ORDER: MR. JAWAID MASOOD TAHIR BHATTI, JUDICIAL MEMBER.--(1) Titled appeal is directed by the registered person against Order-in-Appeal No. 1107 of 2009 dated 30-10-2009, passed by the learned Collector of Customs, Sales Tax and Federal Excise (Appeals), Faisalabad whereunder the registered person's appeal filed against Order-in-Original No. 38 of 2008 dated 5-1-2008 of the Assistant Collector (PRA) Sales Tax, Faisalabad was dismissed.
2. Relevant facts for disposal of the instant case are that the registered person is a private limited company and during post audit of its refund files for the period from May, 2004 to November, 2004, it was observed that the appellant has illegally received refund of input tax against invoices of the suppliers units who have been declared black-listed under section 21 of the Act read with Rule 12(5) of the Sales Tax Rules, 2006 notified vide S.R.O. 555(I)/2006 dated 5-6-2006. Accordingly, based upon the reported facts of the case, a show-cause notice was issued for recovery of refund already sanctioned to appellant amounting to Rs. 276,339 under section 36 of the Sales Tax Act, 1990 alongwith consequential liabilities of default^ surcharge and penalty under sections 34 and 33 ibid. Brief resume of black-listed suppliers in conjunction with other details is tabulated below:- Sr.
No.Seller Name Tax involvedTax periodDate of black-listing
1. Messrs Zeeshan W eaving. 136,589 11-2004 7-2005
2. . Messrs Madood Textile, 19,041 06-2004 4-8-2005
3. Messrs Bilal Traders. 37,500 05-2004 27-10-2005
4. . Messrs Fraz Traders. 45,305 06-2004 31-12-2005
5. Messrs Madni Traders. 37,904 05-2004 2-2-2006 3.The learned Assistant Collector (PRA) concluded the adjudication proceedings ex parte by upholding the charges contained in the show-cause notice which was challenged by the appellant at the first appellate stage before the Collector (Appeals) who also rejected the appeal without discussing legal aspect of the controversies. Being dissatisfied and aggrieved by the proceedings as mentioned supra, the appellant has now come in appeal before this Tribunal.
4.A number of grounds were taken at the time of filing of appeal and the same were duly contested by the authorized representative of the appellant/registered person at the time of hearing before us.
5.Learned AR vehemently contended that if a unit was blacklisted due to any circumstances, the said status should be treated from the date of its black-listing and not from the date of its registration. He further asserted that appellant's purchases related to the months May, 2004 to November, 2004 whereas the alleged suppliers were black-listed during 2005-2006. It was, therefore, agitated that black-listing orders of the learned Collector Sales Tax and Federal Excise could be made applicable retrospectively. The learned AR while continuing his arguments, vociferously stated that the refund payment order was a legal and proper decision. If however, the department had found any illegality in that order then it should have been reviewed under section 45 A of the Act either by the Federal Board of Revenue or by the Collector of Sales Tax instead of starting new litigation by issuing the impugned show cause notice. The learned counsel argued that neither any charge of tax fraud had been levelled nor any violation of section 2(37) of the Act had been cited in the impugned show-cause notice without which imposition of default surcharge and penalty is illegal and unlawful. To strengthen his contentions, the learned AR relied upon the reported judgments of superior Courts cited as PLD 2001 SC 340, 2005 SCMR 492, [2010 PTD (Trib.)
1675], [2010 PTD (Tribe.)1631], [S.T.A. No. 560/LB/2009 dated 22-12-2010], [2002 PTD (Trib.) 889] and [S.T.A. No. 1104/LB of 2002 dated 14-7-2007].
6. In rebuttal, learned DR while speaking in support of the stance of sales tax department argued that audit of sales tax record of a registered person is always conducted for his past business activities and the respondent/department had declared it as blacklisted unit. He further urged that black-listing of any registered person in its spirit covers the activities of his past having a retrospective effect and it would be in no way for his prospective business activities but the learned DR failed to cite any case-law against the legal objections raised by the appellant. However, in support of his contentions, learned DR referred to the provisions of Rule 12(5) of the Sales Tax Rules, 2006.
7.We have heard the learned representatives of 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. Due consideration has been given to the contentions raised in the memo, of appeal as well as the points additionally agitated at the time of hearing.
8.Before dilating upon the controversies between the parties, it is important to examine the provisions of law. The provisions of Sub-Rule (5) of Rule 12 are reproduced hereunder:- "Rule 12(5) of the Sales Tax Rules, 2006.- During the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person is blacklisted, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting, shall be rejected through a self-speaking appealable order and after affording an opportunity of being heard to such person."
9.Sub-Rule (5) of Rule l2 clearly emphasizes that refund claimed by a registered person shall not be entertained if invoices are issued by his supplier unit during suspension of registration or after black-listing. There is no provision for effecting recovery from the person, who has received refund against invoices of a registered supplier black-listed at a later stage. In other words, Rule-12(5) does not contain any procedure for recovery of already refunded amount, but it provides a legal safeguard against any amount of refund being claimed from such black-listed concerns. The past liabilities on this account should have been assailed by invoking provisions of section 45A of the Act instead. At this juncture, we have no ambiguity in our mind to hold that in case of the already refunded amount, provisions of Rule 12(5) are least sufficient to effect its recovery against black- listing of his suppliers units at subsequent stage and this act of recovery of already refunded amount does not find any support from Rule 12(5) of the Sales Tax Rules, 2006 as this Rule only comes into play where refund is being processed but not sanctioned. However, where refund has been sanctioned/received, it is not applicable. As far as question of retrospective application of an executive order of black-listing is concerned, we have observed that the purchases made by the appellant pertain to the periods from May, 2004 to November, 2004 when the alleged suppliers were not black-listed but were actually having operative status. Their subsequent inclusion in the years 2005 and 2006 in the list of black-listed units cannot be implemented retrospectively. Rule 12(5), clearly stipulates that claim of refund shall not be entertained if invoices are issued during suspension of registration and claim shall be rejected if supplier unit is black-listed subsequently.
We are firmly of the view that the word "prior" used in the said rule does n6t cover the period beyond the suspension of registration but it includes the period after suspension of its registration and its ultimate black-listing thereafter. This rule would be applicable when a registered person purchases goods from another person during the period when his registration was suspended or after its black-listing, but would not be applicable, before the period of suspension of registration or black-listing. The golden rule of interpretation of statutes that the statutes should be given their ordinary meaning should be strictly applied to the fiscal statute, if there is any ambiguity in interpreting any fiscal statute or application thereof, this ambiguity should always be resolved in favour of assessee. The taxing statute must be interpreted in the light of what is clearly expressed.
The learned AR cited the judgment of Honourable Supreme Court of Pakistan in case of Messrs Anoud Power Generation Ltd. v. Federation of Pakistan and others reported as PLD 2001 SC 340 wherein their lordships Vol. XXXI, P.T.C.L., 2013 (Case Laws) have laid down as under:- "At this juncture, another important aspect of the retrospectivity of a notification may also be noted that if the notification has been used for the benefit of the subject then it can be made operative retrospectively but if its operation is to the disadvantage of a party who is the subject of the notification then it would operate prospectively. This point has been elaborately discussed by this Court in the judgment pronounced in the case of Messrs Army Welfare Sugar Mills Limited and others (1992 SCMR 1652) = (PTCL 1993 CL 188). "
10.The same view was also expressed by the Honourable Supreme Court of Pakistan in case of Government of Pakistan v. Messrs Village Development Organization reported at (2005 SCMR 492) wherein it was held that:- "It is wall settled principle of law that the executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely effect or invade upon vested right cannot be applied with retrospective effect."
11.The learned AR also referred to the cases of this Tribunal as well as cases of Customs, Excise and Sales Tax Appellate Tribunal, Lahore Bench reported at [2010 PTD (Trib.) 1675], [2010 PTD (Trib.) 1631] and [S.T.A. No. 560/LB/2009 dated 22-12-2010] wherein similar findings was recorded and demand of sales tax was vacated while relying upon the judgments of Honourable Supreme Court cited supra.
12.The second legal objection is with regard to review/re- opening of cases by the Federal Board of Revenue or the Collector of Sales Tax under section 45A of the Sales Tax Act, 1990. In order to appreciate proposition raised by the appellant, it would be appropriate to reproduce relevant provisions of section 45A of the Act which reads as under:- "45A. Power of the Board and Collector to call for records.-
(1) The Board may, of its on. Motion, call for and examine the record of any departmental proceedings under this Act or the rules made thereunder for the purpose of satisfying itself as to the legality or propriety of any decision or order passed therein by an Officer of Sales Tax, it may pass such order as it may think fit:
(4) The Collector may, suo motu, call for and examine the record of any proceeding under this Act or the rules made thereunder for the purpose of satisfying himself as to the legality or propriety of any decision or order passed by an officer of Sales Tax subordinate to him, and pass such order as he may deem fit" (Underline for emphasis)
13. Perusal of above mentioned provisions of section 45A of the Act, indicates that any proceedings under the Act are subject to review by the Federal Board of Revenue or by the respective Collector and that to for satisfaction in respect of legality or ^ propriety of any decision or order passed by an Officer of Sales Tax subordinate to them. There is no other provision in the Act authorizing a sales tax functionary to review or reopen past and closed transactions. The act of sanction or rejection of a refund claim falls within the preview of the word "proceedings".
In I general parlance, all happenings and events before a Tribunal or an authority on whose jurisdiction is conferred by law to dispose of contentious matter are covered by the term "proceedings".
14.We also find ourselves in agreement with the assertions made by the learned AR that the refund payment order is a proper legal order/decision of an officer of sales tax issued under section 10 of the Act and in case, any impropriety and illegality is observed in any order/decision, it should have been checked by the Federal Board of Revenue or by the Collector himself by exercising their revisional jurisdiction under section 45A of the Act. The provisions of section 45A do not empower any other authority subordinate to Federal Board of Revenue or to the Collector of Sales Tax to reopen and review an order passed lawfully. Therefore, we hold that the issuance of show cause notice under section 36 of the Act by reopening a past and closed transaction by the Assistant Collector (PRA) having no revisional jurisdiction in this case is an act of assumption of wrong jurisdiction and as such, the order passed by him is without jurisdiction. It is well-settled principle of law that where a basic notice issued for assumption of jurisdiction is defective, the subsequent action/orders based upon the said notice are also patently void ab initio and without jurisdiction.
Reliance is placed on the judgment of Division Bench of Honorable Appellate Tribunal, Karachi Bench in Sales Tax Appeal No. K-2352 of 1999 reported as [2002 PTD (Trib.) 889] wherein it was observed as follows:- "As per the said provisions of the section, any proceedings under the Sales Tax Act, 1990 is Subject to review either by the Central Board of Revenue or by the respective Collector, and that to for satisfying in respect of legality or propriety of any decision or order passed by a subordinate sales tax officer. There is no other provision in the Act authorizing a sales tax functionary to review or reopen a past or closed transaction. Hence, the outcome of audit observations, whereby an auditor of sales tax department has observed that there existed a procedural impropriety in sanctioned refunds, is an action within the purview of section 45A of the Sales Tax Act, 1990. The act of sanctioning or rejection of a refund claim falls within the purview of the word "proceedings". As all the happenings or events before a Tribunal or any other authority on which jurisdiction is conferred by law to dispose of contentious matters are understood by the term proceeding. Therefore, the proper way to dispose of the audit objection was to place it before the Collector for initiation of proceedings as envisaged therein. It is now well-settled principle of law that where a statute prescribes a particular mode or mechanism to do an act, the same is to be done in the same issuance of show-cause notice by an incompetent authority would by an act lacking jurisdiction to do so. In the case of Chittaranjan Cotton Mills Ltd. v. Staff Union reported as [PLD 1971 SC 197], their lordships of the Supreme Court had observed:- Where the Court is not properly constituted at all the proceeding must be held to be coram-non- judice and, therefore, non-existent in the eye of law. There can also be no doubt that in such circumstances it could never be to late to admit and give effect to the plea that the order was a nullity, as was observed by the Privy Council in the case of Chief Kwame Asante, Tredahone v. Chief Kwame Tawia. " In Raunaq Ali's case (PLD 1973 SC 236), their lordships of the Supreme Court did observe in the following terms:-- "It is now well-established that where an inferior Tribunal or Court has acted wholly without jurisdiction or taken any, action 'beyond the sphere allotted to the Tribunal by law and, therefore, outside the area within which the law recognizes a privilege to err', then such action amounts to a 'usurpation of power unwarranted by law' and such an act is a nullity; that is to say, 'the result of a purported exercise of authority which has no legal effect whatsoever'. In such a case, it is well- established that a superior Court is not bound, to give effect to it, particularly where the appeal is to the latter's discretionary jurisdiction. The Courts would refuse to perpetuate, in such circumstance, something which would be patently unjust or unlawful." "In the light of what has been discussed in the preceding para., is evident that action of issuance of show-cause notice by the Additional Collector in this case was an act of assumption of wrong jurisdiction and as such the order passed by him was without jurisdiction." The learned departmental representative in support of his contentions referred to section 8A of the Sales Tax Act, 1990. After examination of provisions of section 8A, we find that this section does not support the contention of the learned DR because this section deals with joint and several liabilities of the registered person, in supply chain where tax is unpaid but in the instant case, there is no issue of non-payment of tax against these suppliers. In our opinion, this section is of no help to the department. Another section to which our attention was invited is section 8 of the Act which refers to fake invoices. The description of the invoice is contained in section 23 of the Act but apparently the department has not made out a case that refund was issued on account of fake invoices nor charge of fake invoices was framed against the appellant. Therefore, contentions of the learned DR are rejected having no merit.
15.The last point of determination before us is as to whether default surcharge and penalty is payable by the appellant or not? On perusal of the Show-cause notice, we have found that the provisions of section 2(37) of the Sales Tax Act, 1990 defining "tax fraud" have not been invoked and the contents of the impugned show-cause notice do not indicate that it is a case of tax fraud or any attempt was made to receive any fraudulent refund. The issue at hand has also been settled by a Division Bench of Appellate Tribunal, Lahore in case of "Messrs Fauji Sugar Mills v. Assistant Collector Sales Tax, Lahore" in S.T.A No.11l04/LB of 2002 dated 14-7-2007 to the effect that; "no such action is warranted in the cases wherein the provisions of section 2(37) have not been invoked and no charge of tax fraud or intention for receiving fraudulent refund is contained in the show-cause notice". This being the position, imposition of default surcharge and penalty is held to be illegal and unwarranted.
16.In view of the above discussions and in the light of ratio decidendi in the cases quoted supra, we are of the considered view that the action of the sales tax department to recover the amount of tax refunded to appellant due to subsequent black-listing of any of L their suppliers do not find any support from any legal, provision of the Sales Tax Act, 1990 and the rules made thereunder. The impugned show cause notice and consequent orders passed thereon are thus declared to be illegal, ab initio void, without jurisdiction and are accordingly, set aside. Be that as it may, demand raised by the sales tax department against the appellant is hereby vacated. As a result, appeal filed by the registered person is accepted.