Determination of tax liability

Section 7 enunciates the principle for determining the tax liability for particular tax period of a registered person in respect of taxable supplies and it is provided that such registered person shall be entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made or to be made by him from the output tax that is due from him in respect of a particular tax period

Amount paid by the taxpayer belonged to him and the assessee was entitled to seek at its discretion either adjustment or refund

Impugned order did not require interference

Appeal of the department was dismissed.

Any agreement between an Association of taxpayers and the revenue department has no binding effect against the express provisions of law unless the same is supported by any superior or subordinate legislation.

Consumption of raw material is a mandatory condition for claiming refund of input tax but the R.33 of the Sales Tax Rules, 2006, does not provide any restriction and condition of consumption of such raw material in the same tax period against which input tax credit is being claimed as refund

Registered person is entitled to deduct input tax paid or payable during a tax period for the purpose of taxable supplies made or to be made by him from output tax under S.7(1) of the Sales Tax Act, 1990 and in case, input tax credit exceeds output tax due to zero-rated local supplies or exports thereof, its refund is made available under S.10(1) of Sales Tax Act, 1990

None of the provisions of S.7(1) of the Sales Tax Act, 1990 or S.10(1), Sales Tax Act, 1990 or even the rules made thereunder provides for input tax credit/refund on the basis of consumption, instead it is on basis of purchases and imports

In case, input tax incurred on purchases or imports exceeds output tax due to zero-rated local supplies or exports thereof, excess amount shall be refunded to registered person under S.10(1) of the Sales Tax Act, 1990.

Once a registered person established that the goods/services in question on which input tax had been paid were used or to be used "directly, indirectly or even remotely" for the purpose of 'taxable activity' or for the purpose of 'taxable supplies' made or to be made by that person, then the person became entitled to the deduction of the said input tax for the purpose from the output tax that was due from the person in respect of a particular tax period in terms of S.7 of the Sales Tax Act, 1990.

Keyword used in S. 7 and S. 8(1)(a) of the Sales Tax Act, 1990, is "purpose" which means that input tax can be deducted on goods used for the purpose of taxable supplies

In other words, issue of adjustment of input tax is to be resolved with reference to the actual use of input in making of taxable supplies and criterion of integral part is not valid

Expression "purpose" has a very wide application and according to dictionary meaning the same refers to what something is supposed to be achieved.

Appellant was registered under the Sales Tax Act, 1990, as a manufacturer and was engaged in the business of textile printing material which were mainly supplied to exporters of garments

Appellant claimed input tax refund on the goods purchased with valid sales tax invoices and which were used for manufacturing of taxable activity, veracity of which was not questioned

Alleged goods/services were not directly in use for manufacturing or production of taxable goods yet they were indirectly used for the progress, promotion, advancement and enhancement of business activity and there was nothing emphatic in the Sales Tax Act, 1990, which strictly provided for direct use of any goods or services in manufacturing process of taxable goods for the purpose of claiming of input tax credit or adjustment thus, recovery of already refunded amount thereon was illegal and unjustified

Appeal was accepted.

Appellant had transacted all payments to his suppliers through Banking channel by complying with the mandatory provisions of S. 73 of the Sales Tax Act, 1990, which was the sole obligation on the buyer to ensure veracity of transactions in addition to verifying normal and operative status of his suppliers

Both the necessary conditions of verifying genuineness of suppliers from e-portal of FBR for its operative status and sufficient condition of making payments through Banking channel to ascertain the veracity of such transactions were complied with by appellant

Legislature had consciously given a right to a buyer in such cases to reclaim input tax so paid, where registration of the supplier was suspended or blacklisted, either as a refund or by way of adjustment

Subsequent blacklisting did not disentitle the buyer from his lawful right of input tax in respect of invoices issued when the supplier was a registered and active person unless those invoices were specifically declared fake and had direct nexus with blacklisting and admittedly, the invoices in question had no direct nexus with the subsequent blacklisting of the alleged suppliers

Appeal was accepted.

Registered person can claim 'input tax adjustment' against 'output tax' in accordance with provisions of S.7 read with S.73 of the Sales Tax Act, 1990.

Reclaim (refund) and deduction (adjustment) of input tax is a right subject to the provisions of S. 8 of Sales Tax Act, 1990 which disallow it, as a general rule, against goods which are not used for the purpose of taxable supplies

Such right, as created by S.7, can be refused or denied even against goods used for the purpose of supply, if so specified in the official Gazette.

Plain reading of Ss. 7 & 8 of Sales Tax Act, 1990 shows that S. 7 entitles a registered person to deduct (adjust) input tax for the purpose of taxable supplies from the output tax

Entitlement to deduct/adjust input tax is subject to the purpose of taxable supplies

Section 8 disentitles reclaim or deductions of input tax paid on the goods used for a purpose other than taxable supplies

Basic principle of deduction is that the input tax paid on goods can be deducted or reclaimed only if such goods are used for the purpose of taxable supplies

Phrase 'any other goods' used in S. 8(1)(b), Sales Tax Act, 1990, creates an exception to the general rule i.e. adjustment or reclaim can be denied, even if the goods were used for the purpose of supplies, if so specified, through notification in official Gazette.

Petitioners impugned vires of S. 8(1)(h) & S.8(1)(i) of the Sales Tax Act, 1990 on ground that the same denied adjustment of input tax on goods which had a direct nexus with their taxable supply

Contention of petitioners, inter alia, was that input tax adjustment was a substantive right which could not be deviated upon

Validity

Goods utilized by petitioners in the present case fell under Ss.8(1)(h) & 8(1)(i) of Sales Tax Act, 1990 and were not part of their supply chain and in most of the cases, were not directly related to taxable supplies

Such goods, although were bought for improvement of buildings or businesses of the petitioners, but same were not directly related to their taxable supply nor they were part of the supply chain

Registered person had to establish a direct nexus between goods adjustment which was claimed on to the taxable supply and taxable activity

Right to input tax adjustment in S.7 of the Sales Tax Act, 1990 was subject to the restrictions given in S.8 of the same and as such Ss.8(1)(h) & S.8(1)(i) of the Sales Tax Act, 1990 in no manner infringed upon the rights of the petitioners to claim input tax adjustment which was directly related to the supply chain

High Court observed that the underlining feature of S.8 of the Sales Tax Act, 1990 was that the goods remain part of the supply chain for claiming of input tax adjustment, which was a reasonable restriction and it did not deprive the registered person of any amount due to it

No merit therefore existed in the petitioners' arguments

Constitutional petitions were dismissed, in circumstances.

Commissioner Inland Revenue issued show-cause notice to the appellant stating therein that as per R. 58H(2C) of Sales Tax Special Procedures Rules, 2007, adjustment of sales tax paid on imported remeltable iron and steel scrap against the sales tax payable through electricity bills was admissible only to "steel melters", therefore, appellant was liable to pay sales tax in cash

Contention of appellant was that it was covered under R. 58H(1) of Sales Tax Special Procedures Rules, 2007, which provided that every steel melter, steel re-roller, composite unit of melting, re-rolling and MS cold drawing and composite unit of steel melting and re-rolling (having a single electricity meter) would pay sales tax at the rate of ten and a half rupees per unit of electricity consumed, which would be considered as their final discharge of sales tax liability

Validity

Payment of sales tax according to the prescribed tax rates along with electricity bills constituted full and final payment of tax liability in case of steel re-roller

No further tax liability could be created

Appellant's claim was in conformity with the relevant provisions of law

Assessment order was vacated and the demand under appeal was deleted

Appeal was disposed of accordingly.

Appellant was held liable to pay sales tax for non-payment of further tax on account of supplies not owned by the buyers in their returns

Validity

Any default on the part of alleged registered buyers for not showing the purchases made from the appellant could not be made basis for creating tax liability against the appellant

Appellant had declared sales vis-à-vis output tax thereon in its respective monthly sales tax returns, hence, no further tax was chargeable in case of supplies made to registered persons as the provisions of S.3(1A), Sales Tax Act, 1990, were not attracted

Show-cause notice as well as consequent orders were set aside

Appeal was accepted.

Appellant was held liable to pay sales tax for claiming inadmissible input tax which was not declared by the suppliers in their returns

Validity

Appellant had duly incorporated the purchase invoices in its summary statements and sales tax returns for that very tax period and the payments were transacted through bank

Any default on the part of appellant's suppliers for not showing sales or showing less sales in their respective monthly sales tax returns could not be made basis for creating sales tax liability against the appellant

Show-cause notice as well as consequents orders were set aside

Appeal was accepted.

Taxpayer having failed to pay extra sales tax contravention proceedings culminated in passing of impugned order, whereby amount was established and held to be recoverable

Taxpayer being dissatisfied with order of Assessing Officer, filed appeal before Commissioner (Appeals) which was dismissed

Appeal mainly revolved around the question as to whether S.R.O. No.896(I)/2013, dated 4-10-2013 was applicable to the present case or not

Representative of the taxpayer, had furnished copy of Ruling, which had determined the customs value of old and used auto parts

Departmental Representative submitted that in the said ruling clear distinction had been made in new and used auto parts

Notification S.R.O. No.896(I)/2013, dated 4-10-2013, only mentioned auto parts and accessories, and same was not applicable to the case of the taxpayer

S.R.O. No.896(I)/2013, dated 4-10-2013, had mentioned only one category at Sr. 4 "Auto Parts and Accessories", which would mean that no bifurcation had been made between the "used" and "auto parts"

Where no bifurcation was made between the used/new auto parts, S.R.O. 896(I)/2013, dated 4-10-2013 would be considered to be applicable in both the cases

Commissioner (Appeals) had rightly dealt with the matter and impugned order needed no interference.

Question before the High Court related to the applicability of sales tax upon printing and subsequent supply of textbooks to Provincial Textbook Board; and whether Provincial Textbook Board was required to withhold sales tax in such transactions

Held, that in order to attract applicability of S. 3 of the Sales Tax Act, 1990 which was the charging section, all essential ingredients must exist in a transaction rendering a person liable to sales tax and a transaction was "taxable supply" when the same was in furtherance of a "taxable activity"

When a manufacturer made supply of goods which were exempt from sales tax under S. 13 of the Sales Tax Act, 1990 then such manufacturer was not required to pay sales tax at time of supply of goods as said exemption would take such supply outside the regime of "taxable supply"; which was condition precedent for invoking S. 3 of the Sales Tax Act, 1990

In the present case, printing and supply of textbooks to Textbook Board pursuant to an agreement would constitute a taxable activity however, the same could not be termed as taxable supply per S. 2(41) of the Sales Tax Act, 1990

Textbook Board was not required to withhold sales tax on such transactions as under R. 2 of the Sales Tax Special Procedure (Withholding) Rules, 2007; withholding of sales tax was only required when withholding agent was making payment against taxable goods and supply of books was exempt from levy of sales tax under Entry 21 of the Sixth Schedule to the Sales Tax Act, 1990

High Court observed that printing of books fell within definition of "manufacturing" under Sales Tax Act, 1990 and was therefore not a service rendered under the said Act and thus, claim of input tax could not be made by a person on goods that were used in making supplies exempt from sales tax

Constitutional petition was disposed of, accordingly.

Case of appellant was selected for audit under S.42-B of the Federal Excise Act, 2005 and Assessing Officer, proceeded to pass the assessment order along with default surcharge and penalty against the appellant

Appeal filed by the appellant, was partially rejected by the Appellate Authority

Validity

Main issue involved in the appeal was; whether the appellant was liable to adjust input tax on food, beverages and other services in terms of S.7 of the Sales Tax Act, 1990, or it would hit by Notification No. SRO 490(I)/2004, dated 12-6-2004

Appellant, being an Airline, under Sales Tax Act, 1990, was entitled for the adjustments of input tax in terms of S.7 of the Act and Notification S.R.O. No.550(I)/2006, dated 5-6-2006 on food, beverages and other services

Provisions of Sales Tax Act, 1990, were applicable on the services rendered in respect of travel by air of passengers within the territorial jurisdiction of Pakistan

Collection of Federal Excise Duty on services rendered by Airline within territorial jurisdiction of Pakistan, was deemed to be like the output tax payable on supplies (Supply of Services) under Sales Tax Act, 1990

Passengers were offered meals/eatables and drinks etc. during the flight; which had direct nexus and was integral part of travel service to passengers

Flight crew/staff, between the period of returning from one flight to another flight, was entitled to stay in designated hotels arranged by the Airline

Any input tax incurred with reference to crew, was directly attributed to the taxable activity of the Airline

Any sales tax paid/incurred on the crew/staff of the Airline and the input tax paid on the refreshment of passengers, was having direct attribution on the furtherance of taxable activity

Any input tax paid on said activity, was admissible in terms of S.7 of the Sales Tax Act, 1990

Input tax suffered on account of receiving services from different vendors/suppliers was admissible

Assessing Officer, had failed to point out a single instance of misuse of personal usage on part of the management of Airline in respect of input tax incurred

Notification SRO No.490(I)/2004, dated 12-6-2004, provided exception to items on which the input tax was not admissible

Exemption was for the 'goods', otherwise than 'stock in trade'

Input tax claimed by the Airline, was allowed and demand raised in that respect, was deleted and appeal was accepted accordingly.

Record had shown that assessee had made late payments beyond one hundred and eighty days to his supplier and received refund of input tax on the strength of invoices issued by said suppliers, who subsequently were blacklisted

No controversy existed in the manner of payments, having been transacted through prescribed Banking mode; but its time was delayed over one hundred and eighty days, beyond date of tax invoice, due to certain financial constraints and pecuniary hardship

Such act on the part of assessee, was not deliberate and contumacious having caused for financial problems, which was beyond control of assessee

Said procedural lapse, and technical omission, entailing no revenue loss at all, was condoned to maintain inalienable right of input tax and assessee, could not be deprived of his statutory right of input tax due to any procedural omissions; because neither any procedural mistake would affect legal entitlement; nor such procedural lapse had caused any prejudice to the department

Acts of inadvertence on the part of assessee, due to any procedural mistake would not create demand of sales tax

Liability to pay sales tax was on the supplier under S.3(3)(a) of Sales Tax Act, 1990, which was independent to the provisions of S.73 of the Sales Tax Act, 1990

Deposit of sales tax, being independent to payment under S.73 of the Sales Tax Act, 1990, in case of delayed payments, no revenue loss was involved, particularly when the supplier had already paid output tax to the Government

Demanding refunded amount of input tax back from the buyer, despite having it deposited by the supplier in the national exchequer, would amount to double taxation, not permissible under any law

Refund of input tax, was a substantive right of the assessee, which could not be taken away or withheld on mere technicalities and procedural lapses

Subsequent blacklisting, would not disentitle the buyer from his lawful right of input tax in respect of invoices issued, when supplier was a registered and active person, unless those invoices were specifically declared false; and had direct nexus with blacklisting

Impugned order of the department being based on facts, and strictly in accordance with law, would not call for any interference which was upheld

Appeal filed by the department, being devoid of any merits was dismissed, in circumstances.

Section 7(1) of the Act makes the registered person entitled to deduct input tax from output tax for the purpose of determining its tax liability

Section 7(2) of the Act mandates the requirement, on the basis of which the entitlement of the registered person to claim adjustment would be made

Section 73 of the Act imposes a further condition requiring the registered person to make all payments through proper banking channel in order to claim input tax adjustment

Section 8 of the Act relates to tax credit and sets out when the registered person will not be entitled to claim adjustment of input tax

Section 8 B of the Act restricts the adjustments of input tax in a tax period to 90%.

Basic right to seek input tax adjustment is provided for in S. 7 of the Act, which determines the tax liability of the registered person

Entitlement of the registered person for adjustment of input tax is based on documented record or invoices pertaining to the purchases and sales made during a tax period; hence, the adjustment claimed and its admissibility has to be assessed by the authorities to establish the tax liability

Section 8 B of the Act does not grant the right to claim adjustment, as the same only quantifies the extent of the adjustment which would be allowed in a tax period.

Petitioner/taxpayer impugned show-cause notice whereby petitioner's adjustment of input tax from output tax for the tax period was found to be incorrect by Department and petitioner was asked to pay an additional amount

Contention of Department was, inter alia, that petitioner had adjusted its input tax in respect of items which were not consumed during particular tax period and therefore petitioner was not entitled for said deduction

Validity

Section 7 of the Sales Tax Act, 1990 was a beneficial provision and a person for the purpose of determining his/her tax liability in respect of taxable supplies made during the tax period was entitled to deduct his input tax from the output tax that was due from such a person in respect of the tax period

Words "taxable supplies, tax period, input tax and output tax", if read in juxtaposition, made clear that a registered person was entitled to deduct his input tax in said tax period from output tax of the same tax period in respect of taxable supplies and such facility was provided to the registered person to adjust his input tax pertaining to a relevant tax period from his output tax for that particular period

Petitioner paid input tax on imports and locally purchased goods which petitioner had deducted from its output tax for that particular tax period

Word "consumed" as had been derived by the Department was not understandable and if such interpretation of Department was considered to be correct, then Legislature would have used the word "consumed" during a tax period in S.7 of the Sales Tax Act, 1990 whereas the Legislature have instead used the word "output tax" that was due from taxpayer in respect of that tax period, meaning thereby, that a tax period which comprised of one month had been given emphasis in S.7 of the Sales Tax Act, 1990 with regard to adjustment of input tax from output tax

Consumption of goods in respect of which input tax had been paid by a person had no relevancy whatsoever with S.7 of the Sales Tax Act, 1990 and the said section provided a mechanism to taxpayers to adjust input tax from output which was basic right of taxpayer

Once a registered person established that he had paid input tax on goods in that tax period he then becomes entitled for deduction of that very tax from its output tax collected by it from taxable supplies made by him in respect of that particular tax period and such denial of said adjustment was contrary to the spirit of S.7 of the Sales Tax Act, 1990

Impugned show-cause notice was set aside

Constitutional petition was allowed, accordingly.

Case as made out by the department was that registered person/company made in-house production of sulphuric acid, which was manufactured by a chemical reaction of sulphur and rock phosphate

Since the end product i.e. GSSP fertilizer was exempt from tax, department taxed the in-house production of sulphuric acid being supply/taxable activities

Assertion of the registered person was that Assessing Authority was not justified to levy sales tax by not appreciating the fact that the company had been paying sales tax on the purchase of sulphur from the market and input tax on sulphur used in the manufacturing of sulphuric acid for the production of GSSP (Fertilizer) was not being claimed as refundable and that since the sulphuric acid manufactured in-house with sulphur was being used for the production of sulphuric acid, it could not be construed as an intermediary product warranting payment of sales tax side by side with input tax which was not claimed

Validity

In the present case, no sale of goods was made, which would attract the provisions of Sales Tax Act, 1990, as production of sulphuric acid, remained the continuous process to produce the end product i.e. GSSP Fertilizer, which was exempt from levy of Sales Tax in terms of SRO No.535(I)/2008 dated 11-6-2008

No taxable activity was involved in the present case which attracted the provisions of Sales Tax Act, 1990 to levy Sales Tax upon the registered person

Impugned order passed by Appellate Authority, was vacated and that of the Assessing Authority was cancelled.

Registered person/respondent, after verifying the status and genuineness of the supplier, made payments of input tax, and fulfilled all the legal responsibilities on its part

Registered person after adopting of methods of making payments, as prescribed by the law, had discharged its onus

No responsibility lay on the registered person to haunt its supplier depositing their liabilities in the Government Exchequer

Mere allegation that the alleged suppliers were blacklisted, suspended, and false, was not enough and corroborating evidence for denying the lawful right of input tax of the buyer

Duty of the tax functionaries was to check, as to whether the supplier had made payment of tax due to them, especially when he was filing the monthly Sales Tax returns; and summaries of sales and purchase with the department

Registered person, in circumstances, could not be evolved as a joint liable; and induction of contravention did not qualify

Registered person, did all the possible precautions and endeavours, as well as used all the official resource to verify status and genuineness of the suppliers

Registered person, discharged all his legal and the ethical responsibilities to bring the truth at the door in a good faith

All requisite conditions, as were laid down in Ss.7 & 73 of Sales Tax Act, 1990, for claiming input tax were fulfilled in bona fide manner

Representative of the department had failed to produce any order regarding the blacklisting of the suppliers

Impugned show-cause notice, did not disclose that the registered person was in the knowledge, or had reasonable grounds to suspect that some or all the tax payable in respect of supply, would go unpaid

Department had failed to prove the allegation levelled against the registered person that it claimed inadmissible input tax adjustment on the basis of invoices issued by its suppliers, which were blacklisted

Subsequent blacklisting of supplier could not be made tool to deprive the registered person of a valuable right accrued in his favour

Departmental appeal was dismissed, in circumstances.

Decision of Appellate Authority in that regard was ordered to be upheld.

Allowability/adjustment of input tax remained exclusively dependent upon the intention of the taxpayer at the time of acquisition of tax-paid goods, and if the acquisition was for the "purpose" of taxable supplies made, or to be made, by the registered person, the said registered person would be lawfully justified to claim the adjustment even if due to some unfortunate event or otherwise, did not actually make taxable supplies.

Taxpayer contended that at the time when transactions were executed with the respective suppliers they were fully active ; and any subsequent status assigned to such suppliers by the revenue could not disturb past and closed transactions

Revenue contended that invoices (i) against which no goods were received would be treated as fake/flying invoices (ii) against which the taxpayer could not produce any convincing evidence to prove that the goods were actually transferred from the supplier's account to buyer's account; the input tax adjustment could not be allowed merely on the point that the suppliers were operative at the time of transaction

Validity

Assertion of the revenue could not be endorsed as the show-cause notice fell short of that allegation

Even otherwise, it would not only create a chaos but would lead to end-less controversy

Taxpayer negotiating a transaction was expected to comply with law at the time of executing the transaction and could not possibly forecast what would be the fate of the supplier in future

Orders of the authorities below were vacated by the Appellate Tribunal and matter was remanded for re-examination; in the event the suppliers were active at the time of execution of the transaction, no adverse inference shall be drawn against the subject taxpayer.

Registered Person a power distribution company contended that neither S.7 nor S.8 of the Sales Tax Act, 1990 placed any embargo on the admissibility of input tax which was paid for the purposes of taxable supplies; and that purpose of supply was the crucial test; that transmission and distribution losses were integral part of supplies of electric power in terms of R.13(2)(b) of the Sales Tax Special Procedure Rules, 2007; that since charging provisions charge tax on actual supplies and losses were unavoidable for making such supplies, the adjudication officer lacked lawful authority to indirectly levy tax, through curtailment/disallowance of input tax, principally on the basis of capacity i.e. actual supplies + the line losses and distribution losses; and that demand raised on the allegation of inadmissibility of input tax claimed/adjusted against transmission and distribution losses was liable to be deleted as such losses were admitted and allowed by NEPRA as part of natural process of transmission and distribution

Revenue contended that line losses had not been taxed but the input tax claimed against units lost was disallowed mainly due to theft and bad infrastructure of distribution; that difference between charging the losses and disallowing the input tax which was not used in taxable supplies, were two different things; that the registered person was a distributor carrying on production activities; and that its distribution losses were due to weak transmission lines and theft etc. i.e. due to bad administration instead of technical reasons, hence disallowed

Validity

Electricity was purchased by the registered person exclusively for onward taxable supply to consumers

Registered person was lawfully entitled to claim the adjustment under S.7 read with S.8 of the Sales Tax Act, 1990

Transmission and distribution losses did not affect such adjustment, which remained fully allowable under the law

Very design and structure of the tariff approved by NEPRA was such that it in-builds such losses, did not cause any loss to the exchequer vis-a-vis taxes, because the output tax collected on tariff duly accounted for such losses

Authorities below erred in law in disallowing/restricting the input tax adjustment

Orders of the authorities below were vacated by the Tribunal and input tax adjustment claimed by the taxpayer was held to be in accordance with law.

Input tax was held inadmissible on the ground that supplier (WAPDA) had not shown/declared sales to the registered person (a power distribution company) in their summaries

Taxpayer contended that input tax could be claimed in the return for any of the six succeeding tax periods; that comparison based on the returns of the suppliers and the registered person for one month was misconceived as comparison of 7 (seven) months returns would be required to reconcile the amounts declared by the suppliers and the taxpayer; that allegation was self-destructive because, having no generation capacity, company could not supply electricity to its consumers if the said purchases were not made; and purchases were made by the taxpayer from National Transmission and Despatch Company and necessary certificate, issued by WAPDA in support of such purchases along with reconciliation statements was also filed with the taxation officer; and that certificate was rejected without verification and such rejection of the certificate along with reconciliation statement was arbitrary and capricious

Revenue contended that declaration of sales in the returns of WAPDA was missing which meant that company was not eligible for said input tax; and that valid document was the return filed by WAPDA instead of any certificate

Validity

Taxpayer could not be burdened with tax liability

Some procedural or technical lapses had taken place by the supplier

Default made out by the revenue was all the more absurd and illogical in a sense that if the taxpayer had not purchased electricity how come company (taxpayer) it so engaged in the business of sale of electricity on which the revenue undoubtedly had collected sales tax

Discrepancy between the sales declared by the suppliers and the purchases made by the registered person, investigation had to be undertaken which of the two parties was at fault

Such investigation should precede the issuance of show-cause notice

Revenue unlawfully disregarded the irrefutable documentary evidence submitted in form of certificates issued by WAPDA, reconciliation statements and audited financial statements

Taxpayer had made bulk of purchases from WAPDA

If such purchases were not made, the sales on which output tax had been received by the Department, were not possible as the taxpayer had no generation capacity as it was just a Power Distribution Company

Disregard of documentary evidence was not only capricious, arbitrary but also unreasonable and self destructive proposition

Taxpayer could not be penalized for any act of omission or commission by the WAPDA/supplier

Certificate issued by the supplier and its financial statements constituted irrefutable evidence that these were bona fide purchases in respect of which the registered person was lawfully entitled to claim the input tax adjustment

Supplier, in the present case, was a Government entity which could not be treated to be involved in issuing fake certificates

Revenue had failed to make out valid case for input tax disallowance

Input tax was admissible to the taxpayer, however, the matter was remanded to the taxation officer with directions to obtain necessary evidence from the taxpayer in respect of input tax adjustment

In the event the taxpayer could not prove from its record that amount constituted bona fide adjustment only then the adjustment shall be denied

No amount shall be held to be inadmissible if proper evidence and compliance existed with the registered person.

Vital fact in the present case could not be ignored that at the time of making transactions, the suppliers were enjoying their status as an "operative persons" and upon their subsequent inclusion in the list of suspended and blacklisted units in the surpassing years could not be made effective retrospectively

Since, all the stakeholders were very much operative at e-portal of Federal Board of Revenue showing hundred percent compliance level at the time of transactions and upon subsequent default of the suppliers, if department was allowed to recover the amount of input tax paid by the buyer then endless litigation would start

If blacklisting or suspension of registration of a supplier was effected subsequent to a period in which purchases and bank payments were transacted could not be made a tool to deprive the buyer of a valuable right accrued in his favour prior to such blacklisting or suspension of registration of any supplier due to subsequent default whatsoever on his part.

For claiming adjustment of input tax under S.7(2)(i) of the Sales Tax Act, 1990, the taxpayer should hold a taxable invoice duly issued by his supplier under S.23 of the Sales Tax Act, 1990 and the claimant should have paid the amount of the goods including tax shown in the invoice through negotiable instrument as per expression of S.73 of the Sales Tax Act, 1990

Taxpayer was holding valid taxable invoices and payment against those to the supplier was also made strictly in terms of S.73 of the Sales Tax Act, 1990

Department had not been able to place on record any evidence by which it could be inferred that the invoices issued by the supplier were fake

Any action which was based upon no evidence was not permitted by any law

Taxpayer had nothing to do with the act and commission of his suppliers under any provisions of the Sales Tax Act, 1990 neither was obliged under any other law to defend the acts or omissions of his suppliers

Taxpayer, who had admittedly paid the input tax covered by the invoices, could not be denied the statutory right of claiming its adjustment

Neither charge of 'tax fraud' was established against the taxpayer nor the charge of 'collusion' with his suppliers to evade sales tax by way of fake invoices was levelled, even the department could not prove and bring on record any evidence for collusion of the taxpayer with the suppliers for the same without which the provisions of S.8(1)(d) of the Sales Tax Act, 1990 were not attracted in the case

Whole proceedings in circumstances, were infested with inherent legal infirmities and were liable to be set aside.

Taxpayer contended that objections raised by STARR related to scrutiny for verification of input tax and was guideline for tax collectors and to enforce the provisions of law where payment of tax by the suppliers was not made or the suppliers were engaged in short payments; that payments to suppliers were made through proper banking instruments; that copies of gate passes through which the goods were received from the suppliers was also made available at the time of audit along with bank statements and the copies of the relevant crossed cheques was also produced before the adjudicating authority; and that all suppliers were regular filer of sales tax returns; and were paying the output tax which was due from them in their monthly sales tax returns

Revenue contended that one supplier from which input had been claimed was still blacklisted

Taxpayer produced copies of sales tax returns of the said suppliers ; and similarly other suppliers had also deposited the due tax; and order of blacklisting of the said unit had already been vacated by the Appellate Tribunal; and there were similar facts were with regard to other suppliers

No merit having been found in the findings of the authorities below, which were vacated by the Appellate Tribunal.

Adjustment of input tax fraudulently claimed on the basis of fake invoices with the collusion, connivance and complicity of elements within the tax employees of the Federal Board of Revenue, including the Directorate of Intelligence and Investigation and Pakistan Revenue Automation Limited

Validity

Sales tax fraudsters in Pakistan had become adept at targeting the online system of claiming input tax credit; it was the responsibility of the Pakistan Revenue Automation Limited for making the system reasonably fool-proof

Lack of sufficient pre-registration checks was a critical reason as to why it had been possible to get so many dummy entities registered with relative ease by the criminal elements

Online registration being a first step for a participant in the automated sales tax system, it was only reasonable to expect that due attention was paid to build effective checks in the system

What was even more worrisome was that Pakistan Revenue Automation Limited did not appear to had learnt lesson from the case with which dummy entities had been set up in the past

Inept excuse offered by I & I for keeping suspect registered person ACTIVE long after their fraud was discovered was not helpful at all in preventing such a malpractice in future

I & I needs to take up the matter with Pakistan Revenue Automation Limited so that ways could be found to 'Red Flag" a suspect entity at the earliest possible stage in the fraud chain, giving timely warning to the potential buyers

Both Pakistan Revenue Automation Limited and I & I appeared to have failed to devise an effective automated online system for registered sales tax persons

Complicity and collusion of rogue Tax Employees with outside criminal elements was also not ruled out

Federal Tax Ombudsman recommended Federal Board of Revenue to (i) set up a task force to investigate all aspects of sales tax fraud and propose effective countermeasures (ii) restructure Pakistan Revenue Automation Limited and Directorate of Intelligence and Investigation with a view to transform them into proactive agents of sales tax fraud prevention/detection (iii) review Directorate of Intelligence and Investigation staffing policy and only highly qualified professionals with demonstrated expertise in uncovering cases of online white-collar crime would be assigned key investigative roles (iv) proceed against tax employees found involved in perpetration of fraud and bring them to justice, particularly those in the higher ranks (v) hire high quality prosecutors to handle complex tax frauds prosecutions (vi) enable prospective buyers to deal only with legitimate sellers the procedure for blacklisting and listing as INACTIVE must be telescoped so that doubtful firms do not remain in the field to dupe innocent buyers and (vii) to report implementation of recommended steps within three months.

Taxpayer contended that jurisdiction of the case vested in the specified Inland Revenue Officer while the assessment had been made by the Inland Revenue Officer of other unit and assessment thus was out of jurisdiction and void ab initio, that and in pursuance of finalization of (illegal) assessment by the non-specified Inland Revenue Officer the Inland Revenue Officer of specified Unit threatened of coercive action, in case the sales tax demand raised as a result of assessment made by Inland Revenue Officer of non-specified unit was not deposited in treasury

Validity

Department admitted that the assessment made was out of jurisdiction

Sales tax demand raised as a consequence of that assessment had no validity in the eye of law

Order passed without jurisdiction had been held to be a fraud on the statute, a nullity in the eye of law and void ab initio

Show-Cause Notice for recovery issued by the specified Inland Revenue Officer was also illegal and notwithstanding the fact that the Department claimed that the said Show-Cause Notice stood withdrawn

Order-in-Original remained an illegal order and tax demand raised thereby could not be enforced

Order-in-Original being illegal, having no validity in law, tax demand raised as a consequence of such assessment could not be recovered

Illegal assumption of jurisdiction by Inland Revenue Officer was tantamount to maladministration

Federal Board of Revenue was directed to ensure that illegal assessment made by the Inland Revenue Officer vide Order-in-Original be vacated under S.45A of the Sales Tax Act, 1990 by the Competent authority.

Deduction of input tax claimed by the petitioner/taxpayer was denied under S.8(1)(ca) of the Sales Tax Act, 1990 on the ground that the supplier had failed to deposit the sales tax in the treasury

Contention of the petitioner was that it was being penalized for the default and fault of another person, the supplier, which amounted to an unreasonable restriction on the right of the petitioner to use his property under Art.23 of the Constitution

Validity

Real question to be determined was whether S.8(1)(ca) of the Sales Tax Act, 1990 passed the test of "reasonable restriction" or "law" under Arts.23 & 24 of the Constitution and whether the same sufficiently and proportionally advanced public interest; and whether the harm to the constitutional fundamental right of the petitioner was proportional to the benefit gained from the said limitation by the society or community at large

Section 8(1)(ca) of the Sales Tax Act, 1990 imposed liability of person A on person B in the absence of any relationship between the two

Every person had a separate legal character and enjoyed distinct rights and liabilities under the law

Imposition of the liability of one over the other was opposed to basic fundamentals of law and offended due process, logic and rationality and axed an innocent person for the wrong of the other

Said S.8(1)(ca) diminished the legal character of a person under the law by implying that every person was the agent of the other; which assumption also negated free and fair competition in a market economy

Section 8(1)(ca), therefore, did not advance any public interest or passed the test of proportionality and was illogical, absurd and unreasonable

In case of "collusion" or "tax fraud" S.8(1)(d) of the Act was attracted which provision disentitled a registered person from deducting or claiming input tax if there was a "fake invoice"; and therefore, contention of the respondents/ Department urging High Court to read collusion and fraud into S.8(1)(ca) was not convincing

Non-deposit of tax in the government treasury by the supplier was dealt under S.8-A of the Sales Tax Act, 1990 which simply required that the department had to establish that the buyer had "knowledge" that the supplier would not (eventually) deposit the sales tax in the exchequer

Impugned show-cause notice does not, however, set up a case against the petitioner under S.8-A of the Act, which was different from S.8(1)(ca) and is triggered by the requirement of "knowledge" of the past practice of the supplier and the Department had therefore, mistakenly tried to read S.8-A into S.8(1)(ca)

High Court declared that S.8(1)(ca) of the Sales Tax Act, 1990 besides being illogical and absurd, offended Arts.23 & 24 of the Constitution and was therefore unconstitutional and was accordingly struck down

Constitutional petition was allowed, in circumstances.

Taxpayer contended that First Appellate Authority had failed to consider the explanation/supporting documents at the time of appeal proceedings substantiating that all suppliers were active tax payers at the time of executing purchase transactions and question of inadmissibility of sales tax input tax was not sustainable

Revenue contended that Officer of Inland Revenue was quite justified in disallowing the input tax claimed by the taxpayer against invoices issued on purchases made from the blacklisted/blocked suppliers which were inadmissible in terms of Ss.7 & 8 of the Sales Tax Act, 1990

Validity

In the absence of record, Appellate Tribunal did not give exact verdict as to whether the units were blacklisted at the time of supply or not

If such units were not blacklisted at the time of supplies and the taxpayer had fulfilled all the other formalities, such a payment to suppliers had been transacted through banking channels as envisaged in S.73 of the Sales Tax Act, 1990 and taxpayer was in possession of valid invoices issued to the taxpayer, the claim of tax should be allowed to him, and if supplier had not fulfilled his obligation through depositing the tax paid by the taxpayer, tax should be recovered from suppliers, taxpayer could not be punished for the sin and wrong of suppliers.

Taxpayer contended that order had been passed by the Deputy Commissioner who did not have the pecuniary jurisdiction to issue the show-cause notice and pass the order

Validity

Deputy Commissioner Inland Revenue who issued the show-cause notice and passed the assessment order, could not assume the jurisdiction to issue the show-cause notice and pass the assessment order under the law

Said order was without lawful authority and void ab initio.

According to information available with Federal Board of Revenue, such purchases were not declared in the sales tax return of the supplier

Bank statement and copies of cheques/ demand drafts/pay orders were provided in response to show-cause notice and claimed that payment to supplier was made through bank in terms of S.73 of the Sales Tax Act, 1990

Clearance of cheques was not reflected in the bank statement

Complainant was required to provide sales tax return of the supplier, which he did not do

Order-in-original was passed for payment of tax along with penalty

Complainant contended that valid invoices were issued by the supplier and the payment was made through bank; that bank statement and copies of invoices were not considered on merits; that requirement to produce sales tax return of the supplier was uncalled for; that such document ought to have been obtained directly from the supplier instead of compelling the complainant; and that orders-in-original were passed without considering the evidence or going for independent verification, which was tantamount to maladministration

Validity

Inland Revenue Officer observed that cheques/demand drafts/pay order were not reflected in the bank statement

Taxation Officer should have verified the transactions directly from the bank which had not been done

No verification of purchases was made from the supplier and instead order-in-original was passed arbitrarily

Such act of passing orders-in-original was tantamount to maladministration

Federal Tax Ombudsman recommended that Federal Board of Revenue direct the Chief Commissioner to invoke jurisdiction under S.45A of the Sales Tax Act, 1990, to pass a fresh speaking order, as per law.

Chilling equipment was purchased constituting deep freezers, refrigerators, visi­coolers etc. and sales tax paid on such acquisition was claimed as input tax deduction

Equipment, after procurement, was placed at various retail outlets, who were the taxpayer's customers, in which goods manufactured were placed and offered for sale to consumers; and title in those goods remained throughout with the taxpayer and equipment appeared in taxpayer's financial statement as `owned' assets

Claimwas held to be inadmissible on the ground that placement of chilling equipment constituted `supply', being a `disposition of goods', and it attracted levy of sales tax; and since taxpayer did. not pay sales tax on `supply', it was not entitled to claim deduction of input tax under the law

Validity

Title of chilling equipment remained with the taxpayer and as such it was only a placement of goods at retail outlets without transferring any risks or rewards in the property

Such was not a `supply' of goods there being no `disposition of goods' as, for the `disposition of goods' to take place, mere transfer of custody was not enough and the same takes place only where the acquirer holds some sort of right to further dispose of the goods at his will/discretion

Retailers did not possess any right to further dispose the chilling equipment and it remained the property of the taxpayer and it was incorrectly treated to be a `supply' by the department

Title in chilling. equipment was retained by the taxpayer in absolute terms and since the equipment was not allowed to be used for any other objective, there arose no question of `supply' attracting the levy of output tax; and authorities below erred in concluding that there occurred some `supply' in the arrangement

Chilling equipment was not used for any purpose other than for taxable supplies made or to be made by the taxpayer

No event of `supply' had occurred attracting the incidence of output tax under S.3 of the Sales Tax Act, 1990

Contention by the Revenue that where no output tax was paid, the input tax was not allowable was grossly misconceived

Revenue in fact was blowing hot and cold in the same breath by resting its case simultaneously on the provisions of Ss.2(33) and 8(1)(a) of the Sales Tax Act, 1990

Revenue, on the one hand, on the basis of provisions of S.2(33) of the Sales Tax Act, 1990, had argued that a `taxable supply' took place attracting the charge of tax under S.3 of the Sales Tax Act, 1990 and on the other hand department was disallowing the input tax on the premise that placement of chilling equipment was not for the purposes of taxpayer's taxable activity

Taxpayer's claim of input tax adjustment on chilling equipment was in accordance with law

Orders of the authorities below were vacated on the point and it was held that adjustment should be allowed as per claim of the taxpayer.

Appellate Tribunal had already held that agreement between the sales tax department and the Confectioner's Association did not have binding force because it had not been enacted as a piece of legislation and did not have the force of law and directed that the claim of input tax on packing material used in the manufacturing and export of products of the registered person be allowed

Issue of claim of input tax on packing material having already been settled by the Appellate Tribunal, appeal was allowed accordingly.

Registered person contended that appointment of sales tax officer was to be notified in the official gazette and appointment of Inland Revenue Officer who exercised powers by passing the order-in-original and order-in-appeal was never notified in the official gazette and both the officers were not competent to assume jurisdiction and exercise powers in respect of registered person

Validity

Appointment of officers in the newly created service group "Inland Revenue Service" was to be made in accordance with the procedure laid down in S.30 of the Sales Tax Act, 1990 i.e. appointment of officers was to be notified in the official gazette of Pakistan and no such notification on the pattern of S.R.O. 547(I)/2008 dated 11-6-2008 was published in the Official Gazette of Pakistan meaning thereby that the officers who continued to exercise powers under the newly created set up did so without any legal mandate or support

Although the words "by notification in the Official Gazette of Pakistan" occurring in S.30 of the Sales Tax Act, 1990 were omitted from S.30 of the Sales Tax Act, 1990 through Finance Act, 2010 (effective from 5th June, 2010), the amendment, being prospective in effect, could not cure the jurisdictional defect in the issuance of show cause notice as well as order in original which were issued much earlier on 5-1-2010 and 2-3-2010 respectively

Entire structure raised on the foundation of an unlawful show cause notice, and order-in-original passed in consequence thereof were not sustainable in the eye of law because both the show cause notice and order-in-original had been issued without lawful authority

Orders passed by the authorities below were held to be nullity in the eye of law and were vacated by the Appellate Tribunal.

Deputy Collector, issued show-cause notice to the taxpayer, with the charge of contravention of the provisions of Ss.6, 7 & 22 of the Sales Tax Act, 1990, punishable under S.33 of the Act

Deputy Collector observed that the taxpayer deducted input tax on the imported raw material and the Bills of Entries, were not in the name of taxpayer

Taxpayer preferred appeal before the Collector (Appeals) and the Collector vide order-in-appeal remanded the case by observing that examination of the records of the case had revealed that the instructions issued by the Federal Board of Revenue had not been taken care of while deciding the matter of adjustment of sales tax

Show-cause notice was issued to the taxpayer, without mentioning the section under which the Adjudicating Authority could proceed against the taxpayer

Show-cause notice, even did not make any demand for sales tax

Words "as to why the illegal adjustment of input tax amounting to Rs.476,957 be not recovered", did not appear in the show-cause notice

Input tax, claimed by the taxpayer, was covered by Federal Board of Revenue's letter

Case was remanded to the original Authority, with the direction for deciding the same afresh, after considering the letter of the Federal Board of Revenue, but the Adjudicating Authority did not take into consideration said letter

Bills of Entries were in conformity with the procedure prescribed by the Federal Board of Revenue's letters, and same were verified by Assistant Collector Customs, Central Excise and Sales Tax in terms of said letters of the Board

Taxpayer having claimed the input tax in accordance with law, there was no substance in the departmental appeal, which was dismissed.

Taxpayer, an electric supply company, was paying sales tax (output tax) on distribution/supply of electricity and were adjusting input tax

Revenue created demand on the ground that tax collected from the Steel Melters/Re-rollers, under R.58(H) of the Sales Tax Special Procedure Rules, 2007 through electricity bills, was wrongly adjusted by them against input tax as the tax was final discharge of tax liability of the Steel-Melters/Re-rollers and the taxpayer had just collected the same on behalf of department

Taxpayer contended that they were entitled to adjust input tax under S.7 of the Sales Tax Act, 1990 read with R.15 to Chapter III of Special Procedure Rules, 2007

No corresponding amendment having been made in Chapter III, dealing with Special Procedure for Electric Power Supplies, department's interpretation had no force and no restriction on adjustment of tax collected under R.58H was available in Chapters III or XI and the taxpayer were never declared as withholding agents under Sales Tax Special Procedure (Withholding) Rules, 2007, wherein it was specifically provided that tax withheld would be deposited by withholding agent through his monthly return and such collection should not be treated his output tax and department was estopped by its conduct because return filed electronically were based on pre-defined formula available on webpage of Federal Board of Revenue and formula was devised keeping in view the existing law and rules and that format of sales tax returns also support the contention of the taxpayer, as a payable amount by a registered person, even if there was a brought forward balance, was available for adjustment against such allegedly withheld amount

Validity

Tax envisaged under R.58H to Chapter XI of Sales Tax Special Procedure Rules, 2007 was in lieu of tax under S.3(1) of Sales Tax Act, 1990 and was not an output tax of the taxpayer/appellants

Taxpayers were entitled to adjust input tax under R.15 to Chapter-III i.e., in accordance with S.7, from the tax payable under R.13(1) of the same Chapter

Tax under R.58(H) was printed and separated, on the electricity bill, from the tax paid under R.13(1)

Tax payable was printed @ 17% as required under R.17(2) of Chapter-III

Rules did not stop the taxpayer from adjusting input tax from output tax paid @ 17%

Taxpayer was not justified to adjust tax collected under R.58H of the Sales Tax Special Procedure Rules, 2007

Was not necessary that taxpayer should have been declared withholding agent under S.3(7) of the Sales Tax Act, 1990 read with Special Procedure (Withholding) Rules, 2007

Preamble of withholding Rules of 2007 showed that these were made for government department, autonomous bodies and public sector organizations (withholding agents) to whom goods and services were supplied

Such withholding agents, while advertising for purchases, were required to notify that sales tax intended by these Rules shall be deducted from the payments

Taxpayer's case was not covered by said Rules

Rules under Chapter XI had simply provided a manner of depositing tax, which could not be termed as 'withholding'

Department was not estopped by its conduct due to pre-defined formula on webpage

No estoppel against law, which in the present case was very clear

No two possible interpretations of law existed, particularly of R.58H of the Special Sales Tax Procedure Rules, 2007

Order-in-original passed by the Adjudication Officer was upheld by the Appellate Tribunal.

Despite specific query, whether there was any particular case or invoices which was not in accordance with and against the law whereby the adjustment of input tax had been denied to the taxpayer, revenue failed to provide any instance of input tax which had been claimed in violation of the provisions of law

Input adjustment could not be denied after lapse of almost three years on the basis of some minor errors in the invoices which could be cured at any stage

No substance had been found in the allegation levelled by the revenue and revenue had failed to prove this charge.

Assistant Collector, through a show-cause notice, confronted the registered person/assessee with disallowance of input tax

Proposed disallowance included input tax on purchases made from various supplies apart from an amount on packing material being in excess of 20% value of the exported goods/confectionery items

Contention of Representative of assessee was that disallowance of input tax on the packing material in excess of 20% value of the exports on the basis of an agreement between the department and Confectioners' Association was not justified because said agreement did not have the force of law

Validity

Mere minutes of meetings between the Association and the Revenue were not enough to charge the existing tax regime fully supported by provisions of S.3(1) of the Sales Tax Act, 1990

Minutes of the meeting between the revenue and the Association of a class of taxpayers was neither a superior nor a subordinate legislation

Agreement between the department and Confectioners' Association, did not have binding force, because it had not been enacted as a piece of legislation, and did not have the force of law

Appeal of the registered person was accepted with direction that the claim of input tax on packing material used in the manufacturing and export of products of the registered person, be allowed.

Taxpayer contended that he was not provided the basis of DGRRA's audit objection to enable him to explain his position before issuance of show-cause notice and order-in-original; and mechanical issuance of show-cause notice and order-in-original, without ascertaining the basis of DGRRA's objection, was not fair, just or lawful and amount of input tax stated as Rs.5.936 million in the show-cause notice was incorrect while the actual amount of input tax adjustment, during the period, was Rs.4.636 million

Break up of Rs.5.936 million along with details of audit objection was asked but to no avail

Revenue stated that basis of the objection and required break-up could not be supplied as it was not furnished by the DGRRA; and DGRRA's objection was not evaluated by the sales tax authorities before issuance of show-cause notice and stated that the matter could have been settled through reconciliation

Validity

Revenue agreed to sit with the complainant to reconcile the facts for which reasonable time was allowed

Revenue, after doing reconciliation exercise, was satisfied with the legality and propriety of input adjustment on the basis of valid invoices issued by the registered suppliers, valid copies of GDs showing payment of sales tax at import stage and transfer of payment of amounts to the suppliers through normal banking channels in accordance with the provision of S.73 of the Sales Tax Act, 1990

Amount of input tax adjustment was also wrongly indicated by the DGRRA

Mechanical issuance of show-cause notice without first evaluating the DGRRA's observation and failing to provide the information required by the complainant, to enable him to prove the genuineness of input adjustment, was tantamount to maladministration

Federal Tax Ombudsman recommended that Federal Board of Revenue to direct the Commissioner to set aside order-in-original in exercise of his powers under S.45A of the Sales Tax Act, 1990 and finalize the matter as per law.

Registered person was required under law to deposit the arrears despite the fact that refund due was payable in his favour

Adjustment or carry forward could be made after consulting a senior officer of the department i.e. Cost Accountant.

Some material was used for manufacturing and the resultant finished goods were sold and remaining material was sold in the open market @ 0% sales tax and claimed input as envisaged under the sales tax law

Rejection of claim of input tax

Registered person contended that purchases had not been doubted by the department and without violating any provision of law, the registered person was well within its domain to watch its business interest and expediency warranted that if under the government's policy such transactions had been made zero rated, there was no contravention of any law prevalent at the time

Validity

Material purchased was partially used for manufacturing and partially sold in the local market @ 0% sales tax; it was purely the outlook of the registered person to conduct his business affairs in the manner he likes, provided he did not transgress the boundaries of law

No illegality was committed by the registered person and the department proceeded on the basis of wrong proposition

Show-cause notice had been issued without appreciating the facts of the case in its entirety which was not sustainable in the eyes of law

Orders made on the basis of such show-cause notice were set aside by Appellate Tribunal.

Allowing adjustment of carried forward of sales tax refund against outstanding tax stood settled.

Suppliers were blacklisted, input tax claimed on purchases was declared to be inadmissible which resulted into short payment of sales tax

Validity

Admittedly, registered person was a bona fide purchaser from suppliers and payments against such purchases were made in accordance with provision of S.73 of the Sales Tax Act, 1990-Sales tax was paid by the registered person following provision. contained in S.3 of the Sales Tax Act, 1990 and input tax was claimed as envisaged in S.7 of the Sales Tax Act, 1990

Period involved was May & June 2005 when the suppliers were actually engaged in business and had active registered status

Suppliers were declared as blacklisted in the year 2006 after more than one year

Such order could not be operated retrospectively

Input tax had been claimed exactly as per provision of S.7 read with Ss.73 and 8 of the Sales Tax Act, 1990 and the suppliers who had been subsequently declared as blacklisted were having valid legal status, the claim of such input tax -could not be termed against law and the same could not be held inadmissible

Since registered person had complied with the provision of S.73 of the Sales Tax Act, 1990 and also the fact that suppliers in question were alive with legal status the demand of tax from the registered person which was to be paid by the supplier was uncalled for

No recovery could be enforced or input tax could be held inadmissible on the basis of findings of the audit or show-cause notice based on presumptions.

Facts emerged in the case vividly spoke that registered person had claimed credit of input tax after establishing his claim

Show-cause notice had alleged that suppliers had been black listed on 13.10-2006 but the fact remained that purchases were made by the registered person in the month of May and June, 2005

Exercise of verifying antecedents of suppliers had been made by the department after lapse of more than one year from the date of purchases by the registered person

Registered person could not be held responsible for the acts done by the suppliers, because no one could be made to suffer for the acts done by the others in view of doctrine "actus curiae neminen gravabit"

Suppliers were actively engaged in business in the month of May and June 2005 and their status of registration was also active at the relevant time and they were declared to be black listed in subsequent period i.e. 2006

Order of blacklisting the suppliers could not be stretched retrospectively.