The assessee/registered person has assailed in this appeal the Order-in-Appeal No.968 of 2009 dated 28-5-2009, passed by the learned Collector of Customs, Excise and Sales Tax (Appeals), Faisalabad who had upheld the Order-in-Original No 108 of 2008 dated 17-12-2008 passed by the Assistant Collector (Refund), Sales Tax and Federal Excise, Faisalabad.
2. The pivotal facts relevant for disposal of the present appeal are that the assessee filed refund of input tax against zero-rated supplies pertaining to March-2005. However, the department issued a notice to the appellant to show cause as to why their refund claim worth Rs.1,77,642 may not be rejected under section 11(2) of the Sales Tax Act, 1990. The assessee was also confronted with the violation of provisions of sections 2(14), 4, 7, 8(1), 10 and 26 of the Sales Tax Act, 1990 read with Rule 37 of the Sales Tax Rules, 2006 notified vide Notification No. S.R.O. 555(1)/2006 dated 5-5-2006.
3. It was stated that the adjudicating officer, without considering the written submissions made by the assessee in response to the abovementioned show-cause notice, commenced, adjudication proceedings and on conclusion, upheld the charges. The Collector (Appeals) also statedly dismissed the appeal without properly discussing the legal aspect of the controversy. Being dissatisfied and aggrieved by the proceedings as mentioned supra, the assessee has come in appeal before this Appellate Tribunal.
4. Initiating the arguments on appeal, learned AR, at the very outset, raised two legal objections to the effect that rejection of its refund claim made under STARR is illegal, void ab initio and without jurisdiction. The first legal objection is that the STARR was introduced in the Sales Tax Rules, 2004 but its applicability had to come into force on and after the date notified by the F.B.R. In the official Gazette which was not till the S.T. Rules come into force. It was mentioned that the Sales Tax Rules, 2006 were made applicable i.e.f. 1st July, 2006 whereas the said instant refund claim pertaining to the period much prior to July, 2006 should have been proceeded under the Sales Tax Refund Rules, 2002. In the second legal objection, the learned AR, vociferously contended that though, the STARR system was made applicable in the Sales Tax Rules, 2006 yet it has no legal sanctity backed by the Sales Tax. Act, 1990. To strengthen his contentions, learned AR cited reported and unreported judgments of Appellate Tribunal, Lahore. Conversely, learned DR supported the orders of authorities below for the reasons recorded therein.
5. We have given due consideration to the arguments advanced by the learned representatives for the rival parties and have also gone through the relevant record of the instant case, as well as the case law quoted at the bar.
6. It was observed that there was no concept of STARR in the Sales Tax Refund Rules, 2002 notified vide Notification No. S.R.O. 575(1)/2002 dated 31-8-2002 but before dilating upon the controversy at hand, it would be appropriate to reproduce the relevant portion of the Sales Tax Rules, 2004 notified vide Notification No.S.R.O. 485(1)/2004 dated 12-4-2004 and the Sales Tax Rules, 2005 notified vide Notification No. S.R.O. 533(1)/2005 dated 6-6-2005 which read as under:-- The Sales Tax Rules, 2004:
1. Short title, application and commencement.---(1) These Rules may be called the Sales Tax Rules, 2004.
(3) They shall come into force on the first day of July, 2004, except notified by the Central Board of Revenue by notification in the official Gazette.
The Sales Tax Rules, 2005:
1. Short title, application and commencement.---(1) These Rules may be called the Sales Tax Rules, 2005.
(26) Application.---The provisions of this Chapter shall come into force with effect from such date as may be notified by the Board provided that in case of registered persons who have already been notified by the Board, the refunds of such registered persons shall be dealt with under this Chapter": (Underlined for emphasis)
7. From bare reading of the above provisions of the Sales Tax Rules, 2004 and the Sales Tax Rules, 2005, there remains no doubt that the term STARR was introduced for the first time in the Sale Tax Rules, 2004. The Sales Tax Rules, 2004 came into force on the first day of July, 2004 except "Chapter-V" Refund Rules from Rule 25 to Rule 37 which would come into force on such date as was notified by the F.B.R. In the official Gazette. Similarly, the S.T. Rules, 2005 came into force on the first day of July, 2005 except Chapter V pertaining to refund which would come into force on such date as was is specified by the F.B.R. Through a notification in the official Gazette. However, the date of application of provisions regarding refund in the Sales Tax Rules, 2004 and in the Sales Tax Rules, 2005 was not notified by the F.B.R. Till the Sales Tax Refund Rules, 2002 were rescinded through S.R.O. No.554(I)/2006 dated 5-6-2006 applicable i.e.f. 1st July, 2006. The Sales Tax Refund Rules, 2002 remained in the field from the date of issuance till 1st July, 2006 when the Sales Tax Rules, 2006 notified vide S.R.O. 555(1)/2006 dated 5-6-2006 were came into force without enjoying retrospective effect.
8. From the legal perspective since the provisions of Chapter-V regarding refund in the Sales Tax Rules, 2004 and in the Sales Tax Rules, 2005 had not been enforced, the Sales Tax Refund Rules, 2002 remained applicable upto 30-6-2006, consequently rejection of refund claim filed against invoices issued prior to 1st July, 2006 on the objections raised by the STARR is found to be illegal and without any lawful jurisdiction
9. We have also found that the term STARR has, no legal backing in the parent statute i.e. The Sales Tax Act, 1990 nor is it supported by any legislative enactment. Hence the whole exercise carried out by the Sales Tax Department for rejection of assessee's bona fide refund claim merely relying upon the objections raised by STARR without obtaining independent evidence against the charges whatsoever raised on invoices of their registered suppliers, is illegal.
10. The learned AR in this regard also produced the judgments of honourable Division Bench of Customs, Excise and Sales Tax Appellate Tribunal which is reproduced hereunder:-- [S.T.A. No. 191/LB of 2008, dated: 9-6-2006] "The appeal has confounded the Sales Tax Refund Rules, 2002, notified by S.R.O. 575(I)/2002, dated: 31-8-2002 and the Sales Tax Refund Rules, 2005 notified by S.R.O. 533(1)/2005, dated 6-6-2005. There is no concept of STARR in the Sales Tax Refund Rules, 2002 and the Sales Tax Automated Refund Repository (STARR)
Computer System had been introduced in the Sales Tax Refund Rules, 2005. It is a controversial issue whether Sales Tax Refund Rules, 2005, Chapter-IV (Refund) had been enforced or not. It is provided under Rule 1 of the Sales Tax Refund Rules, 2005 that these rules shall come into force on 1-7-2005 and shall apply to such persons or class of persons as are specified in the respective Chapters. However, under Rule 26, Chapter-V, (Refund), it is provided that provisions of this refund chapter shall come into force with effect from such date as may be notified by the Board provided that in case of registered persons who have already been notified by the Board, the refund of such registered persons shall be dealt with under this Chapter".
12010 PTD (Trib.) 1636] "Lastly, the learned counsel for the appellant contended that the appellant filed refund claim for the period 12/2004 and 02/2005, which was rejected on the basis of STARR objections. The learned counsel for the appellant vehemently contended that the STARR system was introduced in the year 2006 therefore it cannot be implemented retrospectively. After perusal of record, we find the plea of the appellant correct.
11. Further reference can also be made to the judgment of Appellate Tribunal Inland Revenue, Lahore Bench in a case reported as [2010 PTD (Trib.) 2128] wherein appeal filed by the Sales Tax Department, Faisalabad was rejected with the following observations:--- "I am of the view that rejection of refund was only on objections shown by STARR system and department did not bother to get the supported documents verified from concerned Collectorates or otherwise. It is consistent view of this Tribunal that refund cannot be rejected on mere objections shown by the Computer System known as STARR. Department should either point out any deficiency in prescribed supporting document or can reject the supporting documents with reasons. If no defect is pointed out in supporting document, the department is under obligations to get the documents verified itself."
12. The same view was also expressed by this Appellate Tribunal in case of Messrs Niagara Mills (Pvt.) Ltd. v. Collector of Sales Tax, Faisalabad reported as [(2011 PTD (Trib.) 483)] wherein it was laid down:-- "Without prejudice to above, admittedly the refund claims pertain to the periods were not subject to scrutiny under STARR as the same was made applicable i.e.f. 1st July, 2006 in terms of S.R.O.
555(1)/2006 dated: 5-6-2006. Thus, appellant's case with regard to refund claim for the period under consideration should have been scrutinized under Sales Tax Refund Rules, 2002 being notified vide S.R.O. No.575(I)/2002 dated 31-8-2002 and not under STARR system which was introduced for the first time in Sales Tax Rules, 2004, notified vide S.R.O. 485(1)/2004, dated 12-6- 2004. Recapitulated history of these facts further transpires that Sales Tax Rules, 2004 were come into force on 1-7-2004 by excluding its Chapter-V (Refund Rules) (Rules 25-37) which was required to be come into force on such date as to be notified by the C.B.R. Through in official Gazette Notification. The same persons was also with Sales Tax Rules, 2005, but the same (both items) were never notified by the C.B.R. Till the Sales Tax Refund Rules, 2002 were rescinded through S.R.O.
554(I)/2006 dated 5-6-2006 and Sales Tax Rules, 2006 came into vogue. This situation leads to unambiguous inference that Sales Tax Rules, 2004 and 2005 were intact and remained applicable till 1st July, 2006, without giving retrospective effect. Under the present situation, I am inclined to share view of the AR that rejection of refund claims filed against invoices issued prior to 1st July, 2006 on the objections pointed out by the STARR computer system was illegal, void, ab initio."
13. Having taken into perspective facts of the case in its entirety and having gone through the relevant provisions of law and judgments referred to above, we feel no hesitation in holding that rejection of refund claim under STARR Computer System against invoices issued prior to 1st July, 2006 is not only illegal and without any lawful authority but also ab initio void. Therefore, the impugned show cause notice and consequent impugned orders are hereby set aside. The appeal filed by the assessee succeeds. .