2026 PLP (Trib (PTD)

MIAN ABDUL BARI RASHID (MEMBER).

This appeal has been preferred by the taxpayer against the order dated 16.03.2022 passed by the learned Commissioner Inland Revenue (Appeals)-VII, Lahore, whereby the Order-in-Original No.238/2021 dated 23.12.2021, framed under sections 11(2), 11(3), 34(1) and 33 of the Sales Tax Act, 1990 ("Act") by the Assistant Commissioner Inland Revenue, Zone-IV, RTO Lahore, was partly upheld to the extent of principal tax and default surcharge, Marge, whereas penalty under section 33 was modified.

2. The case of the appellant was scrutinized and it was found that appellant had claimed inadmissible input tax against purchases from M/s Cargo Kings (NTN 1358122), a supplier subsequently found to be blacklisted. It was observed that during the tax periods October 2018, December 2018 and February 2019, the appellant claimed input tax of Rs.3,408,174/- on the strength of invoices issued by the said supplier.

3. The assessing officer, after issuing a show-cause notice, concluded that the appellant had made purchases from a blacklisted unit, hence the input tax was inadmissible. Accordingly, tax amounting to Rs.3,408,174/- was held recoverable along with default surcharge and 100% penalty under section 33 of the Act.

4. On appeal, the learned CIR(A) partly confirmed the order. He upheld the recovery of principal tax and default surcharge, holding that the purchases were not bona fide and the input tax could not be allowed. However, the 1000% penalty was annulled on the ground of invocation of wrong provisions of law while observing that a fresh show-cause notice, may be issued with correct provision of law.

5. Aggrieved by the above, the taxpayer has now come before this Tribunal. Learned AR appearing on behalf of the appellant contended that the impugned order is illegal, void and non-speaking. It was urged that the appellant is primarily engaged in customs clearing services and had been filing sales tax returns for maintaining its active taxpayer status. Its user-ID and password were allegedly misused by hackers, leading to filing of fabricated returns and fictitious purchases without the knowledge of the appellant.

6. It was further submitted that an application had already been filed with the FIA Cybercrime Wing (Diary No. LHR-13239/20 dated 16.07.2020) regarding misuse of credentials which substantiates that the appellant was not the real beneficiary of any such transactions. The learned AR pleaded that in these circumstances, fastening liability upon the appellant without ascertaining the actual beneficiaries of the fraud is unjustified and against law.

7. The AR also argued that the impugned order suffers from non-application of mind, as the adjudicating officer failed to conduct any proper inquiry into the matter and did not provide effective opportunity of hearing. As an alternate plea, it was contended that the reliance on blacklisting of the supplier after the relevant period cannot automatically disentitle the appellant from claiming input tax already availed in good faith.

8. On the other hand, the learned DR supported the impugned order. She argued that since the purchases were made from a blacklisted/suspended supplier, the input tax claim was inadmissible in view of sections 8 and 11 of the Act. She maintained that the appellant, being a registered person, was obliged to ensure the veracity of its transactions and cannot escape liability by shifting blame to alleged misuse of login, credentials. The DR further contended that the CIR(A) had already provided substantial relief by annulling the 100% penalty. As regards the principal tax and default surcharge, the order has been passed strictly in accordance with law and merits to be sustained.

9. We have heard both sides and carefully perused the show-cause notice, the order-in-original and the appellate order. The record demonstrates that the entire disallowance pivots on the status of M/s Cargo Kings and the inference that the appellant's returns and invoices were not bona fide. It is also noted that the appellant placed on record a complaint before the FIA Cyber Crime Wing alleging misuse of login credentials; however, no investigation report or conclusive finding has been produced in this regard. Neither the assessment order nor the order of the CIR(A) goes beyond merely naming the supplier and there is no analysis as to whether the appellant derived any tangible benefit by way of refund, onward taxable sales or any monetary consideration traceable to the impugned input.

10. We cannot ignore that in a growing number of cases before this Tribunal, taxpayers have taken the defence that their login and PIN were compromised and misused by unscrupulous elements. In almost all such cases, applications are filed with the FIA Cyber Crime Wing, yet no finalized investigation has been produced on record in any matter. While we agree with the learned CIR(A) that FBR's login and PIN protocol sets a high bar against casual compromise, that observation does not absolve the tax department of its responsibility to inquire and verify once such a defence is raised. The absence of departmental investigation or forensic analysis into when, how, and from which device the login was accessed is a serious omission which undermines the integrity of the assessment proceedings.

11. It is well-settled that an assessment disallowing input tax on the basis of "tax fraud" must rest on clear, positive findings directly linking the registered person to the alleged fraudulent scheme. The order of the AO in this case does not identify the device, IP address, or time-stamps from which the returns and invoices were uploaded; it does not examine the appellant's internal office systems or obtain IRIS audit logs to test the veracity of the appellant's claim; it does not trace the movement of consideration through banking channels as mandated under section 73; it does not map the transactional chain from supplier to appellant and onwards to any buyer or refund; and it does not state whether the appellant issued further invoices or obtained any refund by using the impugned input. These gaps render the order non-speaking on material facts and leave core statutory conditions under sections 7, 8, 11, 23 and 73 unaddressed.

12. The subsequent blacklisting of a supplier is undoubtedly a red flag but it is not, in itself, a self-executing ground to deny input tax claimed in earlier periods. The department must still establish either that the appellant had knowledge of the fraud, or that there was collusion, or that statutory conditions relating to invoicing and banking transactions were violated. Without such findings, liability cannot be fastened on the registered person merely because its supplier was later blacklisted. Where fraud is alleged, the evidentiary burden on the department is heavier, than mere suspicion. Conclusory statements cannot substitute, concrete findings on primary facts. At the same time, a taxpayer cannot succeed merely on a bald plea of "hacked credentials" unless such a plea is supported by a verifiable trail. There is, therefore, a reciprocal duty: the taxpayer must furnish logs, devices or bank statements within its power and the department must subject that material to proper forensic scrutiny before drawing adverse conclusions.

13. On the current record, the following fact-questions remain unanswered and are indispensable to a lawful determination: Login forensics: IRIS/e-filing audit trail showing user IDs, IPs, MAC/device identifiers, geo-location/time-stamps for the relevant uploads. Office-system audit: Basic forensic check of the appellant's systems (or, at minimum, notice to produce and adverse inference if not cooperated). Banking trail (S.73): Whether any consideration corresponding to the impugned invoices moved through the appellant's notified business bank account(s); details of accounts disclosed by the appellant and statements showing inflows/outflows. Chain mapping: Whether the appellant issued onward sales using the impugned input; identification of downstream buyers (if any) and cross-matching of their returns; whether any refund was sanctioned and encashed. Supplier status by period: The exact timing of the supplier's suspension/blacklisting vis- -vis the tax periods at issue and whether tax was paid by the supplier or those periods. Third-party confirmations: Responses from supplier/downstream buyers and reconciliation of invoice numbers, quantities and values.

14. Without grappling with the who, when, and how of the alleged claim and without tracing the actual flow of goods and money, the order does not meet the statutory standard for an adverse determination under section 11 of the Act. The CIR(A)'s concurrence with the AO on principal tax, without first addressing these deficiencies, also falls short of the obligation to deliver a reasoned order dealing with the taxpayer's material pleas and evidence.

15. In these circumstances, we are unable to sustain the impugned order. The matter is therefore remanded to the Assessing Officer, who shall conduct a comprehensive inquiry into the issues highlighted above, confront the appellant with the material gathered and pass a speaking and reasoned order strictly in accordance with law after providing adequate opportunity of hearing.

16. The appeal is disposed of in above terms. MQ/40/Tax (Trib.) Appeal dismissed.