1. ' MUNSIF KHAN MINHAS (JUDICIAL MEMBER).---This appeal has been preferred by the registered person against the Order-in-Appeal No,1687 of 2008 passed by Collector (Appeals) of Sales Tax recorded on 22-8-2008 on the following grounds: whereby he has challenged the Order-in-Original No,417 of 2007 dated 17-11-2007:--
(a) That the Order-in-Appeal has been passed in an arbitrary manner, therefore, it is void and is liable to be declared illegal and accordingly set aside on this score alone. It is further submitted that the impugned show-cause notice and Order-in-original has been passed by the Assistant Collector without legal jurisdiction. Hence, the show-cause notice is also liable to be declared illegal on this ground too.
(b) That the appellant submitted his refund claim regarding the period 3 of 2007. It is mandatory under the provisions of the Sales Tax Act, 1990 that the fate of the refund claim be decided in a stipulated period under section 10 of the Sales Tax Act, 1990 and can/should not be kept pending for an indefinite period. The respondents without any reasoning, justification and plausible grounds deferred the issue for one year.
(c) That the rejection of the' refund claim on the allegation of `exceeds declared output' is against the provisions of the Sales Tax Act, 1990. It is worth-mentioning here that in the Sales Tax Act, 1990 there is no word of 'exceeds declared output'. Therefore, this is a self-generated allegation levelled by the respondent. The appellant during the hearing proceedings submitted that the supplier of the appellant issued sales tax invoice against the purchase of goods and also filed return as required under the provisions of the Sales Tax Act, 1990. The appellant paid the amount through cross-cheque under the provisions of section 73 of the Sales Tax Act, 1990. There is no fault on the part of the appellant on this basis of which the refund can be rejected. Therefore the impugned order to this extent is liable to set aside. The study of the aforesaid documents clearly shows the deposit of tax by the supplier of the appellant in the national exchequer, as such, the appellant is entitled for the refund of amount.
(d) That the rejection of the refund claim amounting to Rs,48,175 on the allegation of 'exceeds declared output and scrutiny' is also against the facts of the case. The appellant duly submitted the documents i,e, sales tax return and summary statement of Messrs Polycon Pakistan Private Limited and J.S. Poly Packages (Pvt.) Limited. The study of the aforesaid documents clearly shows that the tax was duly deposited by the above said units. The appellant during the hearing proceedings requested the respondents to get verification of the documents from the concerned quarters and decide the fate of the claim but the respondents in a very casual manner rejected the refund claim, merely on presumptions in violation of procedure laid down under the provisions of Sales Tax Act, 1990 and rules made thereunder. It is pertinent to submit here that according to the provisions of section 26 of the Sales Tax Act, 1990 every registered person has to furnish not later than the due date a true and correct return in the prescribed form to a designated bank specified by the Board and it is not the responsibility and duty of any Registered Person (buyer) to feed in the STARR System, the appellant should not be deprived from his legal right of the sales tax refund amount.
2. The facts of the case in brief are that the registered person during the tax period 03/2007 claimed refund amounting to Rs,697,234 was deferred due to the various discrepancies. The Assistant Collector observed that the registered person had violated sections 4, 7, 8(1) 10 & 26 of the Sales Tax Act, 1990 read with section 2(14) and Refund Rules (The Sales Tax Rules 2006) notified vide S.R.O. 555(I)/2006 dated 5-6-2006. The Assistant Collector issued a show-cause notice under sections 10(4) and 11(2) of the Sales Tax Act, 1990 vide C.No,632 dated 23-8-2007 with the confrontation that the registered person wrongly claimed the refund and as to why the claim of input tax/refund amounting to Rs,6,97,234 may not be rejected under the law. Therefore, proceedings culminated in passing an Order-in-Original No,417 of 2007 dated 17-11-2007. Being dissatisfied with the order-in-original an appeal Was preferred before the Collector (A) dated 17- 12-2007 who vide his order dated supra partially accepted the appeal of the registered person. This order of the Collector (Appeals) has brought the registered person in appeal before the Tribunal.
3. Nine issues were agitated before the learned first appellate authority. Observations of Collector (Appeals) are hereby reproduced as under:-- "The 1st issue involved in the appeal pertains to rejection of refund due to objection of exceeds 'declared output in respect of Messrs Al Fajar Associates, Messrs Federal Corporation and Messrs Yasir Traders. The AR contended that the allegation is incorrect and due to some misconception as there is no exceeds declared output as per sales tax record of the alleged units and supplies to the appellants duly reflect in the same. However, the AR failed to substantiate his version through any documentary evidence. After due consideration, I find no merit in the appeal which is rejected and impugned Order-in-Original is upheld to this extent.
2. ' The 2nd issue involved in the appeal pertains to rejection of refund due to objection of exceeds declared output and scrutiny for verification of input tax invoices in respect of Messrs JS Poly Packages Pvt. Limited and Messrs Polycon Pakistan Pvt. Limited. The AR contended that at the time of supplies, the alleged units were operative with a normal status and the appellants hold valid tax invoices. The DR confronted the stance of the appellants on the basis that the appellants should produce NOC of the alleged units from the respective Collectorates as the system is still indicating said allegations. However, the AR failed to substantiate his version through any documentary evidence. After due consideration, I find no merit in the appeal which is rejected and impugned Order-in-Original is upheld to this extent.
3. ' The 3rd issue involved in the appeal pertains to rejection of refund due to objection of non-filer in respect of Messrs Al Hussain International, Messrs Computer Supermarket, Messrs H.K. Rubber Industries, Messrs Leopards Courier Service and Messrs Rauf Electronic Equipment. The AR denied the allegation and contended that the alleged unit duly filed sales tax return for the relevant tax period. He produced copies of alleged sales tax returns in support of his version. After due consideration, I find plea of the appellants is correct which is accepted and impugned Order-in- Original is set aside to this extent only.
4. ' The 4th issue involved in the appeal pertains to rejection of refund due to objection of non-filer in respect of Messrs Sgwi Associates. The AR denied the allegation and contended that the alleged unit duly filed sales tax return for the relevant tax period. However, the AR failed to substantiate his version through any documentary evidence. After due consideration, I find no merits in the appeal which is rejected and impugned Order-in-Original is upheld to this extent.
5. ' The 5th issue involved in the appeal pertains to rejection of refund due to objection of scrutiny for verification of input tax invoice non-filer in respect of Messrs S.G. Polysacks Pvt. Limited. The AR denied the allegation and contended that the unit was operative and duly filed sales tax return for the relevant tax period. However, the AR failed to substantiate his version through any documentary evidence or to produce NOC regarding clearance of said unit. After due consideration, it is held that refund on this issue held admissible if the appellants produce NOC of the alleged supplier in the concerned refund section of the respondent Collectorate within one month of receipt of this Order-in-Appeal otherwise refund on this issue stands rejected."
6. ' The 6th, issue involved in the appeal pertains to rejection of refund due to objection of scrutiny for verification of input tax invoices in respect of Messrs Khalid Traders and Messrs Trust Traders. The AR contended that at the time of supplies, the alleged units were operative with a normal status and the appellants hold valid tax invoices. The DR confronted the stance of the appellants on the basis that the appellants should produce NOC of the alleged units from the respective Collectorates as the system is still indicating said allegations. However, the AR failed to substantiate his version through any documentary evidence. After due consideration: it is held that refund on this issue held admissible if the appellants produce NOC of the alleged supplier in the concerned refund section of the respondent Collectorate within one month of receipt of this Order- in-Appeal otherwise refund on this issue. Stands rejected.
7. ' The 7th issue involved in the appeal pertains to rejection of refund due to objection of 'wrong tax period'. The AR contended that no refund was previously received against alleged invoices. He contended that the appellants hold valid tax invoices. After due consideration, I find plea of the appellants is correct which is accepted and impugned Order-in-Original is set aside to this extent only.
8. ' The 8th issue involved in the appeal pertains to rejection of refund due to objection that refund on this issue ok if telephone used in business premises. The AR contended that the issue relates to mobile telephone of Messrs Pakistan Mobile Communication Company Limited and charges on this account were incurred in furtherance of taxable activities. The DR confronted that the appellants failed to prove use of mobile phone in furtherance of taxable activities. After due consideration, I find no merit in the appeal which is rejected and impugned Order-in-Original is upheld to this extent.
9. ' The 9th issue involved in the appeal pertains to rejection of refund due to objection that bill of entry does not exist. The AR denied the allegation and contended that the appellants made imports under this bill of entry and such allegation is due to some misconception. After due consideration, it is held that refund on this issue held admissible if the appellant get the issue resolved in the concerned refund section of the respondent Collectorate within one month of receipt of this Order-in-Appeal otherwise refund on this issue stands rejected.
4. I have carefully heard the arguments of both the sides and have perused the relevant record available on file. I am of the view that; Rejection of refund claim due to "non-production of sales tax return or computer profile" of his supplier.
10. ' 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.
11. 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.
12. ' 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.
13. Input claim exceeding "declared output".
14. The rejection of refund claim on the ground that input claim exceeds output is valid. The illustrations given below would explain the proposition.
15. Illustration No, 1 ' A registered person declares his sales as 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.
16. Illustration No,2.
17. ' 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 Ga 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.
18. 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.
19. 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.
20. Rejection of refund claim on the allegation of "Non-filer".
21. ' 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 corrective measure instead of penalizing the refund claimant for the fault of others.
22. Rejection of refund claim on the allegation of "Registration suspended".
23. ' Under sub-rule (5) of Rule 12 of Sales Tax Rules-2006, during the period of suspension of registration the invoices issued by such registered person shall not be entertained for the purpose of sales tax refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting. The Collector (Now Commissioner) is competent to suspend the registration of the taxpayer if he contravenes any provisions of the Sales Tax Act or Sales Tax Rules issued vide S.R.O.555(I)/2006, dated 5-6-2006. Meaning thereby, if a tax payer carries out his business quite in accordance with the provisions of Sales Tax Act, 1990 for twelve consecutive months and later on contravenes any provisions of the Act ibid in the succeeding months, his all transactions shall be deemed to be invalid for the purpose of refund. This provision of Sales Tax Rules is clearly unfair and unlawful as it penalize a registered person retrospectively. Such arrangement is inconsistent with law. The law provides that an unintentional mistake cannot undo a bona fide act done in a tax period. Therefore, the amendment made in the Sales Tax Rules, 2006 needs to be reviewed by Federal Board of Revenue.
5. Under subsection (2) of section 21 the Commissioner is empowered to blacklist or suspend the registration of a registered person on the charges of issuance of fake invoices and committing tax fraud. The tax administration has not made any arrangement to inform the public about the suspension of registration or blacklisting of a taxpayer. Section 7(2) of the Sales Tax Act, 1990 makes a registered person entitled to claim refund if he holds a tax invoice and the payment is made through banking channel. It is the duty of the refund sanctioning authority to ensure that all the conditions of the checklist are fulfilled and initiate prompt action in tax fraud cases and fake invoices. Suspension of registration or blacklisting of a registered supplier has no nexus with the refund claimant and refund cannot be denied for the reason that a supplier has become blacklisted. Here to be added if supplier has not deposited Sales tax in government treasury or it is blacklisted. Golden principle that nothing should come out from government Exchequer which has not been deposited into, it be given prime importance. At the same time I feel no hesitation to say that government status is that of guarantee. If a person has paid sales Tax but his supplier has not paid same into government treasury. In this scenario refund claimant has also to suffer a bit due to selecting an unfair person to transact. It is proposed to F.B.R. To go for legislation if considers appropriate that in such situation government should immediately proceed to recover from delinquent and pay the refund claimant. If the government fails to do so, within a period of two or three years, then government will pay to the refund claimant from his own pocket because refund claim is a peanut qua the volume of government Exchequer. Being guarantee of the system, government has to fulfil its responsibilities. On one hand, this will surely help to eliminate fake or forged invoice and on the other hand it will provide mandate to proceed against persons committing tax fraud and accelerating the pace of transparent refunds.
24. Rejection of refund claim on the allegation of "scrutiny for verification of input tax".
25. ' 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 3/2006, 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.
26. This is very cumbersome for 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.
27. Deferment/rejection of refund claim on the basis of "invoices requires verification".
28. ' 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.
29. 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 taxpayer 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.
30. Rejection of refund claim on the basis of "wrong tax period".
31. ' Under section 7 of the Sales Tax Act, 1990 a registered person is entitled to claim input tax adjustment/refund on the invoices of preceding twelve tax period. In the instant case the refund claim was lodged within tax period (tax invoice of 6/2007 claimed in 7/2007) and due to a defective software of PRAL such objections are regular feature. Such objections can be removed on fresh replication from STARR system or can be overruled by manual verification of tax invoices and record. Hence the claim of refund against a tax invoice covering twelve preceding period is admissible and cannot be disregarded.
6. Before parting with I would like to point out that I am 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 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.
7. Disposed of appeal in above terms.