2013 PLP (Trib (PTD)

These two appeals filed at the instance of the registered person are directed against the Order-in-Appeals Nos.15 and 16/A-II/2011 dated 26-4-2012 passed by learned CIR(A), Lahore..

2. Facts of the case in brief are that the Adjudicating Officer on scrutiny of record of the appellants observed that they had claimed illegal input tax adjustment therefore following discrepancies were confronted : (i) For the tax period 7 of 2005 to 6 of 2010 it revealed that the appellants had claimed input tax adjustments on the basis of invoices issued by the blacklisted suppliers mentioned in the order-in-original thus violated certain provisions of Sales Tax Act, 1990 and committed offences under section 33 read with section 2(37) therefore show-cause notice was issued that as to why an amount of Rs.1,50,18,725 along with default surcharge and penalty may not be recovered form them. (ii) For the tax period 7 of 2005 to 4 of 2010 it was observed the appellants had claimed input tax amounting to Rs.200,529 against the fake invoice issued by Messrs Ameer International which was a non-existent unit thus the same was recoverable along with default surcharge and penalty. On the basis of above allegations show-cause notices were issued and according to the adjudicating officer since no reply was furnished Orders-in-Original No.52 of 2011 and 27 of 2011 were passed respectively on 7-9-2011 and 6-8-2011. The appellants has challenged the above treatment accorded by the Deputy Commissioner in first appeals and the learned CIR(A) confirmed the action of the Adjudicating Officer, hence these appeals have been preferred before this Tribunal.

3. At the very outset the learned AR of the Appellant raised a preliminary objection regarding Order-in-Original No.27 of 2011 and contended that as per provisions of section 36(3) of the Sales Tax Act, 1990, the order passed by the Deputy Commissioner Inland Revenue is hit by the limitation and is barred by time as the show-cause notice was issued on 20-4-2011 and the order-in-original was passed on 10-1-2012 which is the date of dispatch of the impugned order. He contended that although the Deputy Commissioner ante dated the order while signing the same which is evident from the date of dispatch that the order was passed on 10-1-2012.

4. The learned DR on the other hand opposed the contentions made on behalf of the registered person. He contented that since the appellant has failed to dislodge the charges levelled against it through any plausible reasons therefore the CIR(A) has rightly confirmed the order-in-original. He also contended that the order-in-original was also passed within the statutory limit provided by law; therefore, no exception on this score is warranted.

5. We have heard the rival arguments and have also gone through the available record. The contention of the appellant is that the order-in-original was passed beyond the prescribed limitation of 120 days as it was dispatched and received after more than 220 days from the issuance of show-cause notice. The DR controverted this plea and pointed out that the order-in-original was passed on 6-8-2011. However, this fact is not understandable that as to why an order passed on 6-8-2011 was delivered to the appellant on 10-1-2012. From this the contention of the AR of the appellant that the order-in-original was passed after the statutory limit appears correct. It has been held by the Tribunal in the case of Dondot Cement Company Ltd. Lahore v. Secretary, Revenue Division Islamabad cited as (2008 PTD 609) that; "an order passed on the file but not communicated to the affected party within the prescribed time limits or within the extended period of time cannot be treated as having been passed within the prescribed time limits". The Honourable Lahore High Court, Lahore settled the same issue in the case of "Messrs Super Asia Muhammad Din Sons (Pvt.) Ltd. v. Collector of Sales Tax Gujranwala and another, Cited as 2008 PTD 60, wherein it has been held that:-- "Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen, the prescription of time is deemed directory. However, where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory. The acceptance of contention of the revenue in that regard will make a provision of law redundant and nugatory. Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted. All the more so when the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty, then after its expiry, even if there was a good case for creation of liability, he will not be dragged in" In view of the above quoted judgments, we hold that the impugned assessment order/order-in-original has been passed after the statutory limit provided by law, therefore is illegal, void abintio and of no legal effect. Consequently, the orders of the authorities are hereby annulled and the appeal of the appellant/registered person stands accepted.

6. Regarding the appeal arising out of the Order-in-Original No.52 of 2011 similar contention of time limitation has been made at the very outset. The learned AR of the appellant raised a preliminary objection that as per provisions of section 36(3) of the Sales Tax Act, 1990, the order passed by the Deputy Commissioner Inland Revenue is hit by the limitation and is barred by time as the show-cause notice was issued on 13-5-2011 and the order-in-original was passed on 23-1-2012 which is the date of dispatch of the impugned order. He contended that although the Deputy Commissioner ante dated the order while signing the same still it is evident from the date of dispatch that the order was passed on 23-1-2012. The learned AR also raised another legal objection and contended that the order has been passed by the Deputy Commissioner who did not have the pecuniary jurisdiction to issue the show case notice and then to pass the order in terms of S.R.O. No.555(I)/96 dated 1st July, 1996. He placed reliance on the cases decided but this Tribunal vide judgment in S.T.A. No.55/LB/2012 titled Messrs Ibrahim Steel Casting v. The Commissioner Inland Revenue (Appeals), Lahore and S.T.A. No.46/LB/2009 titled Messrs EN EM Enterprises v. Additional Collector of Sales Tax and Central Excise (Adjudication), Lahore. He further contended that both the forums below have proceeded to make some observations and findings which are beyond the scope of the show-cause notice, therefore are totally against the law and principles of natural justice. The learned AR contended that the appellant cannot be penalized due to black listing of its suppliers subsequent to the transaction made with him by the appellant. He further contended that black listing of the suppliers of appellant has been done through the administrative orders and it cannot have an effect on the input adjustment of the appellant retrospectively. The learned AR has further contented that the provision of section 2(37) has wrongly been invoked in the instant case. According to him, to invoke this section pre-requisite is to allege that the registered person had committed tax fraud and has acted knowingly, dishonestly, fraudulently and without any lawful excuse. To refute this allegation, in the present case the learned counsel pointed out that the raw material was purchased by the appellant from registered persons under the provisions of section 23 of the Act. Moreover according to him status of those suppliers was also checked and verified from the website of the FBR (www.cbr.gov.pk ) and it was reported by it to be active. Further, all the payments were made by the appellants after adhering to the provisions of section 73 of the Sales Tax Act, 1990. Besides the suppliers were also submitting copies of their monthly sales tax returns and the summaries "of the relevant period" to the Department. It was also added by the learned counsel that the appellant did all the possible precautions and endeavors as well as used all the official sources to verify status and genuineness of the suppliers such acts clearly speak for themselves that the appellants discharged all his legal and the ethical responsibilities to bring the truth at the door in a good faith. It is also argued that the suppliers of the transactions were neither blacklisted at the time of supply nor included in the list of suspected registered persons. He contended that the appellant has claimed its input tax adjustment in accordance with the provisions of sections 3, 7 and 73 of Sales Tax Act, 1990 and both the forums below have failed to interpret these provisions of law read with section 21 of the Act while holding the input tax adjustment of appellants as inadmissible. Further all the requisite conditions as are laid down in sections 7 and 73 of the Sales Tax Act, 1990 for clearing input tax and payment of tax to the suppliers were fulfilled bona fidely. The learned AR also stressed that in the given situation the entire liability of depositing the tax in terms of section 3(3) of the Act was the exclusive responsibility of the suppliers who are or were duly registered at the relevant time and were regularly filing their monthly returns and summaries with sales tax department. In fact, it was the sole duty of the sales tax department to check and find out as to whether the suppliers were depositing their sales tax in the Government Ex-chequre or not. As the department has failed to fill its official obligations rather shifted its responsibilities on the appellant's shoulder which is highly unwarranted and uncalled for. The learned counsel for appellant also stated one identical case made by the same detecting staff has been decided by another Bench of this Tribunal in case of Messrs Taj International (Pvt.) Ltd. Lahore v. The CIR (Legal Division), RTO, Lahore STA No.478/LB/2012. The learned AR in support of contentions submitted that the Tribunal in identical circumstances in its judgments in STA No.226 of 2011 dated 26-7-2011 and STA No.55/LB/2012 dated 6-7-2012 has set aside the impugned orders in the identical case. Copies of these orders were produced for our perusal.

7. The learned DR on the other hand opposed the contentions made on behalf of the registered person. He contented that since the appellant has failed to dislodge the charges levelled against it through any plausible reasons, the CIR(A) has rightly confirmed the order-in-original. He also contended that the order-in-original was also passed within the statutory limit provided by law; therefore, no exception on this score is warranted.

8. We have heard the rival arguments and have also gone through the available record. The first contention of the appellant is that the order-in-original was passed beyond the prescribed limitation of 120 days as it was dispatched and received after more than 210 days from the issuance of show-cause notice. The DR controverted this plea and pointed out that the order-in-original was passed on 7-9-2011. However, this fact is not understandable that as to why an order passed on 7-9-2011 was delivered to the appellant on 23-1-2012. From this the contention of the AR of the appellant that the order-in-original was passed after the statutory limit appears correct. It has been held in the case of Dondot Cement Company Ltd. Lahore v. Secretary, Revenue Division Islamabad cited as (2008 PTD 609) that:-- "an order passed on the file but not communicated to the affected party within the prescribed time limits or within the extended period of time cannot be treated as having been passed within the prescribed time limits". The Honourable Lahore High Court, Lahore settled the same issue in the case of "Messrs Super Asia Muhammad Din Sons (Pvt.) Ltd. v. Collector of Sales Tax Gujranwala and another, Cited as 2008 PTD 60, wherein it has been held that:-- "Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen, the prescription of time is deemed directory. However, where a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory. The acceptance of contention of the revenue in that regard will make a provision of law redundant and nugatory. Redundancy or superfluity of an Act of Parliament and a provision of law cannot be readily accepted. All the more so when the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty, then after its expiry, even if there was a good case for creation of liability, he will not be dragged in" In view of the above quoted judgments, we hold that the impugned assessment Order/Order-in-Original has been passed after the statutory limit provided by law, therefore is illegal, void abintio and of no legal effect.

9. The issue of pecuniary jurisdiction of the Inland Revenue under S.R.O. 555(I) of 1996 dated 1-6-1996 has already been settled by this Tribunal in S.T.A. No.531/LB of 2011, S.T.A. No.578/LB of 2011 and 55/LB of 2012 and we agree with the findings in the said judgments. Consequently, it is held that the Deputy Commissioner Inland Revenue who issued the show-cause notice and passed the impugned Assessment order, could not assume the jurisdiction to issue the show-cause notice and pass the impugned Assessment Order under the law therefore, the same are without lawful authority and void abinitio.

10. It is abundantly clear from reading the definition of "tax fraud" that the mandatory condition put forth for committing tax fraud is that the alleged person should have done any act knowingly, dishonestly or fraudulently and without any lawful excuse. Reverting to the facts of the instant case, there is not an iota of evidence whatsoever wherefrom it could be deduced that the appellant has knowingly or dishonestly or fraudulently committed tax fraud by claiming input tax adjustment against the sales tax invoices issued by the alleged suppliers. Even the audit contravention report could not establish with any concrete reasoning that the appellant was involved inadmissible input tax adjustment. Therefore, the department has failed to discharge their initial burden of proof which lied on them to establish that on what grounds the suppliers of the appellant were blacklisted and was there any issue related to the appellant involved during the blacklisting proceedings against the suppliers of the appellant. On the other hand, the record proves that there was ample justification with the appellant to claim adjustment of input tax, as the suppliers were registered person and their status was active as per FBR Website. They were regularly submitting their returns and summary thereof. All the payments were made by the appellant in accordance with the provisions of section 73 of the Sales Tax Act, 1990. The learned DR has failed to produce any order regarding the blacklisting of suppliers issuing invoices to the appellant, whereas the persons registered under Sales Tax Act can only be declared as blacklisted through an order passed under clause (N) of para 3 of Sales Tax General Order No.1 of 2004 read with Rule 12 of Chapter 1 of Sales Tax Rules, 2006 and section 21 of the Sales Tax Act, 1990. As it was stance of the registered person that there is no order of blacklisting of the supplier units mentioned in the detail provided by the department, therefore, non-production of such order by the Revenue leads to the presumption that the stance of registered person is correct and had there been any order of blacklisting of the units mentioned in the show cause notice, the Revenue should have produced that before this Tribunal. Although there is no order to show that the suppliers were blacklisted yet that order through which the suppliers were alleged to be blacklisted should have been an executive order and it is settled law that the, orders or notifications which confer rights and are beneficial would be given retrospective effect and those which adversely affected or invaded upon the vested right could not be applied with retrospective effect. This view is fortified by the judgment of honourable Supreme Court of Pakistan in re: "Government of Pakistan v. Messers Village Development Organization" cited as 2005 SCMR

492. On the same point honourable Lahore High Court in the case of Messrs Brother Engineering (Pvt.) Ltd." cited as 2004 PTD 2928 has held that:-- "It is well-settled that a notification or an executive order adversely affecting the right of any person cannot operate retrospectively but if the same confers any benefit it can be made applicable retrospectively". Now it is well-settled that/subsequent blacklisting of supplier could not be made a tool to deprive the registered person of a valuable right accrued in his favour for purchases or transactions made prior to the suspension of registration of such supplier. Having taking regard to the facts of the case in its entirety and after respectfully following the ratio settled in the referred judgments cited supra, we have no option except to reach the conclusion that Revenue has failed to prove the allegation levelled against appellants that they claimed inadmissible input tax adjustment on the basis of invoices issued by their suppliers which were blacklisted subsequent to the transactions made by the appellant. Consequently, the impugned orders are set aside and the order-in-original are hereby annulled. Both the appeals of the appellants/registered person are accepted. CMA/9/Tax(Trib.) Appeal accepted.