2025 PLP (Trib (PTD)

SARDAR M. AJAZ KHAN, JUDICIAL MEMBER.

This appeal has been filed against sales tax Order-in-Appeal No.379/2022-23 dated 26-05-2023 passed by CIR(A-III), Rawalpindi. The reported facts of the case are that the appellant under reference had declared sales amounting to Rs.7.403,750/- in the Income Return filed by him for the Tax Year 2021 whereas he had not declared any sales in the Sales Tax Returns for the corresponding Tax Periods and thus sales declared in the Income Tax Return were construed to be undeclared taxable supplies made to unregistered persons allegedly involving evaded amount Sales Tax of Rs.1,258,637/- and Further Tax of Rs.222,112/- in violation sections 3(1A),6, 22,23 and 26 of the Sales Tax Act, 1990 therefore, show-cause notice was issued for violation of the above provisions of low. The proceedings so initiated culminated in passing of the Order-in-Original No. 204/2021-22 dated 08.6.2022 whereby the charges framed through the show-cause notice were established and the above mentioned amount of Sales Tax and Further Tax was held recoverable along with default surcharge and penalty. The taxpayer, being dissatisfied with this treatment preferred appeal before the Commissioner Inland Revenue (Appeals-III), Rawalpindi who confirmed the order of the Assessing Officer while dismissing the appeal being devoid of merits. Being aggrieved, the taxpayer filed second appeal before this forum on the following grounds:-

1. The order of Commissioner Appeal-III is unjustified and contrary to the facts of the case.

2. That the prerequisites for a show-cause notice as requited by law have not been served to taxpayer, therefore no straight forward notice under section 11 of Sales Tax Act, 1990 could be issued as mentioned in Section 25(3) of Sales Tax Act, 1990 is reproduced for your reference: 25(3) - "After completion of the audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section 11".

3. That taxpayer raised an objection before CIR(A) about credibility of show-cause notice, the show-cause notice No. 980 was issued by Madam Romana Alam while impugned order was passed by Mr. M. Yaqoob Malik. The signing authority of an order fails to issue show-cause notice as well as confront violation as observed after attaining jurisdiction therefore entire order bad in law therefore not maintainable. The CIR (A) also falls to discuss such issues.

4. The officer Madam Romana Alam issued show-cause notice vide No. 980 dated 13th May, 2022 where in contravention of the provision of Sales Tax Act, 1990 observed and expressed the violation made by taxpayer of sections 3, 3(1A), 6(2), 22, 23, 26(1) while ordering authority Mr. Yaqoob Malik nothing anything pointed out any violation before passing an order therefore order passed is defective because officer entirely fail to confront the violation in detail.

5. The entire proceedings and resultantly order passed by Assistant Commissioner bad in law because units submitted De-Registration application as on 16th August 2021. The officer in response to such application raised contraventions of the provision of Sales Tax Act, 1990 without any cause and justification.

6. The taxpayer voluntary registered himself in sales tax as on 13th Jan 2017 being commercial importer for import of goods latter on due to attack of coved -19 business badly affected, and it is decided to stop imports therefore deregistration application moved. The officer, rather than entertaining the de-registration application unlawfully started audit proceedings against the taxpayer without any cause and justification.

7. The order of both forums not as per merit because ex-parte order passed by officer which cannot be considered by any means a fair trial, the CIR(A) without collecting any information about proper delivery of notices, confirm the department order on such issue.

8. The order of both forums bad in law the taxpayer did not charge any sales tax from customer so, the demand raised is baseless and unjust. Both forums fail to establish that either sales tax charged by the taxpayer or not therefore demand raised Rs.1258637/-baseless and unjust

9. The ACTR unlawfully imposed further tax Rs.222,112/- although taxpayer sold the goods to end consumer therefore further not chargeable as per the SRO 648(I)/2013 dated 9 July 2013. The CIR (A) unlawfully confirms the further tax without any cause and justification. The imposed further tax liable to delete.

10. The imposed penalty under section 33 vide serial No.5 of Rs.74037/- of the Sales Tax Act, 1990 is unlawful because default not properly established further default is not willful as required by law, therefore penalty not maintainable under the law.

11. That the taxpayer craves permission to add, alter or substitute any further grounds of appeal at the time of hearing of appeal.

2. During hearing of appeal learned AR stated that the impugned order is passed on the wrong misapprehension of law and facts by the learned officer. He reiterated the grounds of appeal and argued that the relevant documentary evidence was submitted before the below authorities but the same was not taken into account. He argued that prerequisites for a show-cause notice as required by law have not been served to taxpayer, therefore no straight forward notice under section 11 of Sales Tax Act, 1990 could be issued as mentioned in Section 25(3) of Sales Tax Act, 1990 which clearly provides that "after completion of the audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under section 11". However in the instant case no audit report issued by the Assessing Officer. It was also contended that that the Assessing Officer after assumption of jurisdiction was under legal obligation to issue notice which has not been issued thus opportunity of being heard is denied which is against the principles of natural justice and the learned CIR (A) also fails to appreciate the same. AR further argued that there is no short payment sales tax involved as the taxpayer has not conduced taxable supplies within the ambit of Sales Tax Act, 1990. He submitted that the authorities below failed to appreciate the fact that the declared revenue in the Income Tax Return was not legally required to be declared in the sales tax returns being not taxable activity falling within the domain of provisions of Sales Tax Act, 1990 particularly not attracted under section 3(1) of the Sales Tax Act, 1990, hence the charge of sales tax under this score was void in law. He pleaded that documentary evidence in this regard was furnished which was not considered and adverse order was passed by the assessing officer and confirmed by the learned Commissioner Inland Revenue(A), Islamabad. He also argued that the tax payer already applied for de-registration from the sales tax as the taxpayer has not and is not going to perform sales taxable activities and the said request is pending with the department. AR further argued that imposition of default surcharge as well as penalty is also not warranted in the instant matter as no willful default or mens-rea is established. He argued that therefore, no loss of revenue involved in the matter under reference. He further contended that that estimation of sales on the basis of income tax data by the assessing officer is illegal and unjustified and placed reference on cases reported as 2013 PTD 2130, 2018 PTD

4. AR concluded that the CIR(A) confirmed the order of the assessing officer with a non-speaking order in mechanical manner without giving any observation which is illegal and against the facts of the matter in hand therefore, the orders may be vacated.

3. Learned DR however opposed the contention of appellant and stated that registered person Learned DR stated the appellant was provided with more than adequate opportunity to prove its claim but no compliance was made moreover, documentary evidence was not furnished to establish the genuineness of the claim under consideration. Learned DR vehemently defended both the orders of the authorities below.

4. We have considered arguments of both the rival parties in the light of case records. The issue involved in the appeal pertains to non-declaration of supplies and non-payment sales tax in the sales tax returns for the impugning period despite declaration of supplies of Rs.7,403,750/- in the Income Tax Return for Tax Year 2021.

5. It is an undeniable fact that supply of goods is a condition precedent for creating sales tax liability against the taxpayer and without establishing the same and linking nexus of figures shown in financial statement of a taxpayer with that of physical delivery of goods no tax authority can be allowed to create liability of sales tax in a castle build in the air. It is therefore mandatory for the revenue authorities to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which, the sales tax imposed on the basis of some assumption or presumption not warranted in law. There is no room for any intendment and there is no presumption as to tax. In this context, it is irregular and improper and even illegal to use this data to reassess, impose or collect higher taxes and we find that it is mandatory on the part of the tax authorities to proceed strictly in line with the norms of valuation laid down in the sales tax terms i.e. Taxable Goods defined under section 2(39), Taxable Activity defined under section 2(35), Taxable Supply defined under section 2(41) and Value of Supply defined under section 2(46) of the Sales Tax Act, 1990. This principle is very much supported by a judgment of Hon'ble Peshawar High Court in case of "Messrs Al-Hilal Motors Stores and others v. The Collector, Sales Tax and Central Excise (East) Karachi and others" reported as (2004 PTD 868) wherein it was laid down as under:-- "Discovering certain cash credit entries in the books of the appellants without any nexus to taxable supplies cannot be treated as amount received from supplies and therefore is not liable to sales tax. It is apparent that except discovering certain cash credits entries in the books of the appellants, the Revenue Officers have not been able to produce any, material to show that the said amounts are in any way linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity."

6. It has also been observed that the impugned orders were passed without assigning any reasons and without any material evidences of supply of taxable goods without which these orders cannot be said to have been passed judicially. In terms of the provisions contained in section 3 of the Sales Tax Act, 1990, which is the charging section, the sales tax shall be charged, levied and paid on taxable supplies made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him and on the goods imported in Pakistan. While defining the terms "supply" and "taxable activity" the Legislature has enacted deeming provision also and by fiction of law has included private business or non-business the course of business and an activity without pecuniary profit, as well as supply without any consideration is taxable activity. But, for the definitions contained in the Sales Tax Act, 1990, the above acts could not be treated as "supply" or "taxable activity". The definition of term "supply" has excluded the doctrine of mutuality. Thus, wherever the Legislature has deemed fit, resort has been made to the deeming provisions by fiction of law. However, there is no provision in the Sales Tax Act, 1990 analogous to the provisions contained in the Income Tax Law, whereby the discovery of any cash-credits in the accounts of a taxpayer can be deemed to be supply, taxable supply or the amount received on account of taxable activity in furtherance of any business. A taxpayer can be subjected to tax under a provision of law, which is unambiguous and, clear. In the absence of any deeming provision the Revenue is required to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which the sales-tax imposed on the basis of some assumption or presumption not warranted in law, shall always be struck down. In the present case it is apparent that the assessing officer has not been able to produce any material to show that the said amounts are in any way linked with the taxable supplies or with any taxable activities or present an amount on account of any business activity. It is a settle principle of law that basis of super structure on wrong foundation is completely illegal and void ab-initio hence, the impugned orders are not tenable under the law.

7. Keeping in view the legal position and these facts and circumstances of the case, contention of the appellant is accepted. Orders of both the authorities below are vacated and sales tax order-in-original issued vide No. 204/2021-22 dated 08.9.2022 passed by the Assistant Commissioner, Inland Revenue, Audit-II, City Zone RTO, Rawalpindi is hereby deleted. Consequently, the appeal under consideration stands accepted. MH/32/Tax (Tib) Appeal allowed