Tax credit not allowed

Argument of the Department was that, during scrutiny, it found Registered Person (Electricity Supply Company / DISCO) to have claimed / adjusted inadmissible input tax during four tax periods on purchase of certain items (office equipment, mineral water, travel sets, soaps and sugar)

Registered person filed appeal before the Appellate Tribunal Inland Revenue as the Commissioner maintained Order-in-Original for recovery of amount along with default and penalty

Validity

Inland Officer failed to establish as to how the items purchased by the appellant fell within the categories of goods permanently attached to immovable property, or building material, or goods for personal use etc., or any of the specific category listed in Cls. (a), (f), (g), (h) and (i) of S. 8(1) of the Sales Tax Act, 1990

Initial burden to prove chargeability was on the Department, which did not appear to have been discharged in the present case

While examining details of goods and services provided by the appellant along with the details of utilization in the taxable activities which was placed on the record, Appellate Tribunal Inland Revenue Land that the same did not come within the ambit of said provisions of the Sales Tax Act, 1990, and the Officer Inland Revenue failed to substantiate and correlate the disallowance of input tax with the said provisions of the Sales Tax Act, 1990

Provisions of S.8(1)(a) of the Sales Tax Act, 1990, authorize deduction for all such input tax that relates to goods that contribute directly or indirectly, and even remotely, in furtherance of taxable activity

Thus, assessment order as well as appellate order in respect of adjustment of input tax were passed on the basis of wrong assumption and application of law and incorrect appreciation of facts

Appellate Tribunal Inland Revenue set-aside the impugned orders and allowed the appeal filed by the registered person.

Argument of the Department was that, during scrutiny, it found Registered Person( Electricity Supply Company / DISCO ) to have claimed / adjusted inadmissible input tax during four tax periods on purchase of certain items (office equipment, mineral water, travel sets, soaps and sugar)

Registered person filed appeal before the Appellate Tribunal Inland Revenue as the Commissioner maintained Order-in-Original for recovery of amount along with default and penalty

Validity

Record revealed that on the strength of Cls. (a), (f), (g), (h) and (i) of subsection (1) of S. 8 of the Sales Tax Act, 1990, show-cause notice under S. 11(2) of the Sales Tax Act, 1990, was issued in respect of input tax claimed on purchase of certain items (office equipment, mineral water, travel sets, soaps and sugar) from four suppliers, however, as per reply along with sales tax invoices submitted by the appellant(Registered Person / DISCO), the input tax involved was found to be relating to different kinds of items like Chain Pulley Block 3 Ton, Topcon Easy/Auto Station with metallic tripod etc., Shoes, Main Breaker Pipes for pressure gage, Vacuum Pump, etc.

Appellate Tribunal Inland Revenue observed that the impugned order was passed on grounds other than those confronted through the Show-Cause Notice, and was therefore, not maintainable on said score alone

Thus, assessment order as well as appellate order in respect of adjustment of input tax were passed on the basis of wrong assumption and application of law and incorrect appreciation of facts

Appellate Tribunal Inland Revenue set-aside the impugned orders and allowed the appeal, filed by the registered person, in circumstances.

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.

Dispute was with regard to tax credit not allowed on the ground that sales tax was not deposited in Government treasury with regard to goods or service

Validity

Two conditions were necessary under Ss. 8 (ca) & 73 of Sales Tax Act, 1990, to claim refusal (i)supplier deposited sales tax in Government treasury and (ii) buyer had deposited through banking channel from his business account amount of sales tax invoices in favour of supplier

Buyer fulfilled his duty as per S.73 of Sales Tax Act, 1990 but supplier did not deposit sales tax amount in government treasury, therefore, buyer was not entitled to a refund of sales tax

Only duty on buyer under S.73 of Sales Tax Act, 1990 was that if payment of amount for transaction exceeding Rupees 50,000/- was made by a cross cheque drawn on a Bank or by cross Bank draft or cross pay order, or any other crossed banking instrument showing transfer of amount of sales tax invoice in favour of supplier from business Bank account of the buyer

Such condition as envisaged under S.73 of Sales Tax Act, 1990 was fully complied with by the buyer but law on the subject was silent that if department had recovered sales tax from supplier that would happen to refund of the buyer

Order of Appellate Tribunal Inland Revenue directing authorities to recover sales tax from supplier and then returned it to buyer was well reasoned

High Court declined to interfere in the order passed by Appellate Tribunal Inland Revenue

Reference was dismissed, in circumstances.

Department on the basis of three separate show-cause notices sought explanation of certain discrepancies which were detected during the post refund audit of the registered person

Adjudication proceedings culminated in passing of order-in-original

Appeal filed by registered person before the Commissioner (Appeals) was accepted

Validity

Input tax paid on cement, paint, thermopolis, re-touching emulsion, consumer panel. SSR, etc. was not hit by SRO No.490(I)/2004 dated 12th June, 2004 as the restriction on input tax adjustment or credit thereon was subsequently imposed by way of an amending Notification No. SRO No.450(I)/2013 dated 27th May, 2013

Contrarily, registered person's input tax credits on such items pertained to the tax periods of October 2011, May, 2012 and September, 2012 prior to imposition of such restriction on input tax credit or adjustment

Provisions of SRO No.490(I)/2004 dated 12th June, 2004, as stood prior to 27th May, 2013, never debarred a registered person from claiming input tax on such goods as alleged in impugned cases

Amendments made in S.8(1)(a) of the Sales Tax Act, 1990, by way of inserting clauses (h) and (i) through Finance Act, 2014, could not be allowed to apply retrospectively when there was no such express or apparent legislative intent to allow any such retrospection

Order impugned by the department being based on facts and strictly in accordance with law did not call for any interference by the Tribunal

Appeals were dismissed.

Invoices which are issued by the suppliers at the time when the suppliers are operative or not blacklisted/suspended or such invoices which have no nexus with the blacklisting order cannot be held inadmissible for input tax adjustment

Initial burden lies on the department to establish that invoices had been issued during when the supplier was blacklisted or suspended

If invoices are not issued during such period of blacklisting/suspension then the department has to prove that the cause or reason for the blacklisting has some nexus with such invoices

Such burden can be shifted upon the registered person claiming adjustment or refund of tax, in case of tax fraud, in accordance with the provisions of S.2(37) of Sales Tax Act, 1990.

Though, any subsequent blacklisting of the supplier does not render the transactions invalid or fake on this score unless such subsequent blacklisting has some nexus with the invoices in dispute, but there is another aspect of the case with regards to the genuineness of claim of input tax by the purchaser

Even if the supplier was active or operative at the time of transactions still the purchaser claiming the input tax adjustment is supposed to hold taxable invoices duly issued by the supplier and to prove the same along with the physical delivery of goods

Purchaser is required to prove the mandatory compliance of S. 73 of the Sales Tax Act, 1990 to ensure veracity of the transactions in addition to verifying normal and operative status of his suppliers

Burden of proving that input tax claim is correct lies upon the person claiming such input tax

For the purpose of input tax claim, it is also to be ascertained by the department that the sales tax was deposited in the government treasury

Once all these conditions stand fulfilled only then the claim of input tax is allowable under the law.

No condition of direct relationship of input goods to manufacturing of finished goods is provided in S. 8(1)(a) of 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.

Tax period for which the appellant was charged pertained to July, 2011 to February, 2013, when CREST forming part of show-cause notice was non-existent

Appellant could not be subjected to CREST retrospectively, specifically when the provision was prospective

Assessment order and the order passed by Commissioner Inland Revenue (Appeals) was set aside

Appeal was accepted.

Contention of Department, inter alia, was that per S.8B(1) of Sales Tax Act, 1990, taxpayer could not adjust more than 90% of input tax

Validity

Per S.8 of Sales Tax Act, 1990 by allowing 90% adjustment in input tax, the law did not disallow adjustment of remaining 10% tax, and by retaining said 10% adjustable amount, taxpayer was compelled to file proper documents to obtain refund as per S.66 of Sales Tax Act, 1990

Section 8B(1) of Sales Tax Act, 1990 was therefore procedural in nature which was followed by procedure under S.66 of the Act, which catered to entitlement of taxpayer to claim 10% refund

Allegation against taxpayer, in the present case, was not that input tax adjustment was not due to taxpayer and was illegally claimed and in absence of any mala fide, either attributed or proved against taxpayer, it would be otiose to drive such taxpayer to run through entire process for claiming adjustment again, which was not intention of Legislature

Department could have, at worst, proceeded to impose penalty for non-compliance of a procedural formality under Ss.8B(1) & 66 of Sales Tax Act, 1990 and nothing beyond the same

Reference was answered, accordingly.

Goods specified by Federal Government upon which registered person shall not be entitled to reclaim or deduct input tax paid

Nature of power conferred on Federal Government under S.8(1)(b) of Sales Tax Act, 1990

Scope

Petitioners / taxpayers impugned SRO No.549(I)/2006 dated 05.06.2006 on ground that same had been issued in excess of jurisdiction conferred on Federal Government under S.8(1)(b) of Sales Tax Act, 1990

Validity

Impugned SRO did not specify any particular goods, with consequence that taxpayers had been denied input tax adjustment on all kinds of goods which were used in making taxable supply of locally produced coal

Power of delegation under S.8(1)(b) of Sales Tax Act, 1990 had been made on Federal Government to specify actual goods and it could not be deemed that under S.8(1)(b), Federal Government could merely specify registered person in relation to taxable supplies made by such person without identifying goods upon which input tax was in fact paid

SRO No.549(I)/2006 dated 05.06.2006 was therefore made by travelling beyond powers conferred by S.8(1)(b) of Sales Tax Act, 1990, which were restrictive in nature, and such notification could only be made in respect of goods on which registered person had paid input tax and for which deduction was claimed

SRO No.549(I)/2006 dated 05.06.2006 therefore failed to meet statutory standard set by S.8(1)(b) of Sales Tax Act, 1990 and was set aside

Constitutional petition was allowed, accordingly.

Federal Board of Revenue under S. 8(2) of Sales Tax Act, 1990, has notified a formula for objective apportionment of input tax under sub-Rule (3) of R.25 of the Sales Tax Rules, 2006

Amount of input tax incurred for making both exempt and taxable supplies shall be apportioned according to the said formula.

Department, during scrutiny of monthly sales tax and federal excise returns of applicant, had observed that the amount of input tax incurred for making both exempt and taxable supplies was not claimed as per apportionment formula prescribed in R. 25(3) of Sales Tax Rules, 2006, read with S. 8(2) of Sales Tax Act, 1990

Validity

Supplies involving exempt and taxable purchase could not be treated in a generalized way

Applicant argued to the extent of claiming refund in terms of S. 10 of Sales Tax Act, 1990

Held; where input tax adjustment was claimed on both exempt and taxable supplies, S. 8(2) of Sales Tax Act, 1990, an unambiguous provision, had to be applied which directly dealt with the input tax in respect of the supplies involving both exempt and taxable supplies

Special sales tax reference applications were dismissed.

Petitioners/taxpayers impugned show-cause notice issued by Department whereby certain input tax adjustments claimed by petitioners were deemed impermissible under SRO No.450(I)/2013 dated 27.05.2013 read with S.8(1) of Sales Tax Act, 1990

Contention of petitioners, inter alia, was that items in question were directly used in facilitating and improving manufacturing of their product and were direct constituents of taxable supply, covered under Ss.7 & 8 of Sales Tax Act, 1990 and thus denial of input tax adjustment was illegal

Validity

Prerogative of the Legislature to allow or deny input tax adjustment and in the present case, it was yet to be determined whether all goods / materials mentioned in impugned show-cause notice were used in manufacture of taxable supply and such determination being a factual one, could not be made in Constitutional jurisdiction of High Court

Intent and purpose of S.8 of Sales Tax Act, 1990 and the impugned SRO, reflected that Legislature had decided that such materials notified, were not a direct constituent of taxable supply and even otherwise input tax adjustment could denied on materials which were a direct constituent of taxable supply

In view on non-obstante clause contained in S. 8 of Sales Tax Act, 1990 and in absence of any bar on Legislature to enact S.8(h) of the Sales Tax Act, 1990, input tax adjustment could be validly denied to taxpayers/petitioners even in respect of direct constituents of taxable supply

Constitutional petitions were dismissed, in circumstances.

Question before High Court was whether taxpayer, which was a composite unit having two manufacturing sections, could claim 100% adjustment of input tax against output tax, when it was only entitled to adjustment

Held, that while taxpayer was entitled to 90% adjustment of input tax, however, since the format of the sales tax return did not have a column / option for 90% adjustment, therefore Appellate Tribunal rightly held that no loss to revenue had been caused by adjustment of 100% input tax instead of 90% input tax, as the remaining amount could be subsequently adjusted

Taxpayer could not be deprived of legitimate right to adjust input tax and Department could only at most claim penalty for lapse in procedure

Reference was answered, accordingly.

Appellants assailed interpretation of S.8(1)(h) and (i) of Sales Tax Act, 1990 as proposed by the department to disallow the adjustment of input tax

Validity

Question whether the goods, input tax of which was claimed, were used for the purpose of taxable supplies, being factual, was required to be determined at first instance through assessment proceedings, on the basis of evidence to be produced by the registered person

Nothing was pleaded before the High Court to show that the statutory remedies were not adequate

Intra-court appeals were disposed of with direction to the Assessing/Adjudicating Officer to interpret S.8(1)(h) and (i) on case to case basis after determining facts of each case.

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.

Appellate Tribunal had observed that order-in-original was based on a defective notice bearing false figures of input tax never claimed by the registered person

High Court observed that only substantial legal questions could be examined, which had arisen from an order passed by Appellate Tribunal, questions requiring no interpretation of any provision of law, rules, regulations, or its application on undisputed facts of a case did not constitute a "question of law" to be decided by High Court under its reference jurisdiction

Reference application was decided against the applicant-department.

Initial burden lies on the department to prove that invoices have been issued during suspended or blacklisted period and in case invoices are not issued during the period of blacklisting, the cause or reason for blacklisting has some nexus with the invoices.

Intention of Legislature as discernible from the provisions of S. 21(3) read with S. 8(1)(ca), of the Sales Tax Act, 1990 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

Such clog appears to be logical because a tax not deposited in the Exchequer cannot and should not be 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.

Registered person was alleged to have received refund of input tax against the sales tax invoices issued by suspended/blacklisted units

Validity

Taxation officer, while invoking the provisions of S. 21(3) of Sales Tax Act, 1990, had to ascertain the fact that the invoices were issued during suspended or blacklisted period and in case invoices were issued prior to blacklisting, the cause or reason for blacklisting had some nexus with the invoices

Bottom line was that tax was not paid or deposited against the invoices

To prove such fact, initial burden was upon the department, however, in accordance with the provisions of S.2(37) of the Sales Tax Act, 1990 such burden could be shifted upon the registered person in cases of tax fraud

Taxation officer had not established that the invoices were either fake or flying or the claimed tax was not deposited in the Government Exchequer

Reference application was decided against the department accordingly.

Adjudication Officer during the course of examination of sales tax return of the registered person observed that it had received excess input tax adjustment/sales tax refund in the tax period of June 2013 at the rate of 17% instead of 16%

Validity

Registered person had paid the tax at the rate of 17% and the same was proved from the invoices and suppliers' returns

Registered person had rightly claimed the refund at the rate of 17%

Appeal was allowed.

Adjudication Officer during the course of examination of sales tax return of the registered person observed that it had claimed/adjusted input tax against the invoices issued by the suspended/blacklisted units

Validity

Registered person had fulfilled all the legal formalities which were required under the law

Both the units, at the time of transaction, were active and much after the transaction date, one unit was suspended, which could not be blamed upon the registered person

Appellate Tribunal accepted the appeal of taxpayer and allowed the adjustment of input tax.

Adjudicating Officer during the comparison of supplies made by the registered person and purchases declared by the buyers observed that supplies to certain extent of sales tax were not declared by the buyers in their sales tax returns

Validity

Registered person had supplied the goods against which valid sales invoices were issued and payments were received in accordance with law, therefore, no justification existed for denial of input tax adjustment

Supplier could not be held responsible of the default on the part of the buyers

Order of Adjudicating Officer being not sustainable in the eyes of law was vacated

Appeal was allowed.

Adjudication Officer during the course of examination of sales tax return of the registered person observed that it had adjusted input tax on the invoices of certain suppliers against the goods/services which did not relate to taxable activities

Validity

Adjudication Officer without discussing any of the invoices and without identifying the goods or services had disallowed the input tax adjustment, whereas the claim of registered person was that it had purchased different goods from suppliers which were ultimately directly or indirectly used for taxable activities

Appellate Tribunal allowed the input tax adjustment.

Adjudication Officer after scrutinizing the detail of suppliers through computer database system observed that certain suppliers had not declared or less declared the sales made to the registered person in summary filed under S. 26(5) of Sales Tax Act, 1990 and thus it was found that the registered person had claimed such input tax credit

Appeal filed before CIR (Appeals) was dismissed

Validity

Registered person had claimed input tax adjustment on the purchases from those suppliers who were active taxpayers and payments thereof were also made in compliance of S.73 of Sales Tax Act, 1990, therefore, no justification existed for denial of input tax adjustment

Tax charged by Adjudication Officer was deleted by the Appellate Tribunal being not sustainable in the eyes of law

Appeal of the registered person was allowed.

Assessing Authority, on physical stock taking of registered person under S. 38 of Sales Tax Act, 1990, observed considerable difference between declared closing stocks and physical closing stocks of finished goods

Assessing Authority presumed that appellant did not declare complete sales of stock in his sales tax returns

Calculation was made on the basis of work in progress, stock taking report dated 31-12-2016 and 11-12-2017

Validity

Impugned tax demand was created for the tax periods relevant to months of April 2015 to October 2017 on the basis of stock taking carried out on 11-12-2017

Each tax period was an independant period and had to be treated as a separate unit

Stock taking carried out of a particular tax period for estimation of sales/supplies was relevant only for the said tax period and it could not be made basis for earlier or subsequent tax periods

Whole estimation of alleged concealed supplies was made on the basis of presumption and there was no room for presumption in the sales tax law

Inference drawn by the department from one tax period to other tax periods was mere assumption that the sales would have been suppressed in other tax periods

In the absence of any deeming provision, the department was required to establish that transaction fell within the parameters of taxable supplies or in furtherance of any taxable activity

Exercise carried out to impose the impugned tax was not sustainable in the eyes of law

Appeal filed by taxpayer was accepted; impugned show-cause notice and consequent order was set aside being illegal and void ab initio.

Section 3 of Sales Tax Act, 1990 is a charging section and under this section the appropriate authority is an Officer of Inland Revenue

Section 6, Sales Tax Act, 1990 defines the mode and manner of collection of sales tax at import stage by the customs authorities, resultantly it is not a charging section instead, it is a machinery section

Section 33 contains penal clauses and S.34, Sales Tax Act, 1990 speaks about default surcharge to be paid upon establishing the charges under the charging sections

Section 148 of Income Tax Ordinance, 2001 prescribes the procedure for collection of income tax at import stage by the authorities referred therein

No charge can be framed and show-cause notice cannot be issued under said sections, which are independent and have no nexus with each other.

Section 3 of Sales Tax Act, 1990 is a charging section and under said section the appropriate authority is an Officer of Inland Revenue

Section 6, Sales Tax Act, 1990 defines the mode and manner of collection of sales tax at import stage by the customs authorities, resultantly it is not a charging section instead, it is a machinery section

Liability of sales tax of a registered person is determined for a tax period under S. 7, which stipulates that, subject to the bar contained under S. 8, a registered person is entitled to deduct the input tax that has already been paid from the output tax

Net amount arising thereby is paid along with the monthly return under S.26 of Sales Tax Act, 1990

Section 33 contains penal clauses and S.34 provided default surcharge to be paid upon establishing the charges under the charging sections

Section 148 of Income Tax Ordinance, 2001 prescribes the procedure for collection of income tax at import stage by the authorities referred therein

No charge can be framed under said sections

No show-cause notice can be issued under said sections, which are independent and have no nexus with each other.

Question before the High Court was whether input tax in relation to appliances of taxpayer placed with retailers in their showrooms, could be adjusted

Held, Ss. 7 & 8 of the Sales Tax Act, 1990 were not the charging sections and pertained payability of tax and were machinery provisions and helped in determining the liability to pay the tax as contemplated in S.3 of the Sales Tax Act, 1990

Keyword used in Ss. 7 & 8(1)(a) of the Sales Tax Act, 1990 was purpose which meant that input tax could be deducted only on goods used for purpose of taxable supplies

In order to determine whether input tax was admissible in a particular case, it had to be seen whether goods were used in relation to taxable supplies and it was not necessary that such goods should be an integral part thereof

Once a registered person established that goods in respect of which such person claimed input tax adjustment were used for the purpose of taxable supplies, such taxpayer would be entitled to the adjustment unless the Federal Government had issued a notification under S. 8(1)(b) of the Sales Tax Act, 1990 to disallow the same

In the present case, there was no denying the fact that taxpayer placed the appliances with retailers to facilitate the sale of its products, being its taxable supplies and therefore such appliances were used for the purpose of taxable supplies and taxpayer could claim adjustment of input tax in respect of the same

Reference was answered, accordingly.

Question before the High Court related to the determination extent of rights and liability of the purchaser regarding claim of refund/input tax adjustment against fake invoices issued by blacklisted units/suppliers

Held, that Ss. 7 & 8 of the Sales Tax Act, 1990 were not charging provisions and were machinery provisions to crystallize liability to pay tax by the supplier as contemplated in S. 3(3) of the Sales Tax Act, 1990

Primary responsibility to issue genuine invoices after registration and to deposit tax was that of the supplier, who was also responsible to pay tax under S. 11(2) of the Sales Tax Act, 1990 and the purchaser who paid sales tax against supplies and already availed input tax adjustment against invoices issued could only be held liable for unpaid amount if it was proved that purchaser had knowledge and reasonable ground to suspect that tax payable will go unpaid in terms of S. 8A of the Sales Tax Act, 1990

In the present case, registered person made payment to the supplier under prescribed mechanism of VAT and no evidence had been recorded or produced by the Department to show that said taxpayer had prior knowledge or reasonable grounds to suspect that invoices were fake and tax paid by taxpayer shall be remained unpaid-Department had no doubt made out a case of tax fraud but in absence of any record and evidence, the initial burden of even civil standard was not discharged by the Department which results into inescapable conclusion that taxpayer/buyer was not liable jointly and severely under S. 8A of the Sales Tax Act, 1990

Section 8A of the Sales Tax Act, 1990 did not cast any allegation of collusion on part of buyer or supplier but simply required that buyer should have "knowledge" and "reasonable grounds" to suspect that the supplier would not eventually deposit the sales tax in exchequer paid and once it was admitted on all hands that at the time of transaction, the supplier was duly registered and also active with FBR, in order to attract the provision of S. 8A of the Sales Tax Act, 1990, the Department was required to prove that the purchaser was in the knowledge or reasonable ground to suspect, regarding the issuance of fake invoices by the fictitious supplier units and non-deposit of tax amount by the supplier

Rule 12(5) of the Sales Tax Rules, 2006 provided that during the period of suspension of registration, invoices issued by such person shall not be entertained and once such person is blacklisted, refund and input tax credit claimed against such invoices issued by said person, whether prior or after blacklisting shall be rejected through speaking order

Careful reading of R. 12(5) of the Sales Tax Rules, 2006 as a whole showed that through speaking order, all invoices issued after blacklisting of unit would be rejected; however, the word "prior" used in said R. 12(5) did not mean that all cluster of invokes issued prior to blacklisting would be rejected but it postulated that out of basket of invoices issued prior to blacklisting of supplier, those invoices would be rejected which were issued after suspension but before blacklisting-Words "through speaking appealable order and after affording an opportunity of being heard" used in said R. 12(5) enlarged its scope and empowered the assessing authority to reject even those specific invoices through speaking and reasoned order after hearing, which were though issued prior to blacklisting but were found fake and had direct nexus with blacklisting

High Court observed that it would be a fallacy to hold that mere blacklisting would automatically reject claims of input tax and refund against all validly issued previous invoices, when the supplier was not blacklisted rather was duly registered and active on Department website and said invoices having not been declared fake specifically, had no nexus with blacklisting

High Court further observed that no doubt ambiguity abounded R. 12(5) of the Sales Tax Rules, 2006 but. it would be unreasonable to hold that merely because supplier had become blacklisted, the entire series of invoices issued by him before blacklisting would be rejected as it would also infringe the accrued vested rights of the registered person/purchaser who held valid invoices when the supplier was not blacklisted but was rather active and duly registered

Reference was answered, accordingly.

Revenue confronted that Independent Power Producers failed to make apportionment of input tax in respect of amount received against Capacity Purchase Price from Water and Power Development Authority; and Capacity Purchase Price was exempted from levy of sales tax in terms of Sales Tax Special Procedures Rules, 2007 subject to provisions of Ss.7, 8 of Sales Tax Act, 1990 and all other relevant provisions of the Sales Tax Act, 1990, Rules and notifications; and if a registered person dealt in taxable supplies and non-taxable/exempt supplies, it could reclaim only such proportionate of input tax as was attributable to tax supplies in such manner as may be specified in terms of S.7 read with S.8 of the Sales Tax Act, 1990 and concluded that while Energy Purchase Price constituted consideration for 'taxable supply', the consideration for Capacity Purchase Price constituted 'non-taxable supply' which distinction permit it to restrict/disallow part of input tax; and mechanism for computation of 'value of supply' had an effect of splitting the supply/consideration into 'taxable and 'non-taxable' supplies which lawfully warranted apportionment of input tax under S.8(2) of the Sales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006

Taxpayer contended that Capacity Purchase Price was excluded from value of supply under R.13(3) of the Sales Tax Special Procedures Rules, 2007; that as Capacity Purchase Price was not a part of value of supply; the Revenue could not make apportionment of input tax as Independent Power Producers were involved only and exclusively in one taxable activity i.e. production and sale of electricity; that consideration on account of Capacity Purchase Price was one of the segments of tariff/sale consideration of electricity; that Capacity Purchase Price was not a consideration for any identifiable supply rather the same was one of the components of consideration for taxable supply which was electricity; that provisions did not categorize the revenue representing Capacity Purchase Price as a consideration for 'non-taxable supply' rather these EXCLUDED the same from the amount chargeable to sales tax; that such exclusion had been wrongly and unlawfully equated by the Revenue with non-taxable/exempted supply; that where consideration in respect of one taxable supply was split into categories in a manner that part of the amount required to be subjected to sales tax and part to be excluded from charge of sales tax remain outside the purview of apportionment; that there was only one supply i.e. supply of electricity, the consideration for which was split in the Power Purchase Agreements under different heads ; that provisions of R.13(3) of the Sales Tax Special Procedures Rules, 2007 had made exclusion while prescribing the charge of tax and restricted the same to the extent of Energy Purchase Price; that such could not be construed or equated with the situation conceived by the lawmaker to be the subject matter of S.8(2) of the Sales Tax Act, 1990 read with Chapter IV of Sales Tax Rules, 2006; that in terms of provisions contained in S.8(2) of the Sales Tax Act, 1990 'apportionment' was required where a registered person dealt in 'taxable supplies' and 'non-taxable supplies', and such apportionment could only be carried out in 'such' manner as may be specified by the Federal Board of Revenue in the Rules; that Federal Board of Revenue had prescribed Chapter IV in Sales Tax Rules, 2006 in which 'apportionment' was specified between 'taxable supplies' and 'exempt supplies' exclusively; and that in said rules, the expression used was 'exempt supplies' and not 'non-taxable supplies', an expression used in primary legislation i.e. S.8(2) of the Sales Tax Act, 1990

Validity

Taxpayer dealt in taxable and non-taxable/exempt supplies and could reclaim only such proportion of input tax as was attributable to taxable supplies in such manner as may be specified by the Federal Board of Revenue

Having established that consideration paid by Water and Power Development Authority to Independent Power Producers (tariff) was taxable and that one component of the said tariff i.e. Capacity Purchase Price was exempted, input tax claimed shall be apportioned according to the manner specified by the Federal Board of Revenue

Federal Board of Revenue in R.25 of Sales Tax Rules, 2006 had formulated the methodology for apportionment of input tax for Registered Person making taxable and exempt supplies simultaneously

In the present case there being only one supply i.e. Bulk Power and as a component of said bulk power i.e. Capacity Purchase Price was exempted under Sales Tax Special Procedures Rules, 2007; and only residual input tax credit on taxable supplies could be claimed by the taxpayer meaning thereby that the taxpayer could not claim input adjustment without fulfilling the criteria laid down in Ss. 7 & 8 of the Sales Tax Act, 1990

Revenue had rightly applied R. 25 of the Sales Tax Rules, 2006 for apportioned input tax claimed by the Independent Power Producers

Show-cause notice issued under S.11(2) along with default surcharge under S.34 and penalty under S.33 of the Sales Tax Act, 1990, order in original as well as impugned order-in-appeal was upheld and appeals of the taxpayer/registered persons were rejected by the Appellate Tribunal.

First Appellate Authority found that the suppliers of the taxpayer were blacklisted and they did not deposit the tax into the government treasury and taxpayer was not entitled to claim of input in terms of S.8(1)(ca) of the Sales Tax Act, 1990

Validity

Department was not within the ambit of law while passing the order against the taxpayer for the reason that the suppliers in question were operative during the period under consideration when the business/transaction took place

If such was allowed to happen then the business would come to halt because nobody would know with regard to fate of its business concern if the subsequent events like declaring a taxpayer blacklisted were allowed to cover the period when the other business concern with whom it was dealing with, was operative and the registered person who had been called upon to show-cause entered into business transaction with the subsequently blacklisted business in good faith and as per prevailing conditions at that time

Appeal of the taxpayer was allowed and orders passed by the lower officers were directed to be vacated.

Every person has a separate legal character enjoying distinct rights and liabilities under the law and to impose the liability of one over the other is opposed to the fundamentals of law and offends due process, logic and rationality

Provisions of S.8(1)(ca) of the Sales Tax Act, 1990 axes an innocent person for the wrong of the other.

Department contended that taxpayer was not entitled to claim input tax adjustment or credit on furnace oil which was not directly related to manufacturing of finished goods under S.8(1)(a) of the Sales Tax Act, 1990

Validity

Under the provisions of S.8(1)(a) of the Sales Tax Act, 1990, a registered person was not entitled to re-claim or deduct input tax paid on the goods or services used or to be used for any purpose other than for taxable supplies made or to be made by him and no such condition of direct relationship of input goods with that of manufacturing of finished goods was specified therein

Taxpayer had claimed and adjusted input tax credit on purchase of furnace oil which was being used in boiler as a fuel as no connection of natural gas was available for said purpose and that could not be termed as being used for any purpose other than for making of taxable supplies as neither any exempt supply was made nor was alleged in the show-cause notice without which denial of input tax on said goods wholly used for the purpose of taxable supplies was highly illegal and unjustified

Legislature had consciously limited the scope of S.7(1) of the Sales Tax Act, 1990 for input tax adjustment or credit thereof through provisions of S.8(1)(a) of the Sales Tax Act, 1990 if the same was paid on goods or services used or to be used for any purpose other than taxable supplies and on the other hand, had also given powers to Federal Government to debar input tax on goods or services even if the same was used for the purpose of taxable supplies through a Statutory Regulatory Order under S.8(1)(b) of the Sales Tax Act, 1990

Goods, in the present case, were not used for any purpose other than taxable supplies, provisions of S.8(1)(a) of the Sales Tax Act, 1990 were not attracted nor the entitlement of input tax thereon was precluded by a notification under S.8(1)(b) of the Sales Tax Act, 1990

Denial from input tax adjustment or the credit paid on such goods was illegal and unlawful and violation of mandatory provisions of law

No condition of direct relation of input goods to manufacturing of finished goods was provided in S.8(1)(a) of the Sales Tax Act, 1990 however, condition of its use for the purpose of making of taxable supplies was specified therein and the taxpayer do qualify for entitlement of input tax credit on the goods in question as the same were not used for any purpose other than for taxable supplies because all of the supplies made by the taxpayer was restricted to taxable supplies only

Officers of Directorate of Intelligence and Investigation were not well versed with the use of kerosene oil which was used for the purposes of making pulp from raw materials like straw, husk and raddi, etc which was used of making of paper and paper board products

Since, kerosene was wholly used for the purpose of taxable supplies only; no recovery could be made from the taxpayer.

Taxpayer was charged with violation of S.8(1)(ca) of the Sales Tax Act, 1990 on the ground that his suppliers had not deposited tax due in national exchequer; and taxpayer was not entitled to claim the credit of input tax

Validity

On the one hand, liability to pay sales tax was on the supplier under S.3(3)(a) of the Sales Tax Act, 1990 and could only be extended to the buyer by a notification under S.3(a) of the Sales Tax Act, 1990 in case of supply of specific goods and on the other hand, the taxpayer had jointly and severally was held responsible for such liabilities without any such notification issued by the Federal Government as such defaulted amount had to be recovered from the defaulter supplier instead of the buyer

Such legal and statutory contradiction would result into double taxation as under the charging provisions of S.3 of the Sales Tax Act, 1990, the supplier in case of local sales was held liable to pay sales tax by collecting the same from the buyer and under the machinery provisions of Cl.(ca) of S.8(1) of the Sales Tax Act, 1990, the buyer was impeded with tax liabilities if the supplier failed to deposit the tax collected from the buyer who was not the one who could force the supplier for payment of tax so-collected

Demand of sales tax against the taxpayer was tantamount to double taxation which was not permissible under law because liability to pay sales tax was on the supplier under S.3(3)(a) of the Sales Tax Act, 1990; and taxpayer had already discharged his sales tax liability by making its payment to the supplier

Demanding the same amount from the taxpayer by the department on account of default on the part of his suppliers was clear example of 'double taxation' which was not only illegal and contrary to the provisions of law but also against norms of natural justice and as such the taxpayer could not be burdened with the liability of double taxation

Recoveries adjudged by the department, in circumstances, were illegal and uncalled for

No tax could be levied twice on the same goods

Edifice of the case built up under provisions of S.8(1)(ca) of the Sales Tax Act, 1990 was to be collapsed to its bottom as the provisions of S.8(1)(ca) of the Sales Tax Act, 1990 had been declared to be unconstitutional being illogical, absurd and offending Arts. 23 & 24 of the Constitution.

Due to detection of certain discrepancies in the record of suppliers of the registered person, the admissible input tax claimed by the registered person was not merely disallowed but demand was created without denying that payment by the registered person had already been made to such suppliers; and that reason for the same was given that the suppliers had not deposited the sales tax in the Government treasury an amount equal to the input tax claimed by the appellant/registered person

Taxpayer contended that the provisions of S.8(1)(ca) of the Sales Tax Act, 1990 had been struck down by holding the same as un-constitutional; that Show-Cause Notice suffered from the defect in the assumption of jurisdiction as the Assistant Commissioner Inland Revenue exceeded the limitation/authority expressed in S.R.O. 555(I)/96 dated 1-7-1996, as its authority was restricted to adjudication of the cases where sales tax involved did not exceed Rs.500,000; and that Show-Cause Notice issued for the exceeded prescribed mandatory limit

Validity

Assumption of jurisdiction, in circumstances, was without jurisdiction and coram non judice and without lawful authority

Show-Cause Notices were also coram non judice and without lawful authority, the super structure built on such Show-Cause Notices was also to meet the same fate and were held as of no legal consequence

Order passed by the First Appellate Authority could hardly be taken as an order because it was simply repetition of working of Intelligence and Investigation Wing of Federal Board of Revenue, and reproduction of what was given in the Show-Cause Notices

Orders in original, the factual and legal controversies had not been resolved, no finding had been recorded for establishing the correctness of department's stance

Department had not brought out any case for making the registered person liable to sales tax demand due to its non-payment to suppliers or committing any fraud against the Government

Orders passed by the First Appellate Authority were set aside, the Show-Cause Notices were held to be illegal without jurisdiction and orders-in-original were declared to be null and void and of no legal consequence.

Claim of adjustment of sales tax on the electricity bills of Phase-II against the output tax of Phase-I was violative of S.8(4) of the Sales Tax Act, 1990

Validity

Second registration in respect of Phase-II was sought and accorded by the department under misconceived notion of law and was of no significance at all

Federal Board of Revenue vide Sales Tax General Order No.10 of 1998 had issued necessary clarification, the taxpayer approached the concerned Collectorate for cancellation of second registration and also sent a number of letters/reminders to the concerned authorities

Such letters remained unattended for quite some time with the result that the registered person had to approach the Member Sales Tax for cancellation of second registration and ultimately second registration was cancelled

Registered person was well within its right to claim the adjustment of input tax paid in respect of Phase-II unit and there was no legal infirmity in the claim

Appellate Tribunal directed that the registered person be treated as one business concern for the purpose of adjustment of input tax, as a consequence additional surcharge and penalty on account of disallowance of adjustment was also deleted.

Sales tax attributable to consumption of electricity on non-taxable activities i.e. running canteen and administrative offices etc. was disallowed being not related to taxable activity

Validity

Since offices and canteen etc. in respect of which input tax had been claimed were located within the factory premises of the taxpayer; and contributed to the smooth running and efficiency of the business and as such they were to be treated as integral part of the business

Taxpayer was entitled to the adjustment of input tax paid on electricity consumed in the running canteen and administrative offices located within the factory premises.

Department was required to confront the Registered Person with cogent prima facie evidence to show that tax against the transaction/invoice in question was not deposited in national exchequer

Department could not be given a free hand to presume that the tax was not deposited and shift the onus on Registered Person

Prima facie evidence apparently was not confronted to the Registered Person and on the other hand, Registered Person could not substantiate his claim of payment of tax at import stage

Registered Person should be provided another opportunity to place his defense before the Taxation Officer and the Taxation Officer was required to confront the Registered Person on the basis of a prima facie evidence that tax was not paid to rule out that the show cause notice was not issued on any presumption

Once prima facie proof was confronted to the taxpayer, the onus shall shift on the Registered Person who will have to prove the same otherwise

If it was proved that tax was not deposited in the government treasury by the suppliers, no other interpretation of said clause could be made and the recipient Registered Person should be caught in the mischief of the provisions of S.8(1)(ca) of the Sales Tax Act, 1990 and could not be allowed adjustment

Both the orders below were vacated and the case was remanded to Taxation Officer to re-adjudicate in accordance with the given instructions and guidelines.

Adjustment of input tax was called in question and it was confronted that tax against the invoices was not deposited in treasury and that provisions of S.8(1)(ca) of the Sales Tax Act, 1990 were invoked

Registered person contended that material in question was imported and the tax was deposited at the import stage but could not produce the documents of import showing deposit of tax and contended that provisions of S.73 of the Sales Tax Act, 1990 were complied with and provided all the documents available to them from the suppliers as well as the documents recoverable from website etc.; and harsh provisions of S.8(1)(ca) could not be attracted; and Department should have prosecuted the suppliers for any default or non-payment of tax

Revenue contended that Registered Person could not substantiate its assertion that the tax was paid at import stage

Validity

Section 8 of the Sales Tax Act, 1990 starts with non-obstante subsection (1) and provide a list of eventualities upon which entitlement of the Registered Person to reclaim or deduct input tax was denied

Under Cl.(ca) of subsection (1) of S.8 of the Sales Tax Act, 1990 adjustment was denied simply for the reason that supplier had not deposited the tax in government treasury in respect of any invoice issued for goods or services

No exception held, could be drawn from a clear and unambiguous provision of S.8(1)(ca) of the Sales Tax Act, 1990, if the tax was not deposited in government treasury by respective suppliers.

Claim of input tax adjustment regarding batteries purchased for use in vehicles engaged in distribution of taxable goods

Disallowance

Validity

Vehicles were used for transportation of goods front manufacturing premises to retail outlets and as such by no stretch of imagination the aspect of `for the purpose of taxable supplies made or to be made' could be doubted

Claim, held, was legitimate and valid under the law.

Revenue denied the input tax adjustments on the grounds that these were not eventually consumed in/formed part of taxable supplies

Conclusion drawn by the revenue was contrary to the scheme of law and implied that input tax adjustment was permissible only where the acquired goods had been further supplied; which if accepted would mean that no input tax adjustment was allowable to manufacturers even for goods like machinery that was installed for manufacture of goods and not itself supplied

Such interpretation would entail farcical consequences to which the Appellate Tribunal declined to subscribe.

Provisions of law authorized deduction for such input tax that related to goods that contribute directly or indirectly and even remotely towards furtherance of taxable activity

Chilling equipment was being used to chill the beverage products supplied by the taxpayer and any denial of input tax adjustment was not understandable

Connection/nexus of chilling equipment with taxpayer's business was established which was admitted by the adjudication officer in order-in-original wherein it was observed that "taxpayer supplied equipments to their dealers for facilitating the sales and for publicity of their product"

In presence of such clear observation, department could not disallow the related adjustment of input tax

For all intent and purposes the goods were for the purposes of taxable supplies of the taxpayer and were not hit by the mischief of provisions of S.8(1)(a) of the Sales Tax Act, 1990

Expression `purpose' had a very wide application and according to dictionary meaning the same referred to what something was supposed to be achieved

Chilling equipment was placed to achieve growth in business and fulfilled the requirement of `purpose' as used in the relevant provisions of law.

Taxpayer contended that input tax was disallowed through S.R.O. 578(1)/1998 and it was otherwise not disallowed or restricted under S.8(1)(a) of the Sales Tax Act, 1990; that with effect from 1-7-2004, such notification was substituted by S.R.O. 490(1)/2004 wherein the negative list did not include disputed items; and that since period in appeal was 2006-2007, the input tax on subject items had been wrongly disallowed

Validity

Departmental action was against the relevant .provisions of law and input tax on the said items was allowable to the taxpayer

No valid or justifiable basis to deny adjustment on these items existed with effect from 1-7-2004 and the same was directed by the Appellate Tribunal to be allowed.

Taxpayer raised legal objection regarding unlawful retrospective application of ClS.(a), (b) and (ca) of S.8 of the Sales Tax Act, 1990 amended through Finance Act, 2008 and contended that words "or services" were inserted vide Finance Act, 2008 effective from 1-7-2008 and could not be made applicable to the entire period of audit i.e. July, 2005 to June, 2009

Validity

Telecommunication services were included in the S.R.O. 550(I)/2006 dated 5-6-2006 which prescribed the levy and collection of federal excise duty on services against Value Added Tax mode and did not provide the method for apportionment of tax

Said S.R.O. was effective from 5-6-2006 and the tax liability adjudged by the revenue covered the period July, 2005 to June 2009 which was not desirable

Case of the taxpayer was of excess input adjustment

Said S.R.O. had wrongly been relied upon by the Revenue so far the excess claim of input tax adjustment was concerned

Appellate Tribunal answered the question in favour of the taxpayer and against the Revenue.

With all legal exceptions, if at all the apportionment of tax adjustment was to be applied by the Revenue in terms of subsection (2) of S.8 of the Sales Tax Act, 1990 its effective date was 1-7-2008 as against the tax liability created from 1-7-2005 to 30-6-2009 which was against the norms of principles of natural justice.