2012 PLP (Trib (PTD)

TABANA SAJJAD NASEER (ACCOUNTANT MEMBER).

The Commissioner Inland Revenue (Zone-III) Regional Tax Office, Faisalabad through these two titled appeals filed under Section 46 of the Sales Tax Act, 1990 has assailed the Order-in-Appeal No. 29 of 2010 dated 3-3-2010 and Order-in-Appeal No. 103 of 2011 dated 2-5-2011 passed by the learned commissioner (Appeals) Inland Revenue (R.TO), Faisalabad.

2. Succinctly stated, relevant facts for disposal of the instant cases are that during audit of the respondent's refund files for the tax periods 2004-2005 and 2008-2009 conducted by the Officers of Directorate General of Revenue Receipt Audit, Lahore, it was found that the respondent had illegally received refund of input tax. Accordingly, a show cause notice for recovery of already refunded amount of sales tax was issued asking the respondent as to why refunded amount of sales tax may not be recovered under sections 11(2) and 36(1) of the Act read with relevant refund rules along with default surcharge and penalty under sections 34 and 33 ibid.

3. It was mentioned that the Assistant Commissioner without proper adjudication upheld the charges levelled against the respondent and passed sales tax order-in-original on ex parte basis without affording any opportunity of hearing despite the fact that written submissions were made on 12-2-2011 against due acknowledgment. Feeling dissatisfied with this treatment, the respondent appeared before the learned Commissioner (Appeals) who accepted the appeals, subsequently the sales tax department has preferred the titled appeals on account of refund sanctioned against invoices of black listed units.

4. The learned counsel on behalf of respondent argued with vehemence that the respondent had procured the alleged goods under the cover of proper sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990, which were duly incorporated in supplies sales registers, summary statements and that due tax was also paid in monthly sales tax returns for period in question. It was further argued that the stated suppliers were neither defaulters nor was any fake transaction made by the respondent during the period in question. It was contended that the aforementioned suppliers enjoyed "operative status" at that time and payments against alleged transactions were properly made through requisite banking channel as provided under section 73 of the Act.

5. The learned counsel for respondent stated that the responsibility to pay sales tax rested on the suppliers and if they have not paid tax in the national exchequer, the respondent could not be held responsible for their default under the provisions of section 3 of the Act as also laid down in a judgment reported as (2011 PTD (Trib.) 2619). He argued that all the legal obligations resting upon the respondent had been fulfilled by them and they could not legally be held liable due to any default on the part of their suppliers. It was however forcefully urged by the learned counsel for the respondent that by no stretch of imagination, the adjudication orders can be said to have been passed legally as it violates the provisions of the Sales Tax Act, 1990 as well as the provisions of section 24-A of the General Clauses Act, 1897. On the other hand, the learned DR could not rebut the findings of the learned first appellate authority with any tangible or material evidence but has supported the orders of learned adjudicating authority and prayed for dismissal of titled appeals. He further urged that since the condition of physical transfer of goods from supplier to the buyer as provided under section 2(14)(a) of the Act is not met with and respondent has failed to provide any documentary evidence to this effect, he was not entitled for input tax credit on the strength of certain fake invoices. We have heard the learned representatives for both the parties and given our earnest consideration to the rival arguments. We have examined the case record in detail and also considered the case-law cited at the bar.

6. We have observed with grave concern that the word "fake invoice" has neither been defined through any explanation to sub-section (1) of section 8 nor any definition of this expression is given in defining clauses of section 2 of the Act. The word "fake" (as a noun) has been defined by the Black's Law Dictionary, 8th Edition to be "some thing that is not what it purports to be" and word "fake" (as a verb), it means "to make or construct falsely" at its page

635. In the expression "fake invoices" the word "fake" has been used neither as a noun nor as a verb, rather it is an adjective, which describes the quality of input tax invoices, which are either not true in any material respect or they have been falsely made or forged by the person claiming credit of input tax on its strength.

7. The word "invoice" has also not been defined in the Sales Tax Act, 1990, rather an expression "tax invoice" has been defined under subsection (40) of section 2 of the Act to be "a document required to be issued under section 23 of the Act". The word "tax invoice" has also been used in section 23 of the Act. If an input tax invoice corresponds to requirements of section 23 of the Act, it qualifies to be a "tax invoice" and if it has been issued by a "registered person" as required under subsection (2) of section 23 ibid, it is a valid tax invoice and entitles the holder thereof to claim credit got input tax envisaged therein.

8. In so far as, matter of physical transfer of goods is concerned, this condition is no where expressly provided under the Act, However, the same has impliedly been stretched by the words "on the supply of goods received by that person" from sub-clause (a) of clause (14) of section 2 of the Act which reads as under:-- (14) "Input tax" in relation to a registered person, means the tax-- (a) levied under this Act on the supply of goods received by that person; Though said clause is a definition clause having no legal impact on input tax adjustment/credit under provisions of section 7 vis-a-vis section 8 of the Act providing mechanism for entitlement of input tax to a registered person yet this implied expression was also amended and substituted by the Finance Act, 2008 as assented on 26th June, 2008. Amended provisions, read as under:-- (14) "Input tax", in relation to a registered person; means-- (a) tax levied under this Act on supply of goods to the person; Substitution of the words "received by that person" by the words "to the person" has omitted the implied expression of physical transfer of goods in the definition clause 2(14) of the Act. It is now easy to maintain that the condition of physical, transfer of goods was neither specified prior to the said amendment nor it was made mandatory thereafter. However, an inference of physical transfer of goods was available in sub-clause (a) of clause (14) of section 2 of the Act but by virtue of said amendment, this implied expression has also been omitted from the said section. Therefore, the departmental plea that without any physical transfer of goods, the respondent was not entitled for input tax credit is of no help by reading of the said provisions of law. Prior to this amendment, responsibility of supply was on the supplier only which was made several and joint by insertion of section 8A of the Act wherein both the buyer and supplier were held responsible for a set of transactions but currently, the buyer has been exonerated from this liability and responsibility under newly added subsection (3) of section 21 of the Act if he made payments through banking channel as provided under section 73 ibid.

9. In the instant cases, provision's of section 73 of the Act for bank payments have duly been complied with by the respondent. Consequently, input tax credit against invoices of such black-listed persons cannot be denied and sales tax refunded thereon cannot be recovered after insertion of subsection (3) of section 21 to the Act wherein it has categorically been laid down that input tax shall be allowed if payments are made through banking channel irrespective of the fact that the suppliers units are either black-listed or their registration have been suspended.

10. No doubt, the said amendment is made in Finance Act, 2011, whereas the instant refund claims pertain to the periods from 2004-2005 to 2008-2009. However the said amendment of subsection (3) in section 21 of the Act being beneficial remedial and curative legislative amendment is applicable in all pending cases and in the instant case as well. The only exception to the principle that curative and remedial legislature is retrospective is that the same applies only on the pending cases. 'Pending' would, however, mean, and include at any stage of the proceedings starting from Assessing Officer to the Supreme Court of Pakistan. This obviously means that it would not apply on the case wherein the concerned persons have not challenged the action the revenue authorities before any higher forum and the same is not pending adjudication. In this regard, prime judgment of Supreme Court of Pakistan in case of "The Commissioner of Income Tax v. Shahnawaz Limited" reported as (1993 SCMR 73) can be referred with full advantage. This judgment subsequently has been followed in dozens of judgments. The ratio decidendi of retrospective application of a beneficial, remedial and curative amendment is laid down by the Honourable Lahore High Court Lahore in case of "The Commissioner of Income Tax/Wealth Tax v. Messrs Ellcot Spinning Mills Ltd." reported as (2008 PTD 1401). The relevant extract of the judgment is as under:-- "It is now well-settled that remedial and curative legislation, unless the law makes prospective in clear and un-ambiguous terms, is always retrospective, detailed discussion would not be required. However, mentioning some of the relevant judgments on the issue shall definitely of help. There is a plethora of the judgments on this issue. However, for the purposes of brevity this Court would refer the judgments of the Hon'ble Supreme Court of Pakistan in terms of "Commissioner of Income Tax v. Shahnawaz Ltd. and others" (1993 SCMR 73), "Messrs Army Welfare Sugar Mills Ltd. v. Federation" (1992 SCMR 1652), "Anoud Power Generation v. Federation" (PLD 2004 SC 340) and "Government of Pakistan v. Village Development Organization" (2005 SCMR 492)."

11. We have no hesitation in holding that if the sales tax department had acted in a negligent manner and certain omissions were committed by its functionaries by issuing registration certificates to the bogus, fake or non-existent parties, then the respondent/taxpayer should not be made to suffer for the acts or omissions of the sales tax functionaries. It is now well-settled principle of law that a party should not be made to suffer on account of act/omission on the part of the court or other state functionaries. The relevant portion from the judgment of the honourable Sindh High Court, Karachi in case of "Messrs Silver Cotton Mills Ltd. v. Commissioner of Sales Tax (West), Karachi" reported as (1984 PTD 216) which dealt with the issue involved in this appeal is reproduced as under:-- "The duty to issue license was on the Department and if they have not taken care to issue license after, proper verification and satisfaction and have gone on issuing license to bogus parties, or non-existent parties, the responsibility entirely lies upon the Department as a licensed manufacture, would only see the copy of license and will not make inquiries for establishing the genuineness of the licensee. How can this duty be imposed on the assessee to ascertain whether the party to whom license has been issued exists or not? Unless, it is established that the license has been cancelled before the sale knowledge, of the assessee it will be unjust to burden the seller or assessee to make inquiries about the genuineness of the license."

12. It may be mentioned here that a bare perusal of the adjudication orders show that these are non-speaking orders, and not conform to the mandatory requirements of section 24A of the General Clauses Act, 1897. Any order which does not contain substantial reason and does show that it is passed on objective consideration shall always be treated as illegal void arbitrary and a result of misuse of the authority vested in the public functionary. There is no room for such illegal, void and arbitrary orders in any system of law. The reasons being that if any authority, Court or Tribunal gives a finding of fact which is not based on the material available on record, is illegal, arbitrary without discussing and considering the material available on record it becomes perverse, and a perverse finding of fact which is violative of the established principle of the appreciation of evidence on record is not sustainable in law. The principle that every judicial or quasi-judicial finding should be based on reasons containing the justifications for the finding in the order itself is an established principle of dispensation of justice. The adjudication orders being violation of the basic principle of the good governance and mandatory requirements of section 24A of General Clauses Act are not only illegal and void but also not sustainable under law and are hereby quashed.

13. We need no reiteration on the issue of Rule 12(5) of the Sales Tax Rules, 2006 notified vide S.R.O. No. 555(I)/2006 as this Court already has dilated upon this issue in case of "Messrs Ashar International (Pvt.) Ltd. v. CIR, Faisalabad" reported as (2011 PTD (Trib.) 2347) in the following manner

"Sub-Rule (5) of Rule 12 clearly emphasizes that refund claimed by a registered person shall not be entertained if invoices are issued by his supplier unit during suspension of registration or after black-listing. There is no provision for effecting recovery from the person, who has received refund against invoices of a registered supplier black-listed at a later stage. In other words, Rule 12(5) does not contain any procedure for recovery of already refunded amount, but it provides, a legal safeguard against any amount of refund being claimed against such blacklisted concerns. The past liabilities on this account should have been assailed by invoking provisions of section 45A of the Act instead. At this juncture, we have no ambiguity in our mind to hold that in case of the already refunded amount, provisions of Rule 12(5) are least sufficient to effect its recovery against black-listing of his suppliers units at subsequent stage and this act of recovery of already refunded amount does not find any support from Rule 12(5) of the Sales Tax Rules, 2006 as this Rule only comes into play where refund is being processed but not sanctioned. However, where refund has been sanctioned/ received, it is not applicable. As far as question of retrospective application of an executive order of black-listing is concerned, we have observed that the purchases made by the appellant pertain to the periods from May, 2004 to November, 2004 when the alleged suppliers were not black-listed but were actually having operative status. Their subsequent inclusion in the years 2005 and 2006 in the list of black-listed units cannot be implemented retrospectively. Rule 12(5), clearly stipulates that claim of refund shall not entertained if invoices are issued during suspension of registration and claim shall be rejected if supplier unit is black-listed subsequently. We are firmly of the view that the word "prior" used in the said rule does not cover the period beyond the suspension of registration but it includes the period after suspension of its registration and its ultimate black-listing thereafter. This rule would be applicable when a registered person purchases goods from another person during the period when his registration was suspended or after its black-listed, but would not be applicable, before the period of suspension of registration or black-listing. The golden rule of interpretation of statutes that the statues should be given their ordinary meaning should be strictly applied to the fiscal statute, if there is any ambiguity in interpreting any fiscal statute or application thereof, this ambiguity should always be resolved in favour of assessee. The taxing statute must be interpreted in the light of what is clearly expressed."

14. In the light of what has been stated hereinabove, we hold that the orders impugned by the department being well-based, strictly in accordance with law and settled norms of justice do not call for any interference. Both appeals filed by the Commissioner Inland Revenue (R.T.O.), Faisalabad being devoid of any merit are dismissed. C.M.A./24/Tax(Trib.) Appeal dismissed.