These sales tax appeals have been filed by the department against the sales Tax Orders-in-Appeal Nos.110, 111, 112, 113, 114, 115, 116, 117, 118, of 2010 dated 28-4-2010 passed by the learned CIR(A), Peshawar on the following grounds:
(1) That the order passed by the CIR(A) not speaking/clear and is not in accordance with the provisions available under subsection (2) of section 45-B of the Act.
(2) That the CIR (A) is not empowered under subsection (3) of section 45-B to remand the case for de novo consideration.
(3) That instead of remanding the case, the CIR (A) was empowered under subsection (3) of the section 45-B to make further inquiry which he did not conduct.
(4) that the directions of CIR(A) with regard to opportunity to the respondent (then appellant) is inappropriate and unwarranted as proper opportunity of being heard had already been provided to the respondent at the original adjudication stage, which he failed to utilize.
(5) That this honourable Court has already set aside such illegal orders of the commissioner/collector (A) in numerous cases (Annex-E). Reliance is placed on the judgment in Sales Tax Appeal No, ST-141/PB/2006 dated 28-2-2007 passed by the Appellate Tribunal Peshawar.
2. 'Brief facts of the case are that Messrs Waheed Hafeez Ghee . Industries (Pvt.) Ltd. Hattar, Haripur bearing sales tax Registration. No,05007-1500-001-91 filed refunds claim for the tax periods of 7/2004, 1/2006, 2/2006, 4/2006, 5/2006, 6/2006, 7/2006, 8/2006, 9/2006 under section 10 of the Sales Tax Act, 1990. During scrutiny of refund claim in the light of refund rules issued vide S.R.O.
555(1)/2006, some objections were raised by the system (STARR/CRRAS), for which the registered, person failed to furnish the documentary evidence in support of their refund claims. The following records involving Sales Tax amounts and objections periodically were observed as under:-- Tax Periods Sales Tax Refunds ClaimObjections 7/2004 190,975 Exceeds declared output.
Excess refund claim against export 1/2006 1,261,517 No sales to claimant shown in summary.
Scrutiny for verification of input tax Excess refund claim against export.
2/2006 504,602 Scrutiny for verification of input tax Does not exist.
4/2006 494,430 Invoice summary not submitted.
Scrutiny for verification of input tax 5/2006 1,241,146 Exceeds declared output/no sales to claimant.
Scrutiny for verification of input tax/invoice summary not submitted.
6/2006 528,931 Invoice summery not submitted.
Scrutiny for verification of input Tax 7/2006 442,133 Scrutiny for verification of input tax Non file/invoice summary not submitted.
(1) (2) (3)
8/2006 951,870 Nil filer/exceeds declared output.
Scrutiny for verification of input tax/no sales shown to claimant in summary.
9/2006 879,105 Non filer/scrutiny for verification of input tax.
Nil filer/exceeds declared output.
3. Being aggrieved with the treatment given by the learned Assistant Collector (refund) the registered person preferred appeal before learned CIR(A), who after considering the facts modified the impugned ONO created by the Assistant Collector(refund) with the following observation:-- "I have heard both the parties and various issues raised by them have been considered in the light of the facts and circumstances of the impugned appeal. It appears that the refund have been rejected only on the grounds that the verification needs to be made since the STARR computer software system has pointed out that the verification cannot be made due to shortage of documentation and details. That the ONO Numbers. 326/2009, 23/2009, 367/2009, 325/2009, 258/2009, 366/2009, 762/2009, 336/2009 and 324/2009 dated 14-3-2009, 19-1-2009, 19-3-2009, 14- 3-2009, 9-3-2009, 19-3-2009, 19-12-2008, 16-3-2009 and 14-3-2009 for rejection the refunds of the appellant on these grounds ore incorrect. It was the duty of the respondents to carry out manual verification before passing the order-in-original, if the computer software had shown inability to do so. According to the Sales Tax Act, 1990 and rules made thereunder for processing of refunds it is clearly stated that in case electronic programme is not in the position to verify invoice etc, on the grounds that the same have not been fed into the system or have not been up loaded in system etc, but on the other hand the appellant claims that they have made payment and can provide complete documentation, then manual verification is to be carried out. Once the exercise is complete then any one of two conclusion will be reached i,e, either the verification can be done or not. The ONO should be passed after this exercise and the conclusion will be based on evidence. In the instant case full verification was not made and the claim of refund was rejected.
Hence the rejection is pre-mature. It is therefore directed that the respondent should carry out complete verification and make necessary correspondence with the various concerned RTOs to help and assist the verification process. In order to make this exercise time bound, so that the appellant does not suffer more delays, it is further directed that the verification process be finalized within three months from the receipt of this order by the, respondents. It is requested that the outside RTOs involved in verification process should finish this exercise within the above time limit.
The concerned Chief Commissioners of the RTOs are requested to finalize this job by the due date.
The claim of 'the refund of the appellant should be processed according to the law and finalized in view of the situation prevailing in the mean-time the impugned above mentioned ONOs are modified to this extent, for carrying out the verification process, and reaching a fresh conclusion."
4. Being dissatisfied with the treatment met it by the learned CIR(A), Peshawar, department has come up in appeal before this Tribunal on the grounds raised supra.
5. During the Court proceedings learned DR has contended that the order passed by the CIR(A) not speaking/clear and is not in accordance with the provisions available under subsection (2) of section 45-B of the Act. Learned CIR (A) is not empowered under subsection (3) of section 45-B to remand the case for de novo consideration. He further contended that instead of remanding the case, the CIR (A) is empowered under subsection (3) of the section 45-B to make further inquiry which he did not conduct. The directions of CIR(A) with regard to opportunity to the respondent (then appellant) is inappropriate and unwarranted as proper opportunity of being heard had already been provided to the respondent at the original adjudication stage, which he failed to utilize. In the end learned DR argues that this honorable Court has already set aside such illegal orders of the Commissioner/Collector (A) in numerous cases. Reliance is placed on the judgment in Sales Tax Appeal No,ST-141/PB/2006 dated 28-2-2007 passed by the Appellate Tribunal Peshawar.
6. In reply the learned AR contends that Appellant has not been granted the opportunity to defend the case against him, thus, impugned ex parte order is passed in violation of principal of natural justice audi alteram partem i,e, no one shall be condemned unheard, hence, liable to be vacated mere on this count only. He further states that the impugned ex parte order is bad in law for not providing detail of specific grounds of refection of refund claim that impugned order is bad in law for not only being vague and non-conclusive but is also based on presumption and surmises rather supported by any cogent evidence. The learned AR also argues that the impugned order of dismissing refund claim of the aforesaid suppliers on the basis of STARR objection is highly misconceived and not tenable in the eyes of law, for the reason that the objections per se should not have any adverse impact upon the claim of the appellant as at the most, it spells out a lapse on the part of the appellant's suppliers. He further argues that the impugned objections are not sustainable as the appellant cannot be held liable for the short comings on the part of the other registered person as long as the appellant could prove that he has performed his part as stipulated by law as in the instant case appellant provided all the supportive documents as per Rule 38 of the Sales Tax Rules, 2006 such as input and output invoices, Diskettes along with proof of payment to the respective. Suppliers in accordance with law. The learned AR states that in the impugned order, relating to the cause of the subject matter of this appeal, the appellant has unduly been burdened with the liability of the supplier and duties of the department. He further states that without prejudice the sections of law invoked are not attracted to the case against the appellant, because appellant provided all the documents testifying the transactions with the supplier which have not been disproved rather the objections per se depicts the deficiencies and shortcomings contained in the computer data which caused the objection. He further argues that the objection "Invoice summary not submitted" which objection per se casting duty upon the department to carry out a requisite audit and if there is any short coming on his part compel him to fulfil his obligation, instead the refund relating to the said supplier was rejected on very flimsy ground. The learned AR states that the STARR objection of "Invoice summary not submitted" needs deep investigation into the subject suppliers of the Appellant, as to why in spite of issuance of invoices and receiving payment against it through banking channel, the appellant's supplier failed to submit invoice summary while supporting his arguments the learned AR states that the STARR objections "Scrutiny for verification of input tax" which objection per se casting duty upon the department to carry out a requisite audit and if there is any short coming on his part compel him to fulfil his obligation, instead the refund relating to the said supplier was rejected on very flimsy ground. He also contends that without prejudice to the above unless and until the respondent's carry out its part of verification and reach to any adverse conclusion, the refund claim on the aforesaid ground cannot be rejected rather at the most the said refund claim can be deferred till such time such verification is conducted by the respondent. He further argues that in this respect, it is humbly submitted that appellant claimed the refund on the strength of invoices issued by duly registered persons who have declared the aforesaid supplier to the appellant in their monthly sales tax returns and declared the output tax liability against it, hence, appellant is entitled to refund claim. The learned AR states that without prejudice, if sales tax has not been deposited by the appellant's aforementioned supplier on the invoices issued to the appellant, the same is recoverable from the appellant's supplier and cannot be ground of rejection of appellant's genuine refund claim. In the end learned AR contends that kind attention is invited to the Sales Tax Refund Rules, whereas, it has been stipulated that refund to the manufacturer/exportet specifically be made within a period of a month or otherwise, if there is any objection that is to be intimated within that stipulated period but in the instant case those rules were not followed at all.
7. We have carefully heard the arguments of both the sides and have perused the relevant record available on file. We are of the view that:-- Rejection of refund claim due to "non-production of sales tax return or computer profile" of his supplier.
The Sales Tax Act, 1990 or the Rules made thereunder do not obligate a registered buyer to produce sales tax returns or computer profile of his supplier. Rejection or deferment of a refund claim by the sales tax administration on the plea that a registered person being an element of the supply Chain jointly shares the responsibility of production of sales tax return or computer profile of the supplier, is without any rationale and legal force. If a refund claim is supported by an evidence of buyer's compliance of sections 7 and 8 read with section 73 of the Sales Tax Act, 1990 the refund claim should not be denied by the department. Most sale and purchase transactions take place between a supplier and buyer at arms-length as they don't know each other by face or met before. The buying and selling transaction takes place on telephone. If all the conditions set forth under sections 7, 8 and 73 of the Sales Tax Act, 1990 are fulfilled; the input claim qualifies to be refunded to the claimant. If for any reason the registered supplier fails to file his tax return under section 26 of the Act ibid or his record of purchases vis-a-vis sales are not entered in the STARR system by the PRAL, the registered buyer should not suffer for the fault of the delinquent supplier. Sometimes fault lies only with the PRAL who fails to enter necessary data in STARR and sometimes wrong data is entered by the staff of PRAL. However, rejection of refund claim or its deferment due to delinquent conduct of someone else is not fair. In order to prevent the miscarriage of fair deal with a claimant of refund in a situation where he faces refusal of refund due to somebody else's default.
Input claim exceeding declared output".
The rejection of refund claim on the ground that input claim exceeds output is valid. The illustrations given below would explain the proposition.
Illustration No, 1 A registered person declares his salesas Rs,100,000 on which an output tax @ 17% comes to Rs,17,000. On the other hand he claims purchases worth Rs,1,50,000 on which input @ 17% comes to Rs,25,500, therefore, refund should be admissible to the extent of Rs,8,500 but subject to verification by the STAR system extent of Rs,8,500.
Illustration No,2.
A registered person declares his sales as Rs,150,000 on which an output tax@ 17% comes to Rs,25,500. On the other hand his purchases are worth Rs,1,00,000 on which input @ 17% comes to Rs,17,000, therefore, sales tax amounting to Rs,8,500 is payable by the tax payer and no refund is admissible because his output exceeds as declared in the respective sales tax returns for that tax period.
However, still the refund as indicated in Illustration No,1 is to be paid after scrutiny of the sales and purchase summaries of his supplier issued to all of his clients and that too subject to verification by the STARR system. In case the invoices issued by his supplier are in excess of the input claimed, none of the claimant shall be paid refund irrespective of sales tax paid by the refund claimant.
Therefore, due to logical perception the refund can only be sanctioned which does not exceeds declared outputs or in other words that an amount of sales tax which has not been credited into treasury. Hence it is mandatory on the part of the refund claimant to reconcile such situation with the refund sanctioning authority.
Rejection of refund claim on the allegation of "Non-filer".
No provision of the Sales Tax Act, 1990 or the Refund Rules authorizes rejection of refund claim due to non-filing of sales tax return by the supplier. A report of non-filing of the sales tax returns by the tax payer in the system may be due to several reasons including non-entry of data by the PRAL or denial of tax payers of access to the system due to technical hardware problems. Here section 11(1) of the Sales Tax Act, 1990 will come into play to force the non-filer to files tax return. Therefore, rejection of refund claim of a bona fide refund claimant and setting free the "Non filer" is an act of arbitrariness of its kind. Therefore, emphasis should be placed on prompt action by the tax administration under section 11(1) of the Sales Tax Act, 1990 and to take impugned Order-in- Appeals Nos.152-153 of 2009 dated 28-1-2009 passed by the Collector of Customs, Sales Tax and Federal Excise (Appeals), Faisalabad dated 28-1-2009 on the ground of rejection of refund amounting to Rs,115,278 corrective measure instead of penalizing the refund claimant for the fault of others.
Rejection of refund claim on the allegation of" scrutiny for verification of input tax".
The refund claimant is only confined to submission of all record necessary for sanction and payment of refund before the sanctioning authority with supporting evidence. The scope of scrutiny of invoices for verification of input tax is limited to a certain time frame, of 90 days prescribed under the law. It is a settled principle of law that a General Order, Instruction, Ruling of the Board cannot override enactment provisions of law. In the instant case the refund was not only kept pending for more than one year but also linked with the conditions as laid down in the aforesaid General Order and to ask the refund claimant to have the suppliers invoices verified by the tax administration is arbitrary. A registered person should not be, burdened with un-necessary exercises. This controversial practice of the sales tax administration draws its legality from a standing order number 3 of 2006, dated 2-11-2006 which makes it obligatory for the refund claimant to produce invoices duly verified by the Collector of Sales Tax having jurisdiction of the supplier. This is very cumbersomefor the refund claimant to get the invoices verified from his suppliers scattered in different cities of the country. Hence rejection of refund claim on this ground has no legs to stand. The department itself use government facilities to verify, if find bogus, stern penal action should be taken.
Deferment/rejection of refund claim on the basis of "invoices requires verification".
Answer to this question has already been addressed in Issue No,5. It is the duty of the tax administration to verify the invoices in the chain of supply prior to sanction and payment of refund.
Their own failure to accomplish the task within the prescribed time limit and procedure brings misfortune for a refund claimant. Such delay leads to financial restraints of a tax payer in export oriented refund claims and deprivation of foreign exchange for the State. The rejection/deferment is not supported by any provisions of Sales Tax Act, 1990 or Rules made thereunder.
8. Before parting with we would like to point out that we are quite conscious of fact that within statutory period for granting refund some amount of refund is refused due to certain verification which cannot possibly be made within this time limit but departmental officer, should not bury the file and continue to complete verification. So that up to forums of appeal things should become crystal clear to answer claimant in yes or no. This practice by the Appellate forums that cases are against remanded for verification of facts is very cumbersome resulting in wastage of a lot precious time. It is proposed to F.B.R.; if find F appropriate to issue direction to field staff to complete verification and not to bury the file after refusing on the plea of lack of verification.
9. It is contended by learned DR that either the learned CIR(A) should have decided the appeal on merits or could hold further inquiry if deemed necessary but the very remand of the case is not permissible. Under section 45-B(3) of the Act, the CIR(A) is not competent to remand the case.
However, while deciding an appeal, he may conduct such further enquiry as may be necessary and in this connection he may call for a report from any quarter including the Deputy Collector (Refunds).
10. In this scenario the impugned judgment cannot sustain and is set aside. Resultantly, aforementioned appeals shall be deemed pending before the learned CIR(A), Peshawar who is directed to decide it afresh in accordance with law. Needless to mention here that the Collector (Appeals), in case of ambiguity and others verification can seek services of concerned officers.
Basic gist is that aggrieved be answered in Yes or No in entirety. Through remand he should not knock the doors of different forums repeatedly. This judgment also disposes of the above said all appeals in which nature of case is similar.