2007 PLP (Trib (PTD)

HAFIZ MUHAMMAD ANEES, MEMBER (TECHNICAL).

This judgment disposes of Sales Tax Appeal No.STA/646/LB/04 filed by Messrs J.K. Spinning Mills Ltd. Jaranwala Road, Faisalabad against the Order-in-Original No.358 of 2004 dated 3-8-2004 (dispatched oil 12-8-2004) passed by the Additional Collector (Adjudication), Faisalabad ordering the appellant (the then respondent) to deposit Rs.11,65,828 (Rs. eleven lass sixty five thousand eight hundred and twenty eight only) along with additional tax and penalty equivalent to 30% of the amount of tax involved under section 36(1), 34 and 33(4)(f) of the Sales Tax Act, 1990 as the appellant fraudulently claimed and availed input tax credit/ refund of the said amount against the fake/flying invoices.

2. Briefly stated, the relevant facts gleaned from the available record, giving rise to the institution of the above appeal are that refund claim filed by Messrs J.K. Spinning Mills, Faisalabad, (the appellant) was checked/audited by the sales tax staff of the Collectorate which revealed that the appellant received sales tax refund of Rs.62,76,030 dated 5-9-2002. The checking of the purchase record revealed that the appellant received sales tax refund amounting to Rs.11,65,828 against fake invoice of the fake unit namely Messrs Rabia Textile Traders, Faisalabad bearing sales tax registration No,08-03[5209-42-91] .

3. Based on the reported facts of the case, a show-cause notice dated 15-11-2001 was issued to the appellant for recovery of the said amount and penal action under the aforesaid provisions of law due to violation of sections 2(37), 4, 7, 8, 10 of the Sales Tax Act, 1990. The case was contested by the appellant on various grounds. On adjudication vide order-in-original dated 3-8-2004 (dispatched on 12-8-2004), the said amount was ordered to be recovered along with consequential adjudged liabilities as mentioned in para 1 above tend hence the present appeal before the Tribunal mainly on the Following grounds:-- (i) As the appellant had sales tax invoices in hand and monthly sales tax return was also filed, therefore, he rightly adjusted input tax incurred in connection with zero rated supplies (exported; goods) in terms of section 10(2) of the Sales Tax Act, 1990. (ii) As the refund order passed by the competent authority is a past and closed transaction, it can only be re-opened under section 45-A of the Sales Tax Act, 1990 which is not in .the instant case. Thus, the show-cause notice issued under section 36 is void and illegal (iii) Subsection has not been mentioned in the notice issued under section 36 therefore, the show-cause notice is illegal. (iv) The supplier and buyer are both located at Faisalabad, so the question of truck, bilty number does not arise. (v) The Department has passed order against Messrs Rabia Textile Mills. Subsequently passing of order against the buyer for the same period amounts to double taxationwhich is illegal. Further in terms of section 3(3)(a) of the Sales Tax Act, 1990 the liability to pay sales tax is that of the supplier and not the buyer.

4. On the other hand, the departmental representative has rebutted the contention raised by the counsel for the appellant and has stated that the appellant has obtained illegal refund of sales tax against fake/flying invoices .which attracts the provisions of section 36(1) of the Sales Tax Act, 1990. The Tribunal in various judgments has already held that refund order claimed against fake/flying invoices is not a past and closed transaction and recovery eau be initiated under section 36 of the Sales Tax, 1990.

5. Various hearing opportunities were provided. The appellant kept on seeking adjournment on one pretext or the other and finally hearing was Fixed on 14-11-2006 but the counsel for the appellant dial not appear to argue the case.

6. We have carefully gone through the record of the case. Anxious consideration has been given to the contention raised by the counsel for the appellant in his memo of appeal as well as the departmental representative. It goes without saying that section 7 of the Sales Tax Act, 1990 allows input tax adjustment against valid sales tax invoices. Section 8(1)(a) ibid disallows deduction of input tax against the goods not used in the manufacture/production of taxable goods or taxable supplies. Similarly section 23 of the Act 'stipulates that there should be physical supply of the goods. It is crystal clear that input tax adjustment is riot admissible simply against invoices without physical supply of the goods; without use of the same in taxable supplies and further input tax must have been paid against these goods. The invoices issued by the said fake unit do not admit any possibility of adjustment being hollow from within. It is nothing but a tax fraud as defined under section 2(37) of the Sales Tax Act, 1990. Under the Self-Assessment Scheme, it is the exclusive responsibility of the registered person (the appellant in the instant case to substantiate that he claimed and availed input tax adjustment against valid sales tax invoices which he could not. Thus, input ax adjustment against fake/flying invoices is .illegal and the contention of the counsel for the appellant is rejected.

7. The counsel for the appellant has raised the legal issue that sanctioning of refund by the competent authority was a past and closed transaction, therefore, if at all there was a justification for effecting recovery, the case should be reopened by the Collector Sales Tax, under section 45-A of the Sales Tax Act, 1990 and there was no legal justification to issue notice under section 36 of the Act. The matter has been examined. The situation in the instant case is clearly covered under section 36(1) of Sales Tax Act, 1990 which provides that where by any reason of some collusion or a deliberate act any tax or charge has been erroneously refunded, the person liable to -pay the amount of refund erroneously made shall be served with a notice within five years of the relevant date requiring him to show cause for the payment of the amount specified. Similarly section 45 of Sales Tad Act, 1990 empowering various officers bf sales tax as Adjudicating Officers authorities the Adjudicating Officer having pecuniary jurisdiction to adjudicate the case including the cases regarding recovery of amount erroneously refunded. There was thus no justification to invoke the general provisions of section 34-A of the Sales- Tax Act, 1990. This Tribunal has already held in Sales Tax Appeals Nos.957/LB of 2003, 958/LB of 2003, 1215/LB of 2003, 1216/LB of 2003, 1275/LB of 2003, 1292/LB of 2003, 194/LB of 2006 and 347/LB of 2004 that in such cases the erroneous refund was to be recovered after the issuance of show-cause notice under section 36 of the Sales Tax Act, 1990. Therefore, this contention of the counsel for the appellant is bereft of legal force and as such not tenable in the eye of law.

8. The learned counsel for the appellant has raised the point that the show-cause notice is vague, defective and non-speaking and even subsections of section 36 have not been mentioned, therefore, the same is liable to be vacated and no further proceedings are warranted. The matter has been examined. It may be mentioned that object of every notice, including the notice contemplated by section 36 of the Sales. Tax Act, 1990 is to afford the opportunity of hearing and defence. So far as form of notice is concerned, it has not been prescribed either in the statute or in the rules. Even otherwise the substance is more important than form. Non-mention or wrongly mention of section does not affect the nature of a document which is determined on the basis of its contents. In the instant case the contents are not vague. They clearly allege evasion of sales tax spelling out that the refund has been claimed against flying/fake invoices, issued by fake (supplier) unit so much so that even the name of the fake unit has been mentioned in the show-cause notice. In view of the aforesaid legal position, this contention of the appellant is also devoid of legal force. Reliance is placed on the latest judgment dated 27-12-2005 of the apex Court of" a larger Bench in the case of Collector of Customs Central Excise .and Sales Tax (Adjudication) v. Pakistan Tobacco Company being later in time and by a larger Bench having overriding effect on its earlier judgments and another judgment of the Honourable Apex Court of Pakistan in C.P. No.702-L of 2003 in the case titled Collector Sales Tax and Central Excise Lahore v. Zamindarah Paper and Board Mills and others whereby the judgment of the Honourable Lahore High Court was set aside.

9. The counsel for the appellant has referred to the provisions of section 3(3) and has contended that payment of input tax was to be made by the supplier. The provisions of section 3(3) of the Sales Tax Act, 1990 are patently misconceived. This section speaks of valid sales tax invoices and adjustment can be made only against valid invoices. The appellant has, conclusively, neither received the goods, nor input tax has been paid thereagaiust and the supplier is a suspicious/fake unit. Fraudulently claiming the refunds and still contending that sales tax was to be paid by the so-called supplier ,is not covered under the said .section 3(3) read with section 7(1} and 8( )(a). In fact, the appellant, in comiivance with the so-called supplier, obtained the invoices and claimed refund thereagaiust which is recoverable along with consequential liabilities as mentioned above.

10. The contention of the counsel for the appellant that action against the fake unit has been taken; therefore, there is no justification to take action against the appellant. This contention is also devoid of legal force. Both the buyer and the so-called supplier have jointly as well as separately caused severe injury to the Government exchequer which amounts to tax fraud as defined under section 2(37) of the Sales Tax Act, 1990. So it does not amount to double taxation. 10-A. For the foregoing reasons, we find the appeal bereft of merit both on facts and law points inconsequence dismiss the same.

11. Inform all concerned through registered post, C.M.A./77/Tax (Trib.) Appeal dismissed.