' SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---The titled appeal has been filed at the instance of the appellant/registered person calling in question the impugned order-in-appeal dated 31-3- 2008 passed by the learned Collector (Appeals) Multan.
2. Briefly stated facts relevant for the disposal of present appeal are that the appellant is a registered person having Sales Tax Registration No,04-07-5202-013-73. While conducting audit of the assessee, two discrepancies were noted by the department. It was observed that adjustment of arrears against carry forward of refundable amount of cotton lint amounting to Rs,13,530,805 for the month of June and July A 2005 was not admissible because arrears should have been paid in cash through sale tax payment challans which is violative of section 26 of the Sales Tax Act (hereinafter called "The Act"). The next objection raised by the department was that the registered person purchased 17,20,000 kg of polyester fiber in the taxable period during the months of March to May 2005 from different wholesalers against sales fax invoices, containing registration numbers and claimed input tax amounting to 3,09,60,000. However, supply thereof was made to the unregistered persons when the polyester fiber become zero rated. Since the suppliers were blacklisted, the input tax claimed on purchases of polyester fiber was inadmissible besides, it resulted into short payment of sales tax. Resultantly, the Additional Collector proceeded to issue show-cause notice on 12-3-2007. Reply furnished by the registered person could not convince the Adjudication Officer which led to the passing of order-in-original dated 9-6-2007, endorsing the observation made in the Show-Cause Notice.
3. The appellant also failed before the learned first appellate authority, hence the present appeal before the Tribunal.
4. The learned AR has vehemently argued the case and contended that there is no bar against adjusting refundable amount with arrears. It was pointed out that adjustment in this regard was made by the appellant after consulting the Cost Accountant (Sales Tax) Multan by way of writing a letter dated 29-6-2005, who did not object to the same. Further submitted that, had the refundable amount, lying with the department was not adjusted against the arrears, the only course which was left with the department was to refund the entire amount to the appellant and then getting the same re-deposited. It would tantamount to a futile exercise, rather cause undue hassle to the taxpayer without any gain to the department. The learned AR stated that this fact becomes more important that department never asked for the recovery of this amount in the SCN.
5. Learned DR has reiterated the stance adopted in the Show-Cause Notice as well as by both the learned authorities below, while passing order-in-original and order-in-appeal.
6. We have given due consideration to the submissions made by the learned counsel for the rival parties. After hearing the same, we feel persuaded by the assertions made by the learned AR. It is matter of record that the sum of Rs,1,35,30,805 was lying as arrears which has been adjusted by the appellant against the refundable amount lying with the department. This factum has not been denied by the department that the amount in question is not refundable to the appellant. We are convinced that when section 7 of the Act permits to the registered person to claim input tax on purchases in the monthly sales tax returns, then how he could be denied the adjustment or carry forward refundable amount against arrears. By no stretch of imagination carry forward of such amount can be termed to be evasion of tax as contemplated under section 36 of the Act.
7. We are also of the view that the Rules referred to in the SCN are not relevant to the facts of the case because there is no such provision whereby a registered person is required to deposit the arrears despite the fact that refund due is payable in favour of the registered person. One cannot lose sight of the fact that adjustment or carry forward was made after consulting a senior officer of the department i,e, Cost Accountant. It is also settled principle of law that an action which is E not expressly forbidden by any provision of law, is admissible in the eye of law. It is also established proposition of law that while interpreting a fiscal statute, there is no room for any intendment, inference or F presumptions, (2003 PTD 589 (H.C. Kar.)).
8. In the light of above discussion, we can safely hold that appellant has rightly adjusted the arrears against his carried forward refund. Thus, issuance of show-cause notice for recovery of such amount in terms of section 36 (ibid) is illegal, hence unsustainable in the eye of law.
Resultantly, we do hereby set aside the findings given by the learned Collector as well as Adjudicating Authority on the aforesaid issue.
9. As regards the next objection, admittedly, the appellant is a bona fide purchaser of the polyester fiber from his suppliers and payments against such purchases were made in accordance with the provision of section 73 of the Act. Besides sale tax was also paid by the appellant following the provision contained in section 3 and input tax was claimed as envisaged in section 7 of the Act.
This fact as also been acknowledged by the Additional Collector in the show-cause notice dated 12-3-2007 in the following words:-- "Further, the registered person provided photocopies of counter folios of cheques and bank statements in support of the compliance of section 73, to demonstrate the proof of payment to supplier"
10. Undoubtedly, the period involved in the instant case is May and June, 2005 when the suppliers were actually engaged in business and had active registered status. Whereas, there suppliers were declared, as blacklisted in the year 2006 i,e, after more than one year. Obviously, such order cannot be operated retrospectively as has been held by the superior courts. The honourable Supreme Court of Pakistan in re Elahi Cotton Mills Ltd v. Federation of Pakistan reported as PLD 1997 SC 582, held that notifications/executive orders which is detrimental or prejudicial to the interest of a person cannot operate retrospectively rather a beneficial notification/executive order issued by an executive authority could be given retrospective effect. Since the input tax has been claimed by the appellant exactly as per the provision of section 7 read with sections 73 and 8 of the Act and the suppliers who have been subsequently declared as blacklisted were having valid legal status, the claim of such input tax could not be termed against law and, therefore, same cannot be held inadmissible. It is also well settled principle of law that a past and closed transaction cannot be reopened especially when a beneficiary has no role in irregularity committed by the other party.
This issue was taken up and resolved by the learned Division Bench of Karachi High Court in the case of Kashmir Foods (Pvt.) Ltd v. C.B.R., (sic) and it was held as under:- "We are further of the opinion that effect of the such legislation is left without fixing certain parameters as to the date from which it becomes effective, it will open all the past and closed transactions and the citizens will have no protection whatsoever under any law and will burden throughout for such past and closed transactions".
11. Following the ratio settled in the supra cited case, we are constrained to observe that since the appellant has complied with the provision of section 73 and also the fact that suppliers in question were quite alive with legal status, the demand of tax from the appellant which was to be paid by the supplier is uncalled for. No recovery can be enforced or input tax can be held inadmissible on the basis of findings of the audit or SCN based on presumptions.
12. With regard to the issue that one of the supplier of the appellant, namely Umar Traders Karachi, STR No,17-12-8908-00-55 has denied making any supply to the appellant, the learned AR submitted that original invoices duly signed by the authorized officer were issued by the said supplier in accordance with section 23 of the Act and the same were produced before the departmental authorities. Besides, the sales tax returns for the relevant period were also filed by the said supplier. In this view of the fact the appellant rightly claimed input tax paid to the supplier, namely Messrs Umar Traders Karachi.
13. Next contention of the appellant is that he purchased 17,20,000 kg of polyester fiber from different registered wholesaler/suppliers during the period from March, 2005 to May, 2005 which was sold in the different manners. In the first turn 671,775 kg of polyester fiber was used for manufacturing and the resultant finished goods were sold. However, the remainder 10,48,220 Kgs was sold in the open market. But these transactions were made @ 0% sales tax involving Rs,1,20,91,950 and Rs,1,88,68,050 stalling Rs,3,09,60,000 and was claimed as input tax as envisaged under the sales tax law. It was the averment of the learned AR that purchases in the instant case have not been doubted by the department. Furthermore without violating any provision of law, the appellant was well within its domain to watch its business interest and expediency warranted that if under the government's policy such transactions have been made zero rated obviously there was no contravention of any law prevalent at the time.
14. Conversely, the department alleged that the entire quantity of polyester fiber was sold in the open market.
15. We have looked into the matter carefully and perused the available record as well as statement of purchases of polyester fiber and further used for manufacturing of yarn which explicitly supports the contentions of the learned counsel for the appellant that polyester fiber was partially used for manufacturing and partially sold in the local market @ 0% sales tax are also tend to agree with assertion of the learned AR that it is purely the outlook of the appellant to conduct his business affairs in the manner he likes, provided he does not transgress the boundaries of law. In the light of aforementioned discussion, we feel persuaded by the arguments of the learned AR and hold that no illegality was committed by the appellant and the department proceeded on the basis of wrong proposition.
16. In view of the foregoing discussion, we are constrained to observe that the show-cause notice was issued by the Additional Collector without appreciating the fact of the case in its entirety which is not sustainable in the eye of law. Resultantly, the impugned orders made on the basis of such show-cause notice are hereby set aside.
17. The appeal of the registered person stands accepted.
' (Sd.)
' (SYED NADEEM SAQLAIN) JUDICIAL MEMBER ' DISSENT NOTE IN THE 'CASE OF MESSRS MEHR DASTGIR TEXTILE MILLS LTD,. MULTAN BY MR. ABDUL RAUF, LEARNED ACCOUNTANT MEMBER, LAHORE '
18. ABDUL RAUF (ACCOUNTANT MEMBER).---I have gone through the judgment authored by my learned brother, Judicial Member but express my inability to agree with his findings for the following reasons.
19. As far as adjustment of refund Rs,1,35,30,805 against outstanding arrears is concerned the appellant has adjusted the said arrears against the carried forward input tax, which has been held as inadmissible by both the authorities below because the suppliers from whom the appellant made purchase of polyester fiber have been black listed on the charge indulging in issuance of fake and flying invoices. A taxpayer is entitled to the credit of only that amount of input tax which is proved to have been deposited in the State Treasury by the supplier beyond any shadow of doubt.
In the instant case the suppliers from whom the appellant made purchases of polyester fiber were black listed by the department because they were found involved in the issuance of fake and flying invoices. As per section 7 of the Sales Tax Act, 1990 a registered person is entitled to deduct input tax during the tax period from the out put tax payable on taxable supplies made by him only if genuineness and payment of input tax stand established to the satisfaction of the concerned sales tax officer. As discussed have, both the adjudicating officer and the learned Collector (Appeals) have, in their respective orders recorded categorical findings to the effect that the appellant failed to establish the genuineness of claim of input tax in accordance with the provisions of sections 7 and 73 of the Sales Tax Act.
1990.
20. Again with regard to the claim of input tax of Rs,3,09,60,000 both the authorities below have categorically held that the claim is not admissible firstly because payments to the suppliers have not been established to have been made through banking channel as required under section 73 of the Sales Tax Act, 1990 and secondly because they (suppliers) were black listed on the charge of issuance of fake invoices. Section 8(1)(ca) provides that "a registered person" shall not be entitled to reclaim or deduct input tax on the goods in respect of which sales tax has not been deposited in the Government Treasury by the respective supplier. The plea of the learned AR that the appellant cannot be penalized for the wrongs of its suppliers is irrelevant in the context of the facts of the case. The above quoted provision of law clearly lays down that a taxpayer is entitled to the credit of only that amount of input tax which is deposited in the State Treasury by the supplier. The said provision thus forestalls and preempts the possibility of claim of credit of input tax which the suppliers may not deposit in the State Treasury.
21. In the instant case neither the payment to the supplier was made through banking channel as laid down under section 73 of the Sales Tax Act, 1990 nor was the deposit of the tax by the respective suppliers established beyond any shadow of doubt. Under these circumstances the allowance of input tax would be violative of the provisions of sections 7, 8(1)(ca) and 73 of the Sales Tax Act, 1990.
' (Sd.)
' (ABDUL RAUF) Accountant Member
22. Since difference of opinion has arisen between us on the admissibility of input tax, we propose that the case may be referred to the third member to decide the following question:-- "Whether the appellant is entitled to claim the credit of input tax without establishing the admissibility of input tax in accordance with the provisions of sections 7, 8(1)(ca) and 73 of the Sales Tax Act, 1990."
' (Sd.) ' (Sd.)
' (SYED NADEEM SAQLAIN) ' (ABDUL RAUF)
' Judicial Member Accountant Member
23. JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---In this case my learned brother Mr. Abdul Rauf the Accountant. Member has dissented with the findings and the conclusion arrived at by my brother the Learned Judicial Member Mr. Nadeem Saqlain (presently the Hon'ble Chairperson).
Resultantly, the proposed question referred in the above para has been referred to me as a third Member and is to be answered to resolve the difference.
24. In fact, the proposed judgment of my brother the learned Judicial Member is based on two limbs. First one pertains to adjustment of arrears against carry forward of refund, On this point after discussing pros and cons of the case he has candidly observed that the appellant has every right to adjust amount of arrears against the outstanding refund. So far as my brother the learned Accountant Member is concerned, he has principally agreed to this conclusion as no observation whatsoever has been made by him in the proposed judgment on this count. However, only anxiety of my brother the learned Accountant Member was that since, suppliers of polyester fiber have been black listed on account of issuing fake and flying invoices, therefore, adjustment of the arrears against the carried forward input tax is not admissible. Anyhow, this issue would be discussed in the later part of this judgment. So, findings to the extent of allowing adjustment of carried forward of sales tax refund against outstanding tax demand stand settled, therefore I am not persuaded to dilate upon this point.
25. Coming to the other segment of the proposed judgment, this relates to entitlement of claim of credit of input tax in accordance with the provisions of sections 7, 8(1)(ca) and 73 of the Sales Tax Act, 1990. My brother the learned Judicial- Member on this point has observed that the appellant is a bona fide purchaser of polyester fiber from the suppliers and payments against such purchases were made in accordance with the provisions of section 73 of the Act. Also observed that sales tax was paid as per section 3 of the Act and input tax was claimed as is envisaged in section 7 of the Act. Relevant para of the show-cause notice, whereby the Additional Collector has acknowledged submission of photocopies of counterfoils of cheques and bank statements in support of compliance of section 73 to demonstrate the proof of payment to the suppliers, has also been reproduced by the learned Judicial Member at para 9 page 3 of this proposed judgment. Further observed that the suppliers were black listed in the year, 2006 while polyester fiber was purchased by the appellant in the year 2005. Besides, the suppliers were actually engaged in the business activities and were enjoying active registered status at the relevant time. Thus, the order of declaring the suppliers to be blacklisted cannot be operated retrospectively and strength in this regard has been sought from a -case-law or the Hon'ble apex, Court of Pakistan cited as PLD 1997 SC 582. Also observed that past and closed transaction cannot be reopened especially when the beneficiary has no role in the illegalities and irregulars committed by the other party. Accordingly, my brother the learned Judicial Member held that since, the input tax has been claimed by the appellant exactly as per the provisions of section 7 read with sections 73 and 8 of the Act, therefore, the claim of input tax cannot be termed to be against law and, as such, cannot be held to be inadmissible. Resultantly, not only the impugned order dated 31-3-2008 but the show-cause notice has also been set aside by the learned Judicial Member. Conversely, my learned brother, the Accountant Member, has observed that the claim of input tax is inadmissible because the suppliers from whom the appellant made purchases of polyester fiber have been blacklisted on the charge of indulgence in issuing fake and flying invoices. Since the suppliers have been blacklisted and they had not deposited input tax in the exchequer, therefore, the claim of input tax by the appellant was inadmissible. Also observed that the claim is not admissible because payment to the suppliers have not been established to have been made through banking channel in terms of section 73 of the Sales Tax Act, 1990. Section 8(1)(ca) of the Act has also been referred by the Learned Accountant Member to hold that the taxpayer is only entitled to the credit if the amount of input tax has been deposited by the supplier in the government treasury. Since the suppliers have not deposited the input tax, therefore, claim of credit of input tax cannot be allowed to the purchaser being inadmissible.
26. I have analyzed the facts of the case in its entirety, the respective observations and the findings made by my brothers the learned Member in the purposed order and the relevant sections of the Sales Tax Act as well as the case-law referred to by the learned counsel. But I fully subscribe to the viewpoint expressed by my brother the learned Judicial Member. There is no cavil to the proposition that without establishing admissibility of input tax, no registered person is entitled to claim its credit in accordance with the section referred to supra. But, the facts emerges in the instant case vividly speaks that the appellant has claimed credit of input tax after establishing his claim. What has been alleged in the show-cause notice by the department is that the suppliers have been black listed on 13-10-2006 vide letter C.No,11(767)Reg/Haq 2003/10137 but the fact remains that the purchases were made by the appellant in the month of May and June, 2005.
While exercise of verifying antecedents of the suppliers has been made by the department after the lapse of more than one year from the date of purchase of polyester fiber by the V appellant.
Now, the question arises as to whether the appellant can be held responsible for the acts one by the suppliers? Certainly not because it is an established principle of law and practice that no one can be made to suffer on the acts done by the others in view of famous doctrine "actus curiae neminen gravabit". There is no denying the fact that the suppliers were actively engaged in business in the month of May and June, 2005 and their status of registration was also active at the relevant time. Nevertheless, the supplies were declared to be black listed in the subsequent period i,e, 2006. In no way, the order of blacklisting the suppliers can be stretched retrospectively as has been held by the Hon'ble apex Court of Pakistan in re: Messrs Elahi Cotton Mills Ltd. v. Federation of Pakistan reported as PLD 1997 SC 582 wherein it has been held as under:-- "Notification/executive orders which is detrimental or-prejudicial to the interest of person cannot operate retrospectively rather a beneficial notification/executive order issued by an executive authority could be given retrospective effect."
Moreover, no life can be given to the past and closed transactions on account of unusual follies and illegalities committed by the other party. This principle and ratio has been enunciated by the Hon'ble Karachi High Court in a case bearing citation Kashmir Foods (Pvt.) Ltd. v. C.B.R.
27. Further from the facts available on record, it is vividly established therefrom that the sum of Rs, 1,35,30,805 was payable by the appellant which he had adjusted against the refundable amount which was obviously in accordance with section 7 of the Sales Tax Act, 1990. This section clearly entitles the registered person to deduct input tax paid or payable during the tax period for the purposes of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9 of the Sales Tax Act, 1990. Not an iota of evidence whatsoever has been brought on record by the department to hold that the provisions of section 7 read with sections 73 and 8(1) of the Sales Tax Act, 1990 have been violated by the appellant while claiming input tax. Rather the entire edifice has been built by the department on conjectures and surmises only to disallow the refund and to declare the input tax to be inadmissible.
28. Admittedly, the appellant is a bona fide purchase of polyester fiber from the suppliers and payments against such purchases-were made in terms of section 73 of the Sales Tax Act, 1990.
Whether the provisions of section 73 of the Sales Tax Act, 1990 have been complied with in the instant case or not. This objection of the department is self-belied from the contents of the show- cause notice dated 12-3-2007 issued by the Additional Collector. In order to meet objection of my brother the learned Accountant Member that the payments were not made to the suppliers by the appellant in accordance with section 73 of the Sales Tax Act, 1990, the relevant portion of the show- cause notice, at the cost of repetition, is being reproduced hereunder for the purposes of emphasis only:-- "Further, the registered person provided photocopies of counter folios of cheques and bank statements in support of the compliance of section 73, to demonstrate the proof of payment to supplier."
29. So far as section 8(1)(ca) of the Sales Tax Act is concerned, it says that a registered person shall not be entitled to reclaim or deduct input tax paid on the goods in respect of which sales tax has not been deposited in the government treasury by the respective suppliers. This section was apparently, detrimental to the interest of the purchaser who have with bona fide intentions made purchases but he has no force of law to poke his nose in the business affairs of the suppliers. In order to protect the interest of the purchaser, the legislature has inserted a new clause in section 21 of the Sales Tax Act through Finance Act, 2011, dated 30-6-2011. Heading of this Section is deregistration, black listing and suspension of registration. They newly ,introduced clause is (3) of this section. This clause says that unless the registered buyer fulfills his obligations under section 73 of the Sales Tax Act, the invoices issued by such person (supplier) shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person (supplier) is black listed, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting, shall be rejected during the period of suspension of registration. A self-speaking order shall be also passed in this regard which has been made appealable and an opportunity of being heard shall be afforded to such person. Since, this is a beneficial legislation; therefore, clause (3) of section 21 of the Sales Tax Act operates retrospectively. When viewed in this perspective, the appellant has fulfilled the requirements of section 73 of the Sales Tax Act as is evident from the contents of show-cause notice. Thus, in no way the provision of section 8(1)(ca) read with 21(3) of the Sales Tax Act, attract in the instant case.
30. Concluding the discussion, I have no ambiguity in my mind except to declare that the refund claimed by the appellant was as per the Provisions of section 7 read with sections 73 and 8 of the Act and the supplier who had been subsequently declared as blacklisted, were having valid status in the past therefore, the appellant was fully entitled to claim the credit of input tax being admissible. Consequently, I fully concur with the findings and the conclusion arrived at by my, learned brother, the Judicial Member, whereby he has held issuance of show-cause notice to be not sustainable in law and declaring the impugned order to be set aside. Consequently the appellant's appeal stands accepted.
' (Sd.)
' JAWAID MASOOD TAHIR BHATTI JUDICIAL MEMBER revisions by the competent authorities. Therefore, it is advisable to consult the official sources or legal professionals for the most up-to-date and accurate information.