2020 PLP 1402 (PTD)

This consolidated order shall decide instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), along with following connected case, as common questions of law and facts are involved in these cases:- STR No.14 of 2017 titled Messrs M.M. Enterprises v. The Commissioner of Inland Revenue

2. The following question of law, asserted to have arisen out of the impugned order dated 17.01.2017, passed by learned Appellate Tribunal Inland Revenue, Lahore ("Appellate Tribunal"), has been pressed and argued for our opinion:- "Whether in the facts and circumstances of the case, learned Appellate Tribunal was justified in vacating the order of the Commissioner Appeals without considering the law laid down by this Hon'ble Court in the case reported as 2015 PTD 2256 = (2015) 111 TAX 405, wherein it has been held that status of the registered person is to be considered at the time of transaction?"

3. Brief facts of the case are that a show-cause notice was issued to applicant-taxpayer alleging therein input tax adjustment on the ground that the suppliers were blacklisted / suspended, which culminated in passing of order-in-original dated 07.05.2011. Feeling aggrieved, applicant-taxpayer filed appeal before CIR (Appeals), which was accepted vide order dated 11.08.2011. Being dissatisfied, respondent-department preferred appeal before learned Appellate Tribunal, which was accepted vide order dated 17.01.2017. Hence, this Reference Application.

4. Learned counsel for applicant-taxpayer submit that learned Appellate Tribunal, while passing impugned order, has totally ignored the dictum of law laid down by this Court in Commissioner Inland Revenue v. Tariq Poly Pack (Pvt.) Ltd. [2015 PTD 2256 = (2015) 111 TAX 405], wherein it has been held that status of the registered person is to be considered at the time of transaction.

5. When confronted, learned Legal Advisors for respondent-department could not give any satisfactory reply.

6. Arguments heard. Available record perused.

7. The operative part of impugned order is reproduced hereunder:- "

6. We have given anxious thought to the averments made by the Revenue and perused the relevant available record. After having scrutinized the relevant record, we have noted that the respondent has claimed input tax on the invoices issued by blacklisted units. It is significant to state here that the input tax cannot be adjusted against supplies received from a blacklisted registered person regardless of whether the invoices were issued prior to, or after such blacklisting and this aspect has clearly been mentioned in Rule 12(5) of the Sales Tax Rules, 2006. Further noted that the respondent has also failed to provide any concrete evidence regarding execution of the transactions i.e. payment proof, mode of transaction against these invoices. It is pertinent to mention here that if no physical transfer of goods takes place from the supplier's premises to the premises of buyer, the so called supply would be treated as transaction on papers. On the other hand, the learned CIR (Appeals-III), Lahore has given undue favour to the appellant-respondent and cancelled the order-in-original.

7. In view of the aforementioned discussion, we are of the considered view that the assessing officer had passed the order after scrutinizing the relevant record as well as on the basis of the facts and circumstances of the case. Consequently, we have valid reason to vacate the order of the learned CIR (Appeals-III), Lahore dated 11.08.2011 and constrained us to agree with the order of the assessing officer dated 07.05.2011 which certainly does not suffer from any factual or legal infirmity and is hereby maintained. This would result into acceptance of the departmental appeal in the manner as indicated above."

8. Perusal of record reveals that learned Appellate Tribunal has passed impugned order without adverting to the relevant provisions of law, which is even otherwise based upon misreading and non-reading of available record. The supplier units were operating when the transactions were made and provisions of Section 73 of the Act of 1990 have been complied with. Even otherwise, initial burden lies on the respondent-department to show that invoices have been issued during suspended or blacklisted period and in case, invoices were not issued during period of blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Taxation Officer did not establish that said invoices were either fake or flying or the claimed tax was not deposited in the Government Exchequer. Admittedly, the issue involved in this case has already been dealt with and answered by this Court vide judgment dated 01.11.2017, passed in the case of Messrs Ali Hassan Metal Works supra, wherein the questions similar to the proposed question were re-settled in one question, which was decided against the department. The relevant part of the said judgment is reproduced hereunder:- "

9. Intention of the Legislature; as is discernable from the provisions of section 21(3) read with section 8(1) (ca), is that reclaim (refund) or adjustment of input tax (tax credit) should not be allowed for an invoice against which sales tax has not been deposited in Government treasury. This clog appears to be logical because a tax not deposited in the Exchequer, cannot and should not, allowed to be withdrawn or adjusted. Claim of such refund or its adjustment amounts to rob the Exchequer and cheat upon the State, Conversely; to deny adjustment or refund of a tax deposited in the Treasury, if a registered person is entitled under that law, is against the legislative will.

10. The authorities, exercising quasi-judicial powers under a statute are bound to conduct a fair adjudication. To be dealt in accordance with law, due process and fair trial are inalienable fundamental rights guaranteed under Articles 4 and 10-A of the Constitution of the Islamic Republic of Pakistan 1973 ("Constitution"). August Supreme Court of Pakistan in The Province of East Pakistan v. MD. Mehdi Ali Khan (PLD 1959 SC 387) held:- "The determination of every right or liability claimed or asserted in a legal proceedings depends upon the ascertainment of facts and the application of the law to the facts so found. It is a normal feature of the judicial process first to discover the facts and then to determine what rights and liabilities follow from the application of the law to the facts found."

11. While invoking/applying the provisions of Section 21(3), Commissioner or Taxation Officer has to ascertain the fact that the invoices were issued during suspended or blacklisted period. In case invoices issued prior to blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Bottom line is that tax was not paid or deposited against the invoices. To prove these facts burden is upon the revenue, however, this burden can be shifted upon the registered person claiming adjustment or refund of tax, in cases of tax fraud, in accordance with the provisions of Section 2(37) of the Act of 1990. Not by confronting, merely, that the supplier was blacklisted subsequently, initial burden, before shifting, is to be discharged by the revenue, as is held in Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise (East) and another (2004 PTD 868), relevant excerpt of which is reproduced for facility:- "A perusal of the show-cause notice as well as material produced before us further shows that no case of any tax-fraud has been made out whereby the burden of proof can be shifted to the appellants. The learned two forums below have misdirected in placing the burden of proof on the appellants in terms of the provisions contained in section 2(37) defining the expression "tax-fraud" without realizing that in order to attract the above provision, the initial burden lies on the Department to show that an assessee, knowingly, dishonestly or fraudulently and without any lawful excuse has done any act or has caused to be done or has omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under, this Act or rules or instructions issued thereunder with the intention of understanding the tax liability or underpaying the tax liability. Once this burden is discharged by the Department, only then, the burden is shifted to the assessee to establish that the act done was without any knowledge on his part or without any intention of dishonesty or fraud and was done with any lawful excuse."

12. The questions proposed are not couched in proper words to clinch the proposition of law arising from the impugned order, therefore, we intend to resettle the question in following words:- "Whether Taxation Officer was justified to invoke the provisions of Section 21(3) of the Sales Tax Act, 1990 or Rule 12(5) of the Sales Tax Rules, 2006 for not entertaining invoices, issued prior to blacklisting of supplier, for tax credit or refund, without establishing, through self-speaking order, that the invoices were fake or flying because the claimed tax was not deposited in National Exchequer?"

13. Our answer to the resettled question is in Negative. Reference Application is decided against the applicant department."

9. Following the ratio settled in above reproduced case, our answer to the proposed question is in negative i.e. in favour of applicant-taxpayer and against respondent-department. This Reference Application, along with connected Reference Application, is decided in favour of applicant-taxpayer.

11. Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per Section 47(5) of the Act of 1990. SA/A-8/L Reference accepted.