2019 PLP (Trib (PTD)

CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).

Titled appeal has been filed under section 46 of the Sales Tax Act, 1990 at instance of the assessee calling in question the impugned Order-in-Appeal No. 361/2017 dated 04-10-2017 passed by the learned CIR (Appeals), Faisalabad.

2. Succinctly brief of the instant case are that during scrutiny of data available in the computer system of the department pertaining to the tax periods from March-2013 to July-2016, certain discrepancies were pointed out, on the basis of which, department issued a show-cause notice dated 27-10-2016 to the appellant confronting sales tax liability of Rs.1,661,591/- under section 11(3) of the Act along with default surcharge and penalty under sections 34 and 33 of the Act. In response to show-cause notice, appellant filed written reply supported with documentary evidences duly contesting and denying the charges levelled against him but the learned ACIR partially vacated demand of sales tax and uphold recovery of Rs. 1,431,946/- on account of (i). fake sales declared to blacklisted buyer to avoid payment of further tax against supplies made to un-registered person (ii). penalty and default surcharge on inadmissible input tax adjusted against purchase of motor car (iii) inadmissible input tax adjusted against invoices of suspended/blacklisted units vide its order dated 05.01.2017 which was challenged before the learned CIR(A) who also rejected the appeal vide its appellate order dated 04-10-2017. The appellant being discontented and aggrieved by the said order has now filed the second appeal before this Appellate Tribunal Inland Revenue.

3. We have carefully considered written as well as verbal arguments of rival parties and have also gone through the relevant case record produced before us and have found ourselves completely in agreement with the contentions taken at instance and have nothing otherwise to differ from set of arguments put forth by the learned counsel of appellant. We have no hesitation in our mind to hold that charge of fake sales declared to blacklisted buyer to avoid payment of further tax chargeable against sales made to unregistered person is totally based upon assumption and hypothesis without any material evidence as the appellant has supplied the alleged goods to registered buyer only, having STRN 24-00-6200017-19 duly issued by the FBR, under the coverage of proper sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990 and due tax was also deposited in the monthly sales tax returns therefore, provisions of section 3(1A) of the Act cannot be applied to the person who was registered and operative at the time of transactions and was declared blacklisted unit subsequently. Beyond any doubt, the appellant has declared sales vis- -vis output tax thereon in his respective monthly sales tax returns for the periods in question and no further tax was chargeable thereon as in case of supplies made to registered person, provisions of further tax under section 3(1A) of the Act are not attracted at all, particularly when all payments in its respect have also been received through banking channel as requisitioned under section 73 of the Act hence, supplies made to alleged registered buyer cannot be treated as supplies made to un-registered person on the following points of consideration:-- (i) The registration of the buyer was suspended/blacklisted and not cancelled; there is a difference between blacklisting and in its cancellation thereof. (ii) The buyer was a registered/operative person at the time of transactions and if he has been declared as blacklisted unit subsequently on 28-11-2014 it does not equate him to be un-registered person. (iii) No order for de-registration or cancellation of the registration of alleged buyer was ever issued by the learned CIR under section 21 of the Act without which he cannot be treated as un-registered person on the sweet will of any Inland Revenue Officer.

4. Now coming up to the second issue of imposition of penalty under section 33 and default surcharge under section 34 of the Act on account of inadmissible input tax adjustment against purchase of motor car, suffice it to say that liability to pay penalty and default surcharge is not a necessary consequence or corollary of every 'non-payment' of tax within 'stipulated period' but was subject to prove that non-payment of tax was knowingly or fraudulently with mala fide intention not to pay or evade the tax. Mere non-deposit of tax or failure to pay tax without element of mens rea could not entail penalty and default surcharge. Neither any charge of willful default nor charge to defraud the government has been levelled against the appellant and there is plenty of law available that in the absence of any allegation in respect of the deliberate or willful default, imposition of penalty and default surcharge is not only unjustified but also illegal. Reliance is placed on the judgments of Hon'ble High Courts as well as Hon'ble Supreme Court of Pakistan in ref: Messrs Coca Cola Beverages Pak Ltd. reported as (2017 PTD 2380), Messrs Nizam Impex (Pvt.) Ltd. reported as (2014 PTD 498) and Messrs D.G. Khan Cement Factory Ltd. reported as 2004 SCMR 456 = 2004 PTD 1179.

5. At the last, it is held that charge of inadmissible input tax adjustment against invoices of suspended/blacklisted units is also baseless because the appellant does hold valid sales tax invoices duly incorporated in suppliers' sales tax returns and summary statements for relevant tax period and too the appellant, in the instant case, has transacted all payments to his suppliers through banking channel by complying with the mandatory provisions of section 73 of the Act therefore, subsequent blacklisting will not disentitle the buyer from his lawful right of input tax in respect of invoices issued when the suppliers were registered and active persons unless, those invoices are specifically declared fake through speaking order and have direct nexus with suspension/ blacklisting. Admittedly, invoices in question had no direct nexus with the subsequent suspension and blacklisting of the alleged suppliers hence, recovery of sales tax is illegal and unlawful. Reliance is placed on judgments of Hon'ble Lahore High Court in case of "Commissioner Inland Revenue v. Messrs Amtex Limited, Faisalabad" reported as 2016 PTD 1695 and in case of "Commissioner Inland Revenue v. Messrs Al-Zamin Textile Mills (Pvt.) Ltd., Faisalabad" reported as (2018 PTD 986).

6. For what has been discussed hereinabove, the impugned show-cause notice and consequent orders of both the authorities below, being devoid of legal substance are set aside. Resultantly, titled appeal filed by the registered person is accepted as prayed for and disposed of in the manners as dilated supra. HBT/93/Tax(Trib.) Appeal accepted.