1. II. Brief facts are that audit of the appellant was conducted, and it was discovered that he claimed inadmissible input adjustment at Rs.820,193 on strength of purchase invoices, issued by suspended/black listed/blocked units, in violation of the provisions of sections 7, 8(1)(ca) of the Sales Tax Act, 1990, read with Rule 12(5), Chapter-I, of Sales Tax Rules, 2006. The adjudicating authority ordered that appellant should deposit inadmissible tax amounting to Rs. 820,193 under sections 11(2) and 36 (1) of the Sales Tax Act, 1990 along with default surcharge under section 34 of the Sales Tax Act, 1990. Moreover, penalty equal to 5% of the principle amount was also imposed under A section 33(5) of the Sales Tax Act, 1990. The CIR (Appeals-Ill) rejected the appellant's plea on grounds of black listing laws and lack of documentary evidence.
2. III. The appellant dissatisfied with this treatment filed appeal before us on the, following grounds:--
(1) That the impugned Order Nos. 102 and 103 of 2011 dated 10-10-2011 passed by the Learned Commissioner Inland Revenue, (Appeals-III), Islamabad is bad in law and against the facts of the case.
(2) That the appellant is registered as a wholesaler with the sales tax department and meet their liabilities regularly since 1998.
(3) That both the authorities were not justifying in disallowing the input tax amounting to Rs.820,193 for the tax periods March, 2009 to August, 2009 and February 2010 on the grounds that the same has been purchased from Messrs Iqbal Enterprises and US Impex, which are black listed/suspended/blocked registered persons.
(4) That the learned Deputy Commissioner Inland Revenue, Regional Tax Office, Rawalpindi was also not justified without conducting any inquiry about the black listed/suspended/blocked registered persons rejects the input tax adjustment.
(5) That both the authorities failed to recognize this fact that at the time of claiming input tax from units in question (i.e Messrs Iqbal Enterprises and US Impex) were functional/active. However subsequent suspension/blocking of the same can not be in any way effect the statutory right of the appellant to claim valid lawful admissible input tax in accordance with section 7 of the Sales Tax Act, 1990. As such disallowance of the same is unlawful.
(6) That supplier in question are active during the relevant tax periods under consideration and has discharged their liabilities. Copies of their sales tax returns (Annexure-C) are attached.
(7) That the proper record of Messrs Iqbal Enterprises and US Impex has already been provided which were not entertained/considered by learned DCIR (A-III). Hence, taxpayer has rightly claimed input tax adjustment from his suppliers amounting to Rs.820,193
(8) That imposition of default surcharge under section 34 and penalty 5% of principal amount under section 34 of Sales Tax Act, 1990 is unlawful.
(9) That the appellant begs to alter or more at the time of hearing.
3. It is prayed that the impugned Order Nos. 102 and 103/2011 dated 10-10-2011 may please be annulled, modified or any other relief deemed proper be granted.
(IV) The appeal was fixed for hearing on 4-1-2012 and after hearing the counsels of both the parties, the judgment, appears below; JUDGMENT (V) The central moot point and the bone of contention between appellant and the Inland Revenue department is that on account of black listing of suppliers Messrs US Impex and Messrs Iqbal Enterprises, their sales to the appellant, were held as suspect and dubious and input tax amounting to Rs.820193 in respect of both the suppliers was held inadmissible in the hand of the appellant thus raising sales tax demand amounting to Rs.820193 in the appellant's case vide impugned Order-in-Original No. 42 of 2011 dated 25-1-2011.
(VI) The CIR(A) vide his Order Nos. 103 and 102/2011 dated 10-10-2011 upheld the action of the adjudicating authority.
(VII) We have perused the record and evaluated the issues involved. Mere black listing or blocking of person cannot be allowed to impinge on previous transactions prior to black listing, if the same are found to be correct and verified. In the present appeal, reference is being made to transactions made in the months of March, 2009, April 2009, May 2009, June 2009, July 2009, August 2009 and February 2010. Whereas, black listing in respect of Messrs Iqbal, Enterprises, took place on August 11, 2010 and in February 2010 in respect of Messrs US Impex. The appellant has stated that the impugned transactions referred to above were clean and transparent and that record of sales tax return of both the sellers and the appellant reflecting relevant transactions were produced before the CIR(A). Now, coming to the Sales Tax Order-in-Original referred to, above it can be clearly seen that the assessm ent was made ex parte, as the appellant did not attend the proceedings, due to alleged non service of notices. The raising of the impugned demands under such circumstances of non hearing, and when the issues are of such mysterious nature i.e. Casting doubt and suspicions over transactions, issues of black listing and blocking, cannot be decided in isolation, it has to be established on the basis of evidence, audit of record and books of accounts that the invoices were fake concluding in declaring input tax as inadmissible.
4. VIII. Both the authorities below have exhibited narrow reading and application of law. In order to let due process of law unfold, it is necessary that before raising any demand interface with affected party has to be conducted, also in this case outreach to supplier's record has to be made so as to prove and establish the fact of fraud. This view is strengthened by the following case laws; 2010 PTD (Trib.) 1631 S.T.A., No. 1334-LB of 2009 dated 25-2-2010.
5. 2011 PTD (Trib.) 162 STA No. 555-LB of 2009 dated 20-7-2010.
6. XI. In view of the above scenario, we deem it appropriate to set aside the orders of the authorities below and remand the case back to the Inland Revenue department for re-adjudication on the lines indicated above ensuring attendance of the appellant and inquiry of the suppliers and after invoking necessary provisions of the law.
7. Appeal is decided accordingly. .