Input Tax

Petitioner / company was aggrieved of bar imposed on input tax credit or refund on packing material purchased by registered person whose taxable supplies were zero rated

Validity

Provision of S. 3 of Sales Tax Act, 1990, is a charging section, whereas S. 7 of Sales Tax Act, 1990, allows input adjustment to a registered person for the purpose of determining tax liability in respect of taxable supplies, when such person has paid input tax for the purpose of taxable supplies made or to be made by him from the output tax i.e. due from him

Mandate of S. 7(l) of Sales Tax Act, 1990 is allowing input adjustment on such goods which are used for the purpose of taxable supplies

Federal Government, under S. 8(b) of Sales Tax Act, 1990, has been given power to notify any other goods in official Gazette against which input adjustment cannot be allowed

Federal Government has no jurisdiction to create and insert a new class in the regime of Sales Tax Act, 1990, which can disentitle input adjustment which is otherwise allowable to a registered person under a statutory dispensation i.e. S. 7 of Sales Tax Act, 1990

Input adjustment to a registered person against goods, which are or would be used for taxable activities, has been allowed under S. 7 of Sales Tax Act, 1990

Packing material purchased by petitioner / company was used for the purpose of taxable supplies, therefore, petitioner / company was entitled to adjust input tax against its output tax

Reference was disposed of accordingly.

Tax department completely failed to establish that respondent-company was the sister concern or a subsidiary company of the supplier-company

No tangible evidence was produced including the record, if any, obtained from the Securities and Exchange Commission of Pakistan (SECP) in relation to the incorporation and substratum of both the companies together with the verification of holding company of the alleged subsidiary company

Tribunal had judiciously examined the pith and substance of the transaction and then rightly reached the conclusion that the respondent-company was not a subsidiary or holding company of the supplier-company

Furthermore if the supplier issued invoices erroneously or in violation of law then the Department should have initiated legal action for recovery against them rather than the buyer (respondent) which was not the sister concern or subsidiary company of the supplier

If some fault was committed by the supplier-company while issuing invoices then the respondent-company could not be penalized or disqualified from claiming input tax adjustment in accordance with the law

Petition for leave to appeal was dismissed, and leave was refused.

Tax department completely failed to establish that respondent-company was the sister concern or a subsidiary company of the supplier-company

No tangible evidence was produced including the record, if any, obtained from the Securities and Exchange Commission of Pakistan (SECP) in relation to the incorporation and substratum of both the companies together with the verification of holding company of the alleged subsidiary company

Tribunal had judiciously examined the pith and substance of the transaction and then rightly reached the conclusion that the respondent-company was not a subsidiary or holding company of the supplier-company

Furthermore if the supplier issued invoices erroneously or in violation of law then the Department should have initiated legal action for recovery against them rather than the buyer (respondent) which was not the sister concern or subsidiary company of the supplier

If some fault was committed by the supplier-company while issuing invoices then the respondent-company could not be penalized or disqualified from claiming input tax adjustment in accordance with the law

Petition for leave to appeal was dismissed, and leave was refused.

Presumptive tax regime denotes that the tax so deducted or paid is treated as a final discharge of tax liability whereas the production capacity is reckoned by the Department according to the notified and applicable sales tax rates vis-à-vis the production as per comparative past and present physical production data including the machine ratings

Presumptive tax regime predominantly encompasses the usage of indirect means to determine tax liability, which diverges from the normal rules founded on the taxpayer's accounts to indicate a legal presumption that the tax liability is not less than the amount occasioning from the application of the indirect method.

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.

Revenue contended that once the status of blacklisted was assigned to any supplier then all the invoices issued by the blacklisted person were deemed to be void and input allowed on such invoices was recoverable from the registered person

Taxpayer contended that an ex parte order had been passed and proper opportunity had not been granted at the adjudication level; that notice was not served on the registered person or the authorized person; that the order in appeal was prejudiced and biased and First Appellate Authority discriminated against the appellant and in other appeals Authority had allowed relief on the same issue to other registered persons; that order of blacklisting of supplier was set aside by the Appellate Tribunal; and even otherwise the activity of taking input and claim refund and subsequent sanction of it related to the periods June and August, 2004 when status of the supplier was an active taxpayer and was regularly filing returns; that notifications which adversely affect the rights of the registered person could not be applied retrospectively and had to be applied prospectively; and that Refund Rules could not be applied retrospectively

Appellate Tribunal, in circumstances, vacated the order in original and order in appeal and appeal of the registered person was accepted by the Appellate Tribunal.

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, a manufacturer cum exporter of confectionary items, was charged with violation of S.73 of the Sales Tax Act, 1990 and demand was raised; and refused the claim of input tax/refund on the ground that suppliers of the registered person were either non-filers or invoice summary was not submitted

Registered person contended that charge of non-submission of invoice summary statement by the supplier unit was illegal and unlawful, since the registered person was not required to submit summary of the purchases and sales of their suppliers; that refund claim was genuine and fully backed by supporting documents; that neither the show cause notice nor the hearing notices were ever received; and that proceedings had been finalized ex parte; and charges levelled were never confronted and he was never afforded an opportunity of being heard

Registered person contended with regard to non-filer suppliers, that monthly sales tax return for the period in question stood duly filed by the supplier; and the same was produced before the appellate forum but it was simply overlooked; that rejection of refund claim on the charge of non filing ever after production of sales tax returns was highly unjustified and illegal; and that objection of "scrutiny for verification of input tax", as generated by STARR was a complaint having no legal backing

Validity

Registered person had been condemned unheard and the arguments presented for the appellant had persuasive value

Orders were vacated along with the orders in original and issue was remanded to the adjudication authorities for de novo proceedings after affording the taxpayer a fair and proper opportunity being heard.

Condition for "physical transfer of goods" was no where expressly provided under the Sales Tax Act, 1990 but the same had impliedly been stretched by the words "on the supply of goods received by that person" from sub-cl.(a) of cl.(14) of S.2 of the Sales Tax Act, 1990

Though such clause was a "definition clause" having no legal impact on input tax adjustment/credit under provisions of S.7 of the Sales Tax Act, 1990 vis-à-vis S.8 of the Sales Tax Act, 1990 providing mechanism for entitlement of input tax to a registered person yet said implied expression was also amended and substituted by Finance Act, 2008

Substitution of words "received by that person" by the words "to the person" had omitted the implied expression of physical transfer of goods in the definition cl. 2(14) of the Sales Tax Act, 1990

Condition of physical transfer of goods was neither specified prior to such amendment nor same was made mandatory thereafter

Inference of physical transfer of goods was available in sub-cl.(a) of cl.(14) of S.2 of the Sales Tax Act, 1990 but by virtue of amendment, such implied expression had also been omitted from the said section

Departmental plea that without any physical transfer of goods, the taxpayer was not entitled for input tax credit was no help by reading of the provisions of law

Prior to amendment through Finance Act, 2008, responsibility of supply was on the supplier only which was made several and joint by insertion of S.8A of the Sales Tax Act, 1990 where in both the buyer and supplier were held responsible for a set of transactions but currently, the buyer had been exonerated from this liability and responsibility under subsection (3) of S.21 of the Sales Tax Act, 1990, if the tax payer had made payments through banking channel as provided under S.73 of the Sales Tax Act, 1990.

First Appellate Authority directed to allow the credit of input tax on the ground that registered person was found to have made payment in consideration of purchase of goods along with the amount of sales tax to the supplier through banking channel as required under S.73 of the Sales Tax Act, 1990; and registered person had complied with the relevant provision of law and could not be denied the credit of input tax when the payments to the supplier had been credited from the bank account of the purchaser to that of the seller

Validity

Adjudication officer passed the order in original without adequate discussion regarding the pertinent aspects of the case i.e. current status of the supplier, and payments made by the registered person to the supplier in accordance with the procedure laid down under S.73 of the Sales Tax Act, 1990

First Appellate Authority also directed to allow the credit of input tax merely on the ground that the registered person had made payments of sales tax to the supplier in accordance with the procedure laid down in S.73 of the Sales Tax Act, 1990 had discharged its legal obligation

Although findings of fact were not controverted by the Appellate Tribunal, but it was observed by the Tribunal that one could not be oblivious of the fact that under S.8(1)(ca) of the Sales Tax Act, 1990 credit of input tax could be allowed. to the registered person only if the seller had also deposited the collected tax in the State Treasury

Order of First Appellate Authority was silent on the point of deposit of tax by the supplier

Order of the authorities was vacated and case was remanded to the Adjudication Officer with direction that the record of the supplier, which according the registered person, still enjoyed active status, be examined carefully and if the tax attributable to the purchases made by registered person was also found to have been deposited by the supplier, only then the registered person be allowed the credit of input tax.

Department contended that taxpayer had adjusted input tax which was inadmissible because no sales had been reported by their supplier; and the taxpayer was held responsible for that; while the First Appellate Authority observed that "taxpayer had been deprived from his legal right of claiming input tax adjustment on merely a complaint, which had never been revealed to the taxpayer and no whereabouts of person complaining were known and incorporated in order regarding its authenticity"; and admittedly, the case was not a case of lodging complaint by some one against the taxpayer

Validity

Such was a case of misuse of exercise of powers under an enactment

Facts of some other case had wrongly been included in the case for making a base of wrong decision by the First Appellate Authority

Order passed hurriedly in a slipshod manner was against the principle of natural justice

By no stretch of imagination, the order may be considered passed judiciously, consciously, fairly and justly and the same was not sustainable in law.

Adjustment input tax is a substantive right and it could not be withheld on mere technical grounds.

Any default or flaw on the part of appellant could not be taken into consideration to burden the appellant with the incidence of taxation and use as pretext to refuse the claim of refund

Even otherwise at the time of issuance of show-cause notice, the name of the supplier stood removed from the list of blacklisted persons

Letter of the department whereby name of the supplier was deleted from the black-listed persons, there was no allegation with regard to tax due and only reason which weighed with the department for declaring it black-listed was that its name was not found on the given address

Such anomaly was resolved subsequently and upon verification of the premises, the registered person/supplier was very much found on the given business address

Adjudication order as well as order-in-original passed by the authorities below were set aside by the appellate tribunal and the show-cause notice issued was cancelled and the appeal was accepted.

Registered person contended that refund was rejected merely on the objection that supplier had been de-registered, despite the fact that the same was registered at the time while making taxable supplies and refund was claimed against valid sales tax invoices issued by the supplier when he was registered which could not be disallowed on his subsequent de­registration

Validity

Registered person filed refund claim for the period 12/2004 and 02/2005, which was rejected on the basis of Sales Tax Automated Refund Repository (STARR) objection

Sales Tax Automated Refund Repository (STARR) system was introduced in the year 2006 and it could not be implemented retrospectively

Appeals were accepted and the orders-in-appeal as well as orders-in-original were set aside by the Appellate Tribunal.

Limitation-Jurisdiction-Maladministration-Autonomous Corporation had complained against entitlement to claim input tax and demand of penalties and additional tax for violation of the provisions of S.7(2) of the Sales Tax Act, 1951

Corporation had also pleaded that the Sales Tax was paid and excess amount paid was adjusted through a bona fide mistake causing no loss to Revenue and alleged that scrap/assets machinery was auctioned, advance sales tax was paid on estimated weight but on actual weighment it was found that weight was short and excess paid tax was adjusted through another challan for the same month instead of applying for refund

Delayed communication of audit observation, and further delay in demand notice, show-cause notice and adjudication order and inordinate delay in service of adjudication order was also complained against

Department replied and asserted violation of S.7(2) of the Sales Tax Act, 1951 and delay was due to heavy pendency and adjudication order was just and proper

Order complained against was appealable and hence there was no maladministration

Validity

Adjustment of the excess sales tax was inadvertently taken by the taxpayer in the second return of the same month

Sales Tax was not chargeable on the sale of scrap

Sales Tax inadvertently paid was higher than the amount calculated on the basis of actual weight

Inordinate delay of about four years had occurred in issue of the adjudication order

Whole exercise of issue of demand, the show cause notices and adjudication order were contrary to law

Total proceedings were perverse, unjust and oppressive and miscarriage of administrative justice

No evasion of sales tax was committed

Charge of maladministration was established

Federal Tax Ombudsman, therefore, recommended that Central Board of Revenue may set aside the order complained against in circumstances.

Condition of claiming input tax for goods acquired 90 days before registration provided in the said section inserted vide Finance Act 1999, did not apply in the case

Adjustment of input tax paid at the time of ex-bonding the goods against the sales tax payable was correctly made.

Claim for-Appellant being a manufacturer of cotton yarn, claimed input tax of certain goods for which he was not entitled due to the fact; that goods in question were not used for the manufacturing/production of taxable goods in terms of S.8(1)(a) of Sales Tax Act, 1990; or were prohibited claiming input tax vide Notification dated 12-6-1998

Said irregularity resulted in short payment of sales tax

Recovery of amount along with additional tax and penalty was ordered

Appeal had been filed by the appellant against said order

Collector (Appeals), after detailed discussion, had found that spare parts pertained to generators, but according to Notification only those generators, which had capacity of 250 KV or above were allowed for input tax

No clear cut distinction was shown by appellant that said spare parts were necessarily used in generators leaving capacity of 250 KV or above

No fault lay with the findings of the Collector (Appeals) in circumstances.

Department made out a case for recovery of refund received by the complainant-company on the ground that refund was claimed on the basis of fake/flying invoices issued by suppliers who did not exist

Department submitted before Federal Tax Ombudsman, that on investigation it was discovered that the invoices were issued by the genuine party and had paid sales tax on its supply made to the complainant-company and further, undertook to vacate the show-cause notice

Case of the complainant was closed by the Federal Tax Ombudsman for grievance having been redressed.