2022 PLP (Trib (PTD)

DR. MUHAMMAD NAEEM (ACCOUNTANT MEMBER).

This appeal has been filed by the registered person against the Order-in-Appeal No.102/2018 dated 06-04-2018 passed by the learned CIR(A), Faisalabad.

2. Brief facts of the case are that the registered person/appellant was selected for audit under section 72B of the Sales Tax Act, 1990 and during scrutiny/audit of sales tax affairs for the tax periods from July-2012 to June-2013, certain discrepancies were pointed out i.e. (i) illegal refund received against local sales (ii) non-payment of sales tax on disposal of polypropylene bags, paper cones and wastages, etc. Resultantly, the department has issued a show-cause notice dated 28-04-2017 asking the appellant as to why evaded amount of sales tax worth Rs.3,857,940/- may not be recovered under section 11(2) of the Act along with default surcharge and penalty under sections 34 and 33 ibid. The appellant was also charged with the violation of sections 3, 4, 7, 8, 10, 22, 23, 25 and 26 of the Act read with Rule 34(1)(d) of the Sales Tax Rules, 2006 and SRO 1125(I)/2011 dated 31-12-2011 and SRO 221(I)/2013 dated 19-03-2013. 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 ACIR adjudged liability of sales tax along with default surcharge and penalty vide order-in-original dated 24-07-2017 without considering the relevant record and without any cogent and plausible reasons. Being dissatisfied and aggrieved by the said order, appellant filed the first appeal before learned CIR(A), Faisalabad who vide order-in-appeal dated 06-04-2018 partially remanded the case back and dismissed the appeal on the second issue. The appellant being discontented and aggrieved by the said order has now filed the second appeal before this Appellate Tribunal.

3. Before the Tribunal, the learned counsel vehemently contented that the impugned order is erroneous in law and the same is based on misconceived facts. Learned counsel for the appellant has contested that neither any audit report was confronted to the appellant nor he was afforded with a reasonable and adequate opportunity of going through the audit report and to point out flaws, in such report with the object of rebutting the basis or authenticity of such report which rendered whole exercise of creating liability of sales tax as illegal and unlawful. Reliance in this regard was placed on the judgment of Hon'ble High Court, Lahore reported as (2002 PTD 2780). The Learned AR assailed that despite of fact that the learned CIR(A) has himself admitted that refund issued to appellant cannot be held recoverable only for procedural lapse if it was otherwise admissible under law but after detail discussion as well as evidence of record put forth has remanded the case back to the assessing officer for de novo consideration. The Learned AR contended that the CIR(A) has almost traveled beyond confines of law and he almost accepted the contentions put forward by the appellant thus, there was no justification for remanding back the case to the Assessing Officer. Reliance in this regard was placed on the judgment of Hon'ble Supreme Court of Pakistan reported as (1996 SCMR 230) and judgments of Hon'ble High Courts reported as (2002 PTD 407 (H.C. Kar.) and (2006 PTD 2482). It is submitted by the learned AR that the learned CIR(A) was not justified to remand the case back to the Assessing Officer as the learned CIR(A) in terms of section 45-B(3) of the Act is not competent to provide another chance to the assessing officer to improve his case. The act of remanding the case back by the CIR(A) is illegal and unlawful which may therefore be decaled nullity in the eye of law. The Learned AR on second issue argued that the appellant is able to demonstrate that property-in-goods so-procured during the process of weaving rests with the weavers who disposed off such wastes subsequently and accordingly discharged its sales tax liabilities. Therefore, demand of sales tax on the same goods from the appellant would tantamount to double taxation not permissible under law. In support of his stance, he placed reliance on a judgment reported (2011 PTD (Trib.) 1124).

4. The learned DR, on the other hand, 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.

5. The arguments of the learned representatives of both the rival parties have been heard, the orders of the authorities below as well as relevant record and relevant provisions of law and the case laws cited by the learned AR of the taxpayer have 'also been perused carefully.

6. After going through the case record and relevant provisions of law, we have found that the learned CIR(A) has himself admitted that refund issued to appellant cannot be held recoverable only for a procedural lapse if it was otherwise admissible under law. Under Rule 34(1)(d) of the Sales Tax Rules, 2006, the appellant was required to claim sales tax refund against the local supplies, if the same is not adjusted within a minimum consecutive period of twelve months or as the case may be, to carry forward the excess amount of input tax over output tax in the instant tax period, however, the appellant, claimed refund in the current tax period which is a procedural omission and technical mistake. It is settled law that acts of inadvertence on part of taxpayer due to any procedural mistake would not create demand of sales tax. Though, the appellant has committed some procedural violation by claiming refund in the same month instead of carrying forward the excess input tax to the subsequent tax period, yet there is no legal provision in the Act and the rules made thereunder which denies or extinguishes the substantive right of the appellant to claim refund of the excess input tax. There may be divergence in procedure adopted by the appellant but there was no evasion of government revenue and thus the input tax claim which is backed by statutory right cannot be defeated. The input tax paid by a registered person is an inalienable and substantive right which cannot be taken away or withheld on mere some technicalities and procedural lapses whatsoever. In similar situation and identical circumstances, the Appellate Tribunal Inland Revenue Lahore Bench in case of "Messrs Waqas Enterprises, Faisalabad v. The CIR (Appeals), RTO, Faisalabad" reported as (2019 PTD (Trib) 120) held as under:- "Even otherwise, if creation of demand of principal amount, as per show-cause notice results in creation of refund on the other hang what is the rationale for creation of such demand, if this is so, there is no need to ask the appellant to pay the principal amount of sales tax. Admittedly, there is no dispute by the department regarding the genuineness of the input tax, the only question arises is that the appellant adjusted hundred percent input tax against his output tax and if a registered person adjusted input tax credit before expiry of one year then it was just a technical mistake which does not carry any adverse revenue implications particularly in the situation, when the legislature has itself accepted its adjustment or refund as a right of taxpayer at the end of a financial year hence, recovery of sales tax is illegal and unlawful. It is well-settled law that a taxpayer having legitimate right of money deposited in the national exchequer as a sacred trust on the Government, cannot be deprived of, on certain procedural lapses and technicalities whatsoever."

7. The judgment of Hon'ble Supreme Court of Pakistan in case of "Messrs Pfizer Laboratories Ltd. v. Federation of Pakistan and others" reported as (PLD 1998 SC 64) is also on all fours to the case of the appellant wherein it was laid down as under:-- "That there may not be legal liability on the part of a Government functionary to refund any amount received by it as a tax or other levy by virtue of certain special provision under the special law but keeping in view that we are living in a democratic society governed by the rule of law and every moral values, must do what is fair and just to the citizen regardless of legal technicalities."

8. Now coming up to the second issue of non-payment of sales tax on disposal of polypropylene bags, paper cones and wastages, there is no denial on the part of department that the appellant has supplied yarn to different registered weavers to get it converted into grey cloth on job basis accordingly against sales tax invoices for conversion charges. The said vendors/weavers have never returned leftover wastes such as polypropylene bags and paper cones, etc to the appellant. The department has not produced any evidence of clandestine supply of such goods, which necessarily entails delivery of goods or/and receipt of money consideration thereto, is provided without which instant charge is unsubstantiated having no legal force at all hence, no tax could be assessed and recovered thereon. Reliance is placed on the judgment of this Appellate Tribunal, Lahore reported as (2011 PTD (Trib.) 1124).

9. In view of what has been stated above, the impugned show-cause notice as well as consequent orders of both the authorities below are declared to be illegal, ab initio void and are hereby set-aside.

10. The appeal filed by the registered person is accepted as indicated above. SA/5/Tax (Trib.) Appeal accepted.