2020 PLP 1994 (PTD)

Through instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), following question of law, asserted to have arisen out of impugned order dated 14.12.2016, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal"), has been pressed and argued for our opinion:- "Whether the learned ATIR failed to appreciate the applicability of provisions of Sections 8(1)(ca) and 21(3) of the Sales Tax Act, 1990 / Sub-Rule (5) of Rule 12 of the Sales Tax Rules, 2006 relevant to reject the input tax adjustment claimed on the basis of invoices issued by blacklisted / suspended units?"

2. Brief facts of the case are that a Show-Cause Notice ("SCN") was issued to respondent-taxpayer alleging therein that it received refund of input tax pertaining to different tax periods against the sales tax invoices, issued by suspended / blacklisted units, which culminated in passing of order-in-original dated 11.05.2011. Feeling aggrieved, respondent-taxpayer filed appeal before CIR (Appeals), which was accepted vide order dated 22.02.2012. Being dissatisfied, applicant-department preferred appeal before learned Appellate Tribunal, which was dismissed vide order dated 14.12.2016. Hence, this Reference Application.

3. Learned counsel for applicant-department submits that respondent-taxpayer claimed refund against the invoices of blacklisted units in violation of the provisions of Section 21(3) of the Act of 1990, hence, order-in-original was justified but learned CIR (Appeals) as well as learned Appellate Tribunal were not justified to pass the impugned orders. He was confronted with the fact that the issue in hand has already been settled by this Court vide judgment dated 01.11.2017, passed in 2018 PTD 108 titled Commissioner Inland Revenue v. Messrs Ali Hassan Metal Works and findings recorded therein are squarely applicable.

4. Heard. Available record perused.

5. The operative part of impugned order dated 14.12.2016 reads as under:- "4. . It has been observed that the Rule 12(5) of the Sales Tax Rules, 2006 also incorporated as in section 21(3) of the Sales Tax Act, 1990 through Finance Act, 2011 with the beneficiary amendment for the registered persons that the subject section will not applied where the buyers has fulfilled his responsibility of section 73 of the Sales Tax Act, 1990. It is evident from the record that neither the registration the supplier was suspended nor blacklisted and was enjoying active status. Tribunal also hold its view in the favour of the registered person about Rule 12(5) in the latest judgment reported as 2011 PTD (Trib.) 866 in the case of Messrs United Distributors, Multan v. Collector of Sales Tax Multan. For ease of reference relevant part is reproduced hereunder:- "I am of the view that the term used "whether prior or after such black listing" means that the invoices issued during the period of suspension of registration prior or after blacklisting. Admittedly, when the refund was sanctioned the status of the supplier unit was neither "registration suspended nor "blacklisted", therefore, Rule 12(5) was not applicable at that point." It is well-settled principle of law that the executive order notification, which confer rights and are beneficial, would be given retrospective effect and those which adversely effect on invade upon vested right cannot be applied with retrospective effect. I am inclined to agree with the observations of the learned CIR(A) that at the time of transaction the status of the suppliers were active and blacklisted subsequently. It has been also observed that tax was duly paid by the registered person to its suppliers. Therefore, I find no infirmity in the order of the learned Commissioner (Appeals), which is maintained and upheld. The departmental appeal is dismissed accordingly."

6. Perusal of impugned order shows that learned Appellate Tribunal has given findings of facts that supplier in question was operative during the period when the business / transaction took place. Even otherwise, initial burden lies on the applicant-department that invoices have been issued during suspended or blacklisted period and in case invoices were not issued during period of blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Taxation Officer did not establish that said invoices were either fake or flying or the claimed tax was not deposited in the Government Exchequer. Admittedly, the issue involved in this case has already been dealt with and answered by this Court vide judgment dated 01.11.2017, passed in the case of Messrs Ali Hassan Metal Works supra, wherein the questions similar to the proposed question were re-settled in one question, which was decided against applicant-department. The relevant part of the said judgment is reproduced hereunder:- "

9. Intention of the Legislature; as is discernable from the provisions of Section 21(3) read with Section 8(1) (ca), is that reclaim (refund) or adjustment of input tax (tax credit) should not be allowed for an invoice against which sales tax has not been deposited in Government treasury. This clog appears to be logical because a tax not deposited in the Exchequer, cannot and should not, allowed to be withdrawn or adjusted. Claim of such refund or its adjustment amounts to rob the Exchequer and cheat upon the State. Conversely; to deny adjustment or refund of a tax deposited in the Treasury, if a registered person is entitled under that law, is against the legislative will. The authorities, exercising quasi-judicial powers under a statute are bound to conduct a fair adjudication. To be dealt in accordance with law, due process and fair trial are inalienable fundamental rights guaranteed under Articles 4 and 10-A of the Constitution of the Islamic Republic of Pakistan 1973 ("Constitution"). August Supreme Court of Pakistan in The Province of East Pakistan v. MD. Mehdi Ali Khan (PLD 1959 SC 387) held:- "The determination of every right or liability claimed or asserted in a legal proceedings depends upon the ascertainment of facts and the application of the law to the facts so found. It is a normal feature of the judicial process first to discover the facts and then to determine what rights and liabilities follow from the application of the law to the facts found."

11. While invoking/applying the provisions of Section 21(3), Commissioner or Taxation Officer has to ascertain the fact that the invoices were issued during suspended or blacklisted period. In case invoices issued prior to blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Bottom line is that tax was not paid or deposited against the invoices. To prove these facts burden is upon the revenue however, this burden can be shifted upon the registered person claiming adjustment or refund of tax, in cases of tax fraud, in accordance with the provisions of Section 2(37) of the Act of 1990. Not by confronting, merely, that the supplier was blacklisted subsequently, initial burden, before shifting, is to be discharged by the revenue, as is held in Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise (East) and another (2004 PTD 868), relevant excerpt of which is reproduced for facility:- "A perusal of the show-cause notice as well as material produced before us further shows that no case of any tax-fraud has been made out whereby the burden of proof can be shifted to the appellants. The learned two forums below have misdirected in placing the burden of proof on the appellants in terms of the provisions contained in section 2(37) defining the expression "tax-fraud" without realizing that in order to attract the above provision, the initial burden lies on the Department to show that an assessee, knowingly, dishonestly or fraudulently and without any lawful excuse has done any act or has caused to be done or has omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under, this Act or rules or instructions issued thereunder with the intention of understanding the tax liability or underpaying the tax liability. Once this burden is discharqed by the Department, only then, the burden is shifted to the assessee to establish that the act done was without any knowledge on his part or without any intention of dishonesty or fraud and was done with any lawful excuse."

12. The questions proposed are not couched in proper words to clinch the proposition of law arising from the impugned order, therefore, we intend to resettle the question in following words:-- "Whether Taxation Officer was justified to invoke the provisions of section 21(3) of the Sales Tax Act, 1990 or Rule 12(5) of the Sales Tax Rules, 2006 for not entertaining invoices, issued prior to blacklisting of supplier, for tax credit or refund without establishing, through self-speaking order, that the invoices were fake or flying because the claimed tax was not deposited in National Exchequer?"

13. Our answer to the resettled question is in Negative. Reference Application is decided against the applicant department."

7. Following the ratio settled in above reproduced case, instant Reference Application is disposed of in the same terms.

8. Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per section 47(5) of the Act of 1990. SA/C-19/L Reference dismissed.