1988 PLP 506 (SCMR)

MUHAMMAD HALEEM, C.J.--This order will dispose of Civil Appeals Nos.175 of 1977, 176 of 1977 and 177 of 1977, which arise from the common judgment dated 26th March, 1969, of the Lahore High Court, Lahore, by which tax references Nos.11 of 1969, 12 of 1969 and 13 of 1969 were answered in favour of the assessee. The respondent in all the three appeals is the same and the assessment relates to the charge years 1956-57, 1957-58 and 1958-59. The respondent had claimed exemption under section 4 of the Sales Tax Act, 1951, in respect of the sales amounting to Rs.26,500, Rs.23,800 and Rs.23,700 respectively for these years made to certain parties on the strength of manufacturing licences. These parties were, however, considered by the Sales-tax Officer to be bogus and non existent. The Sales-tax Officer, accordingly, directed the respondent by notice to prove that the parties were genuine, but the respondent did not lead any evidence in this behalf, therefore, the Sales Tax Officer held that there was no evidence to substantiate the claim of exemption and by separate orders dated 10-5-1961, 6-6-1962 and 28-2-1963 disallowed the exemption claimed for the charge years mentioned above. The appeals filed against these orders were dismissed by the Appellate Assistant Commissioner on 15-2-1965. Against this Appellate order, the respondent filed appeals before the Income Tax Appellate Tribunal, Lahore, which were allowed by a common order dated 22-3-1968 holding that the assessee had made sales on the strength of manufacturing licences issued to them by the Department, and, therefore they were not subject to the levy of sales tax. The appellant, thereupon, filed applications under section 17(1) of the Sales Tax Act before the Income Tax Appellate Tribunal for referring to the High Court the following question of law arising out of the Tribunal's decision: "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the exemption claimed under section 4 of the Sales Tax Act was admissible to the assessee." The Income Tax Appellate Tribunal, however, by order dated 12-12-1968 refused the prayer and thereupon the appellant moved the Lahore High Court under section 17(2) for the decision of the question which too was decided against the appellant. Leave to appeal was granted to consider whether the High Court was correct in assuming that licences could not be issued fraudulently while granting exemption to the assessee in respect of sales made to licensed manufacturers. The Income-tax Appellate Tribunal while dealing with the bona fide of sales has held as under: "The Department's case is that the assessee sold its goods freely and not to persons holding licences so as to exempt the sales made from the levy of sales-tax. Sales were made to three parties only, namely, Omar Soap Factory, Decent Oil and Soap Mills and Junaid Oils and Soap Industries. It is common ground that the said three parties held licences during the period sales were made to them. The Revenue's stand is that these parties never existed, however, in our opinion, this is saying too much. In the face of the licences issued by the Department itself, which were not even cancelled for the period for which they were issued, if some one came to the assessee to make a purchase and could produce a licence issued to it by a competent authority and if a bargain was struck that was the end of the matter and there was no question of charging any sales tax from the licence-holder. It was not the responsibility of the assessee to hold an enquiry to find out whether or not the licence-holder was a genuine party or not; and if at all such an enquiry was necessary this ought to have been carried out by the officer who issued the licence. On these clear facts we must hold that the Department has miserably failed to discharge the onus which lay heavily on it to prove that the assessee knew or had reason to believe that the purchaser was a fictitious personality. The assessee's job was to see the licence and to make the sale and no more." The High Court agreed with it as the licences were genuine and on that basis the sales were bona fide made to the licenced manufacturers. The further obligation that the respondent should have enquired into the genuineness of the lice n.ees,ssued by the Department was held to be untenable. The respondent in these appeals claimed exemption under section 4 of the Sales Tax Act in respect of sales made to Usmania Soap Factory, Lahore Soap & Oil Mills, Omar Soap Factory. Alamgir Soap Factory, Moghal Soap and Oil Industries and Riaz Cotton and Oil Pi Mills, who were licence-holders. The further fact which should be, noted is that their licences had not been cancelled. The exemption was disallowed on the ground that the respondent had not led evidence to prove that these licence-holders were genuine parties. This was on the assumption of the Sales Tax Officer that the sales were made to non-existent or bogus parties, and on that basis he wanted the contrary to be established by the appellant. On appeal, the Appellate Assistant Commissioner, upheld the conclusion of the Sales Tax Officer on a question of fact that the sales were not genuine. In holding so, he further acted on assumptions and surmises to strengthen the conclusion of the Sales Tax Officer that there were free sales. However, the Income Tax Appellate Tribunal reversed the concurrent conclusion on facts as to the sales not being genuine principally on the ground that the manufacturing licences had been issued by the Department itself and if parties were not genuine, it was for the Department to hold an enquiry to ascertain their bona fide, and that this responsibility could not be "styled as the responsibility of the assessee", and if, at all, these parties were non-existent or were bogus entities then it was the Department which had failed in its duty by issuing licences to those non-existing entities. The duty cast on the respondent under section 4 of the Act was only to satisfy himself that the party possessed a valid manufacturing licence, and if that was so, the sales were immune from the levy of sales tax. It will be seen that the Sales Tax Officer had on an assumption of his own that the parties were non-existent desired that the respondent should establish the genuineness of the claim for exemption. This is clear as the Sales Tax Officer has not referred to any matter which could be regarded as proof to support this assumption. The Appellate Assistant Commissioner too has relied on surmises and conjectures; and one of it was that the respondent was prosecuted by the Martial Law -Authorities for having deprived the Government of its revenue. This is not all. An inference was also drawn on that basis and some others that the respondent had knowledge that the parties were bogus. However, the Income Tax Appellate Tribunal set aside the conclusion on fact holding that it was a common ground that the parties had licences during the period the sales were made to them and that "in the face of the licences issued by the Department itself, which were not even cancelled for the period for which they were issued", the respondent was justified in making sales to them on the basis of licences issued to them by the competent authority under section 4 of the Sales Tax Act. This power the Income Tax Appellate Tribunal could exercise Chile setting aside the factual finding under section 15 of the Sales Tax Act. It cannot be denied that the parties to whom the sales were made were bogus and non-existent was a question of fact. In holding that they were bogus and non-existent both the Sales Tax Officer and the Appellate Assistant Commissioner had not based their opinions on matters which could be regarded as proof but on surmises and conjectures which cannot be taken as a substitute for proof. It is well-settled that a conclusion of fact not based on evidence or which is inconsistent with evidence and contrary to it or which is perverse or based on surmises could not be a question of fact but one of law, but that is not the case here as no legal infirmity is apparent from the conclusion arrived at by the Income Tax Appellate Tribunal. In this connection reference may also be made to the Commissioner of Sales Tax v. Messrs Hakim Din & Co. Oil Mills 1985 S C M R 1908. Therefore, the High Court could not under section 17(5) of the Sales Tax Act upset a finding of fact unless it suffered from a legal infirmity in which case the legality of the finding was one of law. Accordingly, the question framed was, in substance, one to decide the controversy on facts which could not be the subject of consideration by the High Court as it could only decide a question of law under, section 17(2) of the Sales Tax Act. We agree with the opinion of the Income Tax Appellate Tribunal that it was for the department to cancel the licences under section 8 of the Sales Tax Act if they were fraudulently issued, and that this matter solely pertained to the department itself and could not be the subject of any assumption as against the bona fide of the sales made by the respondent on their strength. The respondent could not have been saddled with the responsibility of enquiring into this matter for all that was legally required was the existence of valid manufacturing licences. The High Court, accordingly, took a correct view of the matter in holding against the Department. In the result and for the reasons given above, the appeals have no force and are dismissed. M.I. /C-13/S. Appeals dismissed.