 and Section 21 of the Sales Tax Act, 1990. As it was stance of the registered person that there is no order of blacklisting of the supplier units mentioned in the detail provided by the department, therefore, non-production of such order by the Revenue leads to the presumption that the stance of registered person is correct and had there been any order of blacklisting of the units mentioned in the show-cause notice, the Revenue should have produce that before this Tribunal. Although there is no order to show that the suppliers were blacklisted yet the order through which the suppliers were alleged to be, blacklisted should have been an executive order and it is settled law that the orders or notifications which confer rights and are beneficial would be given retrospective effect and those which adversely affected or invaded upon the vested right could not be applied with retrospective effect. This view is fortified by the judgment of honourable Supreme Court of Pakistan in re: "Government of Pakistan v. Messrs Village Development Organization" cited as 2005 SCMR

492. On the same point honourable Lahore High Court in the case of "Messrs Brother Engineering (Pvt.) Ltd." cited as 2004 PTD 2928 has held that:-- "It is well-settled that a notification or an executive order adversely affecting the right of any person cannot operate retrospectively but if the same confers any benefit it can be made applicable retrospectively".

6. By now it is well-settled that/subsequent blacklisting of a supplier could not be made a tool to deprive the registered person of a valuable right accrued in his favour for purchases or transactions made prior to the suspension of registration of such supplier. In a similar situation this Tribunal in a reported case cited as 2010 PTD (Trio.) 1631 observed as under: "(9) Perusal of the impugned order-in-appeal passed by the learned Collector (Appeals) giving the impression that main emphasis of the learned first Appellate Authority was that the supplier of the appellant was declared blacklisted. However, even on this issue, I feel persuaded by the arguments advanced by the learned A.R. It is matter of record that the refund claim related to the tax period of December, 2003 and April; 2004 while the unit in question was declared blacklisted in 2007. It is also worth mentioning that adjudication order was passed r on 12-3-2008 much after the tax period when refund was claimed and almost year after the supplier unit was declared blacklisted. Scanning of the various judgments relied upon by the learned A.R for the appellant in support of his contention also substantiate the view point urged by the learned A.R. The judgment of Lahore High Court reported as 1993 PTD 713 and Supreme Court of Pakistan reported as 2005 SCMR

492. It has been held by the Apex Court that; "It is well-settled principle of law that the executive orders or notifications which confer rights and are beneficial, would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect." "(10) Following the ratio settled in the above mentioned judgments, we are of the view that the department was not within the ambit of law while passing the order against the appellant for the reason that the supplier (Jay Textile Mills) was blacklisted in 2007. Obviously, the supplier in question was operative during the period i.e. December, 2003 and April, 2004 when the business/transaction took place. We must further add that if it is allowed to happen then the engine of business would come to grinding halt because nobody would know with regard to business concern if the subsequent events like declaring a business concern with whom it was dealing with, was operative and the registered person who has been called upon to show-cause entered into business transaction with the subsequently blacklisted business in good faith and as per prevailing conditions at that time." (Emphasis added). Respectfully following the ratio laid down in the cases mentioned above it is held that the alleged orders or notifications, if any, being adversely pre-judicial to the registered person and invading upon his vested rights cannot be applied with retrospective effect. The learned D.R has laid much emphasize on Rule 12(5) of the Sales Tax Rules, 2006 which reads as under:-- "During, the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of Sales Tax Refund or Input Tax Credit and once such person is blacklisted' the refund or Input Tax Credit claimed against the invoices issued by him, whether prior or after such blacklisting shall be rejected through a self-speaking appealable order and after affording an opportunity of being heard to such person." I am of the view that the term used "whether prior such blacklisting" means that the invoices issued during the period of suspension of registration prior to blacklisting. Admittedly, when the refund was sanctioned the status of supplier units was neither "registration suspended" nor "blacklisted", therefore, Rule 12(5) was not applicable at that point, otherwise the refund claim must have been refused straight-away.

7. I have also observed that the initial burden to prove, that the provisions of tax fraud were attracted, lied on the respondent/ department but it has failed to discharge the onus and for this reason charge of tax fraud has no legal consequence in the light of judgment of honourable Sindh High Court, Karachi, in the case of "Messrs Al-Hilal Mines and Sons and others v. Collector of Sales Tax and Federal Excise (East), Karachi and others" cited as 2004 PTD 868 wherein it has been held that:-- "In order to attract the provisions of tax fraud the initial burden lies on the department and not on the accused person."

8. The perusal of show-cause notice reveals that it charged the appellant for getting refund of Sales Tax amounting to Rs.37,05,523 which had been sanctioned erroneously and generally alleged contravention of few provisions of the Sales Tax Act, 1990 but the manner of its contravention was not specified by the respondents. Further, the motive or the reasons causing/occasioning the alleged erroneous refund were also not stated under section 36 of the Sales Tax Act by the notifying authority. The show-cause notice was vague, non-specific and too general. Honourable Lahore High Court has held in a number of cases that for proceeding against a person under provisions of section 36 of the Sales Tax Act the show-cause notice has to mandatorily specify the reasons for the alleged non-levy, short-levy or erroneous refund of the Sales Tax are charged. And the notice has to be served within the period of limitation prescribed in the applicable subsection, because under subsection (1) of section 36 a show-cause notice can be I served within 5 years of the relevant date if non-levy, short-levy or erroneous refund of Sales Tax or charge is the result of the reasons of some collusion or a deliberate act. Subsection (2) of section 36 is invoke-able when inadvertence, error or misconstruction cause such non-levy, short-levy or erroneous refund and the show-cause notice there under can be served within 3 years of the relevant date. Honourable Supreme Court of Pakistan in the case of Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and others cited as 2001 SCMR 838 was pleased to settle the similar provision of law i.e. Section 32 of the Customs Act (IV) of 1969 by holding that:-- "Show-cause notice under subsections (2) and (3) of section 32 of the Act are two distinct and separate types of notices and different grounds and different period for service of notice in each subsection has been prescribed. Under subsection (2) for non-levy, short-levy or erroneous refund, specific allegation of any collusion between the assessee and the Customs Staff has to be levelled with proper particular in the show-cause notice which has to be served within three years of the relevant date whereas under subsection (3) if non-levy, short-levy or erroneous refund is done due to inadvertence, errors or misconstruction then the show-cause notice to the importer has to be served within six months of the non short levy. If such specific particulars are not stated in the notice it would be vague and would not be in consonance with the requirement of subsections (2) and (3) of section 32 of the Act. Further that:-- " .It is necessary under subsection (1) of section 32 of the Act to show that the declarant had the knowledge or had the reason to believe that declaration or statement made by him was untrue/false and in the absence of such allegation notice would be vague and would not be in accordance with the law. Similarly, notice under subsection (2) of section 32 of the Act must contain the allegation of collusiveness and notice under subsection (3) of section 32 of the Act should speak of inadvertence, error or misconstruction and without such allegation the notices would be defective and against the law."

9. In the case of "Ibrahim Textile Mills Ltd. v. Federation of Pakistan and others PLD 1989 Lah. 47 notice issued to the exporters by the Customs Authorities under section 32(1) and (2) of Customs Act (IV of 1969) on allegation of collusion, false declaration or inadvertence etc. for short-levied and short paid customs duties were struck down. Following observations of the Court in the judgment being relevant are reproduced hereunder:-- "The orders do not touch the conditions precedent required for the exercise of the powers vesting in the Assistant Collector under subsection (2) of section 32 of the Customs Act, 1969, namely, (a) whether the petitioners had made or caused to be made or delivered or caused to be delivered any declarations or statements knowing or having reason to believe that such documents or statements were false in any material particulars or (b) whether the petitioners by reason of some collusion had connived at any duty or charge being short-levied .The impugned orders having been passed on no material and on erroneous construction of the law, required to be set aside .The orders have been passed on the material which do not make out the conditions precedent on the basis of which they could have been passed."

10. Validity of the show-cause notice was fundamental to the assumption of jurisdiction by the Revenue Authority to pass the impugned orders. In the present case, the show-cause notice alleged the illegal sanction of refund but patently omitted to specify the mode of error or the acts constituting/causing the purported error. The assumption of jurisdiction by the Adjudicating Authority was also an act contrary to the law. It is, therefore, held that the show-cause notice served upon the appellant by the Notifying Authority was patently illegal and without lawful authority. As such, all orders based thereupon are liable to be set aside.

11. As the show-cause notice and all proceedings and orders based thereupon have been held to be without jurisdiction, the remaining issues do not need to be dealt with, as per the principles laid down in the case of "Assistant Collector Customs and others v. M/s Khyber Electric Lamps and others 2001 SCMR 838.

12. For what has been discussed above the appeal is accepted and the impugned orders of the authorities below are annulled. C.M.A./49/Tax(Trib.) Appeal accepted.