2020 PLP (Trib (PTD)

CH. SHAHID IQBAL DHILLON, (JUDICIAL MEMBER).

This appeal filed by the registered person is against the Order-in-Appeal No.284/2018 dated 27-08-2018 passed by the learned CIR(A), Faisalabad whereby he while maintaining the Order-in-Original No. 36 of 2017 dated 30-06-2017, dismissed the appeal.

2. Briefly facts of the case as succinctly ascribed on record and also put forth during the course of hearing by the Inland Revenue are that on selection of audit by the FBR under section 72-B of the Act, department has conducted audit of appellant's sales tax records under section 25 of the Act for the financial year commencing from 1st July, 2013 ending on 30th June-2014 which is resulted into certain discrepancies on basis of which a show-cause notice dated 12-06-2017 was issued as to why an amount of sales tax worth Rs. 1,669,728/- may not be recovered under section 11(2) of the Act and as to penalty under section 33 ibid may not be imposed in violation of sections 2(46), 3, 6, 7, 8, 22, 23, 26 and 73 of the Act along with default surcharge under section 34 ibid. Upon adjudication proceedings, appellant was proceeded in absentia without affording him with any opportunity of hearing and the learned ACIR passed sales tax order-in-original dated 30-06-2017. Being dissatisfied and aggrieved by the said order, appellant filed first appeal before learned CIR(A), Faisalabad who dismissed the appeal vide order-in-appeal dated 27-08-2018 without considering the relevant record and even without application of independent judicious mind and approach on legal as well as on factual infirmities and improprieties pointed out in its memo. as also assailed during the course of hearing. The appellant being discontented and aggrieved by the said order has now filed the second appeal before this Tribunal.

3. Initiating the arguments, learned counsel vehemently argued that audit staff of Inland Revenue, Faisalabad has issued letters to the appellant for production of sales tax record for audit for the periods in question and the said letters were duly responded by appellant and requisite records and information for the referred periods was provided. Learned counsel contested that allegations against appellant are baseless because he procured the alleged goods from Messrs Al-Paper (Pvt.) Ltd. under coverage of proper sales tax invoices issued under section 23 of the Act as duly incorporated in supplier's sales register, sales tax return, summary statement and due tax was also paid in its monthly sales tax return for the period in question therefore, appellant has rightly claimed/adjusted input tax under section 7 of the Act. Learned counsel further contended that payments to the alleged supplier has also been made through banking channel from the business bank account of the appellant as requisitioned under section 73 of the Act and no violation whatsoever has been committed. Further substantiating his contention, the learned AR submitted that an inchoate and vague show-cause notice against charge of 'inadmissible input tax' without providing any detail of the suppliers and their invoices was served upon the appellant. He pointed out that the notice was not self-contained and what to speak of compliance, it was not possible to comprehend it. Learned counsel stated that appellant shall make payment of sales tax on disposal of alleged waste on its time of supply when any delivery is made or any receipt of money consideration is visualized whichever is earlier as the said waste has not been disposed off. At the end, learned AR assailed that there is no provision in the Sales Tax Act, 1990 which empowers the revenue authorities to fix value addition and too neither the goods in question were notified by the Federal Government under section 7A of the Act for levy and collection of tax thereon the basis of value addition nor the appellant has been charged with the violation of any provisions of said section in the impugned show-cause notice without of which, question of low or nil value addition or taxing the loss of a taxpayer is but has no legal force. Conversely, when the learned DR confronted with the tax situation cited supra, in counter arguments, she has assailed the case on similar grounds and charges as levelled earlier in impugned show-cause notice as well as adjudged in consequent orders and nothing newel, except to reiterate earlier set of contentions, has been put forth by her and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.

4. We have heard the arguments advanced by both the rival parties and also carefully gone through the relevant record and the relevant provisions of law as well as case laws referred before us on behalf of the taxpayer.

5. After going through the case record, we are of the firm opinion that notices issued for production of sales tax record were duly responded by appellant and requisite records and information was provided for audit and no deviation in its compliance has ever occurred. The question arises that without examining the record, how, the department had audited and made a number of audit observations involving instant liabilities hence, penalty imposed against this charge stands illegal, unlawful and highly unjustified which is deleted accordingly.

6. Now coming up to the second issue of inadmissible input tax adjustment against invoices of suspended unit, suffice it to say that appellant does hold valid sales tax invoices duly incorporated in supplier's sales tax return and summary statement for the relevant tax period and subsequent suspension of registration will not disentitle the buyer from his lawful right of input tax in respect of invoices issued when the supplier was registered and active person unless, those invoices are specifically declared fake through speaking order and have direct nexus with suspension. Admittedly, invoices in question had no direct nexus with the subsequent suspension of registration of the alleged supplier and appellant in the instant case has also transacted all payments to his supplier through banking channel by complying with the mandatory provisions of section 73 of the Act therefore, input tax could not be denied to the appellant merely for the reason that the supplier became suspended subsequently. 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).

7. As far as, issue of inadmissible input tax adjustment is concerned, it is awfully observed that the impugned show-cause notice to the extent of Rs.942,658/- is vague, defective and legally invalid as it does not contain necessary particulars of the suppliers and detail of invoices, etc nor was the detail of the transactions confronted therefore, failed to meet the foundational legal requirements. Non-specification of material particulars incurring disentitlement of adjustment of input tax vitiates the whole proceedings. The authority has to state and disclose in the show-cause notice, the purpose for which the party is required to produce the documents or to supply information for proving the genuineness of the transactions. Unless, such purpose is specified in the notice, it will be a matter of any body's guess and the accused party will be put into dragging inquiry without any specific particulars of the allegation or facts disclosed to him. Even in cases of suspicion of commission of illegality, details must be provided to the party to enable him to have an opportunity to produce all the relevant documents and disclose information. The cardinal principle of interpretation of a fiscal statute seems to be that all charges upon the subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to a tax. In this regard, we gain strength from the landmark judgment of Hon'ble Supreme Court of Pakistan in case of "Assistant Director Intelligence and Investigation, Karachi v. Messrs B.R. Herman and others" reported as (PLD 1992 SC 485).

8. With regard to next issue, we have examined with due care that the learned detecting agency has himself admitted this fact that neither stock statement show any consumption of such wastage nor it has been sold out so far. The appellant shall make payment of sales tax on disposal of alleged waste on its time of supply when any delivery is made or any receipt of money consideration is visualized whichever is earlier as the said waste has not been disposed off till such time therefore, the impugned recovery of sales tax on this account is premature and unwarranted under law. No tax on sales can be imposed and levied without establishing 'first' clandestine removal of goods and 'second' receipt of money consideration in its respect, without building this relationship; no tax could assessed and recovered thereon.

9. At the last, it is held that the allegation against the appellant that he has declared value addition @ 8% which is on much lower side when compared with the other units engaged in the same business, is illegal and unlawful because neither the goods in question were notified by the Federal Government under section 7A of the Act for levy and collection of tax thereon the basis of value addition nor the appellant has been charged with the violation of any provisions of the said section in the impugned show-cause notice and consequent orders without of which, question of low or nil value addition has no legal force as no benchmark for the same has ever been specified by the Federal Government in this regard hence, recovery of sales tax on the basis of value addition is illegal and without lawful jurisdiction. We are of firm opinion that there are no provisions in the Sales Tax Act, 1990 empowering the revenue authorities to fix value addition as no addition can be made in the value merely on the basis of some estimates and presumptions and even by comparing sales and profitability of a registered person over its years of business as it is not a divine factum that a business always earns profit without embracing any loss. We do not find any provision in the law whereby the revenue authorities are legally competent to fix percentage of value addition and compel the registered person to calculate and pay sales tax accordingly.

10. Based on what has been discussed hereinabove, the instant appeal is accepted and the impugned show-cause notice and consequent orders of both the authorities below, being devoid of legal substance are hereby set aside. SA/158/Tax(Trib.) Appeal accepted.