Post refund audit

2013 PTD 966 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.21(3), 8A, 33, 34, 36 & 73De-registration, blacklisting and suspension of registrationPost refund audit

Registered person had received inadmissible refund against invoices of certain suppliers whose registrations were either suspended/cancelled or were declared blacklisted

Notice for recovery of such sales tax amount along with default surcharge and penalty with direction to pay the sales tax along with default surcharge and penalty equal to 100%

Registered person contended that he had not committed any default in making business transactions as the suppliers at the relevant time were active and alive registered person produced the purchase record to prove the physical transfer of goods and proof of payments

Registered person further contended that after insertion of subsection (3) of S.21 of the Sales Tax Act, 1990 by Finance Act, 2011 input tax shall be allowed if payments were made through banking channel

Validity

First Appellate Authority had allowed refund on the basis of orders of the Appellate Tribunal wherein it had been held that input tax credit against invoices of such blacklisted person could not be denied and sales tax refunded thereon could not be recovered after insertion of subsection (3) of S.21 of the Sales Tax Act, 1990 wherein it had categorically been laid down that input tax shall be allowed if payments were made through banking channel irrespective of the fact that the supplier units were either blacklisted or their registration had been suspended and Revenue had not been able to point out any legal flaw therein

No interference, in circumstances, in the order was warranted

Departmental appeal was rejected by the Appellate Tribunal.

2013 PTD 954 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.11, 10, 8, 7, 4, 2(14), 2(37), 23, 25, 26, 33, 34, 36 & 72BAssessment of tax and recovery of tax not levied or short levied or erroneously refundedPost refund audit

Huge refund of sales tax had been received by registered person against packing materials which were neither consumed in zero-rated supplies nor had been shown in closing stocks of relevant tax periods

Assessing Officer, being dissatisfied with the explanation, directed the taxpayer to pay sales tax along with penalty and default surcharge

Registered person contended that post audit exercise conducted by the Deputy Commissioner Inland Revenue under S.25 of the Sales Tax Act, 1990 without prior selection by the Federal Board of Revenue under S.72B of the Sales Tax Act, 1990 was illegal and without jurisdiction

Validity

Section 72B of the Sales Tax Act, 1990 mandatorily provided that before conducting an audit of tax affairs , selection must be made by the Federal Board of Revenue

Deputy Commissioner Inland Revenue had conducted audit of sales tax records under S.25 of the Sales Tax Act, 1990 on its own will without any prior selection from the Federal Board of Revenue on the basis of random or parametric criteria under S.72B of the Sales Tax Act, 1990 which was illegal and without jurisdiction

Where the basic statutory notice was illegal and without lawful authority, the whole superstructure built on the same would fall on the ground automatically and whatsoever proceedings in its consequences in the shape of any show cause notice or adjudication order or appellate order or even recovery notice shall also become illegal, unlawful and without jurisdiction

Action without selection of case for audit was wholly illegal, without jurisdiction and also utter violation of mandatory provisions of law as the tax functionaries assigned themselves with a jurisdiction not vested in them in the statute book and if it desired to cross the same it would amount to transgress their legal jurisdiction and would equivalent to abuse their powers

Post refund audit exercise had been carried out by the Deputy Commissioner Inland Revenue not only without prior selection by the Federal Board of Revenue under S.72B of the Sales Tax Act, 1990 but also without lawful notice for requisition of sales tax record under S.25(1) of the Sales Tax Act, 1990 and proper authorization of Commissioner for audit under S.25(2) of the Sales Tax Act, 1990

Whole audit exercise was illegal, unlawful and without legal jurisdiction and the consequent show cause notice and adjudication and appellate order was also illegal, ab initio void and without jurisdiction which were set aside by the Appellate Tribunal

Appeals filed by the taxpayer were accepted.