2017 PLP (Trib (PTD)

The instant appeal has been filed by the appellant/registered person against Order-in-Appeal No. 320 of 2014 dated 07-05-2014 passed by the learned CIR(A), Faisalabad whereby he while maintaining the Order-in-Original No. 125/2014 dated 26-02-2014 passed by the learned ACIR (PRA), has upheld the demand raised against the appellant and dismissed the appeal.

2. The facts giving rise to this appeal as stated, are that the appellant is a private limited company engaged in making of zero-rated supplies of textiles and textile articles thereof. As per report of audit team of Post Refund Audit, the appellant has illegally received refund of input tax pertaining to the months from September-2008 to July-2010 on the strength of invoices issued by suspended/blacklisted units. Based on the said omission/irregularities, adjudication proceedings were initiated by the taxation officer by way of issuance of show-cause notice for recovery of already refunded amount of sales tax worth Rs. 3,936,331/- asking him to pay back the amount of tax under section 11(3) of the Act against which explanation tendered by registered person was treated unsatisfactory. Resultantly, adjudication proceedings were culminated in passing of an order dated 26/02/2014 which was challenged before the learned CIR(A) who also upheld the liability against the appellant without application of independent judicious mind and approach on legal as well as on factual infirmities and improprieties pointed out in its memo. The appellant being discontented with treatment met out by both authorities below, has filed the second appeal before this Tribunal assailing the treatment accorded by both the lower fora. Learned counsel appearing on behalf of appellant has vehemently assailed the impugned show-cause notice and consequent orders as illegal, unjustified and arbitrary. Learned counsel argued that the impugned show-cause notice issued by the learned ACIR is defective, tentative, vague and sketchy as it does not mention the details and particulars of default. He further contended that impugned show-cause notice does not state and manifestly specify any amount of default surcharge or penalty. In the absence of any specific amount, the appellant has been relegated to the conjuncture, speculation and calculations in the hands of ACIR. Learned counsel also pointed out that neither blacklisting orders of the suppliers units were confronted to the appellant at any stage of adjudication nor any detail of the same were given in the show-cause notice. He has contended that perusal of show-cause notice reveals that the ACIR has merely reproduced the audit observation of the Post Audit Division and did not bother to translate the audit observation into a sustainable show-cause notice by incorporating the required necessary details therefore, show-cause notice is liable to be set aside on this ground alone. To support his contention, case law reported as (2013 PTD (Trib.) 2344) was referred to by the learned counsel for the appellant. Learned counsel argued that appellant has submitted all the relevant record/documents i.e. input tax invoices, inward gate passes, sales tax returns along with summary statements, payments proofs along with bank statements to prove genuineness of the alleged transactions as also admitted by the learned CIR(A) in Para No. 6 at Page No. 6 of the impugned order but the same was deliberately ignored and was not discussed by him while passing the impugned order which rendered its whole exercise of adjudication illegal and void. Counsel further argued that the appellant procured the alleged goods under the coverage of proper sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990 duly incorporated in suppliers sales registers and summary statements and his suppliers have duly discharged their sales tax liabilities under section 7 of the Act in their monthly sales tax returns for periods in question hence, the appellant was legally entitled for refund of input tax under section 10 of the Act and too the alleged suppliers at the time of making transactions were operative/active and all the payments against those transactions were also made through banking channel as required under section 73 of the Act. Support in this regard was also sought from the case laws reported as (1992 SCMR 1652), (2005 SCMR 492), (PLD 2001 SC 340) and (2014 PTD 1530). At the end, learned counsel while summing up his arguments contented that it is categorically provided in the Act that to pay sales tax is liability of the supplier, if supplier had defaulted, amount defaulted is to be recovered from him and not from the buyer/appellant. To strengthen his arguments, learned counsel placed reliance on (2011 PTD (Trib.) 2619), 2000 PTD 399 and 2001 PTD 1486 = PLD 2001 SC

600. On the other hand, when departmental representative confronted with the tax situation cited supra, in counter arguments, he has assailed the case on similar grounds and charges as leveled earlier in impugned show-cause notice as well as adjudged in consequent adjudication and appellate orders and nothing newel, except to reiterate earlier set of contentions, has been put forth by him and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein. 2.(sic) 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 provisions of law and the case laws cited by the learned AR of the taxpayer have also been perused carefully.

3. After carefully examining the relevant provisions of law and record, we hold that a show-cause notice is a foundational document, which is to describe the case comprehensively, made out against the taxpayer by invoking relevant provisions of law and by making references on corroborating and solid evidences collected in support of the same. It is the narration of facts in the show-cause notice along with supporting material evidences determining the offences attracted in a particular situation in meaningful and tangible manners. The show cause notice is not a casual correspondence or a tool or license to commence a roving inquiry into the affairs of the taxpayer based on assumptions and speculations but it is a document of fundamental value carrying a definitive legal and factual position of the department against the taxpayer. Any proceedings taken without issuing proper legal show-cause notice would be illegal, void ab initio and without jurisdiction. A valid show-cause notice must satisfy and contain the following basic legal and mandatory requirements which read as under:-- (i) The notice must be properly served on the concerned taxpayer and must give sufficient time to enable him to collect relevant information/record to defend the allegations and charges leveled therein and to prepare written submissions for its defense; (ii) The notice must contain a complete and comprehensive charge sheet along with material evidences provided therein enabling the taxpayer to defend himself. The authority has to state and disclose in the notice, the purpose for which the party is required to produce those documents or to supply information relevant on the subject matter. Unless, such purpose is specified in the notice, it will be a matter of anybody's guess and the accused party will be put into dragging inquiry without any specific allegation or fact disclosed to him; (iii) The notice must be adequate and not merely repeat the statutory language and provisions of law. Any notice without disclosing circumstantial facts and material evidences unveiling nature of allegations with detailed information and circumference of charge-sheet on which a person is to be proceeded against; will purport to be an action taken in violation of the principles of natural justice and merits to be struck down being not only illegal and without jurisdiction but also contrary to the basic fundaments embodied in the Constitution of 1973; (iv) The notice must cite only those sections and legal provisions thereof which are materially relevant to the subject and objectively fixed therein with proper application of independent judicial mind and not at all in mechanical and hypothetical way because a vague, flawed and defective, unspecific and too general show-cause notice containing multiple irrelevant sections therein may not enable the reader or the notified person to make out or clearly identify the particular clause or subsection or section etc., applicable to the case of the taxpayer, the notice would be illegal and void, if not worded properly; (v) The notice not disclosing essential particulars of the charges and specific provisions of law relevant to the subject, any action based upon it would also be illegal and void ab initio therefore, notice should not be issued mechanically and hypothetically, but should exhibit a proper application of judicial mind of issuing authority; (vi) The notice must describe the case made out against the taxpayer whether it is a case of assessment of tax or rejection of input tax credit/refund under section 11(2) of the Act or as the case may be recovery of any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded under section 11(3) ibid. The grounds mentioned in the show-cause notice should be cleared, specific and unambiguous; (vii) The notice must require the taxpayer to show cause to the proper office as to why he should not pay a certain stated amount or as to why amount of refund inadmissibly claimed may not be rejected; (viii) For a proper, legal and valid show-cause notice, it is mandatory for the tax functionary issuing the same to put his name and to emboss his official designation and to affix his signature thereon and in absence of all this, notice would be illegal and without jurisdiction; (ix) The notice should be issued on the subjective satisfaction of the concerned office and any notice issued in pursuance of an advice or opinion would be illegal and liable to be quashed; (x) The basic principle is that a show cause must be real a show-cause notice, keeping an open and judicial mind with regard to the subject matter of the inquiry proposed therein and if the show notice bears a foreclosed or prejudged mind that would violate the principles of natural justice and would be illegal, ab initio void; (xi) The revenue authority must apply his own independent judicial mind while issuing show-cause notice and never show merely blind followings the departmental point of view and should not be entirely dependent on opinions and comments of the reporting officers and detecting personnel otherwise, notice would never depart the true sense of equity and fair justice rendering it illegal and without jurisdiction; (xii) If the notice merely states that "it appears" or "sufficient reasons to believe" or "prima facie" or "it has been reported to the undersigned" that the assessee has violated some provisions of law or conditions and tax demanded without asking the taxpayer to show cause, it would amount to utter violation of statutory provisions of fiscal laws and controvert to laws set by natural justice making consequent demand of taxes nullity in the eyes of law; (xiii) The amount of tax as assessed and recoverable must be stated and manifestly specified in the notice itself; (xiv) The notice must contain specified amount of penalty and default surcharge as penalties specified in taxing statutes are imposed in lieu of any term for imprisonment and these proceedings are criminal in nature, thus, it is mandatory for the revenue-department to specify the amount of penalty and default surcharge therein, mere invoking of its provisions in the notice does not warrant penalty and default surcharge; (xv) The amount determined by the tax authority as payable inclusive of principal amount, penalties and default surcharge, etc shall not exceed its counterpart amount specified in the show-cause notice; and such amount which the taxpayer is ordered to pay must be stated and manifestly specified in the order along with relevant provisions of law without relegating the taxpayer to conjuncture and calculations for ascertainment of the amount ordered to be paid. The main object of issuance of a show-cause notice is to intimate the concerned party besides indicating him about nature of allegations, contravention and penal action intended to be taken against him and in the absence of any of legal and mandatory conditions mentioned supra and without confronting the material available on record in support of the charges, the tax functionaries shall have no power or jurisdiction to serve a show-cause notice under the provisions of the Sales Tax Act, 1990 for assessment of tax on the basis of any short payment or non-payment, rejection of inadmissible amount of input tax credit or refund claimed or as the case may be recovery of any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded. Any show-cause notice issued to the taxpayer without fulfilling these statutory mandatory conditions is illegal, without jurisdiction and nullity in the eye of law. After exhaustive discussions on the issue at hand, we have no option but to hold that the impugned show-cause notice issued to the present appellant without fulfilling the mandatory formalities of law is illegal, void ab initio and without jurisdiction. The basic show-cause notice being illegal and void, all the subsequent proceedings and superstructure built thereon are also illegal and void as basic action being illegal and unlawful, whatsoever shall follow the same shall also be void and without jurisdiction.

4. The learned DR on the other hand has contended that case was made out on the basis of an audit conducted by the post refund audit division, which concluded that refund of input tax received by the appellant was illegal and contrary to the provisions of law. We asked the learned DR that whether or not the blacklisting orders of the alleged suppliers units and the said audit report were given and confronted to the appellant and did the basis for issuance of show-cause notice were revealed before the issuance of show-cause notice. The departmental representative stated that the same were not done.

5. There is no doubt that the appellant in the instant case has transacted all payments to his suppliers through banking channel by complying with the mandatory provisions of section 73 of the Act which is the sole obligation on the buyer to ensure veracity of transactions in addition to verifying normal and operative status of his suppliers. Both, the necessary condition of verifying genuineness of suppliers from e-portal of FBR for its operative status and sufficient condition of making payments through banking channel to ascertain the varsity of such transactions was also complied with by appellant therefore, the legislature has consciously given a right to a buyer in such cases to reclaim input tax so paid, where registration of the supplier has been suspended or has been declared blacklisted, either as a refund or by way of adjustment.

6. As per sacred statute of book, prime liability to pay sales tax is on the supplier under section 3(3)(a) of the Act and can be shifted to the buyer only by way of a notification under section 3(A) ibid which provides shifting of tax liability to the person receiving the supply of specific goods and in appellant's case, no such notification was issued by the Federal Government as such defaulted amount has to be recovered from the defaulter (the supplier) instead of the buyer (the appellant). It is a well-settled law that no one would suffer for the act of another and no body could be punished for the wrong of others. There is no provision in Act whereby the person receiving the supply shall be responsible to pay sales tax except the Federal Government may specify the goods in the official Gazette by a notification in terms of subsection (3A) of the Section 3 of the Sales Tax Act, 1990. The ratio decidendi in judgment of Hon'ble Lahore High Court in case of "Messrs Superior Textile Mills Ltd. v. Federation of Pakistan and others" reported as 2000 PTD 399 as also modified and upheld by Hon'ble Supreme Court of Pakistan in Civil Appeals Nos. 1094 to 1303 and 1328 to 1343 reported as 2001 PTD 1486 = PLD 2001 SC 600 is the most relevant in all fours to the case at instance of registered person. The relevant extract of judgment of Hon'ble Lahore High Court, Lahore is reproduced as under:-- "Liability to pay sales tax is of a person making taxable supplies subject to the exception that if the Federal Government issued notification in terms of section 3(3A) notifying certain goods with regard to which the recipients has been made liable to pay tax, then the person receiving the supply would have to pay the same."

7. Even otherwise, if due tax has not been deposited by the supplier, amount of input tax refunded to the buyer on the strength of invoices issued by him cannot be recovered merely relying on the provisions of section 8(1)(ca) of the Act as every person has a separate legal character enjoying distinct rights and liabilities under the law and to impose the liability of one over the other is opposed to the basic fundamentals of law and offends due process, logic and rationality. The provisions of section 8(1)(ca) axes an innocent person for the wrong of the other. This case remains nowhere as it has broadly been built up on section 8(1)(ca) of the Act whose provisions being unconstitutional and illegal, have already been struck down by the Hon'ble Lahore High Court in case of "Messrs D.G. Khan Cement Company Ltd. v. The Federation of Pakistan, etc." reported as PLD 2013 Lah.

693. Furthermore, provisions of section 8(1)(d) of the Act can only be invoked in cases where charge of "collusion" or "tax fraud" is established by the department but in the instant case, neither any charge of 'collusion' of the appellant with his suppliers to evade sales tax by way of fake invoices has been leveled and established in the show-cause notice nor the department could prove and bring on record any evidence for collusion of the appellant with his suppliers for the same without which provisions of section 8(1)(d) of the Act are not attracted in the instant case. This is how, a registered person is made obligatory under section 8A of the Act to have prior "knowledge" and "reasonable grounds" to suspect that the supplier will not eventually deposit sales tax paid by him in the national exchequer and in order to attract the provisions of section 8A of the Act, initial burden lies on the department to establish that the taxpayer had prior "knowledge" and "reasonable grounds" to suspect the supplier that sales tax paid to him shall be remained unpaid in its eventuality and then proceed against the taxpayer.

8. The vital fact in the instant case cannot be ignored that at the time of making transactions; alleged supplier was enjoying his status as an "operative person" having normal behavior at e-portal of Federal Board of Revenue showing hundred percent compliance level at the time of transactions and upon his subsequent inclusion in the list of blacklisted units cannot be made effective retrospectively. It has been the constant view of the superior Courts that an executive order and notification, which is detrimental or prejudicial to the interest of a person imposing liability or obligation cannot operate retrospectively however, an executive order and notification which confers a benefit or right can be given retrospective effect. In our considered opinion, there is no provision in the Sales Tax Act, 1990 and the rules framed thereunder empowering the revenue authorities to recover amount of input tax refunded to a buyer due to subsequent suspension of registration and blacklisting of his supplier. In this regard, it will suffice to refer to the judgments of Hon'ble Supreme Court of Pakistan in case of "Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others" (1992 SCMR 1652), in case of "Government of Pakistan v. Messrs Village Development Organization" 2005 SCMR 492 and in case of "Messrs Anoud Power Generation Limited and others v. Federation of Pakistan and others" PLD 2001 SC 340 wherein it has been laid down as under:-- "At this juncture, another important aspect of the retrospectively of notification may also be noted that if the notification has been used for the benefit of the subject then it can be made operative retrospectively but if its operation is to the disadvantage of a party who is the subject of the notification then it would operate prospectively."

9. We also deem it important and relevant to mention here that in the recent past, a division bench of the Hon'ble High Court, Lahore has dilated upon the same controversy in case of "Commissioner Inland Revenue v. Rana Riasat Tufail and others" reported as (2014 PTD 1530) by holding that furthermore, the blacklisting order is subsequent to the period for which refund is being claimed. At the time of transactions, the three entities were admittedly not blacklisted and there is no final order even today against the three blacklisted units. Therefore, no case for interference is made out. In the light of the aforesaid, this ICA is dismissed.

10. In another case of "Messrs Nimra Textile Mills (Pvt.) Ltd. v. Federation of Pakistan, etc.", the Hon'ble High Court, Lahore in W.P. No. 17237/2013 dated 09-07-2013 has held that the status of the buyer existing at the time of supply of goods by the petitioner shall be considered while deciding the show-cause notice and not the status attained by the buyer subsequently.

11. It is not of least importance to say that there is free competition in market where buyers and sellers are separate, unrelated and independent players, transacting with each other at arms-length. Once payment is made to supplier through proper banking channel, as requisitioned under section 73 of the Act, buyer has no control over supplier. Buyer has no means to police supplier to ensure that payment made is also duly deposited in government exchequer. Supplier is not a puppet of buyer and does not dance to his tune. Right of input tax is a substantive and inalienable right of the buyer which cannot be denied to him on subsequent default of the supplier. Any such expectation or obligation cast upon buyer in a market where there is free and fair competition defies reasonability and logic. Under scheme of the Sales Tax Act, 1990, a taxpayer always enjoys 'proprietary interest' in deduction of input tax from output tax. Input tax is property of buyer which is paid to supplier so that the same can be deducted at time of supply of goods by the buyer. Any sub-constitutional limitation restricting a buyer from deducting input tax from output tax impinges on rights to property (input tax) guaranteed to a taxpayer under the Constitution (Articles 23 and 24) and must successfully filter through the test of Constitutionality.

12. The learned DR appearing on behalf of department has vociferously contented that no documentary evidence was produced by the appellant at any stage of adjudication to prove genuineness of input tax refunded to him therefore, demand of sales tax has rightly been created against the appellant in the adjudication order as well as upheld in the first appellate order. After perusal of the impugned order of the learned CIR(A), we are in agreement with the thrust of the arguments of the learned AR that the appellant has submitted all the relevant record/documents i.e. input tax invoices, inward gate passes, sales tax returns along with summary statements, payments proofs along with bank statements as a proof for physical transfer of goods and evidence of financial veracity of transactions which was also admitted by the learned CIR(A) in Para No. 6 at Page No. 6 of the impugned order, but he did not utter even a single word in this behalf and deliberately and intentionally ignored the same which rendered the impugned order illegal, void and nullity in the eyes of law. It is now well-settled law that any record/documents produced by a taxpayer during the course of adjudication proceedings either at the original stage or at the appellate stage if not discussed and controverted and have gone unchallenged and unrebutted by the tax functionaries are itself amounts to admission of its legality and authenticity.

13. In view of what has been stated, particularly in the light of record, legal propositions discussed hereinabove and the principles laid down by the superior courts in various pronouncements quoted supra for which we have a great veneration and reverence all the times to come, the titled appeal is accepted by way of vacating the orders passed by both the authorities below being suffering from grave legal infirmities and substantive illegalities tantamount to patent violation of mandatory statutory provisions.

14. The instant appeal filed by the registered person is succeeded as prayed for and indicated above. HBT/123/Tax(Trib.) Appeal accepted.