2020 PLP 821 (PTD)

Through instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), following questions of law, asserted to have arisen out of impugned order dated 20.05.2016, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal"), have been pressed and argued for our opinion:- i. Whether the learned Appellate Tribunal was justified to reject the appeal filed by the department ignoring that the registered person claimed input tax adjustment of sales tax against invoices issued by the blacklisted units was in violation of Section 2(37) of the Sales Tax Act, 1990 and the learned ATIR failed to interpret the provisions of "Tax Fraud"? ii. Whether the learned Appellate Tribunal Inland Revenue has 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 the blacklisted / suspended units?

2. Brief facts of the case are that a show-cause notice 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 13.01.2011. Feeling aggrieved, respondent-taxpayer filed appeal before CIR (Appeals), which was accepted vide order dated 11.08.2011. Being dissatisfied, applicant-department preferred appeal before learned Appellate Tribunal, which was dismissed vide order dated 20.05.2016. Hence, this Reference Application.

3. Learned counsel for applicant-department submits that the registered person claimed input tax adjustment of sales tax against invoices issued by the blacklisted units in violation of Section 2(37) of the Act of 1990. She adds that learned Appellate Tribunal, while passing impugned order, failed to interpret the provisions of "Tax Fraud". At this stage, she 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 S.T.R. No.242 of 2015 titled Commissioner Inland Revenue v. Messrs Ali Hassan Metal Works and findings recorded therein are squarely applicable.

4. On the other hand, learned counsel for respondent-taxpayer defends the impugned order and submits that applicant-department has failed to point out any illegality or legal infirmity therein.

5. Arguments heard. Available record perused.

6. The operative part of impugned order dated 20.05.2016 reads as under:- "

4. I have considered the arguments of both sides and have also gone through relevant orders. Perusal of the impugned assessment order reveals that the main emphasis of the assessing authority was that the registered person claimed input tax on the invoices issued by the blacklisted units who have not backup of purchases and all transactions were paper transactions. Whereas, the registered person with the help of documentary evidence, submitted before the CIR (A) in the shape of sales tax invoices, sales tax returns, payment proofs, etc, had proved their case that they transacted with the suppliers in accordance with law. The issue of claim of input tax on the strength of fake / flying invoices issued by fake blacklisted units, stands already decided by the Honourable Lahore High Court in a judgment recorded in 2015 PTD 2256 dated 12.03.2095, re: CIR v. Messrs Tariq Poly Pack (Pvt.) Ltd. wherein the Hon'ble High Court while dealing with the provision of rule 12(5) has held as under:- "

13. The provision of Rule 12(5) of the Rules is pari materia with provision of section 21(3) of the Act (inserted through Finance Act, 2011). Plain reading of rule 12(5) show that under said rule, those invoices which were issued after blacklisting or were issued after suspension but before blacklisting shall be rejected through speaking order. Whereas other valid invoices issued when supplier was active and registered will not be affected by subsequent blacklisting of supplier unless those invoices are specially declared fake through speaking order after hearing parties and have direct nexus with blacklisting. This interpretation is also in consonance with the settled law that rules being subordinate legislation cannot be applied retrospectively." In view of the above, I find no infirmity in the impugned order passed by the learned CIR (A) which is accordingly maintained and appeal filed by the department is rejected."

7. Perusal of impugned order shows that learned Appellate Tribunal has given findings of facts that respondent-taxpayer transacted with the suppliers in accordance with law. 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.

10. 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 discharged 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."

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

9. 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-1/L Reference dismissed.