Adjustment of input tax

2024 PTD 275 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

S. 73Adjustment of input taxRequirement of S.73 of the Sales Tax Act, 1990, non-compliance of

Question was, whether or not, non-compliance of requirement of S. 73 of the Sales Tax Act, 1990 ('the Act, 1990') would be sufficient for the department to disallow input tax adjustment and for an order for recovery of the principal amount along with default surcharge and penalty

Appellate Tribunal allowed the appeal preferred by the taxpayer against disallowance of the input tax adjustment by Assistant Collector, which order was assailed by the Collector / Department by filing Sales Tax Reference

Validity

Record revealed that Assistant Collector disallowed the input tax adjustment of the respondent/registered person on the ground that the payment had not been made in accordance with the requirement of S. 73 of the Act, 1990

Section 73 of the Act 1990 required payment of an amount for a transaction exceeding the value of Rs. 50,000/ = however, in the present case, the amount involved was less than Rs.50,000/=

It was not the case of the applicant / department that the respondent was claiming input tax adjustment against fake invoices or had evaded the payment of tax

Section 73 of the Act, 1990 did not prescribe the penalty of disallowing the input adjustment for failure to show compliance with the requirement of S.73 of the Act, 1990

Appellate Tribunal had upheld the penalty of Rs. 5,000/= imposed on respondent for not showing compliance with the requirement of S.73 of the Act, 1990

Applicant department had failed to give reason for interference of the High Court in the order passed by the Appellate Tribunal

Sales Tax Reference filed by the department was dismissed, in circumstances.

2021 PTD 945 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 8, 8B, 66, 3 & 47Tax Credit not allowedAdjustment of input taxClaim of 100% adjustment of input taxNature of S.8B(1) of Sales Tax Act, 1990ScopeDepartment impugned order of Appellate Tribunal whereby it was held that taxpayer could adjust 100% of input tax

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.

2020 PTD 2025 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.8B, 8 & 47Tax Credit not allowedAdjustment of input tax

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.

2019 PTD 520 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 7, 8 & 46Adjustment of input taxRectification of Tribunal's order, application for

Sales tax had been charged on the ground that applicant/registered person had adjusted/claimed input tax on the basis of fake/flying invoices issued by a gang of fraudsters vide order-in-original

Commissioner Inland Revenue (A) having upheld the treatment accorded by the Adjudicating Officer, applicant in appeal before Appellate Tribunal Inland Revenue, contending that no default was committed while making purchases from the suppliers, who were duly registered and active at the relevant time

Held, contention raised during course of appeal, having remained un-adjudicated, impugned order was recalled and accordingly rectified

High Court in its recent judgment, cited as 2015 PTD 2256 on similar circumstances, had held that the Tribunal should not feel shy to exercise its jurisdiction comprehensively by directing the Commissioner Appeals for production of relevant record and for making further enquiries and investigations in the matter of tax fraud

Since the contentions and the issue involved in the present case, were exactly similar, case was remanded to the Adjudicating Officer for fresh appraisal strictly in accordance with the directions of High Court.

2018 PTD 1458 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 8-B, 11(2), 33, 34 & 46Adjustment of input taxProcedural lapseImposition of penalty

Appellant/registered person, who was required to claim input tax adjustment at ninety percent of output tax, had adjusted hundred percent input tax

Registered person under subsection (2) of S.8-B of the Sales Tax Act, 1990, was allowed to adjust or claim refund of remaining ten percent subject to some conditions

Said 10 percent tax, which was the property of the registered person, would ultimately be adjusted after the end of the financial year

Registered person, though had not fulfilled the requirement of adjustment of input tax as provided under subsection (1) of S.8-B, but that was a procedural lapse on part of the registered person

No loss having been caused to the Revenue for excess adjustment of input tax, department could not demand default surcharge from registered person under S.34 of the Sales Tax Act, 1990 and the registered person was not liable to pay additional tax

Default, committed by the registered person did not fall within the definition of 'evasion', as there was no mala fide intention of the registered person to defraud the department and only allegation being procedural lapse same could be condoned

Demand of default surcharge after the stipulated time, was patently illegal and unjustified

Registered person, however, was liable to penal action as it had not fulfilled the procedure as laid down in subsection (1) of S.8-B of the Sales Tax Act, 1990

If the registered person, would not be penalized for said procedural lapse, the provision as contained in S.8-B of the Sales Tax Act, 1990, would become redundant

Appellate authority below had rightly ordered imposition of penalty as provided under subsection (5) of S.33 of the Sales Tax Act, 1990

Said order was maintained, in circumstances.

2018 PTD 915 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 11(3) & 73Adjustment of input taxRecovery of already adjusted amount of sales tax

Scrutiny of sales tax returns, revealed that taxpayer had purportedly adjusted input tax for relevant period on the strength of invoices issued by the supplier, whose registration was allegedly suspended subsequently

Adjudication proceedings were initiated by the Taxation Officer by way of issuance of show-cause notice to taxpayer for recovery of already adjusted amount of sales tax directing him to pay back the amount of tax under S.11(3) of the Sales Tax Act, 1990

Explanation tendered by the taxpayer was treated unsatisfactory

Adjudication proceedings culminated in passing of order which was challenged before Commissioner Inland Revenue (Appeals), who also upheld the liability against the taxpayer

Validity

Taxpayer had duly produced all the relevant record, including purchase invoices, onward gate passes, sales tax returns and summary statements of the supplier, showing genuineness of the alleged transactions, but same were not considered by both the authorities below

All the transactions made with the alleged supplier being below fifty thousand rupees, provisions of S.73 of the Sales Tax Act, 1990, could not be applied in the case and the taxpayer could not be charged for any violation in that regard

Suspension order of supplier not converted into blacklisting order within 90 days, had become illegal and ab initio void due to afflux of time

Recovery of sales tax against the said invoices being illegal and unlawful therefore, all the subsequent proceedings carried out on its basis, were also void ab initio

Impugned show-cause notice as well as consequent orders of both the authorities below were set aside.

2018 PTD 905 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 7, 11, 33, 34 & 73Adjustment of input taxCertain discrepancies allegedly were found in the sales tax record of the taxpayer

Adjudication proceedings culminated on ex parte basis and taxpayer was proceeded in absentia without affording any opportunity of hearing, which was challenged before appellate authority and was partially vacated

Validity

Taxpayer did hold valid sales tax invoices duly incorporated in supplier's sales tax returns and summary statement for relevant tax period, and taxpayer had transacted all payments to his supplier through Banking Channel by complying with the mandatory provisions of S.73 of the Sales Tax Act, 1990

Taxpayer, could not be deprived of legitimate right of input tax adjustment, as no violation in that regard was found to have been committed by him

Alleged late filing of sales tax returns for the tax periods in question was not intentional and wilful, but was due to certain financial problems which were beyond human control

Taxpayer, being under liquidity hardships, could not file sales tax returns within time which could not be termed as "deliberate and intentional failure"

No mala fide and wilful default was attributed to the taxpayer

Delay in filing of sales tax returns, would not attract imposition of penalty without establishing mala fide and wilful default on the part of taxpayer

Imposition of penalty for late filing of sales tax returns under S.33(1) of the Sales Tax Act, 1990 was not only illegal, but also unjustified

Taxpayer was alleged of suppression of sales, presumptively and arbitrarily, on the basis of consumption of electricity units

Consumption of electricity units might have any nexus with that of production of goods and any correlation in between could have been made out, but no direct relationship could be established in electricity with that of sales and supply of taxable goods

Demand of sales tax created on the basis of electricity bills, was illegal and without lawful authority, as neither the Sales Tax Act, 1990, nor Rules made thereunder, prescribed any procedure or formulae to calculate liability of sales tax merely on consumption of electricity units

Impugned show-cause notice as well as consequent orders of the authorities below, were declared to be illegal, ab initio void and were set aside

Appeal filed by taxpayer was accepted in circumstances.

2018 PTD 717 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 7, 8(1)(a) & 73Adjustment of input taxRecovery of adjusted input tax

Taxpayer allegedly adjusted input tax on the goods which were not used for taxable supply, thus violating provisions of Ss.7, 8(1)(a) & 73 of the Sales Tax Act, 1990

Taxpayer on the basis of said allegation was called upon to show-cause as to why the evaded sales tax could not be recovered from him along with default surcharge and penalty

Reply furnished by the taxpayer having been considered unsatisfactory, order-in-original was passed against the taxpayer

Appellate authority below, remanded case to the Assessing Officer for de novo proceedings by a non-speaking order

Taxpayer having failed to prove his claim of input tax through any documentary evidence before the Assessing Officer along with the documents which were placed on record before the appellate authority below, no other option lay except to remand the case so that the documents so submitted by the taxpayer, could be thoroughly examined by the Assessing Officer

Impugned order was annulled and case was remanded to the Assessing Officer with the direction to pass fresh order after allowing adequate opportunity of hearing to the taxpayer.

2016 PTD 2413 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 2(20), 3, 7, 11 & 46Sales Tax Special Procedure Rules, 2007, R.58-HSRO No.678(I)/2007, dated 6-7-2007SRO No.480(I)/2007, dated 9-6-2007Short payment of sales taxAdjustment of input taxAssessing Officer, observed that company/registered person had paid short sales tax for the period under referenceAssessing Officer raised demand of tax along with penalty and default chargesValidity

Department contended that the company charged and collected sales tax from Steel Melters under R.58-H of Sales Tax Special Procedure Rules, 2007, but failed to deposit the same into the Government Treasury which was clear violation of law; as that levy was the final discharge of Sales Tax liability of the Steel Melters

Ordinarily sales tax was levied at the rate of 17% of the value of taxable supplies made by a registered person in the course of any taxable activity carried on by him under S.3(1) of the Sales Tax Act, 1990

Such amount was termed as "output tax"

Section 7 of Sales Tax Act, 1990, had provided that the tax liability of a registered person, would be determined after deducting the input tax paid by the registered person from output tax collected by such person on the taxable supplies made by him

Claim of said output tax was statutory right of a registered person under S.7 of Sales Tax Act, 1990

Such was a value added tax, which was levied at every stage, the value addition took place at the same supply

Such was, no more a one point levy; and the ultimate burden was passed on to the consumer

Company was entitled to claim adjustment of input tax to the extent of sales tax collected from all consumers, including the Steel Melters and Re-roller; however, it was not entitled to claim any input tax adjustment in respect of sales tax collected from said class of taxpayer under R.58-H of Sales Tax Special Procedure Rules, 2007

Assertion of company that it had collected only the fixed sales tax from Steel melters, was not understandable, because company was obliged to collect both the taxes

While fact could be ascertained by obtaining data from the company, and the steel melters and re-rollers

Tribunal observed that it was appropriate to provide another opportunity to the real parties

Orders of the both authorities below, were vacated, and case was remanded to Assessing Officer.

2014 PTD 1629 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.7Determination of tax liabilityAdjustment of input taxPrinciple

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.

2014 PTD 558 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.7 & 21Determination of tax liabilityDe-registration, blacklisting and suspension of registrationOperative personsAdjustment of input tax

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.

2014 PTD 558 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.8(1)(d), 7(2)(i), 23 & 73Determination of tax liabilityAdjustment of input tax

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.

2013 PTD 1189 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 2(37) & 73Qanun-e-Shahadat (10 of 1984), Art.117Tax fraudAdjustment of input taxEvidence

No evidence was available wherefrom it could be deduced that the taxpayer had knowingly or dishonestly or fraudulently committed tax fraud by claiming input tax adjustment against the sales tax invoices issued by the fraudster gang

Even audit contravention report could not be established with any concrete reasoning that the taxpayer was involved in tax fraud by claiming illegal sales tax input tax and had in any way violated the provisions of S.2(37) of the Sales Tax Act, 1990

Department had failed to fasten blame at the taxpayer's door

Entire edifice had been built, to hold the taxpayer as fraudulent, on conjecturers and surmises and whimsical inference had been drawn against the taxpayer on such set of facts

Record proved that there was ample justification with the taxpayer to claim adjustment of input tax, such as all the suppliers were registered persons and their status was active as per Federal Board of Revenue Website; they were regularly submitting their sales tax returns and summaries thereof; all the payments were made by the taxpayer in accordance with the provisions of S.73 of the Sales Tax Act, 1990: and taxpayer did not have any prior knowledge about fakeness of the sales tax invoices issued by the suppliers.

2013 PTD 639 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 11, 21(3), 37-B, 33, 36 & 73Assessment of taxAdjustment of input taxShow cause notice was issued on the basis of F.I.R. under S.37-B of the Sales Tax Act, 1990

Tax was assessed on the ground that taxpayer had purchased goods from the supplier, which had been declared a fake/fictitious unit and had claimed input tax credit

Taxpayer contended that order of First Appellate Authority was against the facts of availability of proof of payments i.e. copies of cheques in the name of supplier, bank statement showing transfer of such cheques amounts from the bank account, certificate of the banker that the amounts of cheques had been transferred from the bank account in to the bank account of supplier, and proof of physical transfer of goods i.e. weigh bridge receipts; that First Appellate Authority malafiedly found that the taxpayer had failed to substantiate submission with the documentary evidence and did not provide any evidence as regard to the fulfillment of the provisions of S.73 of the Sales Tax Act, 1990 and failed to provide any documentary evidence as regard to transfer of goods; and that First Appellate Authority purposely, deliberately and malafiedly did not adjudicate upon the issue of limitation of passing order-in-original which was barred by limitation

Validity

Taxpayer had furnished documentary evidence with regard to physical transfer of goods i.e. Weigh Bridge receipts

When goods had been transported through hiring trucks/vehicles from stands there seemed to be no other documents like bilties

Department had not doubted/challenged such documents

All the documentary evidence with regard to transfer of sale proceeds from the bank account of the taxpayer including copies of account payee crossed cheques in the name of supplier had been found to be already furnished to the authorities

Taxpayer had fully complied with the provisions of S.73 of the Sales Tax Act, 1990

Adjustment of input tax credit in respect of goods purchased from the supplier, whose registration had been suspended later on, could not be rejected/denied to the taxpayer who had already been held to had complied the provisions of S.73 of the Sales Tax Act, 1990

Order-in-original had been passed after a long period of expiration of limitation and even statutory extended period of limitation

Order-in-original having been passed after 238 days of the issuance of show cause notice same was passed much after the 180 days, including the statutory extended period of 60-days which was barred by limitation and nullity in the eye of law

Order-in-original was annulled and order-in-appeal was set aside by the Appellate Tribunal.