2022 PLP (Trib (PTD)

MRS. AMBREEN ASLAM, JUDICIAL MEMBER.

The above captioned appeal has been filed by the appellant/taxpayer against the impugned order No.C.No.01-Blocking/D-Blocking/Zone-I/2019-20 / 92 dated 19-08-2019 passed by Commissioner Inland Revenue, Zone-I, RTO, Hyderabad, on the following grounds: A. That the impugned order is a masterpiece of gross abuse of powers conferred upon the respondent under section 21(2) of the Act, and has been passed in excess of his jurisdiction. B. The said provision may be invoked only in two conditions (i) if the registered person is found to have issued fake invoices, or (ii) has otherwise committed tax fraud, whereas, in the instant case none of the above conditions has been substantiated against the appellant and intact there is no adjudged demand of tax exists against the appellant. C. That it is pertinent to mention here that the appellant being commercial Importer has discharged his sales tax liability at import stage including value addition sales tax. Even otherwise, there is no adjudged liability against the appellant thus, there is no loss caused to the exchequer. D. That for the sake of arguments, after perusal of impugned order the most negative inference if any could be drawn against the appellant is "he does not physically exist at the declared address" even than subsection (2) of section 21 of the Act, cannot be invoked however, the legislature to cure such a situation has inserted subsection (4) through Finance Act, 2013 which does not require suspension or blacklisting of a registered person. E. That it is imperative to point out here that the Federal Board of Revenue under the garb of prescribing procedure has enhanced the powers of CIR through SRO 494(I)/2015 dated 30.06.2015 which is beyond the jurisdiction of FBR. F. Further that it is now well settled law that the subordinate legislation cannot be contradictory with the parent statue and if so in any manner, shall be declared void by the courts. G. Without prejudice to above, even on factual plane the entire case made by respondent is false, concocted and mala fide. H. That the appellant is resident of Karachi but doing business in Hyderabad therefore, registered well within the jurisdiction of RTO Hyderabad. However, if the respondent was not satisfied in respect of jurisdiction over the appellant, he at the most could refer the matter to the RTO concern according to him but could not suspend or blacklist the registration. I. That as per Online STRN Inquiry available at the web-portal of FBR the complete address of appellant is "Shop Nos. 8 and 9 " whereas the entire record of proceedings held by the respondent shows that nowhere about the shop No. 9 is mentioned by the respondent because the actual electricity meter is installed at shop No.

9. J. That the Electricity connection is on the name of previous owner of the project whereas, the said shops have been sold out many times since long and it is not persistent practice in the society to get transfer the electricity connection thus the negative inference drawn by the team is the result of misunderstanding or otherwise is mala fide. K. That the inference drawn by the respondent that no stock was available at the registered premises of the appellant is totally mala fide as the respondent personally did not visit the premises of appellant nor did the team report such kind of allegations. L. That now it has come to the surface that the initial Suspension Order was also the result of misreading of proper record by the respondent or otherwise mala fide therefore, the entire structure built upon it cannot be sustained. M. That due to such illegal action of Suspension and Blacklisting of sales tax registration the appellant's entire business has come to standstill position which is causing an undue hardship and great irreparable financial losses and the loss of reputation in the market as well. N. That the impugned Blacklisting disabled the appellant to make further imports hence, the Revenue department is also suffering along with the appellant and losing its expected taxes and duties on the upcoming imports. O. That the right of freedom of business is a fundamental right of the appellant guaranteed under Article 18 of the Constitution of Pakistan, 1973 which infringed by the impugned order. P. That due to such illegal action of Blacklisting, appellant's pending consignments of imports are lying on the port and Customs Authorities are not enable to process the same which is causing serious financial losses in shape of heavy demurrages and container rent charges. Huge finance of appellant has also been blocked in shape of such consignments. Q. That in nutshell the entire lawful business of appellant has been ruined by the respondent through the impugned order of Blacklisting. R. That the Respondent being public functionary is bound to exercise his jurisdiction/powers in accordance with the law and any action taken by him with mala fide intentions and penalizing the appellant with such stringent act of Blacklisting his registration which sabotages the whole business of a bona fide citizen is not only misuse of his authority but is also illegal and unjust. In the instant case, as the respondent has gone all the way long to punish the appellant on baseless allegations, hence, this Honorable Appellate Tribunal Inland Revenue is requested to exercise its jurisdiction. S. That the appellant reserves his right with the leave of this Honorable Tribunal to urge further grounds at the time of hearing of this Appeal.

2. Brief facts of the case as gathered from the record are that it was reported to the CIR Zone-I, RTO, Hyderabad by the team, which conducted the physical verification of M/s Gravity Trading Co., Flat No. 14, First Floor, Ali Heights Qasimabad, Hyderabad duly forwarded vide letter C.No.01-Reg:/RTO/Hyd/2019/553 dated 27.06.2019 by the Additional Commissioner (Hqrs) RTO, Hyderabad, reported that "M/s Gravity Trading Co., Flat No. 14, First Floor, Ali Heights Qasimabad, Hyderabad was registered as Importer / Exporter, vide STRN: 3277876159288 on 09.04.2019 registered at RTO Islamabad and subsequently their registration was transferred to RTO, Hyderabad. During physical verification, it was observed by the CIR Zone-I, RTO, Hyderabad that on given address located at Flat No. 14, First Floor, Ali Heights Qasimabad, Hyderabad no any business activity was being carried out. In fact the business premises were found in the shape of residential house. The landlord denied any relation to above mentioned unit. Therefore, it is apprehended that sales tax registration of the above unit was being misused." From further scrutiny of sales tax returns profile, it was observed that registered person only e-filed April 2019 and May 2019 "NIL" monthly sales tax returns with imports valuing Rs.81,629,501/-. In order to prevent the misuse of Sales Tax Registration Number and to safeguard the government revenue, sales tax registration of above named registered person was suspended vide order No.

07. Dated 03.07.2019.

3. Later on, show-cause notice dated 04.07.2019, was issued to the above mentioned registered person, whereby explanation was sought that as to why they should not be blacklisted under the provisions of section 21(2) of the Sales Tax Act, 1990, read with Rule 12 of the Sales Tax Rules, 2006, notified vide SRO 555(I)/2006 dated 05.06.2006. Therefore, hearing opportunities were provided by fixing the hearings on 18.07.2019, 31.07.2019, 24.07.2019 and 16.08.2019, only one written reply submitted on 19.07.2019 by the registered person through his representative namely Mr. Farrukh without any authorization letter requested therein for restoration and revisit the registered premises which was shifted on another address i.e., M/s. Gravity Trading Co., Shop No. 08, Rabiya Center, Bashiruddin Squire, New Cloth Market, Hyderabad, as per their request the team was constituted which visited the premises on 31.07.2019 and reported that "The residential address mentioned by the registered person in registration form is not correct, he never lived on that address, original copies of rent agreement and business premises were not provided, the residential address and bank account of registered person is of Karachi and he failed to provide any documents related to his residence within the jurisdiction of Regional Tax Office Hyderabad. Furthermore, the HESCO meter at registered person stated office at Shop No. 08, Rabiya Center, New Cloth Market is disconnected with hardly any units consumed since long which shows absence of business activity of mentioned office, the meter connection is on the name of Mr. Wasiuddin while the photocopies of rent agreement show Mr. Muhammad Nasir is owner which is clear contradiction between facts on ground and data provided by registered person." In the light of above facts, it is safely inferred that the above registered person is involved in fraudulent activities because neither such stock was available at the so-called registered premises nor any sales reported by the registered person in their monthly sales tax returns. Resultantly, the CIR Zone-I, RTO, Hyderabad blacklisted the appellant/taxpayer by passing order of blacklisting dated 19-08-2019 in the following words; "

03. In exercise of powers conferred upon me under section 21(2) of the Sales Tax Act, 1990, read with Rule 12 of the Sales Tax Rules 2006, notified vide SRO 555(I)/2006 dated 05.06.2016, registration of M/s. Gravity Trading Co., Shop No. 08, Rabiya Center, Bashiruddin Squire, New Cloth Market, Hyderabad having STRN: 3277876159288 is hereby declared as Blacklisted from the date of sales tax registration and until further orders."

4. Being aggrieved and dissatisfied with the action of the Zonal CIR, the appellant/taxpayer has come to this forum for redressal of his grievances.

5. On the date of hearing, Mr. Iftikhar Hussain, Advocate appeared on behalf of the Appellant/taxpayer while all most all dates of hearing were attended by the department and the department's representative also noted the date of hearing on the last date of hearing which is mentioned in the diary sheet with his signature. So the department was well aware for the today's hearing and deliberately avoided to appear.

6. The learned AR of the appellant/taxpayer argued that the impugned order is a masterpiece of gross abuse of powers conferred upon the respondent under section 21(2) of the Act, and has been passed in excess of his jurisdiction. He further argued that the said provision may be invoked only in two conditions (i) if the registered person is found to have issued fake invoices, or (ii) has otherwise committed tax fraud, whereas, in the instant case none of the above conditions has been substantiated against the appellant and infact there is no adjudged demand of tax exists against the appellant.

7. The learned counsel of the appellant/taxpayer contended that it is pertinent to mention here that the appellant being commercial Importer has discharged his sales tax liability at import stage including value addition sales tax. Even otherwise, there is no adjudged liability against the appellant thus, there is no loss caused to the exchequer. He further contended that for the sake of arguments, after perusal of impugned order the most negative inference if any could be drawn against the appellant is "he does not physically exist at the declared address" even than subsection (2) of section 21 of the Act, cannot be invoked however, the legislature to cure such a situation has inserted subsection (4) through Finance Act, 2013 which does not require suspension or blacklisting of a registered person.

8. The learned AR of the appellant/taxpayer submitted that it is imperative to point out here that the Federal Board of Revenue under the garb of prescribing procedure has enhanced the powers of CIR through SRO 494(I)/2015 dated 30.06.2015 which is beyond the jurisdiction of FBR. He further submitted that it is now well settled law that the subordinate legislation cannot be contradictory with the parent statue and if so in any manner, shall be declared void by the courts.

9. The learned counsel of the appellant/taxpayer contested that without prejudice to above, even on factual plane the entire case made by respondent is false, concocted and mala fide. He further contested that the appellant is resident of Karachi but doing business in Hyderabad therefore, registered well within the jurisdiction of RTO Hyderabad. However, if the respondent was not satisfied in respect of jurisdiction over the appellant, he at the most could refer the matter to the RTO concern according to him but could not suspend or blacklist the registration.

10. The learned AR of the appellant/taxpayer stated that as per Online STRN Inquiry available at the web-portal of FBR the complete address of appellant is "Shop Nos. 8 and 9 ........" whereas the entire record of proceedings held by the respondent shows that nowhere about the shop No. 9 is mentioned by the respondent because the actual electricity meter is installed at shop No.

9. He further stated that the Electricity connection is on the name of previous owner of the project whereas, the said shops have been sold out many times since long and it is not persistent practice in the society to get transfer the electricity connection thus the negative inference drawn by the team is the result of misunderstanding or otherwise is mala fide.

11. The learned counsel of the appellant/taxpayer drawn attention that the inference drawn by the respondent that no stock was available at the registered premises of the appellant is totally mala fide as the respondent personally did not visit the premises of appellant nor did the team report such kind of allegations. He further drawn attention that now it has come to the surface that the initial Suspension Order was also the result of misreading of proper record by the respondent or otherwise mala fide therefore, the entire structure built upon it cannot be sustained.

12. The learned AR pointed out that due to such illegal action of Suspension and Blacklisting of sales tax registration the appellant's entire business has come to standstill position which is causing an undue hardship and great irreparable financial losses and the loss of reputation in the market as well. He further pointed out that the impugned Blacklisting disabled the appellant to make further imports hence, the Revenue department is also suffering along with the appellant and losing its expected taxes and duties on the upcoming imports.

13. The learned counsel of the appellant/taxpayer urged that the right of freedom of business is a fundamental right of the appellant guaranteed under Article 18 of the Constitution of Pakistan, 1973 which infringed by the impugned order. He further urged that due to such illegal action of Blacklisting, appellant's pending consignments of imports are lying on the port and Customs Authorities are not enable to process the same which is causing serious financial losses in shape of heavy demurrages and container rent charges. Huge finance of appellant has also been blocked in shape of such consignments.

14. The learned AR of the appellant/taxpayer narrated that in nutshell the entire lawful business of appellant has been ruined by the respondent through the impugned order of Blacklisting. He further narrated that the Respondent being public functionary is bound to exercise his jurisdiction/powers in accordance with the law and any action taken by him with mala fide intentions and penalizing the appellant with such stringent act of Blacklisting his registration which sabotages the whole business of a bona fide citizen is not only misuse of his authority but is also illegal and unjust. In the instant case, as the respondent has gone all the way long to punish the appellant on baseless allegations, hence, this Honorable Appellate Tribunal Inland Revenue is requested to exercise its jurisdiction. According to him, the appellant reserves his right with the leave of this Honorable Tribunal to urge further grounds at the time of hearing of this Appeal.

15. Accordingly, the learned counsel of the appellant/taxpayer prayed that (i) this Honorable Appellate Tribunal Inland Revenue may be pleased to set aside/annul the impugned Order of Blacklisting C.No. 01-Blocking/D-Blocking/Zone-I/2019-20/92 dated 19.08.2019 and direct the respondent to restore the registration of appellant as an active and operative taxpayer since his registration and also retrain him not to act in such an illegal manner all over again and (ii) for the meantime, through ad-interim orders suspension of impugned order of Blacklisting are also solicited as the appellant's imported consignments are held at the port by the Customs Authorities and the appellant is also badly suffering with other heavy losses which are irreparable in nature as well as (iii) Grant any other relief as this Honorable Appellate Forum may deem fit and appropriate in the facts and circumstances of the case including cost of this appeal.

16. The learned counsel of the appellant/taxpayer during the proceedings of the case, submitted a copy of order-sheet dated 12.09.2019 in C.P. No. D-8101 of 2017 (and others) passed by Hon'ble High Court of Sindh.

17. The learned AR of the appellant/taxpayer during the arguments in court, further relied upon the decisions vide STA No. 447/KB of 2016 dated 15-02-2017, STA No. 465/KB-2018 dated 13-11-2018 and STA No. 195/KB/2019 dated 05.08.2019 passed by this tribunal and he also submitted a copies of the said decisions in his support.

18. We have heard the arguments advanced by the learned counsel of the appellant/taxpayer and perused the available record of the case in detail. Precisely the grumble of the taxpayer is that Commissioner, Zone-I, RTO, Hyderabad under the garb of Section 21(2) of Sales Tax Act, 1990 read with Rule 12 of Sales Tax Rules, 2006 blacklisted the taxpayer from the date of Sales Tax Registration till further order.

19. Whereas on the previous date of hearing department's representative urged that during physical verification it was found that on the mentioned address of the taxpayer no any business activity was being carried out and from further inquiry the department opined that the taxpayer e-filed returns on April 2019 and May 2019 nil so the department concluded that the taxpayer misused the sales tax registration number so for the safeguard of the government revenues the sales tax registration number was suspended vide order No.7 dated 03-07-2019.

20. Keeping in mind above quintessence accumulated from the record, we feel first we should have glance over the contents of Section 21(1)(2)&(4): S.21. De-registration, blacklisting and suspension of registration.- (1) The Board or any officer, authorized in this behalf, may subject to the rules, de-register a registered person or such class of registered persons not required to be registered under this act. (2) Notwithstanding anything contained in this Act, in cases where the [Commissioner] is satisfied that a registered person is found to have issued fake invoices or has [otherwise] committed tax fraud, he may blacklist such person or suspend his registration in accordance with such procedure as the Board may, by notification in the official Gazette, prescribe. (3) (4) Notwithstanding anything contained in this Act, where the Board, the concerned Commissioner or any officer authorized by the Board in this behalf has reasons to believe that a registered person is engaged in issuing fake or flying invoices, claiming fraudulent input tax or refunds, does not physically exist or conduct actual business, or is committing any other fraudulent activity, the Board, concerned Commissioner or such officer may after recording reasons in writing, block the refunds or input tax adjustments of such person and direct the concerned Commissioner having jurisdiction for further investigation and appropriate legal action.]

21. From perusal of Section 21(1), we accumulated that it deals with the powers of Commissioner so far provision (2) of Section 21 is concerned the same deals with the satisfaction of the Commissioner, hence we feel necessary to mention that term satisfaction when used for the purpose of judicial determination, it is necessary that nothing more nor less it should be bona fide and not actuated by malice, a fact and not a pretext and this can be determined from all the facts and circumstances of the case.

22. Now we would revert back to the substance of Section 21(2), it further says that when the Commissioner is satisfied that a registered person is found to have issued fake invoices or has committed tax fraud. In the instant case, we have observed that there is no allegation against the taxpayer for issuance of fake invoices so for element of tax fraud is concerned in that context, we are of the view that the tax fraud occurs when an individual or business entity willfully and intentionally falsifies information essentially fraud entails cheating on a tax return or an attempt to avoid paying the entire tax obligation. In this case we have not found the element of tax evasion or any falsified information.

23. On the contrary, learned counsel for the taxpayer has placed written acknowledgment / letter to Commissioner dated 19-7-2019 which is duly stamped by Regional Tax Office, Hyderabad 19th July 2019, perusal of the same indicates that the taxpayer sought through said letter its registration's restoration and has also informed to the Commissioner for its relocation and also sought verification of business genuineness. So from that aspect of the case, it is evident that the taxpayer did not falsify any information so also has not committed any tax fraud.

24. So far application of Section 21(4) on the taxpayer is concerned in this context it is matter of record that no any claim of input tax adjustment or refund is sought by the taxpayer as he is registered as commercial importer and has discharge his liabilities at import stage. So the question of loss to the exchequer is incomprehensible.

25. Beside above all, the Hon'ble High Court of Sindh, in Constitution Petition No.D-8101/2017 is pleased to declare Rule 12(a)(i) of Sales Tax Rules, 2006 to the extent of authority of the Commissioner to suspend the sales tax registration of a registered person "without prior notice" to the ultra vires to the constitution, violative of principles of natural justice.

26. So keeping in view of above mentioned position and very respectfully following the dictum mentioned supra, we are of the view that the impugned order does require interference, the same is set aside, in result appeal of the taxpayer is accepted.

27. Appeal stands disposed in the manner as indicated above. MH/13/Tax (Trib) Appeal allowed.